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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11113
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RIVERWOOD HOLDING, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 58-2205241
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1105 NORTH MARKET STREET
SUITE 1300
WILMINGTON, DELAWARE 19899
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
c/o Riverwood International Corporation (770) 644-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]
As of March 7, 2000 there were 7,062,380 shares and 500,000 shares of the
registrant's Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), and Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock," and together with the Class A Common Stock, "Holding Common
Stock"), respectively, outstanding.
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TABLE OF CONTENTS TO FORM 10-K
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PART I........................................................................... 1
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 8
ITEM 3. LEGAL PROCEEDINGS........................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
PART II.......................................................................... 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 9
STOCKHOLDER MATTERS.........................................
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA........................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 11
AND RESULTS OF OPERATIONS...................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 29
ITEM 8. FINANCIAL STATEMENTS........................................ 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 83
AND FINANCIAL DISCLOSURE....................................
PART III......................................................................... 83
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 83
ITEM 11. EXECUTIVE COMPENSATION...................................... 87
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 91
MANAGEMENT..................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 93
PART IV.......................................................................... 94
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 94
8-K.........................................................
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As used in this Form 10-K, unless the context otherwise requires: "RIC"
refers to the corporation formerly named Riverwood International Corporation;
the "Predecessor" or the "Predecessor Company" refers to RIC and its
subsidiaries in respect of periods prior to the Merger (as defined herein); the
"Company" refers to the registrant, Riverwood Holding, Inc., a Delaware
corporation ("Holding") and its subsidiaries; "RIC Holding" refers to RIC
Holding, Inc., a Delaware corporation, successor by merger to RIC and a
wholly-owned subsidiary of Holding; and "Riverwood" refers to Riverwood
International Corporation, a Delaware corporation formerly named Riverwood
International USA, Inc. and a wholly-owned subsidiary of RIC Holding.
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Company is a leading provider of paperboard and paperboard packaging
solutions, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola bottling companies, PepsiCo,
Inc., Sara Lee Corporation and Mattel, Inc. The Company is one of only two major
manufacturers of coated unbleached kraft paperboard ("CUK Board"). CUK Board,
which serves as the principal raw material for the Company's packaging products,
is a specialized high-quality grade of paperboard with superior strength
characteristics and printability for high-resolution graphics that make it
particularly well suited for a variety of packaging applications. The Company's
Coated Board business segment accounted for approximately 91% of the Company's
net sales for the year ended December 31, 1999. The Company also manufactures
and sells linerboard, corrugating medium and kraft paper (collectively,
"containerboard") through its Containerboard business segment.
Holding, its wholly-owned subsidiary RIC Holding and the corporation
formerly named CDRO Acquisition Corporation ("Acquisition Corp.") were organized
to acquire RIC. Holding, RIC Holding and Acquisition Corp. were incorporated in
1995 under the laws of the State of Delaware. On March 27, 1996, Holding,
through its wholly-owned subsidiaries, acquired all of the outstanding shares of
common stock of RIC. On such date, Acquisition Corp. was merged (the "Merger")
into RIC. RIC, as the surviving corporation in the Merger, became a wholly-owned
subsidiary of RIC Holding. On March 28, 1996, RIC transferred substantially all
of its properties and assets to Riverwood, other than the capital stock of
Riverwood, and RIC was merged (the "Subsequent Merger") into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation."
COATED BOARD
Overview
The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and folding cartons ("folding cartonboard") for
confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand name Aqua-Kote(R) and folding
cartonboard under the brand names Pearl-Kote(R) and OmniKote(R). In 1999,
carrierboard accounted for approximately 65% of the Company's total CUK Board
shipments.
The Company utilizes approximately three-fourths of its carrierboard
production in its integrated beverage business and sells the remainder in the
open market to independent converters, including licensees of the Company's
proprietary carton designs, principally for use in the beverage packaging
market. In its integrated beverage business, the Company provides integrated
beverage packaging solutions that generally include each of the following
elements: (i) the production of carrierboard, (ii) the printing and cutting, or
conversion, of carrierboard into beverage cartons for use on packaging machines
and (iii) the sale to customers of converted beverage cartons for use on
proprietary packaging machines designed, manufactured and installed by the
Company. As part of the Company's integrated beverage business, particularly in
its international operations, the Company's carrierboard may be sold to and
converted by licensees of the Company's beverage carton designs who, in turn,
sell converted beverage cartons to end-users for use on the Company's
proprietary packaging machines. The Company's integrated beverage business also
includes sales of Company produced and converted carrierboard to customers for
use on third party packaging machines.
The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of
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CUK Board. The Company's ability to produce either carrierboard or folding
cartonboard on its CUK Board paper machines enables the Company to respond to
changes in supply and demand in these businesses.
Additionally, at its paper mill in Norrkoping, Sweden (the "Swedish Mill"),
the Company manufactures white lined chip board ("WLC"), a coated 100% recycled
paperboard grade used principally in European folding carton applications.
CUK Board Production
The Company produces CUK Board at its West Monroe, Louisiana paper mill
(the "West Monroe Mill") and its Macon, Georgia paper mill (the "Macon Mill").
These mills have a current total combined annual production capacity of over one
million tons of CUK Board. In June 1997, the Company completed the conversion of
the second Macon Mill linerboard machine to CUK Board production at a cost of
approximately $85 million, and commenced CUK Board production on the machine. As
a result of the Company achieving its goal of reaching full capacity by the end
of 1999, the second Macon Mill paperboard machine can now produce a full range
of calipers of CUK Board of approximately 270,000 tons per year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Business Trends and Initiatives."
The Company's CUK Board total production at its West Monroe Mill was
approximately 638,000 tons during the year ended December 31, 1999. CUK Board
total production at its Macon Mill was approximately 404,000 tons of CUK Board
during the year ended December 31, 1999.
CUK Board is manufactured from pine and hardwood fibers and, in some cases,
recycled fibers, such as old corrugated containers ("OCC") and clippings from
the Company's converting operations. Virgin fiber is obtained in the form of
wood chips or pulp wood acquired through open market purchases. These chips are
chemically treated to form softwood and hardwood pulp, which are then blended
(together, in some cases, with recycled fibers). In the case of carrierboard, a
chemical is added to increase moisture resistance. The pulp is then processed
through the mill's paper machines, which consist of a paper-forming section, a
press section (where water is removed by pressing the wet paperboard between
rolls), a drying section and the coating section. Coating on CUK Board,
principally a mixture of pigments, binding agents and water, provides a white,
smooth finish, and is applied in multiple steps to achieve desired levels of
brightness, smoothness and shade. After the CUK Board is coated, it is wound
into rolls, which are then shipped to the Company's converting plants or to
outside converters.
Converting Operations
The Company converts CUK Board as well as other grades of paperboard into
cartons at ten carton converting plants at nine sites that it operates in the
United States, the United Kingdom, Spain and France, as well as through
converting plants associated with its joint ventures in Brazil, Japan and
Denmark and licensees in other markets outside the United States. The converting
plants print, cut and glue paperboard on multi-color printing presses, cutting
lines and gluing lines into cartons designed to meet customer specifications.
The Company's U.S. converting plants are dedicated to converting
carrierboard produced by the Company into beverage cartons. The Company
continues to invest in its domestic converting plants in order to improve their
process capabilities. The Company's international converting plants convert
carrierboard and folding cartonboard produced by the Company, as well as
paperboard supplied by outside producers, into cartons.
On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of Riverwood's folding carton business in
Australia. Proceeds from the sale totaling $46.7 million were received on March
30, 1998. Under the terms of the agreement for such sale, the Company sold to
Carter Holt substantially all of Riverwood's Australian folding carton assets,
and Carter Holt assumed certain specified liabilities. The Company retained
substantially all of its beverage multiple packaging business in Australia.
Under the agreement, Carter Holt agreed to purchase from the Company a portion
of its coated board requirements in Australia and to supply beverage cartons to
meet the Company's needs for its Australian beverage business.
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Proprietary Packaging Machinery and Carton Designs
The Company employs a "pull through" marketing strategy in its integrated
beverage business, the key elements of which are (i) the design and manufacture
of proprietary packaging machines, (ii) the installation of the machines at
beverage customer locations under multi-year machinery use arrangements and
(iii) the development of proprietary beverage cartons with high-resolution
graphics for use on those machines. The Company leases substantially all of its
packaging machines to customers, typically under machinery use agreements with
original terms of three to six years. New packaging machinery placements during
1999 increased approximately 15% compared to 1998. The Company has been and will
continue to be more selective in future packaging machinery placements to ensure
appropriate returns. The Company recently completed the successful installation
of three new Marksman 1600 high speed packaging machines in Japan.
The Company's packaging machines are designed to package Polyethylene
Terephthalate ("PET") bottles and glass bottles, cans and other primary
containers, using beverage cartons designed by the Company, made from the
Company's CUK Board and converted into beverage cartons by the Company, its
joint venture partners or its licensees. In order to meet customer requirements,
the Company has developed an extensive portfolio of packaging machines
consisting of several principal machinery lines. The Company's machines package
cans and PET or glass bottles in a number of formats including baskets, clips,
trays, wraps and fully enclosed cartons. These machines have packaging ranges
from 2 to 36 cans per package and have the ability to package cans at speeds of
up to 3,000 cans per minute. The Company also manufactures ancillary equipment,
such as machines for taping cartons and placing coupons in cartons.
The Company designs cartons and designs, tests and manufactures prototype
packaging machinery at its Product Development Center (the "PDC") in Marietta,
Georgia, which was established in 1992. At the PDC, the Company integrates
carton and packaging machinery designs to create packaging solutions to meet
customer needs. The Company manufactures and also designs packaging machinery at
its principal U.S. manufacturing facility in Crosby, Minnesota and at a facility
near Barcelona, Spain. By manufacturing packaging machinery in one U.S. and one
European location, the Company expects to improve customer service, simplify its
work processes and reduce costs.
Marketing and Distribution
The Company markets its CUK Board and CUK Board-based products principally
to multinational brewers, soft drink bottlers, food companies and other consumer
products companies that use printed packaging for retail display, multiple
packaging and shipment of their products. The Company also sells CUK Board in
the open market to carrierboard and cartonboard converters. The Company markets
CUK Board under the names Aqua-Kote(R), Pearl-Kote(R) and OmniKote(R).
Carrierboard. In its carrierboard operations, the Company's major
customers for beverage cartons include Anheuser-Busch Companies, Inc., Miller
Brewing Company, numerous Coca-Cola bottling companies and PepsiCo, Inc. The
Company also sells carrierboard in the open market to independent converters,
including licensees of the Company's proprietary carton designs, for the
manufacture of beverage cartons. During 1999, net sales to Anheuser-Busch
Companies, Inc. represented approximately 11% of the Company's total net sales.
Folding Cartonboard. In its folding cartonboard operations, the Company
sells substantially all of its folding cartonboard to numerous independent
converters that convert the folding cartonboard into cartons for consumer
products. In many cases, the Company has a relationship with multinational
end-user consumer products companies, such as Sara Lee Corporation and Mattel,
Inc., but sells its folding cartonboard to an independent converter that
manufactures folding cartons and, in turn, sells these cartons to the end-user.
The Company has established account relationships with a number of major
independent converters. These relationships involve multi-year commitments by
the Company to supply a significant portion of these customers' requirements for
CUK Board. If the customer decides to purchase CUK Board, it has agreed to
purchase a significant portion of its CUK Board requirements from the Company.
The terms of these arrangements include certain limitations on the Company's
ability to raise the selling prices of its folding cartonboard.
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Distribution and Sales. Distribution of carrierboard and folding
cartonboard is primarily accomplished through direct sales offices in the United
States, Australia, Brazil, Cyprus, Hong Kong, Italy, Japan, Mexico, Singapore,
Sweden and the United Kingdom.
Joint Ventures. The Company is a party to joint ventures with Rengo
Company Limited and Danapak Holding A/S to market machinery-based packaging
systems in Japan and Scandinavia, respectively. The joint ventures cover CUK
Board supply, use of proprietary carton designs and marketing and distribution
of packaging systems. In addition, a Brazilian joint venture produces and
markets cartons for machinery-based multiple packaging customers in Argentina,
Brazil, Paraguay and Uruguay, with carrierboard and packaging machines supplied
by the Company.
Raw Materials
Pine pulpwood, hardwood and recycled fibers are the principal raw materials
used in the manufacture of the Company's CUK Board products. With the October
1996 sale of the Company's timberlands in Louisiana and Arkansas, the Company
now relies on private landowners and the open market for its fiber requirements.
Under the terms of the sale of those timberlands, the Company and the buyer,
Plum Creek Timber Company, L.P., entered into a 20-year supply agreement, with a
10-year renewal option, for the purchase by the Company, at market-based prices,
of a majority of the West Monroe Mill's requirements for pine pulpwood and
residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company purchases the remainder of the
wood fiber used in CUK Board production at the West Monroe Mill from other
private landowners in this region. The Company believes that adequate supplies
of open market timber currently are available to meet its fiber needs at the
West Monroe Mill.
The Macon Mill purchases most of its fiber requirements on the open market,
and is a significant consumer of recycled fiber, primarily in the form of
clippings from the Company's domestic converting plants as well as OCC and other
recycled fibers. The Company has not experienced any significant difficulties
obtaining sufficient OCC or other recycled fibers for its Macon Mill operations,
which it purchases in part from brokers located in the eastern United States.
OCC pricing, however, tends to be very volatile since it is based largely on the
demand for this fiber from recycled paper and containerboard mills. The Macon
Mill purchases substantially all of its virgin pine and hardwood requirements
from private landowners in central and southern Georgia. Because of the adequate
supply and large concentration of private landowners in this area, the Company
believes that adequate supplies of pine and hardwood timber currently are
available to meet its fiber needs at the Macon Mill.
The Company purchases a variety of other raw materials for the manufacture
of its paperboard, primarily process chemicals and coating chemicals such as
kaolin and titanium dioxide. All such raw materials are readily available, and
the Company is not dependent upon any one source of such raw materials.
White Lined Chip Production
The Company produces WLC at its Swedish Mill, which shipped approximately
141,000 tons of such board during 1999. WLC is used for a variety of folding
carton applications principally throughout Europe.
Competition
There are only two major producers of CUK Board, the Company and Mead
Corporation ("Mead"). The Company faces significant competition in its CUK Board
business segment from Mead. Like the Company, Mead produces and converts CUK
Board, designs and places packaging machinery with customers and sells CUK Board
in the open market. The Company also faces competition from other manufacturers
of packaging machinery.
In the beverage packaging industry, cartons made from CUK Board compete
with plastics and corrugated packaging for packaging glass or plastic bottles,
cans and other primary containers. Although plastics and corrugated packaging
generally provide lower cost and/or moderately faster packaging solutions, the
Company
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believes that cartons made from CUK Board offer advantages over these materials,
in areas such as distribution, high quality graphics, carton designs,
environmental friendliness and design flexibility.
In the folding cartonboard markets, the Company's CUK Board competes
principally with Mead's CUK Board, recycled clay-coated news ("CCN") and solid
bleached sulphate board ("SBS") and, internationally, WLC and folding boxboard.
Folding cartonboard grades compete based on price, strength and printability.
CUK Board has generally been priced in a range that is higher than CCN and lower
than SBS. CUK Board has slightly better tear strength characteristics than SBS
and significantly better tear strength and cross-direction stiffness than CCN.
There are a large number of producers of paperboard for the folding cartonboard
markets, which are subject to significant competitive and other business
pressures.
CONTAINERBOARD
In the United States, the Company manufactures
containerboard -- linerboard, corrugating medium and kraft paper -- which is
sold in the open market. Corrugating medium is combined with linerboard to make
corrugated containers. Kraft paper is used primarily to make grocery bags and
sacks. The Company's principal paper machines have the capacity to produce both
linerboard and CUK Board. The Company has in the past used its CUK Board
machines to produce linerboard and expects to continue to produce and sell
linerboard to respond to changes in supply and demand in its businesses. The
Company also continues to operate paper machines dedicated to the production of
corrugating medium and kraft paper.
In 1999, the Company shipped approximately 59,000 tons of linerboard from
the Macon Mill and approximately 138,000 tons of corrugating medium, 37,000 tons
of kraft bag paper and 79,000 tons of linerboard from its West Monroe Mill. The
Company also shipped approximately 14,000 tons of various other paperboard
products, principally off-specification coated board.
The primary customers for the Company's U.S. containerboard production are
independent and integrated corrugated converters. The Company sells corrugating
medium and linerboard through direct sales offices in the United States. Outside
of the United States, linerboard is primarily distributed through independent
sales representatives.
The Company's Containerboard business segment operates within a highly
fragmented industry. Most products within this industry are viewed as
commodities; consequently, selling prices tend to be cyclical, being affected by
economic activity and industry capacity.
In addition to the Company's U.S. Containerboard operations, the Company
currently owns 50% of Igaras Papeis e Embalagens S.A. ("Igaras"), an integrated
containerboard producer located in Brazil. The Company and Companhia Suzano
Papel e Celulose, S.A. ("Suzano") each currently own 50% of the common stock of
Igaras. Igaras operates two mills and three corrugated box plants and owns or
leases approximately 176,000 acres of timberlands which are used exclusively for
wood chip and energy requirements of the paper mills. In 1996 Igaras completed
the construction of a multiple packaging plant in Brazil. At its mills, Igaras
operates three paper machines primarily for the production of linerboard, with a
fourth paper machine for production of corrugating medium. Igaras's total
containerboard shipment in 1999 was approximately 422,200 tons. Igaras sold
approximately 28% of its 1999 containerboard production in export markets.
Igaras also sells linerboard, corrugating medium and corrugated boxes through
direct sales offices in Brazil. Outside of Brazil, Igaras distributes linerboard
primarily through independent sales representatives. In January 1998, Igaras
acquired Ponte Nova Papeis e Embalagens Ltda. whose assets include two
corrugated containers plants and a recycling pulp and paper plant. See Note 12
to the Consolidated Financial Statements of Igaras. On January 14, 1999, the
Central Bank of Brazil changed the foreign exchange policy by eliminating the
exchange rate band, which had been used as a means to control the fluctuation of
the Brazilian currency ("Real") against the U.S. dollar. The exchange rate is
now determined by market forces. As a consequence of such change, the Real
suffered a significant devaluation related to the U.S. dollar during the
beginning of 1999.
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PATENTS, TRADEMARKS AND LICENSES
The Company has a large patent portfolio, presently owning, controlling or
holding rights to approximately 1,683 U.S. and foreign patents, with 1,748
patent applications currently pending. The Company's patents fall into two
principal categories: packaging machinery and structural carton designs.
The Company is a plaintiff in several actions against Mead claiming
infringement of Riverwood patents for its packaging machines, as to which Mead
has filed counterclaims asserting that the Riverwood patents are invalid. In the
furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Riverwood patent in issue was invalid, and ruled that Mead had been
unlawfully infringing Riverwood's patent. On February 16, 1999, Mead filed an
appeal from that decision. An oral argument with regard to this appeal was held
on February 9, 2000 before the Court of Appeals for the Federal Circuit. The
Company is awaiting a decision.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1999, the Company had approximately 4,000 employees
worldwide (excluding employees of joint ventures), approximately 3,000 of whom
were members of unions and covered by collective bargaining agreements.
There are four unions representing the Company's U.S. employees, one of
which, the Paper, Allied-Industrial, Chemical & Energy Workers International
Union -- AFL-CIO, CLC, is associated with the West Monroe Mill and converting
facility where it represents approximately 1,200 employees, and the Macon Mill
where it represents approximately 300 of the 400 union employees.
In the second quarter of 1998, the Company and the three unions at the
Macon Mill signed a new six-year collective bargaining agreement. The contract
runs through December 31, 2003. The new contract includes industry-average
economic increases over six years and retains language that allows the Company
to outsource work and sell mill assets. Also at the Macon Mill, the
International Association of Machinists and Aerospace Workers, and the
International Brotherhood of Electrical Workers represent certain maintenance
employees.
The current union contract covering the West Monroe Mill was negotiated and
ratified by the union in February 1997 and covers the six-year period from March
1, 1997 to February 28, 2003. The contract covering employees at the adjacent
converting plants was negotiated and ratified by the union in 1996 and covers
the four-year period from September 1, 1996 through August 31, 2000.
The Company's other U.S. converting plants, other than its converting
facility in Perry, Georgia, are represented by unions. The Clinton, Mississippi
converting plant contract was negotiated and ratified by the union in January
1997 and covers the six-year period from February 1, 1997 through January 31,
2003. The Cincinnati, Ohio converting plant completed a wage and benefit
reopener negotiations for its labor agreement which covers the six-year period
from February 1, 1995 through January 31, 2001. The Fort Atkinson, Wisconsin
converting plant four year labor agreement was negotiated in 1998 with the
Graphic Communication Workers and the International Association of Machinists
for the period of September 9, 1998 through September 9, 2002 and September 30,
1998 through September 30, 2002, respectively.
The Company's international employees are represented by unions in the
United Kingdom, Sweden, France and Spain. As part of an ongoing restructuring of
the Company's international folding carton converting operations, the Company is
reducing its European workforce by approximately 300 employees.
ENVIRONMENTAL MATTERS
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
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In late 1993, the U.S. Environmental Protection Agency proposed regulations
(generally referred to as the "cluster rules") that would mandate more stringent
controls on air and water discharges from United States pulp and paper mills.
The cluster rules were promulgated in April 1998, and the Company estimates that
the capital spending that may be required to comply with the cluster rules could
reach $55 million to be spent at its two U.S. paper mills over a seven-year
period beginning in 2000.
In late 1995, the Louisiana Department of Environmental Quality ("DEQ")
notified the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
currently owns. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company entered into an agreement
with DEQ to perform a soil and groundwater investigation at the site. The
Company completed this investigation work in 1999 and is in ongoing discussions
with the DEQ to develop an appropriate remediation plan and exit strategy. In
September 1996, the Company received a Special Demand Letter from DEQ to
remediate the site in Caddo Parish. The Company performed a waste inventory and
treatability study at the site and subsequently met with the DEQ in October
1999. Currently, the Company is in ongoing discussions with the DEQ to develop
an appropriate remediation plan and exit strategy.
The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
carried out under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current knowledge, to the
extent that additional costs may be incurred that exceed the accrued reserves,
such amounts are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.
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ITEM 2. PROPERTIES
HEADQUARTERS
Holding and RIC Holding are headquartered in Delaware. Riverwood is
headquartered and currently leases approximately 70,000 square feet of office
space in Atlanta, Georgia.
MANUFACTURING FACILITIES
A listing of the major plants and properties owned, or leased, and operated
by the Company is set forth below. The Company's buildings are adequate and
suitable for the business of the Company. The Company also leases certain
facilities, warehouses and office space throughout the United States and in
foreign countries.
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APPROX. NO. OF
SQ. FEET OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) FLOOR SPACE OR USE OF FACILITY
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<S> <C> <C>
PAPERBOARD MILLS:
West Monroe, LA............................ 1,535,000 CUK Board; linerboard; corrugating medium;
kraft paper
Macon, GA.................................. 756,000 CUK Board; linerboard
Norrkoping, Sweden......................... 417,000 White lined chip board
CONVERTING PLANTS:
West Monroe, LA (2 plants)................. 621,000 Beverage carriers
Cincinnati, OH............................. 241,800 Beverage carriers
Clinton, MS................................ 210,000 Beverage carriers
Perry, GA(2)............................... 130,000 Beverage carriers
Ft. Atkinson, WI........................... 120,000 Beverage carriers
Bristol, Avon, United Kingdom.............. 428,000 Beverage carriers; folding cartons
Igualada, Barcelona, Spain................. 131,000 Beverage carriers; folding cartons
Beauvois en Cambresis, France.............. 70,000 Folding cartons
Le Pont de Claix, France................... 120,000 Folding cartons
PACKAGING MACHINERY/OTHER:
Crosby, MN................................. 188,000 Packaging machinery engineering design and
manufacturing
Marietta, GA............................... 64,000 PDC -- Research and development; packaging
machinery engineering design and carton
engineering design
Igualada, Barcelona, Spain................. 12,000 Packaging machinery engineering design and
manufacturing
</TABLE>
- ---------------
(1) The Company leases the facilities in Marietta, Georgia; Clinton, Mississippi
(part only); Beauvois en Cambresis, France; and Le Pont De Claix, France.
All other facilities listed are owned by the Company.
(2) The facility located in Perry, Georgia is leased from the Middle Georgia
Regional Development Authority in consideration of the issuance of
industrial development bonds by such entity.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of lawsuits arising out of the ordinary
conduct of its business. While there can be no assurance as to their ultimate
outcome, the Company does not believe that these lawsuits will have a material
impact on the results of operations, cash flows or financial condition of the
Company.
The Company is a plaintiff in several actions against Mead claiming
infringement of Riverwood patents for its packaging machines, as to which Mead
has filed counterclaims asserting that the Riverwood patents are invalid. In the
furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Riverwood patent in issue was invalid, and ruled that Mead had been
unlawfully infringing Riverwood's patent. On February 16, 1999, Mead filed an
8
<PAGE> 12
appeal from that decision. An oral argument with regard to this appeal was held
on February 9, 2000 before the Court of Appeals for the Federal Circuit. The
Company is awaiting a decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, the following matters were submitted to
and approved by a vote of security holders:
Acceptance of resignation of Joseph E. Parzick as one of the EXOR Group
S.A. Nominated Directors, effective September 20, 1999.
Acceptance of nomination and election of Gianluigi Gabetti as one of the
EXOR Group S.A. Nominated Directors, replacing Joseph E. Parzick, effective
September 20, 1999.
Written Consent of the Controlling Stockholders of Holding to approve any
payment pursuant to the Supplemental Payment Agreement dated as of November 18,
1999 between Holding and Stephen M. Humphrey.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Class A Common Stock
or Class B Common Stock of Holding. The shares of Class A Common Stock and Class
B Common Stock were held of record by 50 stockholders and one stockholder,
respectively, at December 31, 1999. Holding did not pay any dividends on either
class of Common Stock during 1999, 1998, 1997 or 1996. The Company's debt
instruments restrict the ability of the Company to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources -- Covenant
Restrictions."
9
<PAGE> 13
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA
On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment (see Note (a) below) and certain Other Costs of the Predecessor, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since the financial statements report
results of operations and cash flows of these two separate entities.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------------------------------------- ---------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997 1996 1996 1995
- ------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS)
Net Sales.......................... $1,112,711 $1,135,569 $1,138,854 $ 852,112 $ 293,649 $1,342,304
Income from Operations(a).......... 120,463 27,678 6,912 1,419 15,650 133,137
(Loss) Income from Continuing
Operations....................... (54,671) (140,304) (146,957) (130,362) (2,050) 45,538
Income from Discontinued
Operations(a).................... -- -- -- 35,546 -- --
Net (Loss) Income(a)(b)(c)(d)...... (54,671) (140,304) (152,473) (105,136) (2,050) 45,538
FINANCIAL POSITION
(as of period end)
Total Assets....................... $2,363,142 $2,417,601 $2,606,185 $2,671,487 $2,206,206 $2,201,328
Long-Term Debt, less current
portion.......................... 1,730,898 1,680,415 1,712,944 1,567,259 1,063,798 1,053,794
Redeemable Common Stock............ 7,202 6,205 6,045 9,390 -- --
Shareholders' Equity............... 279,648 336,769 479,434 654,209 557,487 562,310
ADDITIONAL DATA
Additions to Property, Plant and
Equipment(e)..................... $ 66,018 $ 48,551 $ 142,314 $ 132,286 $ 44,074 $ 170,085
Research, Development and
Engineering Expense.............. 4,078 5,570 5,171 7,339 2,031 9,909
EBITDA(a)(f)....................... 273,475 203,458 165,927 148,560 56,133 263,707
</TABLE>
- ---------------
Notes:
(a) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations
for the nine months ended December 31, 1996. Discontinued operations of the
U.S. Timberlands/Wood Products business segment have not been reclassified
in the Predecessor's Statement of Operations.
(b) Net (Loss) for the year ended December 31, 1997 and the nine months ended
December 31, 1996, included an Extraordinary Loss on Early Extinguishment of
Debt of $2.5 million and $10.3 million, respectively, net of applicable tax
(see Note 21 in Notes to Consolidated Financial Statements).
(c) Net (Loss) for the year ended December 31, 1997, included a charge of $3.1
million, net of tax, for the cumulative effect of a change in accounting for
computer systems development project costs (see Note 22 in Notes to
Consolidated Financial Statements).
(d) Net (Loss) for the year ended December 31, 1998, included a charge of $25.6
million for the global restructuring program which is focused in the
Company's European operations (see Note 24 in Notes to Consolidated
Financial Statements).
(e) Includes amounts invested in packaging machinery and capitalized interest.
Additions in 1995 included $13.2 million related to the acquisition of
businesses.
10
<PAGE> 14
(f) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, and other non-cash charges
deducted in determining consolidated net income, extraordinary items and the
cumulative effect of accounting changes and earnings of, but including
dividends from, non-controlled affiliates. EBITDA excludes equity earnings
from non-controlled affiliates but includes dividends actually received from
non-controlled affiliates. The Company believes that EBITDA provides useful
information regarding the Company's debt service ability, but should not be
considered in isolation or as a substitute for the Condensed Consolidated
Statements of Operations or cash flow data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In connection with the Merger, the Company entered into a credit agreement
(as amended, the "Senior Secured Credit Agreement") that currently provides for
senior secured credit facilities (the "Senior Secured Credit Facilities")
consisting of $637 million in outstanding term loans under a term loan facility
(the "Term Loan Facility") and a $400 million revolving credit facility (the
"Revolving Facility"). In addition, Riverwood International Machinery, Inc.
("RIMI"), a wholly-owned subsidiary of Riverwood, entered into a credit
agreement (as amended, the "Machinery Credit Agreement", and together with the
Senior Secured Credit Agreement, the "Credit Agreements") providing for a $140
million secured revolving credit facility (the "Machinery Facility," and
together with the Senior Secured Credit Facilities, the "Facilities") for the
purpose of financing or refinancing packaging machinery. In connection with the
Merger, the Company also completed an offering of $250 million aggregate
principal amount of 10 1/4% Senior Notes due 2006 (the "1996 Senior Notes") and
$400 million aggregate principal amount of 10 7/8% Senior Subordinated Notes due
2008 (the "Senior Subordinated Notes" and together with the 1996 Senior Notes,
the "1996 Notes"). On July 28, 1997, the Company completed an offering of $250
million principal amount of 10 5/8% Senior Notes due 2007 (the "Initial Notes").
The net proceeds of this offering were applied to prepay certain revolving
credit borrowings under the Revolving Facility (without any commitment
reduction) and to refinance certain Tranche A term loans and other borrowings
under the Senior Secured Credit Agreement. A registration statement under the
Securities Act of 1933, as amended, registering senior notes of the Company
identical in all material respects to the Initial Notes (the "Exchange Notes")
offered in exchange for the Initial Notes became effective October 1, 1997. On
November 3, 1997, the Company completed its exchange offer of the Initial Notes
for the Exchange Notes. The Initial Notes and the Exchange Notes are referred to
herein as the 1997 Notes.
GENERAL
The Company reports its results in two business segments: Coated Board and
Containerboard. The Coated Board business segment includes (i) the production
and sale of coated unbleached kraft paperboard ("CUK Board") for packaging
cartons from the paper mills in Macon, Georgia (the "Macon Mill") and in West
Monroe, Louisiana (the "West Monroe Mill") and white lined chip board ("WLC") at
its paper mill in Norrkoping, Sweden (the "Swedish Mill"); (ii) converting
operations facilities in the United States, Australia (up to the date of sale)
and Europe; and (iii) the design, manufacture and installation of packaging
machinery related to the assembly of beverage cartons. The Containerboard
business segment includes the production and sale of linerboard, corrugating
medium and kraft paper from paperboard mills in the United States.
11
<PAGE> 15
The table below sets forth Net Sales, Income from Operations, and EBITDA.
EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the Merger)
before consolidated interest expense, consolidated income taxes, consolidated
depreciation and amortization, and other non-cash charges deducted in
determining consolidated net income, extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from,
non-controlled affiliates. EBITDA excludes equity earnings from non-controlled
affiliates but includes dividends actually received from non-controlled
affiliates. The Company believes that EBITDA provides useful information
regarding the Company's debt service ability, but should not be considered in
isolation or as a substitute for the Condensed Consolidated Statements of
Operations or cash flow data.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board............................................ $1,010,068 $1,055,270 $1,029,493
Containerboard.......................................... 102,643 80,299 109,361
---------- ---------- ----------
Net Sales................................................. $1,112,711 $1,135,569 $1,138,854
========== ========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board............................................ $ 142,541 $ 78,752 $ 64,819
Containerboard.......................................... (10,235) (23,682) (41,244)
Corporate and Eliminations.............................. (11,843) (27,392) (16,663)
---------- ---------- ----------
Income from Operations.................................... $ 120,463 $ 27,678 $ 6,912
========== ========== ==========
EBITDA (Segment Data):
Coated Board............................................ $ 269,509 $ 225,191 $ 187,589
Containerboard.......................................... 7,000 (8,965) (15,544)
Corporate and Eliminations.............................. (3,034) (12,768) (6,118)
---------- ---------- ----------
EBITDA.................................................... $ 273,475 $ 203,458 $ 165,927
========== ========== ==========
</TABLE>
BUSINESS TRENDS AND INITIATIVES
The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material costs, and are
affected by a number of significant business, economic and competitive factors.
Many of these factors are not within the Company's control. Historically, in the
Coated Board business segment, the Company has experienced stable pricing for
its integrated beverage carton products, and moderate cyclical pricing for its
folding cartonboard, which is principally sold in the open market. The Company's
folding cartonboard sales are affected by competition from competitors' CUK
Board and other substrates - solid bleached sulfate ("SBS"), recycled clay
coated news ("CCN") and, internationally, WLC -- as well as by general market
conditions.
In the Containerboard business segment, conditions in the cyclical
worldwide commodity paperboard markets have a substantial impact on the
Company's containerboard sales. The Company is continuing to benefit from its
multiple price increases for linerboard, corrugated medium, and kraft paper
announced during 1999, and trends are expected to continue to be positive as
several major producers announced additional price increases in the beginning of
the year 2000.
In June 1997, the Company completed the upgrade of the second Macon Mill
paperboard machine which allows it to produce CUK Board. During 1999, the
Company produced approximately 163,900 tons of CUK Board and approximately
58,900 tons of linerboard on the second Macon Mill paperboard machine. As a
result of the Company achieving its goal of reaching full capacity on that
machine by the end of 1999, that machine can now produce a full range of
calipers of CUK Board of approximately 270,000 tons per year. However, as a
result of the Company's decision to produce mainly lower caliper CUK Board on
that machine, that machine's yield is somewhat less due to the lighter weight of
such CUK Board.
12
<PAGE> 16
The Company is pursuing a number of long-term initiatives designed to
improve productivity and profitability while continuing to implement its Coated
Board business strategy. The Company has undertaken a profit center
reorganization of its operations, implemented a global restructuring program
(see below), implemented a number of cost saving measures and effected several
management changes. The Company also expects capital expenditures will range
from $65 to $75 million in 2000 as the Company invests to improve its process
capabilities, to comply with environmental cluster rules, and to invest in
packaging machinery. The Company continues to evaluate its current operations
and assets with a view to rationalizing its operations and improving
profitability, in particular with respect to its international converting assets
and strategy. As part of this effort, the Company initiated a $25.6 million
global restructuring program in the fourth quarter of 1998 aimed at achieving
annualized savings and cost avoidance of approximately $20 million when fully
implemented. The global restructuring program is focused in the Company's
European operations. Significant progress in completing the restructuring
activities was achieved in 1999. The Company anticipates completing this
restructuring program during 2000 (see "-- Financial Condition, Liquidity and
Capital Resources -- Financing Sources and Cash Flows"). Finally, the Company is
taking an aggressive approach to reduce working capital and increase liquidity.
This approach includes a goal to reduce inventory by approximately $20 million
in 2000, as well as lowering receivables. To implement this goal, the Company
will utilize its new information system to improve the operation of its supply
chain.
New packaging machinery placements during 1999 increased approximately 15%
compared to 1998. The Company has been and will continue to be more selective in
future packaging machinery placements to ensure appropriate returns. The Company
recently completed the successful installation of three new Marksman 1600 high
speed packaging machines in Japan. As a result, the Company expects these
machine placements to foster further growth.
OUTLOOK
The Company expects that its 2000 full year EBITDA will significantly
exceed its 1999 EBITDA, although no assurance can be given in this regard. The
achievement of this expectation is dependent upon (among other things) a number
of profit improvement initiatives, including increasing worldwide beverage sales
volumes above 1999 levels, improving U.S. mill throughput, continued cost
savings from other actions taken to date and continued selling price
improvements for containerboard products. In 2000, the Company expects that it
will achieve modest sales volume increases in its worldwide beverage markets.
The Company also expects price improvements in the U.S. folding carton markets
in 2000. The Company continues to be optimistic about containerboard prices as
several major containerboard producers recently announced additional price
increases. The Company's worldwide folding cartonboard volumes and margins were
reduced in the third quarter due to market conditions in Asia and price declines
in competing substrates. For the year, although international folding
cartonboard volumes were down, domestic folding cartonboard volumes were
consistent with 1998. In response to pressures from competing substrates, the
Company selectively reduced folding cartonboard prices to maintain sales
volumes. However, based on price increases announced for competing substrates
during the fourth quarter of 1999, the Company rescinded the selective price
reductions and announced a $40 per ton price increase for its domestic folding
carton and beverage products effective December 1, 1999.
13
<PAGE> 17
1999 COMPARED WITH 1998
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations is based
upon the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
% INCREASE
(DECREASE)
YEAR ENDED FROM YEAR ENDED
DECEMBER 31, PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 PERIOD 1998
- ------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board............................................. $1,010,068 (4.3)% $1,055,270
Containerboard........................................... 102,643 27.8 80,299
---------- ----------
Net Sales.................................................. 1,112,711 (2.0) 1,135,569
Cost of Sales.............................................. 871,970 (6.9) 936,957
---------- ----------
Gross Profit............................................... 240,741 21.2 198,612
Selling, General and Administrative........................ 114,402 2.0 112,117
Research, Development and Engineering...................... 4,078 (26.8) 5,570
Impairment Loss............................................ -- (100.0) 15,694
Restructuring Charge....................................... -- (100.0) 25,580
Other Expense, net......................................... 1,798 (85.0) 11,973
---------- ----------
Income from Operations..................................... $ 120,463 335.2% $ 27,678
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board............................................. $ 142,541 81.0% $ 78,752
Containerboard........................................... (10,235) 56.8 (23,682)
Corporate and Eliminations............................... (11,843) 56.8 (27,392)
---------- ----------
Income from Operations..................................... $ 120,463 335.2% $ 27,678
========== ==========
</TABLE>
PAPERBOARD SHIPMENTS
The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium kraft paper and various other items,
principally off-specification coated board. Total shipments for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF TONS) 1999 1998
- ---------------------- ------- -------
<S> <C> <C>
Coated Board................................................ 965.6 1,020.7
Swedish Mill................................................ 141.0 138.2
Containerboard.............................................. 327.8 278.5
------- -------
1,434.4 1,437.4
======= =======
</TABLE>
NET SALES
As a result of the factors described below, the Company's Net Sales in 1999
decreased by $22.9 million, or 2.0 percent, compared with 1998. Net Sales in the
Coated Board business segment decreased by $45.2 million in 1999, or 4.3
percent, to $1,010.1 million from $1,055.2 million in 1998, due primarily to
lower sales volumes in its international folding cartonboard markets due to weak
demand in Asia, and the effect of exiting certain low-margin business in the
U.K. The overall decrease was offset somewhat by increased sales volume in
international beverage markets due to increased market penetration and strong
demand in Japan, and modestly higher selling prices in U.S. beverage markets.
Net Sales in the Containerboard business segment
14
<PAGE> 18
increased $22.3 million, or 27.8 percent, to $102.6 million in 1999 from $80.3
million in 1998, due principally to higher linerboard volumes as well as higher
pricing for the Company's containerboard products.
GROSS PROFIT
As a result of the factors discussed below, the Company's Gross Profit for
1999 increased $42.1 million, or 21.2 percent, to $240.7 million from $198.6
million in 1998. The Company's gross profit margin increased to 21.6 percent for
1999 from 17.5 percent in 1998. Gross Profit in the Coated Board business
segment increased by $29.5 million, or 13.7 percent, to $245.3 million in 1999
as compared to $215.8 million in 1998, while its gross profit margin increased
to 24.3 percent in 1999 from 20.5 percent in 1998. This increase in gross profit
despite lower Net Sales, resulted principally from overall cost reductions and a
shift in mix towards more profitable beverage sales. In the Containerboard
business segment, Gross Profit increased $13.1 million to a loss of $4.3 million
in 1999 as compared to a loss in 1998 of $17.4 million due principally to higher
linerboard volumes as well as higher pricing for the Company's containerboard
products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses increased $2.3 million, or 2.0
percent, to $114.4 million in 1999 as compared to $112.1 million in 1998, and as
a percentage of Net Sales, increased to 10.3 percent in 1999, from 9.9 percent
in 1998. This increase was due primarily to incremental costs relating to the
implementation of a new computerized information system (see "-- Liquidity and
Capital Resources -- Upgrade of Information Systems and Year 2000 Compliance").
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses decreased by $1.5 million,
or 26.8 percent, to $4.1 million in 1999 from $5.6 million in 1998 due primarily
to lower research and development investing relating to packaging machinery.
IMPAIRMENT LOSS
The Company recorded an impairment loss of $15.7 million in 1998 due to a
write-down of packaging machines in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of " ("SFAS 121"). The fair value of
the machines was determined based on expected future lease revenues and
potential disposition.
RESTRUCTURING CHARGE
The Company recorded a charge of $25.6 million in the fourth quarter of
1998 to accrue for the closing costs relating primarily to the restructuring of
its European operations, primarily the ongoing rationalization of its
international folding carton converting operations (see "-- Liquidity and
Capital Resources -- Financing Sources and Cash Flows").
OTHER EXPENSE, NET
Other Expense, net, decreased by approximately $10.2 million, or 85.0
percent, to $1.8 million in 1999, due mainly to certain non-recurring credits
taken in 1999 and a net gain resulting from certain foreign currency hedging
activities. In 1998, the Company also wrote-off certain packaging machine
deferred design costs which did not occur in 1999.
INCOME FROM OPERATIONS
Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1999 increased by $92.8 million, or 335.2 percent, to $120.5
million from $27.7 million in 1998, while the Company's operating margin
increased to 10.9 percent in 1999 from 2.4 percent in 1998. Income from
Operations in the Coated Board business segment increased $63.7 million, or 80.8
percent, to $142.5 million in
15
<PAGE> 19
1999 from $78.8 million in 1998, while the operating margin increased to 14.1
percent in 1999 from 7.5 percent in 1998, primarily as a result of the factors
described above. The (Loss) from Operations in the Containerboard business
segment was reduced by $13.5 million to a loss of $10.2 million in 1999 from a
(Loss) from Operations of $23.7 million in 1998, primarily as a result of the
factors described above.
FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES
The strengthening of the U.S. dollar currency exchange rate as compared to
the Euro did have a modest impact on Net Sales, Gross Profit, Income from
Operations, and operating expenses during 1999. However, the impact was offset
by the weakening of the U.S. Dollar against the Japanese Yen.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, AND EQUITY IN NET EARNINGS OF
AFFILIATES.
INTEREST INCOME
Interest Income decreased slightly to $0.9 million in 1999 from $1.3
million in 1998.
INTEREST EXPENSE
Interest Expense increased $1.2 million to $179.2 million in 1999 from
$178.0 million in 1998 resulting principally from higher average total debt
during the year. During 1999 and 1998, the Company capitalized interest of $1.4
million per year. Amortization of deferred debt issuance costs was $10.3 million
for 1999 and 1998.
INCOME TAXES EXPENSE (BENEFIT)
During 1999, the Company recognized an income tax expense of $3.9 million
on a Loss from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $57.8 million. During 1998, the Company recognized an
income tax (benefit) $0.6 million on a Loss from Continuing Operations before
Income Taxes and Equity in Net Earnings of Affiliates of $149.1 million. These
expenses differed from the statutory federal income tax rate primarily because
of valuation allowances established on net operating loss carryforward tax
assets in the U.S. and certain international locations where the realization of
such benefits is less likely than not.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates is comprised primarily of the
Company's equity in net earnings of Igaras, which is accounted for under the
equity method of accounting. Equity in Net Earnings of Affiliates decreased $1.1
million, or 12.8 percent, to $7.1 million in 1999 from $8.2 million in 1998
resulting from an overall downturn in the Brazilian markets.
During 1999 and 1998, the Company received net dividends from Igaras of
approximately $2.9 million and $5.4 million, respectively, net of taxes of $0.5
million and $0.9 million, respectively. Under the Igaras joint venture
agreement, Igaras is required to pay dividends equal to at least 25 percent of
its net profits.
On January 14, 1999, the Central Bank of Brazil changed the foreign
exchange policy by eliminating the exchange rate band, which had been used as a
means to control the fluctuation of the Real against the U.S. dollar. The
exchange rate is now determined by market forces. As a consequence of such
change, the Real suffered a significant devaluation related to the U.S. dollar
during the beginning of 1999.
During 1999 and 1998, the Company received net dividends from its equity
investments other than Igaras of $1.1 million and $0.7 million, respectively.
During the third quarter of 1999, the Company sold an investment other than
Igaras, resulting in a receipt of a final dividend of $0.8 million. No
significant gain or loss was recognized in accordance with the sale.
16
<PAGE> 20
1998 COMPARED WITH 1997
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations is based
upon the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
% INCREASE
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1998 YEAR 1997
- ------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board............................................. $1,055,270 2.5% $1,029,493
Containerboard........................................... 80,299 (26.6) 109,361
---------- ----------
Net Sales.................................................. 1,135,569 (0.3) 1,138,854
Cost of Sales.............................................. 936,957 (6.3) 1,000,391
---------- ----------
Gross Profit............................................... 198,612 43.4 138,463
Selling, General and Administrative........................ 112,117 (3.8) 116,581
Research, Development and Engineering...................... 5,570 7.7 5,171
Impairment Loss............................................ 15,694 N/A --
Restructuring Charge....................................... 25,580 N/A --
Other Expense, net......................................... 11,973 22.2 9,799
---------- ----------
Income from Operations..................................... $ 27,678 300.4% $ 6,912
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board............................................. $ 78,752 21.5% $ 64,819
Containerboard........................................... (23,682) 42.6 (41,244)
Corporate and Eliminations............................... (27,392) (64.4) (16,663)
---------- ----------
Income from Operations..................................... $ 27,678 300.4% $ 6,912
========== ==========
</TABLE>
PAPERBOARD SHIPMENTS
The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium kraft paper and various other items,
principally off-specification coated board. Total shipments for the years ended
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF TONS) 1998 1997
- ---------------------- ------- -------
<S> <C> <C>
Coated Board................................................ 1,020.7 933.1
Swedish Mill................................................ 138.2 143.0
Containerboard.............................................. 278.5 421.6
------- -------
1,437.4 1,497.7
======= =======
</TABLE>
NET SALES
As a result of the factors described below, the Company's Net Sales in 1998
decreased by $3.3 million, or 0.3 percent, compared with 1997. Net Sales in the
Coated Board business segment increased by $25.8 million in 1998, or 2.5
percent, to $1,055.3 million from $1,029.5 million in 1997, due primarily to
increased sales volume in international and U.S. beverage markets and U.S.
folding cartonboard markets combined with improved selling prices in U.S.
beverage markets. These improvements were offset somewhat by an unfavorable
shift in product mix and lower sales volume in international folding cartonboard
markets and the negative impact of foreign currency translation associated with
the strengthening of the U.S. dollar. Net Sales in the Containerboard business
segment decreased $29.1 million, or 26.6 percent, to $80.3 million in 1998
17
<PAGE> 21
from $109.4 million in 1997, due principally to a continued reduction in
linerboard production in favor of coated board production offset by slightly
improved selling prices in the corrugating medium markets.
GROSS PROFIT
As a result of the factors discussed below, the Company's Gross Profit for
1998 increased $60.1 million, or 43.4 percent, to $198.6 million from $138.5
million in 1997. The Company's gross profit margin increased to 17.5 percent for
1998 from 12.2 percent in 1997. Gross Profit in the Coated Board business
segment increased by $40.8 million, or 23.3 percent, to $215.8 million in 1998
as compared to $175.0 million in 1997, while its gross profit margin increased
to 20.5 percent in 1998 from 17.0 percent in 1997. This increase in gross profit
resulted principally from overall cost reductions and increased sales volume in
international and U.S. beverage markets and U.S. folding cartonboard markets
combined with improved selling prices in U.S. beverage markets, offset somewhat
by the negative impact of foreign currency translation associated with the
strengthening of the U.S. dollar as well as an unfavorable shift in product mix
and lower sales volume in international folding cartonboard markets. In the
Containerboard business segment, Gross Profit increased $18.4 million to a loss
of $17.4 million in 1998 as compared to a loss in 1997 of $35.8 million due
principally to a continued reduction in linerboard production in favor of coated
board production, downtime taken during the year, and overall cost reductions,
offset by slightly improved selling prices in the corrugating medium markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses decreased $4.5 million, or 3.8
percent, to $112.1 million in 1998 as compared to $116.6 million in 1997, and as
a percentage of Net Sales, decreased from 10.2 percent in 1997 to 9.9 percent in
1998. This decrease was due primarily to Company cost reduction initiatives
which continued through 1998, offset somewhat by incremental costs relating to
the implementation of a new computerized information system (see "-- Liquidity
and Capital Resources -- Upgrade of Information Systems and Year 2000
Compliance").
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses increased by $0.4 million,
or 7.7 percent, to $5.6 million in 1998 from $5.2 million in 1997.
IMPAIRMENT LOSS
The Company recorded an impairment loss of $15.7 million in 1998 due to a
write-down of packaging machines in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The fair value of
the machines was determined based on expected future lease revenues and
potential disposition.
RESTRUCTURING CHARGE
The Company recorded a charge of $25.6 million in the fourth quarter of
1998 to accrue for the closing costs relating primarily to the restructuring of
its European operations, primarily the ongoing rationalization of its
international folding carton converting operations (see "-- Liquidity and
Capital Resources -- Financing Sources and Cash Flows").
OTHER EXPENSE, NET
Other Expense, net, increased by approximately $2.2 million, or 22.2
percent, to $12.0 million in 1998, due mainly from a write-off of packaging
machine deferred design costs.
INCOME FROM OPERATIONS
Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1998 increased by $20.8 million, or 300.4 percent, to $27.7
million from $6.9 million in 1997, while the Company's
18
<PAGE> 22
operating margin increased to 2.4 percent in 1998 from 0.6 percent in 1997.
Income from Operations in the Coated Board business segment increased $13.9
million, or 21.5 percent, to $78.8 million in 1998 from $64.8 million in 1997,
while the operating margin increased to 7.5 percent in 1998 from 6.3 percent in
1997, primarily as a result of the factors described above. The (Loss) from
Operations in the Containerboard business segment was reduced by $17.6 million
to a loss of $23.4 million in 1998 from a (Loss) from Operations of $41.2
million in 1997, primarily as a result of the factors described above.
FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES
Fluctuations in U.S. dollar currency exchange rates impacted Net Sales,
Gross Profit, and Income from Operations as described above. However, these
fluctuations did not have a significant impact on operating expenses during 1998
or 1997.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES, EQUITY IN NET EARNINGS OF
AFFILIATES, EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT AND CHANGE IN
ACCOUNTING PRINCIPLE.
INTEREST INCOME
Interest Income increased slightly to $1.3 million in 1998 from $1.1
million in 1997.
INTEREST EXPENSE
Interest Expense increased $5.8 million to $178.0 million in 1998 from
$172.2 million in 1997 resulting principally from a shift in existing debt
toward higher coupon debt. During 1998 and 1997, the Company capitalized
interest of $1.4 million and $3.5 million, respectively. Amortization of
deferred debt issuance costs, exclusive of the amount recognized as an
extraordinary loss on early extinguishment of debt (see "-- Extraordinary Loss
on Early Extinguishment of Debt"), was $10.3 million and $11.8 million for 1998
and 1997, respectively.
INCOME TAX EXPENSE (BENEFIT)
During 1998, the Company recognized an income tax (benefit) of $0.6 million
on a Loss from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $149.1 million. During 1997, the Company recognized an
income tax expense of $5.6 million on a Loss from Continuing Operations before
Income Taxes and Equity in Net Earnings of Affiliates of $164.2 million. These
expenses differed from the statutory federal income tax rate primarily because
of valuation allowances established on net operating loss carryforward tax
assets in the U.S. and certain international locations where the realization of
such benefits is less likely than not.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates is comprised primarily of the
Company's equity in net earnings of Igaras, which is accounted for under the
equity method of accounting. Equity in Net Earnings of Affiliates decreased
$14.7 million, or 64.4 percent, to $8.2 million in 1998 from $22.9 million in
1997 resulting from an overall downturn in the Brazilian markets, as well as
additional expenses incurred by Igaras relating to the purchase of three
additional facilities during the first quarter of 1998.
During 1998 and 1997, the Company received net dividends from Igaras of
approximately $5.4 million and $4.0 million, respectively, net of taxes of $0.9
million and $0.7 million, respectively. Under the Igaras joint venture
agreement, Igaras is required to pay dividends equal to at least 25 percent of
its net profits. Additionally during 1998 and 1997, the Company received net
dividends from its equity investments other than Igaras of $0.7 million and $1.2
million, respectively.
19
<PAGE> 23
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
On July 28, 1997, the Company completed an offering of the 1997 Notes. The
net proceeds of this offering were applied to prepay certain revolving credit
borrowings under the Revolving Facility (without any commitment reduction), and
to refinance certain Tranche A term loans and other borrowings under the Senior
Secured Credit Agreement. During the third quarter of 1997, the Company recorded
a non-cash, extraordinary charge to earnings of approximately $2.5 million, net
of tax of $0, related to the write-off of the applicable portion of deferred
debt issuance costs on the Tranche A term loans.
CHANGE IN ACCOUNTING PRINCIPLE
In accordance with the EITF (Emerging Issues Task Force) consensus reached
on November 20, 1997, the Company is required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.
The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
CASH FLOWS
Cash and equivalents increased by approximately $0.3 million in 1999
primarily as a result of $49.7 million and $17.4 million of net cash provided by
financing activities and operating activities, respectively, offset by $67.8
million of net cash used in investing activities. Cash provided by operating
activities resulted principally form positive cash relating to earnings, being
offset by an increase in working capital due mainly to increases in inventory
and receivables. Cash provided by financing activities resulted primarily from
net debt increases (see "-- Liquidity and Capital Resources"). Net cash used in
investing activities resulted principally from capital spending (see "-- Capital
Expenditures). Depreciation and amortization during 1999 totaled approximately
$142.6 million, and is expected to be approximately $140 million to $145 million
for 2000.
The Company's cash flows from its operations and EBITDA are subject to
moderate seasonality with demand usually increasing in the spring and summer due
to the seasonality of the worldwide multiple packaging beverage segment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of its capital expenditures. As of December 31, 1999, the Company had
outstanding approximately $1,736 million of long-term debt, consisting primarily
of $650 million aggregate principal amount of the 1996 Notes, $250 million of
the 1997 Notes, $637.1 million outstanding under the Term Loan Facility and
additional amounts under the Revolving Facility, the Machinery Facility and
other debt issues and facilities (see Note 10 to the Consolidated Financial
Statements). During 1999, the Company had a net increase in revolving credit
facilities borrowings of approximately $55.9 million and repaid approximately
$6.3 million of term debt.
20
<PAGE> 24
DEBT SERVICE
Principal and interest payments under the Term Loan Facility, the Revolving
Facility and the Machinery Facility, together with interest payments on the 1997
Notes and 1996 Notes, represent significant liquidity requirements for the
Company. The Company applied $105.0 million of the proceeds from the 1997 Notes
in July 1997 to refinance a portion of the Tranche A term loans under the Term
Loan Facility, $50 million of the proceeds of the 1997 Notes to refinance the
Tranche D term loan under the Senior Secured Credit Agreement, and the remaining
proceeds from the 1997 Notes to prepay outstanding revolving credit borrowings
under the Revolving Facility. Scheduled term loan principal payments under the
Term Loan Facility were reduced to reflect this application of proceeds. This
application of proceeds did not involve any reduction in the current aggregate
Revolving Facility commitment of $400 million. In the third quarter of 1997, the
Company recorded a non-cash extraordinary charge to earnings of approximately
$2.5 million, net of tax, related to the write-off of the applicable portion of
deferred debt issuance costs on the Tranche A Term Loans under the Term Loan
Facility. Annual term loan amortization requirements under the Term Loan
Facility, after giving effect to the refinancing of the Term Loan Facility from
a portion of the proceeds of the 1997 Notes, will be approximately $4 million,
$120 million, $173 million, $184 million and $156 million for each of the years
2000 through 2004, respectively.
The loans under the Facilities bear interest at floating rates based upon
the interest rate option elected by the Company. The Tranche A term loans,
Tranche B term loans and Tranche C term loans under the term loan Facility bore
interest as of December 31, 1999 at an average rate per annum of 9.0 percent.
The Senior Notes, the 1997 Notes and the Senior Subordinated Notes bear interest
at rates of 10 1/4 percent, 10 5/8 percent and 10 7/8 percent, respectively.
Interest expense in 2000 is expected to be approximately $180 million, including
approximately $10 million of non-cash amortization of deferred debt issuance
costs. During 1999, cash paid for interest was approximately $169.6 million.
The Revolving Facility will mature in March 2003 and the Machinery Facility
will mature in March 2001, with all amounts then outstanding becoming due. The
Company expects that its working capital and business needs will require it to
continue to have access to these or similar revolving credit facilities after
their respective maturity dates, and that the Company accordingly will have to
extend, renew, replace or otherwise refinance such facilities at or prior to
such dates. No assurance can be given that it will be able to do so.
The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The difference to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to that debt. At December 31, 1999, the Company had
interest rate swap agreements with a notional amount of $175 million, under
which the Company will pay fixed rates of 5.05 percent to 6.15 percent and
receive three-month LIBOR. See Item 7A -- "Quantitative and Qualitative
Disclosure About Market Risk."
COVENANT RESTRICTIONS
The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the indentures governing
the 1996 Notes and the 1997 Notes limit the Company's ability to incur
additional indebtedness. Such restrictions, together with the highly leveraged
nature of the Company, could limit the Company's ability to respond to market
conditions, meet its capital spending program, provide for unanticipated capital
investments or take advantage of business opportunities. The covenants contained
in the Credit Agreements also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee obligations,
repay the relevant 1996 Notes or the 1997 Notes, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, make capital
expenditures or engage in certain transactions with affiliates, and otherwise
restrict corporate activities. The covenants contained in such indentures also
impose restrictions on the operation of the Company's business. At December 31,
1999, the Company was in compliance with the financial covenants in the Credit
Agreements.
21
<PAGE> 25
In connection with the offering of the 1997 Notes, certain financial and
other covenants in the Credit Agreements were amended to reflect the Company's
recent financial results and market and operating conditions, as well as the
consummation of the 1997 Notes offering and the prepayment of the Term Loan
Facility and other borrowings. Covenant modifications included reductions in
permitted capital expenditures (subject to certain carryover allowances and
other adjustments) of no more than, $140 million and $135 million for 1999 and
2000, respectively, and $130 million per year thereafter. The amended covenants
specify, among other changes, the elimination of the minimum consolidated net
worth requirements, and the following amended minimum EBITDA and interest
coverage ratio requirements for each four quarter period ending during the
following test periods:
<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
------ ------------ -----------------------
<S> <C> <C>
December 31, 1999 -- December 30, 2000............... $265 million 1.25 to 1.00
December 31, 2000 -- December 30, 2001............... $325 million 1.50 to 1.00
December 31, 2001 -- December 30, 2002............... $350 million 1.75 to 1.00
December 31, 2002 -- December 30, 2003............... $375 million 2.00 to 1.00
Thereafter........................................... $400 million 2.25 to 1.00
</TABLE>
CAPITAL EXPENDITURES
Capital spending during 1999 was approximately $66.0 million. Capital
spending during 1999 related primarily to the upgrading of the Company's
information systems (see "-- Upgrade of Information Systems and Year 2000
Compliance"), increasing paper production efficiencies, increasing converting
capacity, and manufacturing packaging machinery. Total capital spending for 2000
is expected to be between $65 million and $75 million, and is expected to relate
principally to improving its process capabilities, complying with environmental
cluster rules, and the production of packaging machinery.
FINANCING SOURCES AND CASH FLOWS
In connection with the global restructuring program initiated in the fourth
quarter of 1998, the Company is reducing its European workforce by approximately
300 employees and is implementing other initiatives designed to improve
productivity and profitability across the global organization. The initial cost
of this program, scheduled to be completed during 2000, was approximately $25.6
million of which approximately $0.8 million was used in December 1998 and
related to severance payments. The following table provides information that
details payments on this restructuring plan since December 31, 1998:
<TABLE>
<CAPTION>
OTHER
(IN THOUSANDS OF DOLLARS) SEVERANCE EXIT COSTS TOTAL
- ------------------------- --------- ---------- --------
<S> <C> <C> <C>
Balance at 12/31/98..................................... $21,205 $ 3,537 $ 24,742
Charges against accrual in 1999......................... (9,337) (2,981) (12,318)
------- ------- --------
Balance at 12/31/99..................................... $11,868 $ 556 $ 12,424
======= ======= ========
</TABLE>
On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of the Company's folding carton business in
Australia. Proceeds from the sale totaling $46.7 million were received on March
30, 1998. Under the terms of the agreement for such sale, the Company sold to
Carter Holt substantially all of the Company's Australian folding carton assets,
and Carter Holt assumed certain specified liabilities. The Company retained
substantially all of its beverage multiple packaging business in Australia.
Under the agreement, Carter Holt agreed to purchase from the Company a portion
of its coated board requirements in Australia and to supply beverage cartons to
meet the Company's needs for its Australian beverage business.
In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding cartonboard converting plant in the
United States, located in Kankakee, Illinois, packaging machinery manufacturing
plants in Marietta, Georgia and Koln, Germany, a beverage multiple packaging
converting plant in Bakersfield, California and the trucking transportation
operations in West Monroe, Louisiana, as well as the
22
<PAGE> 26
consolidation and realignment of certain operations in the United States,
Australia and Europe. The cost of exiting these businesses and operating
activities was approximately $38.6 million which was accrued during 1996 as a
purchase accounting adjustment. The costs related principally to the severance
of approximately 750 employees, relocation and other plant closure costs. At
December 31, 1999, $2.3 million of this total was accrued in Other accrued
liabilities on the Consolidated Balance Sheets and is expected to be paid out
through 2000. During 1999, $2.5 million was paid out and charged against the
accrual and related primarily to exit costs.
At December 31, 1999, the Company and its U.S. and international
subsidiaries had the following amounts of commitments, amounts outstanding and
amounts available under revolving credit facilities:
<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
OF OUTSTANDING AT AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS DECEMBER 31, 1999 DECEMBER 31, 1999
- ------------------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
Revolving Facility........................ $400,000 $187,400 $212,600
Machinery Facility........................ 140,000 10,000 32,000
International Facilities.................. 27,868 11,938 15,930
-------- -------- --------
$567,868 $209,338 $260,530
======== ======== ========
</TABLE>
The Machinery Facility is limited by a borrowing base. Undrawn Revolving
Facility availability is expected to be used to meet future working capital and
other business needs of the Company. The Company anticipates pursuing additional
working capital financing for its foreign operations as necessary.
The Company believes that cash generated from operations, together with
amounts available under its Revolving Facility, the Machinery Facility and other
available financing sources, will be adequate to permit the Company to meet its
debt service obligations, capital expenditure program requirements, ongoing
operating costs and working capital needs until the maturity of the Revolving
Facility (assuming extension or refinancing of the Machinery Facility at its
earlier maturity), although no assurance can be given in this regard. The
Company's future financial and operating performance, ability to service or
refinance its debt and ability to comply with the covenants and restrictions
contained in its debt agreements (see "-- Covenant Restrictions"), will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control and will be
substantially dependent on the selling prices for the Company's products and the
Company's ability to successfully implement its overall business and
profitability strategies.
While the Company believes that Igaras has adequate liquidity, the Company
shares control of Igaras with its joint venture partner and future dividend
payments from Igaras, if any, would be subject to restrictions in the joint
venture agreement and would reflect only the Company's remaining interest of 50
percent. Under the Igaras joint venture agreement, Igaras is required to pay
dividends equal to at least 25 percent of its net profits. Due to currency
fluctuations, inflation and changes in political and economic conditions,
earnings from Brazilian operations have been subject to significant volatility
(see Note 6 in Notes to Consolidated Financial Statements). There can be no
assurance that such volatility will not recur in the future.
ENVIRONMENTAL AND LEGAL MATTERS
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the U.S. Environmental Protection Agency proposed regulations
(generally referred to as the "cluster rules") that would mandate more stringent
controls on air and water discharges from the United States pulp and paper
mills. The cluster rules were promulgated in April 1998, and the Company
estimates the capital spending that may be required to comply with the cluster
rules could reach $55 million to be spent at its two U.S. paper mills over a
seven-year period beginning in 2000.
23
<PAGE> 27
In late 1995, the Louisiana Department of Environmental Quality ("DEQ")
notified the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
currently owns. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company entered into an agreement
with DEQ to perform a soil and groundwater investigation at the site. The
Company completed this investigation work in 1999 and is in ongoing discussions
with the DEQ to develop an appropriate remediation plan and exit strategy. In
September 1996, the Company received a Special Demand Letter from DEQ to
remediate the site in Caddo Parish. The Company performed a waste inventory and
treatability study at the site and subsequently met with the DEQ in October
1999. Currently, the Company is in ongoing discussions with the DEQ to develop
an appropriate remediation plan and exit strategy.
The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained, and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
addressed under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current knowledge, to the
extent that additional costs may be incurred that exceed the accrued reserves,
such amounts are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company, although no
assurance can be given that material costs will not be incurred in connection
with clean-up activities at these properties, including the Shreveport and Caddo
Parish sites referred to above.
The Company is a party to a number of lawsuits arising out of the ordinary
conduct of its business. While there can be no assurance as to their ultimate
outcome, the Company does not believe that these lawsuits will have a material
impact on the results of operations, cash flows or financial condition of the
Company.
The Company is a plaintiff in several actions against Mead claiming
infringement of the Company's patents for its packaging machines, as to which
Mead has filed counterclaims asserting that the Company's patents are invalid.
In the furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Company's patent in issue was invalid, and ruled that Mead had been
unlawfully infringing the Company's patent. On February 16, 1999, Mead filed an
appeal from that decision. An oral argument with regard to this appeal was held
on February 9, 2000 before the Court of Appeals for the Federal Circuit. The
Company is awaiting a decision.
INTERNATIONAL OPERATIONS
At December 31, 1999, approximately 16 percent of the Company's total net
assets were denominated in currencies other than the U.S. dollar. The Company
has significant operations in countries that use the Swedish krona, the British
pound sterling, the German Mark, the Spanish peseta, or the French franc as
their functional currencies. The magnitude and direction of this adjustment in
the future depends on the relationship of the U.S. dollar to other currencies.
The Company cannot predict major currency fluctuations. The Company's revenues
from export sales fluctuate with changes in foreign currency exchange rates. The
Company pursues a currency hedging program in order to limit the impact of
foreign currency exchange fluctuations on financial results. See "-- Financial
Instruments."
Within Europe, eleven of the fifteen member countries of the European Union
participated in the European Economic and Monetary Union (the "EMU"), pursuant
to which a new currency, the Euro, was introduced on January 1, 1999. The new
currency is in response to the EMU's policy of economic convergence
24
<PAGE> 28
to harmonize trade policy, eliminate business costs associated with currency
exchange and to promote the free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the Euro as their
local currency, initially available for currency trading on currency exchanges
for use in noncash (banking) transactions. The existing local currencies, or
legacy currencies, will remain legal tender through June 30, 2002. Beginning on
January 1, 2002, Euro-denominated bills and coins will be issued for cash
transactions. For a period of six months from this date, both legacy currencies
and the Euro will be legal tender. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.
Currently, the Company operates in five of the participating countries in
the EMU. The Company expects nonparticipating European Union countries, such as
Great Britain, where the Company also has operations, to eventually join the
EMU.
Although the Company will continue to review its pricing strategy
throughout Europe due to the increased price transparency created by the Euro,
it does not anticipate that any resulting change would have a material effect on
its operations. The Company also does not believe that EMU will have a material
effect with respect to its derivative and other financial transactions.
FINANCIAL INSTRUMENTS
The functional currency for most of the Company's international
subsidiaries is the local currency for the country in which the subsidiaries own
their primary assets. The translation of the applicable currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. Any related translation
adjustments are recorded directly to shareholders' equity. Gains and losses on
foreign currency transactions are included in Other Expense, net, in the
Consolidated Statements of Operations for the period in which the exchange rate
changes.
The Company pursues a currency hedging program which utilizes derivatives
to limit the impact of foreign currency exchange fluctuations on its
consolidated financial results. Under this program, the Company has entered into
forward exchange and option contracts in the normal course of business to hedge
certain foreign currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the measurement of the
basis of the related foreign currency transaction when recorded. The premium on
an option contract is accounted for separately and amortized to Other Expense,
net, over the term of the contract. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes. See "Item 7A -- Quantitative and Qualitative
Disclosure About Market Risk."
IMPACT OF INFLATION
In the U.S., the inflation rate was approximately 2.1 percent for 1999. In
Europe, where the Company has manufacturing facilities, the inflation rate for
1999 was approximately 1.1 percent. Net sales from international operations
during the period amounted to approximately $308.4 million, or 28 percent of the
Company's combined Net Sales in 1999.
UPGRADE OF INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE
On April 1, 1999, the Company successfully implemented a new information
system, based on the SAP R3 software, in all its domestic locations as part of a
project designed to upgrade its worldwide information systems that cost
approximately $35 million. This amount includes expenditures for the new
enterprise-wide information system, replacement of computer hardware and related
machinery and equipment, training, third party consultants and some additional
costs designed to greater improve the business operational systems not initially
budgeted at the beginning of the project. This initiative utilized both internal
and external resources. Under SAP, the Company expects a major improvement in
its information systems and business processes.
25
<PAGE> 29
The Company also achieved Year 2000 compliance with regards to its information
and manufacturing systems, and did not have any material disruptions as a result
of the change over to the new year. Total spending on all SAP related projects
during 1999 was $13.9 million, all of which was capitalized. Total spending on
all SAP and other related projects to date was $39.1 million, of which $32.2
million was capitalized.
TAX MATTERS RELATING TO THE MERGER
In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for U.S. federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $27.5
million in estimated Louisiana stand-alone taxes relating to the election. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. It is possible that the voiding of the 1993
amendment could result in the Company being required to pay significant
additional Louisiana income tax relating to the election (plus potential
penalties and statutory interest on the additional taxes). After consultation
with Louisiana tax counsel, the Company filed its Louisiana income tax return
for the period ended March 27, 1996 in reliance on the Louisiana tax law in
effect at the time of the Merger, without the payment of any additional tax due
to the voiding of the 1993 amendment. There can be no assurance, however, that
the Company would ultimately prevail on this issue if Louisiana were to
challenge such filing position. If the Company were not to prevail in such a
challenge, significant additional Louisiana income tax relating to the election
could be payable. Management estimates that the maximum amount of such
additional tax is approximately $47 million (plus potential penalties and
statutory interest on any additional tax). The tax period ended March 27, 1996,
is currently under audit by the State of Louisiana. If the Company receives an
assessment from the State, the Company will consider paying the assessed amount
to avoid further interest accruals as it contests the assessment. Management
believes that the additional tax ultimately paid (if any) will be substantially
less than the estimated maximum amount, although no assurance can be given in
this regard. The Company and its advisors are continuing to study this
situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.
During the third quarter of 1997, the Company resolved certain tax issues
related to the Merger, pursuant to the Tax Matters Agreement entered into in
connection with the Merger, resulting in the receipt of approximately $16.8
million (including $0.5 million of interest) in cash from the former majority
owner of the Company.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"-- Business Trends and Initiatives" concerning (a) the Company's expectation
that pricing trends for its containerboard products should continue to be
positive, (b) the improvements which the Company's long-term initiatives,
including, without limitation, its profit center reorganization and global
restructuring program, are designed to achieve, (c) the Company's expectation
that capital expenditures will range from $65 million to $75 million in 2000,
(d) the Company's expectation that its global restructuring program will be
completed during 2000, and (e) the Company's expectation that it will reduce
inventory by approximately $20 million and lower receivables in 2000; (ii) the
statements in "-- Outlook" concerning (a) the Company's expectation that its
2000 EBITDA will significantly exceed its 1999 EBITDA as well as each of the
factors which the Company believes support such expectation, (b) the Company's
expectation that it will achieve modest sales volume increases in its worldwide
beverage markets, and (c) the Company's expectation regarding price improvements
in the U.S. folding carton markets in 2000; (iii) the statements in "Financial
Condition, Liquidity and Capital Resources" concerning (a) the Company's
expectation that depreciation and amortization for 2000 will be approximately
$140 million to $145 million, (b) the Company's expectation that 2000
26
<PAGE> 30
interest expense will be approximately $180 million including approximately $10
million of non-cash amortization of deferred debt issuance costs, (c) the
Company's expectation that total capital spending for 2000 will range from $65
to $75 million, (d) the Company's expectations regarding a major improvement in
its information systems and business processes under SAP, (e) the Company's
belief that cash generated from operations, together with amounts available
under available financing sources, will be adequate to permit the Company to
meet its debt service obligations, capital expenditure program requirements,
ongoing operating costs and working capital needs until the maturity of the
Revolving Facility (assuming extension or refinancing of the Machinery Facility
at its earlier maturity), (f) the Company's expectations with respect to capital
spending that may be required to comply with the cluster rules and that, based
on current knowledge, environmental costs are not expected to have a material
impact on the results of operations, cash flows or financial condition of the
Company, and (g) the Company's belief and estimates in respect of certain
Louisiana income tax matters relating to the Section 338(h)(10) election,
including, without limitation, management's belief that additional tax
ultimately paid (if any) would be substantially less than $47 million; and (iv)
other statements as to management's or the Company's expectations and beliefs
presented in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this report (including, without limitation, those discussed in "-- Financial
Condition, Liquidity and Capital Resources -- Liquidity and Capital
Resources -- Environmental and Legal Matters" and "-- Tax Matters Relating to
the Merger"), or in other Securities and Exchange Commission filings, could
affect (and in some cases have affected) the Company's actual results and could
cause such results to differ materially from estimates or expectations reflected
in such forward-looking statements:
- The Company's high degree of leverage could have important consequences
to the Company, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) certain of the
Company's borrowings will be at variable rates of interest, which will
expose the Company to the risk of increased interest rates; and (iv) the
Company's flexibility to adjust to changing market conditions and ability
to withstand competitive pressures could be limited, and the Company may
be more vulnerable to a downturn in general economic conditions or its
business or be unable to carry out capital spending that is important to
its strategy and productivity improvement programs.
- The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness, and to comply with the
covenants and restrictions contained in the instruments governing such
indebtedness, will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond
its control, including operating difficulties, increased operating costs,
market cyclicality, product prices, the response of competitors,
regulatory developments, and delays in implementing strategic projects.
- Currently, the selling prices for folding cartonboard and containerboard
products are higher than the depressed levels that existed in previous
years. However, due to the nature of the markets in which these products
are sold, the prices could substantially decrease in the future.
Accordingly, the Company's ability to meet its debt service and other
obligations will depend in part on the selling prices that the Company
realizes for these products.
- The Company's ability to meet its debt service and other obligations will
depend in significant part on the extent to which the Company can
implement successfully its business strategy. The components of
27
<PAGE> 31
the Company's strategy are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company.
- The Company currently estimates that it will take several years for
coated board markets to absorb the significant increase in the Company's
CUK Board capacity resulting from the upgrade of the second Macon Mill
paper machine. The Company expects to sell a significant portion of its
additional CUK Board production in open markets, principally
internationally. There can be no assurance that additional CUK Board
output can be sold in these markets or that such additional CUK Board can
be sold without experiencing price reductions.
- All of the Company's CUK Board is produced at its West Monroe and Macon
Mills. Any prolonged disruption in either facility's production due to
labor difficulties, equipment failures, destruction of or material damage
to such facility, or other reasons, could have a material adverse effect
on the Company's results of operations. Labor disputes, strikes, work
stoppages or other disturbances could materially adversely affect the
business, results of operations and financial condition of the Company.
- The Company faces significant competition in its CUK Board business
segment from Mead, as well as other manufacturers of packaging machinery.
The highly leveraged nature of the Company could limit the Company's
ability to respond to market conditions or to make necessary or desirable
capital expenditures as effectively as its competitors, which may not be
as leveraged as the Company. In addition, there can be no assurance that
there will not be new entrants in the CUK Board market segment. The
Company's folding cartonboard sales are affected by competition from
Mead's CUK Board and from other substrates: SBS and CCN and,
internationally, WLC and folding boxboard. There are a large number of
suppliers of paperboard for folding carton applications. CUK Board
competes in niche applications in folding cartonboard open markets,
serving only a small portion thereof. There can be no assurance that the
Company will be able to continue to compete successfully in folding
cartonboard open markets.
- Amounts paid by the Company for pine pulpwood, hardwood and recycled
fibers, used in the manufacture of paperboard, and various chemicals used
in the coating of CUK Board, represent the largest components of the
Company's variable costs of CUK Board and containerboard production. The
cost of these materials is subject to market fluctuations caused by
factors beyond the Company's control. OCC recycled fiber pricing tends to
be very volatile. With the October 1996 sale of the Company's
timberlands, the Company now relies on private land owners and the open
market for all of its virgin and recycled fiber requirements (except for
CUK Board clippings from its converting operations). Under the terms of
the sale of those timberlands, the Company and the buyer entered into a
20-year supply agreement, with a 10-year renewal option, for the purchase
by the Company, at market-based prices, of a majority of the West Monroe
Mill's requirements for pine pulpwood and residual chips, as well as a
portion of the Company's needs for hardwood pulpwood at the West Monroe
Mill. While the Company has not experienced any significant difficulty in
obtaining adequate supplies of virgin or recycled fiber for its West
Monroe Mill or Macon Mill, there can be no assurance that this will
continue to be the case for either such mill. Moreover, significant
increases in the cost of these materials, to the extent not reflected in
prices for the Company's products, could have a material adverse effect
on the Company's results of operations.
- The Company is subject to risks associated with operating in foreign
countries, including devaluations and fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
U.S. dollars or remittance of dividends and other payments by foreign
subsidiaries, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, hyperinflation in
certain foreign countries and imposition or increase of investment and
other restrictions by foreign governments. No assurance can be given that
such risks will not have a material adverse effect on the Company in the
future.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the
28
<PAGE> 32
Company does not intend to review or revise any particular forward-looking
statement referenced in this report in light of future events.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards for
the way companies account for and report on derivative instruments and hedging
activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company has not determined the impact
that SFAS No. 133 will have on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. To
minimize the risk from interest rate fluctuations, the Company enters into
various hedging transactions.
INTEREST RATES
The Company is exposed to changes in interest rates, primarily as a result
of its short-term and long-term debt with both fixed and floating interest
rates. The Company uses interest rate swap agreements effectively to fix the
LIBOR rate on $175,000,000 of variable rate borrowings.
INTEREST RATE SENSITIVITY -- PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED
MATURITY AVERAGE INTEREST (SWAP) RATE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
FAIR
(IN THOUSANDS OF DOLLARS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------------------------- ------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Long-term debt, including current
portion:
Fixed Rate..................... 1,264 668 1,562 715 716 901,409 906,334 895,868
Average Interest Rate.......... 10.6 10.6 10.6 10.6 10.6 10.6
Variable Rate.................. 4,137 130,446 173,036 366,345 156,002 -- 829,966 820,916
Average Interest Rate, spread
range is 2.5% to 3.50%....... LIBOR + LIBOR + LIBOR + LIBOR + LIBOR + LIBOR +
spread spread spread spread spread spread
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED
TO DEBT:
Interest rate swap:
Pay fixed/receive variable..... 175,000 175,000 654
Average pay rate............... 5.5
Average receive rate........... 90-day
LIBOR
</TABLE>
FOREIGN EXCHANGE RATES
The Company enters into forward exchange contracts to effectively hedge
substantially all accounts receivable and certain accounts payable resulting
from transactions denominated in foreign currencies. The purpose of the forward
exchange contracts is to protect the Company from the risk that the eventual
functional currency cash flows resulting from the collection of the hedged
accounts receivable or payment of the hedged accounts payable will be adversely
affected by changes in exchange rates.
29
<PAGE> 33
FOREIGN EXCHANGE RATES SENSITIVITY -- CONTRACTUAL AMOUNT BY EXPECTED
MATURITY -- AVERAGE CONTRACTUAL EXCHANGE RATE
<TABLE>
<CAPTION>
DECEMBER 31, FAIR
(IN THOUSANDS OF DOLLARS) 1999 VALUE
------------------------- ------------ -----
<S> <C> <C>
FORWARD EXCHANGE AGREEMENTS:
Functional Currency:
Yen
Receive $US/Pay Yen.................................. 23,708 (361)
Weighted average contractural exchange rate.......... 104.11
Pay $US/Receive Yen.................................. 16,915 256
Weighted average contractural exchange rate.......... 104.10
Euro
Receive $US/Pay Euro................................. 17,287 750
Weighted average contractural exchange rate.......... 1.05
Pay $US/Receive Euro................................. 7,228 (222)
Weighted average contractural exchange rate.......... 1.04
Other
Net Receive $US/Pay various.......................... 2,259 162
Weighted average contractural exchange rate.......... Various
</TABLE>
The remaining forward exchange agreements (other than the Yen and the Euro)
listed above represent contracts in several other countries' currencies,
including the British Pound and the Australian Dollar. In each instance, the
fair value of the net position of the Company's forward exchange agreements in
the respective currencies is not material at December 31, 1999.
30
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RIVERWOOD HOLDING, INC.
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 32
Consolidated Statements of Operations and Comprehensive Loss
for each of the three years in the period ended December
31, 1999.................................................. 33
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999............... 34
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1999..... 35
Notes to Consolidated Financial Statements.................. 36
Selected Quarterly Financial Data (Unaudited)............... 62
Management's Report......................................... 63
Report of Independent Auditors'............................. 64
IGARAS PAPEIS E EMBALAGENS S.A.
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 65
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1999............... 67
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999............... 68
Consolidated Statements of Changes in Shareholders' Equity
for each of the three years in the period ended December
31, 1999.................................................. 69
Notes to Consolidated Financial Statements.................. 70
Report of Independent Accountants........................... 82
</TABLE>
31
<PAGE> 35
RIVERWOOD HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and equivalents...................................... $ 14,108 $ 13,840
Receivables, net of allowances............................ 156,734 142,221
Inventories............................................... 173,610 167,388
Prepaid expenses.......................................... 10,990 8,579
Deferred tax assets....................................... -- 298
---------- ----------
Total Current Assets........................................ 355,442 332,326
Property, Plant and Equipment, at cost:
Land and improvements..................................... 40,234 40,681
Buildings................................................. 107,902 110,462
Machinery and equipment................................... 1,710,692 1,654,355
---------- ----------
1,858,828 1,805,498
Less, Accumulated Depreciation.............................. 428,916 310,008
---------- ----------
Property, Plant and Equipment, net.......................... 1,429,912 1,495,490
Deferred Tax Assets......................................... 53 42
Investments in Net Assets of Equity Affiliates.............. 146,473 143,611
Goodwill, net of accumulated amortization of $29,805 in 1999
and $21,857 in 1998....................................... 288,117 296,065
Other Assets................................................ 143,145 150,067
---------- ----------
Total Assets....................................... $2,363,142 $2,417,601
========== ==========
LIABILITIES
- -----------
Current Liabilities:
Short-term debt........................................... $ 17,339 $ 17,613
Accounts payable.......................................... 99,989 115,035
Compensation and employee benefits........................ 37,166 40,251
Income taxes.............................................. 601 1,272
Interest payable.......................................... 33,242 32,502
Other accrued liabilities................................. 55,338 72,104
---------- ----------
Total Current Liabilities................................... 243,675 278,777
Long-Term Debt, less current portion........................ 1,730,898 1,680,415
Deferred Income Taxes....................................... 10,923 12,118
Other Noncurrent Liabilities................................ 90,796 103,317
---------- ----------
Total Liabilities.................................. 2,076,292 2,074,627
---------- ----------
CONTINGENCIES AND COMMITMENTS (Note 15)
REDEEMABLE COMMON STOCK,
at current redemption value............................... 7,202 6,205
---------- ----------
SHAREHOLDERS' EQUITY
- --------------------
Nonredeemable Common Stock.................................. 75 75
Capital in Excess of Par Value.............................. 749,161 750,100
(Accumulated Deficit)....................................... (454,157) (397,913)
Cumulative Currency Translation Adjustment.................. (15,431) (15,493)
---------- ----------
Total Shareholders' Equity.................................. 279,648 336,769
---------- ----------
Total Liabilities and Shareholders' Equity.................. $2,363,142 $2,417,601
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 36
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales................................................. $1,112,711 $1,135,569 $1,138,854
Cost of Sales............................................. 871,970 936,957 1,000,391
Selling, General and Administrative....................... 114,402 112,117 116,581
Research, Development and Engineering..................... 4,078 5,570 5,171
Impairment Loss........................................... -- 15,694 --
Restructuring Charge...................................... -- 25,580 --
Other Expense, net........................................ 1,798 11,973 9,799
---------- ---------- ----------
Income from Operations.................................... 120,463 27,678 6,912
Interest Income........................................... 889 1,274 1,116
Interest Expense.......................................... 179,197 178,030 172,230
---------- ---------- ----------
(Loss) before Income Taxes and Equity in Net Earnings of
Affiliates.............................................. (57,845) (149,078) (164,202)
Income Tax Expense (Benefit).............................. 3,936 (617) 5,645
---------- ---------- ----------
(Loss) before Equity in Net Earnings of Affiliates........ (61,781) (148,461) (169,847)
Equity in Net Earnings of Affiliates...................... 7,110 8,157 22,890
---------- ---------- ----------
(Loss) before Extraordinary Item and Cumulative Effect of
a Change in Accounting.................................. (54,671) (140,304) (146,957)
Extraordinary Loss on Early Extinguishment of Debt, net of
tax of $0............................................... -- -- (2,463)
---------- ---------- ----------
(Loss) before Cumulative Effect of a Change in
Accounting.............................................. (54,671) (140,304) (149,420)
Cumulative Effect of a Change in Accounting, net of tax of
$0...................................................... -- -- (3,053)
---------- ---------- ----------
Net (Loss)................................................ (54,671) (140,304) (152,473)
---------- ---------- ----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments.................. 62 (1,308) (22,302)
---------- ---------- ----------
Comprehensive (Loss)...................................... $ (54,609) $ (141,612) $ (174,775)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 37
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)................................................ $(54,671) $(140,304) $(152,473)
Noncash Items Included in Net (Loss):
Depreciation and amortization........................... 142,597 146,515 137,384
Extraordinary loss on early extinguishment of debt,
net.................................................. -- -- 2,463
Deferred income taxes................................... (586) (1,398) 5,391
Pension, postemployment and postretirement benefits
expense, net of contributions........................ 4,761 2,181 4,925
Impairment loss......................................... -- 15,694 --
Restructuring charge.................................... -- 25,580 --
Equity in net earnings of affiliates, net of
dividends............................................ (2,596) (1,194) (17,662)
Amortization of deferred debt issuance costs............ 10,268 10,298 11,800
Other, net.............................................. 1,426 (263) 720
Net (Loss) of International entities for the month of
December 1999 (See Note 2).............................. (1,573) -- --
(Increase) Decrease in Current Assets:
Receivables.......................................... (16,884) (2,394) (948)
Inventories.......................................... (17,302) (2,662) 32,223
Prepaid expenses..................................... (2,242) 1,887 (3,655)
(Decrease) Increase in Current Liabilities:
Accounts payable..................................... (13,674) (1,273) (4,095)
Compensation and employee benefits................... (10,642) 560 706
Income taxes......................................... (786) (4,403) 13,701
Other accrued liabilities............................ (8,903) (9,361) (18,387)
(Decrease) Increase in Other Noncurrent Liabilities....... (12,552) 8,576 (16,289)
-------- --------- ---------
Net Cash Provided by (Used in) Operating Activities....... 16,641 48,039 (4,196)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant and Equipment................ (66,018) (48,551) (142,314)
Proceeds from Sales of Assets, net of selling costs....... 5,324 55,214 8,989
Proceeds from Tax Matters Settlement...................... -- -- 16,800
Payment of Merger Related Costs........................... -- -- (34,794)
(Increase) Decrease in Other Assets....................... (7,062) 2,276 (9,035)
-------- --------- ---------
Net Cash (Used in) Provided by Investing Activities....... (67,756) 8,939 (160,354)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Notes Payable.................. 55,900 (47,439) 35,156
Payments on Debt.......................................... (6,290) (11,868) (157,184)
Proceeds from Issuance (Repurchases) of Redeemable Common
Stock, net.............................................. 58 (893) (3,345)
Issuance of Debt.......................................... -- -- 300,000
Increase in Deferred Debt Issuance Costs.................. -- -- (8,612)
-------- --------- ---------
Net Cash Provided by (Used in) Financing Activities....... 49,668 (60,200) 166,015
-------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................... 1,715 1,311 (3,071)
-------- --------- ---------
Net Increase (Decrease) in Cash and Equivalents........... 268 (1,911) (1,606)
Cash and Equivalents at Beginning of Period............... 13,840 15,751 17,357
-------- --------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD..................... $ 14,108 $ 13,840 $ 15,751
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 38
RIVERWOOD HOLDING, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CAPITAL IN RETAINED CUMULATIVE
NONREDEEMABLE EXCESS OF EARNINGS CURRENCY TOTAL
COMMON PAR (ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK VALUE DEFICIT) ADJUSTMENT EQUITY
------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996.............. $ 75 $751,153 $(105,136) $ 8,117 $ 654,209
Net (Loss)............................... -- -- (152,473) -- (152,473)
Currency translation adjustment.......... -- -- -- (22,302) (22,302)
-------- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1997.............. 75 751,153 (257,609) (14,185) 479,434
Net (Loss)............................... -- -- (140,304) -- (140,304)
Currency translation adjustment.......... -- -- -- (1,308) (1,308)
Adjustment to redemption value of
Redeemable Common Stock................ -- (1,053) -- -- (1,053)
-------- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1998.............. 75 750,100 (397,913) (15,493) 336,769
Net (Loss)............................... -- -- (54,671) -- (54,671)
Net (Loss) of International entities for
the month of December 1999 (See Note
2)..................................... -- -- (1,573) -- (1,573)
Currency translation adjustment.......... -- -- -- 62 62
Adjustment to redemption value of
Redeemable Common Stock................ -- (939) -- -- (939)
-------- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1999.............. $ 75 $749,161 $(454,157) $(15,431) $ 279,648
======== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 39
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Holding and its wholly-owned subsidiaries RIC Holding and Acquisition Corp.
were incorporated in 1995 to acquire the stock of RIC.
On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged into RIC. RIC, as the surviving corporation in the Merger,
became a wholly-owned subsidiary of RIC Holding. On March 28, 1996, RIC
transferred substantially all of its properties and assets to Riverwood, other
than the capital stock of Riverwood, and RIC was merged into RIC Holding.
Thereupon, Riverwood was renamed "Riverwood International Corporation." Upon
consummation of the Subsequent Merger, RIC Holding, as the surviving corporation
in the Subsequent Merger, became the parent company of Riverwood.
Holding and its subsidiaries RIC Holding and Acquisition Corp. conducted no
significant business other than in connection with the Merger and related
transactions through March 27, 1996.
In connection with the Merger, the purchase method of accounting was used
to establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values of
the assets acquired and liabilities assumed was recorded as goodwill.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The following is a summary of significant accounting policies of the
Company.
The accompanying consolidated financial statements include all of the
accounts of Riverwood Holding, Inc. and its subsidiaries. The accompanying
consolidated financial statements include the worldwide operations of the Coated
Board segment which includes the paperboard, packaging, and packaging machinery
businesses and the Containerboard segment. All significant transactions and
balances between the consolidated operations have been eliminated.
Effective December 1, 1999, the Company changed its international
subsidiaries fiscal year end to December 31. Previously, the Company's
international subsidiaries were principally consolidated and reported on the
basis of fiscal years ending November 30. Accordingly, the net activity for the
month of December 1999 for the international entities is shown as an adjustment
to retained earnings in the accompanying financial statements. The following
represents summarized international results for the month of December 1999:
<TABLE>
<CAPTION>
MONTH ENDED
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999
- ------------------------- ------------
<S> <C>
Net Sales................................................... $22,370
=======
Net (Loss).................................................. $(1,573)
=======
</TABLE>
Effective January 1, 1999, the Company changed its U.S. fiscal quarter end
dates to correspond to the calendar quarter end dates. Previously, the Company's
interim periods were based on a thirteen week per quarter cycle. This change did
not materially impact the consistency of interim period reporting.
The Company accounts for investments in which it has a 20 percent to 50
percent ownership interest and for corporate joint ventures using the equity
method.
(B) CASH AND EQUIVALENTS
Cash and equivalents include time deposits, certificates of deposit and
other marketable securities with original maturities of three months or less.
36
<PAGE> 40
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(C) INVENTORIES
Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. Average cost
basis is used to determine the cost of supplies inventories.
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Betterments, renewals
and extraordinary repairs that extend the life of the asset are capitalized;
other repairs and maintenance charges are expensed as incurred. The Company's
cost and related accumulated depreciation applicable to assets retired or sold
are removed from the accounts and the gain or loss on disposition is recognized
in income.
Costs directly associated with the development and testing of computer
information systems for internal use are deferred and included in property,
plant and equipment. Such costs are amortized on a straight-line basis over the
expected useful life of 5 years. Costs indirectly associated with such projects
and ongoing maintenance costs are expensed as incurred. A total of $18.9 million
and $7.6 million in costs relating to software development were capitalized in
1999 and 1998, respectively, and were included in property, plant and equipment
at December 31, 1999 and December 31, 1998.
Interest is capitalized on major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. Capitalized interest was approximately $1.4
million, $1.4 million, and $3.5 million in the years ended December 31, 1999,
1998, and 1997, respectively.
(E) DEPRECIATION AND AMORTIZATION
Depreciation and amortization are principally computed using the
straight-line method based on the following estimated useful lives of the
related assets:
<TABLE>
<S> <C>
Buildings.................................................. 10 to 40 years
Land improvements.......................................... 3 to 20 years
Machinery and equipment.................................... 2 to 40 years
Furniture and fixtures..................................... 1 to 12 years
Automobiles and light trucks............................... 2 to 5 years
</TABLE>
For certain major capital additions, the Company computes depreciation on
the units-of-production method until the asset's designed level of production is
achieved and sustained.
The Company assesses its long-lived assets other than goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
such assets. If these projected cash flows are less than the carrying amount, an
impairment would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is measured based upon the
difference between the carrying amount and the fair value of the assets. The
Company assesses the appropriateness of the useful life of its long-lived assets
periodically.
Goodwill is amortized on a straight-line basis over 40 years. The cost of
patents, licenses and trademarks is amortized on a straight-line basis over 15
to 20 years. The related amortization expense is included in Other Expense, net,
in the Consolidated Statements of Operations. The Company assesses goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
the goodwill. If these projected cash flows are less than the carrying amount of
the goodwill, an impairment would be recognized, resulting in a write down of
goodwill with a corresponding charge to
37
<PAGE> 41
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
earnings. The impairment loss is measured based upon the difference between the
carrying amount of the goodwill and the undiscounted future cash flows before
interest.
(F) INTERNATIONAL CURRENCY
The functional currency for most of the international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to Shareholders' Equity. Gains and losses on foreign currency
transactions are included in Other Expense, net, in the Consolidated Statements
of Operations for the period in which the exchange rate changes.
The Company enters into forward exchange contracts to hedge certain foreign
currency denominated exposures and option contracts to hedge anticipated
transactions denominated in foreign currency. Realized and unrealized gains and
losses on these contracts are included in Other Expense, net, in the
Consolidated Statements of Operations. The discount or premium on a forward
exchange contract is included in the measurement of the basis of the related
foreign currency transaction when recorded. The premium on an option contract is
accounted for separately and amortized to Other Expense, net, over the term of
the contract.
(G) INCOME TAXES
The Company accounts for income taxes under the liability method whereby
the effect of changes in corporate tax rates on deferred income taxes is
recognized currently as an adjustment to income tax expense. The liability
method also requires that deferred tax assets or liabilities be recorded based
on the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. A valuation allowance is
established for deferred tax assets when it is more likely than not that the
benefits of such assets will not be realized.
(H) REVENUE RECOGNITION
The Company recognizes revenue primarily when goods are shipped to
customers. Revenues from packaging machinery use agreements received in advance
are recognized on a straight-line basis over the term of the agreements.
(I) INSURANCE RESERVES
It is the Company's policy to self-insure or fund a portion of certain
expected losses related to group health benefits. Provisions for losses expected
are recorded based on the Company's estimates, on an undiscounted basis, of the
aggregate liabilities for known claims and estimated claims incurred but not
reported.
(J) ENVIRONMENTAL REMEDIATION RESERVES
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
such losses are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.
38
<PAGE> 42
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(K) RECLASSIFICATION
The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.
(L) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates.
NOTE 3 -- RECEIVABLES
The components of receivables at December 31 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Trade....................................................... $156,333 $133,265
Less, allowance............................................. 3,500 2,132
-------- --------
152,833 131,133
Other....................................................... 3,901 11,088
-------- --------
$156,734 $142,221
======== ========
</TABLE>
NOTE 4 -- FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments include foreign
currency forward exchange contracts and interest rate swap and cap agreements.
These instruments involve, to varying degrees, elements of market and credit
risk in excess of the amounts recognized in the Consolidated Balance Sheets. The
Company does not hold or issue such financial instruments for trading purposes.
The Company enters into forward exchange contracts to effectively hedge
substantially all accounts receivable and certain accounts payable resulting
from transactions denominated in foreign currencies. The purpose of the forward
exchange contracts is to protect the Company from the risk that the eventual
functional currency cash flows resulting from the collection of the hedged
accounts receivable or payment of the hedged accounts payable will be adversely
affected by changes in exchange rates. At December 31, 1999 and 1998, the
Company had various foreign forward exchange contracts, with maturities ranging
up to one year. When aggregated and measured in U.S. dollars at year-end
exchange rates, the notional amount of these forward exchange contracts totaled
approximately $30.7 million and $44.9 million at December 31, 1999 and 1998,
respectively. Generally, unrealized gains and losses resulting from these
contracts are recognized currently in operations and approximately offset
corresponding unrealized gains and losses recognized on the hedged accounts
receivable or accounts payable.
During 1999 and 1998, the Company entered into option contracts to hedge
certain anticipated foreign currency transactions. The purpose of the option
contracts is to protect the Company from the risk that the eventual functional
currency cash flows resulting from anticipated foreign currency transactions
will be adversely affected by changes in exchange rates. At December 31, 1999,
various option contracts existed, which expire on various dates through the year
2000. When measured in U.S. dollars at year-end exchange
39
<PAGE> 43
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
rates, the notional amount of the purchased option contracts totaled
approximately $24.9 million. At December 31, 1998, one option contract existed,
with a maturity of one year. When measured in U.S. dollars at year-end exchange
rates, the notional amount of the purchased option contract totaled
approximately $15.8 million. Option contract premiums are amortized over the
term of the contract. Gains and losses, if any, related to these contracts are
recognized in income when the anticipated transaction occurs.
The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The differential to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to the debt. At December 31, 1999, the Company had
interest rate swap agreements with a notional amount of $175 million which
expire on various dates through the year 2000, under which the Company will pay
fixed rates of 5.05 percent to 6.15 percent and receive three-month LIBOR. At
December 31, 1998, the Company had interest rate swap agreements with a notional
amount of $300 million which expire on various dates through the year 2000,
under which the Company will pay fixed rates of 5.05 percent to 5.945 percent
and receive three-month LIBOR.
The Company's customers are not concentrated in any specific geographic
region, but are concentrated in certain industries. Customers of the Coated
Board business segment include the beverage and packaged foods industries.
Customers of the Containerboard business segment include integrated and
non-integrated containerboard converters. During the years ended December 31,
1999 and 1998, one customer accounted for approximately 11 percent of the
Company's net sales. During the year ended December 31, 1997, no single customer
accounted for more than 10 percent of the Company's net sales. There were no
significant accounts receivable from a single customer at December 31, 1999 and
1998. The Company reviews a customer's credit history before extending credit.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
The following methods and assumptions were used to estimate the fair value
of each category of financial instrument for which it is practicable to estimate
that value:
NONTRADE RECEIVABLES AND SHORT TERM BORROWINGS
The carrying amount of these instruments approximates fair value due to
their short-term nature.
LONG-TERM DEBT
The fair value of long-term debt is based on quoted market prices.
FORWARD EXCHANGE AND OPTION CONTRACTS
The fair value of forward and option contracts is based on quoted market
prices.
INTEREST RATE SWAP AND CAP AGREEMENTS
The fair value of interest rate swap and cap agreements is based on quoted
market prices by counter parties taken into account the current creditworthiness
of the swap counterparties.
40
<PAGE> 44
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
The carrying amounts and estimated fair value of the Company's financial
instruments as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS OF DOLLARS) AMOUNTS VALUE AMOUNTS VALUE
- ------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nontrade receivables.................... $ 3,901 $ 3,901 $ 11,088 $ 11,088
Short-term borrowings................... $ 11,937 $ 11,937 $ 5,537 $ 5,537
Long-term debt.......................... $1,736,300 $1,716,781 $1,692,491 $1,629,012
Current forward exchange contracts...... $ -- $ 392 $ -- $ (2,489)
Currency option contracts............... $ -- $ 280 $ -- $ 266
Interest rate swap contracts............ $ -- $ 654 $ -- $ (1,807)
</TABLE>
NOTE 5 -- INVENTORIES
The major classes of inventories at December 31 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Finished goods.............................................. $ 80,054 $ 72,120
Work-in progress............................................ 15,845 7,157
Raw materials............................................... 45,143 52,669
Supplies.................................................... 32,568 35,442
-------- --------
$173,610 $167,388
======== ========
</TABLE>
Inventories in the amount of $32.9 million and $33.1 million at December
31, 1999 and 1998, respectively, were valued using the first-in, first-out
("FIFO") or average cost method. The balance of the inventories was valued using
the LIFO method. The (shortage)/excess of FIFO values over amounts for financial
reporting purposes was $(6.6) million and $0.9 million at December 31, 1999 and
1998, respectively. During the years ended December 31, 1999, 1998, and 1997,
the company recognized a (credit)/charge relating to LIFO valuation of $(5.3)
million, $(7.2) million, and $6.9 million, respectively.
In connection with the Merger, the Company adjusted its inventory balances
to its estimated fair value which resulted in a write-up to inventory of
approximately $13.6 million and is being charged to cost of sales when the March
27, 1996 LIFO base inventory layers are liquidated. Approximately nil, $0.7
million, and $3.9 million of this fair value write-up of inventories was charged
to cost of sales during the years ended December 31, 1999, 1998, and 1997,
respectively.
NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES
The major components of Investments in Net Assets of Equity Affiliates at
December 31 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Equity investment in Igaras................................. $140,693 $138,496
Other equity investments.................................... 5,780 5,115
-------- --------
$146,473 $143,611
======== ========
</TABLE>
41
<PAGE> 45
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES -- (CONTINUED)
Investments are accounted for using the equity method of accounting. The
most significant of these investments is Igaras, an integrated containerboard
producer located in Brazil of which the Company owns slightly less than 50
percent. The following represents the summarized balance sheet information for
Igaras as of December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Current Assets.............................................. $ 59,459 $ 82,503
Noncurrent Assets........................................... $430,948 $451,922
Current Liabilities......................................... $ 92,724 $ 97,956
Noncurrent Liabilities...................................... $ 91,109 $132,866
Shareholders' Equity........................................ $306,574 $303,603
</TABLE>
The following represents the summarized income statement information for
Igaras for the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net Sales......................................... $202,156 $257,026 $239,454
Cost of Sales..................................... 165,911 205,047 165,983
-------- -------- --------
Gross Profit...................................... $ 36,245 $ 51,979 $ 73,471
======== ======== ========
Income from Operations............................ $ 15,792 $ 23,441 $ 49,194
======== ======== ========
Net Income........................................ $ 10,354 $ 11,747 $ 42,673
======== ======== ========
</TABLE>
During the years ended December 31, 1999, 1998, and 1997, paperboard was
sold to Igaras totaling approximately $18.8 million, $23.0 million, and $12.6
million, respectively. The amount of the carrying value of the investment in
Igaras at December 31, 1999 and 1998 differs from the underlying equity in net
assets by $12.6 million and $13.3 million, respectively, and relates to the
write-down of this investment to estimated fair value in purchase accounting and
declared but unpaid dividends. Included in Receivables at December 31, 1999 and
1998 were amounts due from Igaras of $11.9 million and $3.5 million,
respectively, for paperboard sales. Included in Other Assets as of December 31,
1999 and 1998 are long-term receivables from Igaras for packaging machinery
sales of $3.1 million and $3.9 million, net of unamortized discount of $0.5
million and $0.7 million, respectively.
The amount of the Company's portion of Igaras' undistributed earnings at
December 31, 1999 and 1998 was approximately $48.4 million and $45.4 million,
respectively. The amount of dividends received from Igaras during the years
ended December 31, 1999, 1998, and 1997 were $2.9 million, $5.4 million, and
$4.0 million, respectively, net of taxes of $0.5 million, $0.9 million, and $0.7
million, respectively. Under the Igaras joint venture agreement, Igaras is
required to pay dividends equal to at least 25 percent of its net profits.
On January 14, 1999, the Central Bank of Brazil changed the foreign
exchange policy by eliminating the exchange rate band, which had been used as a
means to control the fluctuation of the Real against the U.S. dollar. The
exchange rate is now determined by market forces. As a consequence of such
change, the Real suffered a significant devaluation related to the U.S. dollar
during the beginning of 1999.
During the third quarter of 1999, the Company sold an investment other than
Igaras, resulting in a receipt of a final dividend of $0.8 million. No
significant gain or loss was recognized in accordance with the sale.
42
<PAGE> 46
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- OTHER ASSETS
Other Assets included intangible assets at December 31, and consisted of
the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
------------------------- -------- --------
<S> <C> <C>
Patents, licenses and trademarks............................ $ 65,605 $ 64,826
Less, accumulated amortization.............................. 12,971 9,366
-------- --------
52,634 55,460
Deferred debt issuance costs, net........................... 42,098 52,372
Pension assets.............................................. 11,221 13,312
Capitalized spare parts..................................... 21,508 16,606
Deferred design costs....................................... 4,293 4,625
Other....................................................... 11,391 7,692
-------- --------
$143,145 $150,067
======== ========
</TABLE>
NOTE 8 -- SHORT-TERM DEBT
Short-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
------------------------- ------- -------
<S> <C> <C>
Short-term borrowings....................................... $11,937 $ 5,537
Current portion of long-term debt........................... 5,402 12,076
------- -------
$17,339 $17,613
======= =======
</TABLE>
Short-term borrowings are principally at the Company's international
subsidiaries. The weighted average interest rate on short-term borrowings as of
December 31, 1999 and 1998 was 2.4 percent and 3.1 percent, respectively.
In connection with the Merger, the Company called $125 million of
Convertible Subordinated Notes, of which $0.2 million and $6.0 million was not
redeemed at December 31, 1999 and 1998, respectively, and is included in current
portion of long-term debt.
NOTE 9 -- COMPENSATION AND EMPLOYEE BENEFITS
Accruals for future compensated employee absences, principally vacation,
were $11.1 million and $13.9 million at December 31, 1999 and 1998,
respectively, and were included in Compensation and employee benefits on the
Consolidated Balance Sheets.
NOTE 10 -- LONG-TERM DEBT
In connection with the Merger, the Company entered into the Senior Secured
Credit Agreement with certain lenders providing the Senior Secured Credit
Facilities with aggregate commitments not to exceed $1,550 million, including
the $1,150 million Term Loan Facility and the $400 million Revolving Facility.
In addition, RIMI, entered into the Machinery Credit Agreement providing for the
$140 million Machinery Facility with certain lenders for the purpose of
financing or refinancing packaging machinery. In connection with the Merger, the
Company also completed the Notes Offering of $250 million aggregate principal
amount of 10 1/4% Senior Notes due 2006 and $400 million aggregate principal
amount of 10 7/8% Senior Subordinated Notes due 2008. Furthermore, substantially
all outstanding indebtedness (with certain limited exceptions) and packaging
machinery leasing obligations of RIC and its subsidiaries were repaid or
terminated in connection with the Merger.
43
<PAGE> 47
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)
Annual term loan amortization requirements under the Term Loan Facility
will be approximately $4 million, $120 million, $173 million, $184 million and
$156 million for each of the years 2000 through 2004, respectively. The
Revolving Facility will mature in 2003 and the Machinery Facility will mature in
2001, with all amounts then outstanding becoming due. The loans under the
Facilities bear interest at floating rates based upon the interest rate option
elected by the Company.
On July 28, 1997, the Company completed an offering of $250 million
principal amount of 10 5/8% Senior Notes due 2007. The net proceeds of this
offering were applied to prepay certain revolving credit borrowings under the
Company's Revolving Facility (without any commitment reduction) and to refinance
certain Tranche A term loans and other borrowings under the Senior Secured
Credit Agreement. A registration statement under the Securities Act of 1933, as
amended, registering the New Notes offered in exchange for the 1997 Notes became
effective October 1, 1997. On November 3, 1997, the Company completed its
exchange offer of the 1997 Notes for the New Notes.
In connection with the 1997 Notes, the Company's senior secured lenders
modified certain financial and other covenants to reflect, among other things,
the Company's recent financial results and market and operating conditions, as
well as the consummation of the 1997 Notes offering and prepayment of the Term
Loan Facility and other borrowings. The amended covenants also specify permitted
capital expenditures (subject to certain carryover allowances and other
adjustments) of no more than $140 million and $135 million for 1999 and 2000,
respectively, and $130 million per year thereafter and places restriction on the
payments of dividends. The amended covenants also specify, among other changes,
the elimination of the minimum consolidated net worth requirements, and the
following amended minimum EBITDA and interest coverage ratio requirements for
each four quarter period ending during the following test periods:
<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
- ------ ------------ -----------------------
<S> <C> <C>
December 31, 1999 -- December 30, 2000............... $265 million 1.25 to 1.00
December 31, 2000 -- December 30, 2001............... $325 million 1.50 to 1.00
December 31, 2001 -- December 30, 2002............... $350 million 1.75 to 1.00
December 31, 2002 -- December 30, 2003............... $375 million 2.00 to 1.00
Thereafter........................................... $400 million 2.25 to 1.00
</TABLE>
The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the Indentures governing
the Notes limit the Company's ability to incur additional indebtedness. Such
restrictions, together with the highly leveraged nature of the Company, could
limit the Company's ability to respond to market conditions, to meet its capital
spending program, to provide for unanticipated capital investments or to take
advantage of business opportunities. The covenants contained in the Credit
Agreements also, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur guarantee obligations, repay the Notes,
pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, make capital expenditures or engage in certain
transactions with affiliates, and otherwise restrict corporate activities. The
covenants contained in the Indentures governing the Notes also impose
restrictions on the operation of the Company's businesses. The Company was in
compliance with the financial covenants in its Credit Agreements at December 31,
1999.
44
<PAGE> 48
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)
At December 31, 1999, the Company and its U.S. and international
subsidiaries had the following amounts available under revolving credit
facilities:
<TABLE>
<CAPTION>
TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
OF OUTSTANDING AT AVAILABLE AT
(IN THOUSANDS OF DOLLARS) COMMITMENTS DECEMBER 31, 1999 DECEMBER 31, 1999
- ------------------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
Revolving Facility........................ $400,000 $187,400 $212,600
Machinery Facility........................ 140,000 10,000 32,000
International Facilities.................. 27,868 11,938 15,930
-------- -------- --------
$567,868 $209,338 $260,530
======== ======== ========
</TABLE>
During 1999, the Company issued a standby letter of credit for
approximately $5 million to guarantee an international subsidiary's line of
credit. In accordance with its debt agreements, the Company's availability under
its Senior Secured Revolving Facility was reduced by that amount.
Availability under the Machinery Facility is limited by a borrowing base.
Undrawn Revolving Facility availability is expected to be used to meet future
working capital and other business needs of the Company. The Company anticipates
pursuing additional working capital financing for its foreign operations as
necessary.
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- ---------- ----------
<S> <C> <C>
Senior Notes with interest payable semi-annually at 10.625
percent, payable in 2007.................................. $ 250,000 $ 250,000
Senior Notes with interest payable semi-annually at 10.25
percent, payable in 2006.................................. 250,000 250,000
Senior Subordinated Notes with interest payable
semi-annually at 10.875 percent, payable in 2008.......... 400,000 400,000
Senior Secured Term Loan Facility with interest payable at
various dates less than one year at floating rates (8.61
percent to 9.61 percent at December 31, 1999), payable
through 2004.............................................. 637,080 641,042
Senior Secured Revolving Facility with interest payable at
various dates less than one year at floating rates (7.91
percent to 10.0 percent at December 31, 1999), payable in
2003...................................................... 182,300 116,400
Machinery Facility with interest payable at various dates
less than one year at floating rates (8.97 percent at
December 31, 1999), payable in 2001....................... 10,000 20,000
Senior Notes with interest payable semi-annually at 10.75
percent, payable in 2000.................................. 529 529
Senior Subordinated Notes with interest payable
semi-annually at 11.25 percent, payable in 2002........... 804 804
Convertible Subordinated Notes with interest payable
semi-annually at 6.75 percent, payable in 2003,
convertible beginning March 27, 1996...................... 209 6,044
Senior Subordinated Notes with interest payable
semi-annually at 10.375 percent, payable in 2004.......... 0 15
Pollution control revenue bonds with interest payable
semi-annually at 6.25 percent, payable through 2007....... 1,000 1,000
International Notes payable to banks with interest payable
at various dates less than one year at interest rates of
3.84 percent at December 31, 1999, payable through 2001... 585 2,288
</TABLE>
45
<PAGE> 49
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LONG-TERM DEBT -- (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- ---------- ----------
<S> <C> <C>
Capitalized leases with interest payable of 3.6 percent,
payable through 2005...................................... $ 3,738 $ 4,334
Other....................................................... 55 35
---------- ----------
1,736,300 1,692,491
Less, current portion....................................... 5,402 12,076
---------- ----------
$1,730,898 $1,680,415
========== ==========
</TABLE>
The Term Loan Facility, the Revolving Facility and the Machinery Facility
were collateralized by substantially all of the net assets (including the
capital stock of certain international subsidiaries) of the Company.
Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1999, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------
<S> <C>
2000........................................................ $ 5,402
2001........................................................ 131,115
2002........................................................ 174,598
2003........................................................ 367,060
2004........................................................ 156,717
After 2004.................................................. 901,408
----------
$1,736,300
==========
</TABLE>
NOTE 11 -- REDEEMABLE COMMON STOCK
During the nine months ended December 31, 1996, Holding completed an
offering of Holding Common Stock to certain members of management and key
employees of the Company. As of December 31, 1996, the Company had issued
111,900 shares of Holding Class A Common Stock to Management Investors at fair
value for gross cash proceeds of $11.2 million. During 1999, the Company issued
29,850 shares of additional Redeemable Common Stock to Management Investors at
fair value for gross cash proceeds of $3.0 million. The common stock held by
Management Investors is mandatorily redeemable at fair market value as
determined by the Executive Committee of the Board of Directors and in certain
circumstances the Management Investors can require the Company to repurchase the
Holding Class A Common Stock. These shares are classified as Redeemable Common
Stock on the Consolidated Balance Sheets and are carried at their redemption
value at December 31, 1999. Accordingly, the difference between the redemption
value at December 31, 1997 of $85 per share and the redemption value at December
31, 1999 of $115 per share as determined by the Executive Committee of the Board
of Directors is accounted for as a charge to Capital in Excess of Par Value of
which $0.9 million and $1.1 million was recorded in 1999 and 1998, respectively.
During 1999 and 1998, the Company repurchased 29,270 and 10,500 shares of
Redeemable Common Stock at a weighted average price of $92.70 per share and
$85.00 per share, respectively.
In connection with the issuance of Redeemable Common Stock to Management
Investors, the Company has guaranteed loans, with full recourse, from a bank to
certain Management Investors totaling approximately $1.0 million at December 31,
1999.
46
<PAGE> 50
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- NONREDEEMABLE COMMON STOCK
On March 27, 1996, Holding completed an offering of 7,000,000 shares of
Class A Common Stock with a par value of $0.01 per share to certain
institutional investors for $700 million. Total Class A Common Stock authorized
for issuance at December 31, 1999 was 9,000,000 shares, of which amount
7,062,630 shares were outstanding, including 62,630 shares issued to Management
Investors as Redeemable Common Stock (see Note 11). Also on March 27, 1996,
Holding completed an offering of 500,000 shares of Class B Common Stock with a
par value of $0.01 per share to an institutional investor for $50 million. Total
Class B Common Stock, which is non-voting, authorized for issuance at December
31, 1999 was 3,000,000 shares, of which 500,000 shares were outstanding.
NOTE 13 -- STOCK INCENTIVE PLANS
In 1996, the Company developed a Long-Term Incentive Plan (LTP) designed to
provide certain key executives and management options to purchase shares of
redeemable Class A Common Stock. Additionally, in 1999 the Company developed a
Supplemental Long-Term Incentive Plan (SLTP) to provide additional options to
certain key executives and management. The following table summarizes
information pertaining to options outstanding and exercisable at December 31,
1999:
<TABLE>
<CAPTION>
GRANTED EXERCISABLE
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE VESTING NUMBER EXERCISE
PLAN GRANT DATE OUTSTANDING PRICE REFERENCE EXERCISABLE PRICE
- ------------------------------------ ----------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SLTP May-Dec, 1999............ 185,500 $ 100 (1) 42,980 $ 100
LTP June-Dec, 1999........... 51,800 100 (2) -- --
LTP August 1998.............. 22,500 100 (3) 4,800 100
LTP March 1997............... 225,000 75 (4) 74,025 75
LTP June 1996................ 69,110 100 (5) 35,436 100
------- ------ ------- ------
Total................ 553,910 $89.84 157,241 $88.23
======= ====== ======= ======
</TABLE>
- ---------------
(1) Options vest based upon a range of certain financial goals over the next
three years. Each year, the vesting starts at 20% for achievement of a
minimum financial target, and increases to a maximum of 33 1/3% per year,
prorated on a straight-line basis for achievement of certain financial
results above the minimum. Those options which do not vest in this
three-year period, will vest, assuming the employee is still employed at the
Company, on December 31, 2008.
(2) 37,200 of the options will vest in five equal annual installments on each of
the first five anniversaries of the date of grant, subject to continuous
employment. The remaining 14,600 options vest on the date that the Company
achieves certain financial targets by December 31, 2003. Should those
options not vest as described above, they will vest assuming the employee is
still employed at the Company, nine years and six months following the date
of grant.
(3) 15,000 of the options will vest in four equal annual installments, on each
of the first four anniversaries of the date of grant, subject to continuous
employment, and the remaining 7,500 options will vest based on achievement
of certain financial goals or on February 19, 2008, whichever occurs first.
(4) 112,500 of these options will vest in five equal annual installments on each
of the first five anniversaries of the date of grant, subject to continuous
employment, and the remaining 112,500 have accelerated vesting based on
achievement of certain financial goals or on September 30, 2006, whichever
occurs first.
(5) These options vest over a five-year period, although some of the options may
have accelerated vesting based on the achievement of certain financial
goals.
47
<PAGE> 51
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- STOCK INCENTIVE PLANS -- (CONTINUED)
A summary of option activity during the three years ended December 31, 1999
is as follows:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Outstanding -- December 31, 1996............................ 296,550 $ 100.00
Granted................................................... 225,000 75.00
Exercised................................................. -- --
Canceled.................................................. (128,907) (100.00)
-------- ---------
Outstanding -- December 31, 1997............................ 392,643 85.67
Granted................................................... 30,000 100.00
Exercised................................................. --
Canceled.................................................. (74,297) (100.00)
-------- ---------
Outstanding -- December 31, 1998............................ 348,346 83.85
Granted................................................... 237,300 100.00
Exercised................................................. (6,000) (100.00)
Canceled.................................................. (25,736) (100.00)
-------- ---------
Outstanding -- December 31, 1999............................ 553,910 $ 89.84
======== =========
</TABLE>
The weighted average contractual life of the outstanding options at
December 31, 1999, is 6 years. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the Stock Options. Accordingly, the Company recognizes
compensation expense for Stock Options when the exercise price is less than the
related fair value at the date of grant or when the performance criteria is met.
During the years ended December 31, 1999, 1998 and 1997, the Company recognized
compensation expense of $0.7 million, $1.0 million, and $0.4 million,
respectively, related to Stock Options. Had compensation expense for the
Company's grants of Stock Options been determined in accordance with Statement
of Financial Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), the Company's Net Loss for the years ended December 31, 1999, 1998,
and 1997, would have been approximately $57.0 million, $141.9 million, and
$154.4 million, respectively. The weighted average fair value of the stock
options was estimated to be $28.03 per option on the date of grant for stock
options granted in 1999, $5.54 per option on the date of grant for stock options
granted in 1998, and $27.46 per option on the date of grant for stock options
granted in 1997 and 1996. The Company used the Black-Scholes option-pricing
model to value the Stock Options with the following assumptions: dividend yield
of zero, no volatility, risk-free interest rates ranging from 5.304 to 6.75
percent, a zero forfeiture rate and an expected life of 3 to 10 years. The
effects of applying SFAS No. 123 in this pro forma disclosure are not indicative
of future amounts.
NOTE 14 -- CURRENCY TRANSLATION ADJUSTMENT
An analysis of changes in the Cumulative Currency Translation Adjustment
included in Shareholders' Equity at December 31 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
------------------------- -------- -------- --------
<S> <C> <C> <C>
Cumulative currency translation adjustment at beginning
of period............................................ $(15,493) $(14,185) $ 8,117
Currency translation adjustments....................... 62 (1,308) (22,262)
Income taxes related to currency translation
adjustments.......................................... -- -- (40)
-------- -------- --------
$(15,431) $(15,493) $(14,185)
======== ======== ========
</TABLE>
48
<PAGE> 52
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- CONTINGENCIES AND COMMITMENTS
Total rental expense was approximately $16.6 million, $14.1 million, and
$15.2 million for the years ended December 31, 1999, 1998, and 1997.
At December 31, 1999, total commitments of the Company under long-term,
non-cancelable contracts were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
- -------------------------
<S> <C>
2000........................................................ $ 28,370
2001........................................................ 24,379
2002........................................................ 18,458
2003........................................................ 19,971
2004........................................................ 8,410
After 2004.................................................. 85,321
--------
$184,909
========
</TABLE>
The Company is committed to compliance with all applicable environmental
laws and regulations throughout the world. Environmental law is, however,
dynamic rather than static. As a result, costs, which are unforeseeable at this
time, may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the U.S. Environmental Protection Agency proposed regulations
(generally referred to as the "cluster rules") that would mandate more stringent
controls on air and water discharges from the United States pulp and paper
mills. The cluster rules were promulgated in April 1998, and the Company
estimates the capital spending that may be required to comply with the cluster
rules could reach $55 million to be spent at its two U.S. paper mills over a
seven-year period beginning in 2000.
In late 1995, the Louisiana Department of Environmental Quality ("DEQ")
notified the Predecessor of potential liability for the remediation of hazardous
substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessors previously operated, and at a former oil
refinery site in Caddo Parish, Louisiana which is on land that the Company
currently owns. In response to these notices, the Company has provided
additional information concerning these sites and has commenced its own
evaluation of any claims and remediation liabilities for which it may be
responsible. Subsequent to receipt in May 1996 of a Special Demand Letter from
DEQ to remediate the site in Shreveport, the Company entered into an agreement
with DEQ to perform a soil and groundwater investigation at the site. The
Company completed this investigation work in 1999 and is in ongoing discussions
with the DEQ to develop an appropriate remediation plan and exit strategy. In
September 1996, the Company received a Special Demand Letter from DEQ to
remediate the site in Caddo Parish. The Company performed a waste inventory and
treatability study at the site and subsequently met with the DEQ in October
1999. Currently, the Company is in ongoing discussions with the DEQ to develop
an appropriate remediation plan and exit strategy.
The Company is involved in environmental remediation projects for certain
properties currently owned or operated by the Company, certain properties
divested by the Company for which responsibility was retained, and waste sites
where waste was shipped by predecessors of the Company or for which the Company
might have corporate successor liability. Certain of these projects are being
addressed under federal and state statutes, such as the Comprehensive
Environmental Response, Compensation and Liability Act and the state law
counterparts. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway or liability at
multiparty sites has been addressed. To address these contingent environmental
costs, the Company has accrued reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory requirements, the accruals established by the Company for
environmental expenditures are adequate. Based on current
49
<PAGE> 53
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- CONTINGENCIES AND COMMITMENTS -- (CONTINUED)
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.
The Company is a party to a number of lawsuits arising out of the ordinary
conduct of its business. While there can be no assurance as to their ultimate
outcome, the Company does not believe that these lawsuits will have a material
impact on the results of operations, cash flows or financial condition of the
Company.
The Company is a plaintiff in several actions against Mead claiming
infringement of the Company's patents for its packaging machines, as to which
Mead has filed counterclaims asserting that the Company's patents are invalid.
In the furthest advanced of these actions, on November 18, 1998, a federal court
entered an order refusing to adopt a special master's recommended finding that
the Company's patent in issue was invalid, and ruled that Mead had been
unlawfully infringing the Company's patent. On February 16, 1999, Mead filed an
appeal from that decision. An oral argument with regard to this appeal was held
on February 9, 2000 before the Court of Appeals for the Federal Circuit. The
Company is awaiting a decision.
In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for U.S. federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $27.5
million in estimated Louisiana stand-alone taxes relating to the election. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. It is possible that the voiding of the 1993
amendment could result in the Company being required to pay significant
additional Louisiana income tax relating to the election (plus potential
penalties and statutory interest on the additional taxes). After consultation
with Louisiana tax counsel, the Company filed its Louisiana income tax return
for the period ended March 27, 1996 in reliance on the Louisiana tax law in
effect at the time of the Merger, without the payment of any additional tax due
to the voiding of the 1993 amendment. There can be no assurance, however, that
the Company would ultimately prevail on this issue if Louisiana were to
challenge such filing position. If the Company were not to prevail in such a
challenge, significant additional Louisiana income tax relating to the election
could be payable. Management estimates that the maximum amount of such
additional tax is approximately $47 million (plus potential penalties and
statutory interest on any additional tax). The tax period ended March 27, 1996,
is currently under audit by the State of Louisiana. If the Company receives an
assessment from the State, the Company will consider paying the assessed amount
to avoid further interest accruals as it contests the assessment. Management
believes that the additional tax ultimately paid (if any) will be substantially
less than the estimated maximum amount, although no assurance can be given in
this regard. The Company and its advisors are continuing to study this
situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.
NOTE 16 -- PENSIONS
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. The adoption
of SFAS No. 132 did not have a material impact on the Company's pension and
other postretirement disclosures.
50
<PAGE> 54
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- PENSIONS -- (CONTINUED)
U.S. HOURLY AND SALARIED PENSION PLANS
All of the Company's U.S. hourly union employees are participants in the
Company's noncontributory defined benefit hourly plan (the "Hourly plan"). The
pension expense of the Hourly plan is based primarily on years of service and
the pension rate near retirement. The Company's U.S. salaried and nonunion
hourly employees are participants in the Company's noncontributory defined
benefit plan that was established during 1992 (the "Salaried plan").
The Company's funding policies with respect to its U.S. pension plans are
to contribute funds to trusts as necessary to at least meet the minimum funding
requirements of the U.S. Internal Revenue Code. Plan assets are invested
primarily in equities and fixed income securities.
(A) PENSION EXPENSE
The pension expense related to the Hourly plan and Salaried plan consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost.................................... $ 5,395 $ 4,958 $ 4,745
Interest cost................................... 14,231 13,955 14,552
Expected return on plan assets.................. (20,454) (18,289) (18,668)
Amortizations:
Prior service cost........................... 1,023 989 816
Actuarial loss/(gain)........................ 53 (65) --
-------- -------- --------
Net periodic pension cost....................... $ 248 $ 1,548 $ 1,445
======== ======== ========
</TABLE>
Certain assumptions used in determining the pension expense related to the
Hourly plan and Salaried plan were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Assumptions:
Discount rate................................... 6.50% 7.00% 7.50%
Rate of increase in future compensation
levels....................................... 4.50% 4.50% 4.50%
Expected long-term rate of return on plan
assets....................................... 8.50% 8.50% 9.50%
</TABLE>
51
<PAGE> 55
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- PENSIONS -- (CONTINUED)
(B) FUNDED STATUS
The funded status of the Company's U.S. Hourly plan and Salaried plan as of
December 31, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $224,307 $218,593
Service cost.............................................. 5,395 4,958
Interest cost............................................. 14,231 13,955
Actuarial gain............................................ (24,872) (1,519)
Amendments................................................ 295 745
Benefits paid............................................. (12,911) (12,425)
-------- --------
Benefit obligation at end of year......................... $206,445 $224,307
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year............ $246,934 $221,175
Actual return on plan assets.............................. 32,406 38,156
Employer contributions.................................... 26 28
Benefits paid............................................. (12,911) (12,425)
-------- --------
Fair value of plan assets at end of year.................. $266,455 $246,934
======== ========
Plan assets in excess of projected benefit obligation..... $ 60,010 $ 22,627
Unrecognized net actuarial gain........................... (53,610) (16,733)
Unrecognized prior service cost........................... 2,708 3,436
-------- --------
Net amount recognized..................................... $ 9,108 $ 9,330
======== ========
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ 9,108 $ 9,330
Accrued pension liability................................. -- --
Net amount recognized..................................... $ 9,108 $ 9,330
Assumptions:
Discount rate............................................. 7.50% 6.50%
Rates of increase in future compensation levels........... 4.50% 4.50%
</TABLE>
INTERNATIONAL PENSION PLANS
(A) PENSION EXPENSE
The international defined benefit pension plans are both noncontributory
and contributory and are funded in accordance with applicable local laws. Assets
of the funded plans are invested primarily in equities and fixed income
securities. The pension or termination benefits are based primarily on years of
service and the employees' compensation.
52
<PAGE> 56
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- PENSIONS -- (CONTINUED)
The pension expense related to the international plans consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost.................................... $ 1,647 $ 2,078 $ 2,396
Interest cost................................... 4,788 5,407 5,321
Expected return on plan assets.................. (5,406) (6,040) (6,056)
Amortizations:
Actuarial loss............................... 1,947 2,236 --
------- ------- ----------
Net periodic pension cost....................... $ 2,976 $ 3,681 $ 1,661
======= ======= ==========
Assumptions:
Discount rate................................... 5.50% 5.50% 6.5 - 8.0%
Rates of increase in future compensation
levels....................................... 4.00% 4.00% 2.5 - 5.8%
Expected long-term rate of return on plan
assets....................................... 6.50% 6.50% 6.5 - 8.8%
</TABLE>
Approximately 320 employees participate in a multi-employer pension plan
that provides defined benefits to employees under certain union-employer
organization agreements. Pension expense for this plan was $4.8 million, $4.5
million, and $4.7 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
(B) FUNDED STATUS
The following table sets forth the funded status of the international
pension plans as of December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- ------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $88,935 $73,291
Service cost.............................................. 1,647 2,078
Interest cost............................................. 4,788 5,407
Plan participants contributions........................... 729 893
Amendments................................................ 1,947 2,236
Actuarial loss............................................ 1,907 8,517
Benefits paid............................................. (6,066) (3,487)
------- -------
Benefit obligation at end of year......................... $93,887 $88,935
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year............ $84,923 $75,412
Actual return on plan assets.............................. 13,706 10,515
Employer contributions.................................... 3,492 1,590
Plan participants contributions........................... 729 893
Benefits paid............................................. (6,066) (3,487)
------- -------
Fair value of plan assets at end of year.................. $96,784 $84,923
======= =======
Plan assets in excess of (less than) projected benefit
obligation............................................. $ 2,897 $(4,012)
Unrecognized net actuarial (gain) / loss.................. (3,656) 2,795
------- -------
Net amount recognized..................................... $ (759) $(1,217)
======= =======
</TABLE>
53
<PAGE> 57
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- PENSIONS -- (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- ------- -------
<S> <C> <C>
Amounts recognized in the Consolidated Balance Sheets
consist of:
Prepaid pension cost...................................... $ -- $ --
Accrued pension liability................................. $ (759) $(1,217)
Net amount recognized..................................... $ (759) $(1,217)
Assumptions:
Discount rate............................................. 5.50% 5.50%
Rates of increase in future compensation levels........... 4.00% 4.00%
</TABLE>
As of December 31, 1999 and 1998, accrued retirement contributions for the
international pension plans included in Compensation and employee benefits on
the Consolidated Balance Sheets were $2.9 million and $3.5 million,
respectively.
VOLUNTARY SAVINGS AND DEFINED CONTRIBUTION PLANS
The Company provides voluntary savings plans for eligible U.S. employees.
Employees may make contributions of up to 16 percent of their compensation (6
percent pretax and 10 percent after tax). The Company matches 3 percent and may
match up to a total of 6 percent of the eligible compensation, depending on the
Company's performance.
Contributions to these plans for the years ended December 31, 1999, 1998,
and 1997 were $2.4 million, $2.7 million, and $3.9 million, respectively.
Accrued savings plan contributions included in Compensation and employee
benefits on the Consolidated Balance Sheets were $1.7 million and $1.5 million
at December 31, 1999 and 1998, respectively.
NOTE 17 -- OTHER POSTRETIREMENT BENEFITS
The Company sponsors defined benefit post retirement health care plans that
provide medical and life insurance coverage to eligible salaried and hourly
retired U.S. employees and their dependents. The base level of medical coverage
is provided to the retiree at no cost. No postretirement medical benefits are
offered to salaried employees who began employment after December 31, 1993.
The other postretirement benefits expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Service cost.............................. $ 291 $ 291 $ 350
Interest cost........................... 1,663 1,638 1,815
Amortizations:
Prior service cost................... (162) (147) (113)
Actuarial loss/(gain)................ 184 119 (23)
------ ------ ------
Net periodic pension cost............... $1,976 $1,901 $2,029
====== ====== ======
</TABLE>
54
<PAGE> 58
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Assumptions:
Discount rate........................... 6.5% 7.0% 7.5%
Initial health care cost trend rate..... 5.5% 5.9% 6.5%
Ultimate health care cost trend rate*... 4.5% 5.5% 5.5%
Ultimate year*.......................... 2001 2000 2000
</TABLE>
- ---------------
* The salaried plan's cost is capped beginning in 1999.
The accrued postretirement benefit obligation at December 31 was as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- -------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 24,745 $ 25,839
Service cost.............................................. 291 291
Interest cost............................................. 1,663 1,638
Actuarial loss / (gain)................................... 141 (73)
Amendments................................................ -- (557)
Benefits paid............................................. (2,598) (2,393)
-------- --------
Benefit obligation at end of year......................... $ 24,242 $ 24,745
======== ========
Fair value of plan assets at end of year.................. -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets............................................ $(24,242) $(24,745)
Unrecognized net actuarial loss........................... 1,685 1,434
Unrecognized prior service credit......................... (2,000) (2,162)
-------- --------
Total accrued postretirement benefit obligation... $(24,557) $(25,473)
======== ========
Assumptions:
Discount rate............................................. 7.50% 6.50%
Initial health care cost trend rate....................... 5.50% 5.50%
Ultimate health care cost trend rate*..................... 4.50% 4.50%
Ultimate year*............................................ 2001 2001
</TABLE>
<TABLE>
<CAPTION>
1 PERCENTAGE 1 PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Health care trend rate sensitivity:
Effect on total of interest and service cost
components............................................ $ 23 $ (20)
Effect on year-end postretirement benefit obligation..... $215 $(193)
</TABLE>
- ---------------
* The salaried plan's cost is capped beginning in 1999.
NOTE 18 -- IMPAIRMENT LOSS
The Company recorded an impairment loss of $15.7 million in 1998 due to a
write-down of packaging machines in accordance with SFAS 121. The fair value of
the machines was determined based on discounted expected future lease revenues
and estimated disposition proceeds.
55
<PAGE> 59
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- FOREIGN CURRENCY MOVEMENT EFFECT
Net international currency transaction gains (losses) included in
determining Income from Operations for the years ended December 31, 1999, 1998,
and 1997 were $1.9 million, $0.9 million, and $(1.1) million, respectively.
NOTE 20 -- INCOME TAXES
The U.S. and international components of (Loss) before Income Taxes and
Equity in Net Earnings of Affiliates consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
U.S............................................... $(53,190) $(131,888) $(173,606)
International..................................... (4,655) (17,190) 9,404
-------- --------- ---------
(Loss) before Income Taxes and Equity in Net
Earnings of Affiliates.......................... $(57,845) $(149,078) $(164,202)
======== ========= =========
</TABLE>
The following provision is calculated based upon results which include the
month of December 1999 for international entities, as a result of the Company
electing to change the international affiliates' fiscal year-end to December 31
(see Note 2). Due to immateriality, the income tax expense (benefit) relating to
the thirteenth month was not separately stated in the Company's financial
statements.
The provisions for Income Tax Expense (Benefit) on (Loss) before Income
Taxes and Equity in Net Earnings of Affiliates consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Current:
U.S. Federal.................................... $ -- $ -- $ --
U.S. State and Local............................ 1,787 (960) 2,500
International................................... 2,149 2,526 2,866
------ ------- ------
Total Current..................................... 3,936 1,566 5,366
------ ------- ------
Deferred:
U.S............................................. -- -- --
International................................... -- (2,183) 279
------ ------- ------
Total Deferred.................................... -- (2,183) 279
------ ------- ------
Income Tax Expense (Benefit).................... $3,936 $ (617) $5,645
====== ======= ======
</TABLE>
56
<PAGE> 60
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- INCOME TAXES -- (CONTINUED)
A reconciliation of Income Tax Expense (Benefit) on (Loss) before
Extraordinary Item and Cumulative Effect of a Change in Accounting including
Equity in Net Earnings of Affiliates at the federal statutory rate of 35%
compared with the Company's actual Income Tax Expense (Benefit) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Income taxes at U.S. statutory rate............... $(17,757) $(49,322) $(49,459)
U.S. state and local taxes........................ 1,787 (960) 2,500
Limitation on use of U.S. net operating losses.... 16,128 44,102 53,244
International tax rate differences................ 2,850 5,674 (146)
Foreign withholding tax........................... 928 -- --
Other, net........................................ -- (111) (494)
-------- -------- --------
Income Tax Expense (Benefit)...................... $ 3,936 $ (617) $ 5,645
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1999 1998
- ------------------------- --------- ---------
<S> <C> <C>
Property, plant and equipment............................... $(273,221) $(239,228)
Other....................................................... (20,229) (18,574)
--------- ---------
Gross deferred tax liabilities............................ $(293,450) $(257,802)
--------- ---------
Net operating loss carryforwards............................ 439,277 340,771
Other....................................................... 58,214 80,865
--------- ---------
Gross deferred tax assets................................. 497,491 421,636
--------- ---------
Valuation allowance......................................... (214,911) (175,612)
--------- ---------
Net deferred tax liability................................ $ (10,870) $ (11,778)
========= =========
</TABLE>
The Company has determined that, as of both December 31, 1999 and 1998, it
is more likely than not that no net deferred tax assets will be realized. The
valuation allowance of $214.9 million at December 31, 1999 is maintained on net
deferred tax assets for which the Company has not determined that realization is
more likely than not.
The U.S. federal net operating loss carryforward amount totals $981.4
million, and expires in 2012, 2013, 2019, and 2020 in the amounts of $95.6
million, $421.5 million, $295.0 million, and $169.3 million, respectively.
International net operating loss carryforward amounts total $22.6 million of
which $4.7 million expire through 2009 and $17.9 million have no expiration
date.
Undistributed earnings intended to be reinvested indefinitely by the
international subsidiaries totaled approximately $16.7 million at December 31,
1999. No U.S. deferred income tax has been recorded on these undistributed
earnings.
NOTE 21 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
On July 28, 1997, the Company completed an offering of the 1997 Notes (see
Note 10). The net proceeds of this offering were applied to prepay certain
revolving credit borrowings under the Revolving Facility (without any commitment
reduction), and to refinance certain Tranche A term loans and other borrowings
under the Senior Secured Credit Agreement. During the third quarter of 1997, the
Company
57
<PAGE> 61
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 -- EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT -- (CONTINUED)
recorded a non-cash, extraordinary charge to earnings of approximately $2.5
million, net of tax of $0, related to the write-off of the applicable portion of
deferred debt issuance costs on the Tranche A term loans.
NOTE 22 -- CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR SOFTWARE
DEVELOPMENT PROJECT COSTS
In accordance with an EITF (Emerging Issues Task Force) consensus reached
on November 20, 1997, the Company was required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.
The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.
NOTE 23 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and cash (received) paid, net of refunds, for income
taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Interest.......................................... $169,623 $166,886 $155,370
======== ======== ========
Income Taxes...................................... $ (5,293) $ (8,310) $ 28,163
======== ======== ========
</TABLE>
NOTE 24 -- BUSINESS COMBINATIONS AND DISPOSALS
In connection with the global restructuring program initiated in the fourth
quarter of 1998, the Company is reducing its European workforce by approximately
300 employees and is implementing other initiatives designed to improve
productivity and profitability across the global organization. The initial cost
of this program, scheduled to be completed during 2000, was approximately $25.6
million of which approximately $0.8 million was used in December 1998 and
related to severance payments. The following table provides information that
details payments on this restructuring plan since December 31, 1998:
<TABLE>
<CAPTION>
OTHER
(IN THOUSANDS OF DOLLARS) SEVERANCE EXIT COSTS TOTAL
- ------------------------- --------- ---------- --------
<S> <C> <C> <C>
Balance at 12/31/98..................................... $21,205 $ 3,537 $ 24,742
Charges against accrual in 1999......................... (9,337) (2,981) (12,318)
------- ------- --------
Balance at 12/31/99..................................... $11,868 $ 556 $ 12,424
======= ======= ========
</TABLE>
On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of the Company's folding carton business in
Australia. Proceeds from the sale totaling $46.7 million were received on March
30, 1998. Under the terms of the agreement for such sale, the Company sold to
Carter Holt substantially all of the Company's Australian folding carton assets,
and Carter Holt assumed certain specified liabilities. The Company retained
substantially all of its beverage multiple packaging business in Australia.
Under the agreement, Carter Holt agreed to purchase from the Company a portion
of its coated board requirements in Australia and to supply beverage cartons to
meet the Company's needs for its Australian beverage business.
58
<PAGE> 62
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 24 -- BUSINESS COMBINATIONS AND DISPOSALS -- (CONTINUED)
In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding cartonboard converting plant in the
United States, located in Kankakee, Illinois, packaging machinery manufacturing
plants in Marietta, Georgia and Koln, Germany, a beverage multiple packaging
converting plant in Bakersfield, California and the trucking transportation
operations in West Monroe, Louisiana, as well as the consolidation and
realignment of certain operations in the United States, Australia and Europe.
The cost of exiting these businesses and operating activities was approximately
$38.6 million which was accrued during 1996 as a purchase accounting adjustment.
The costs related principally to the severance of approximately 750 employees,
relocation and other plant closure costs. During 1999 and 1998, $2.5 million and
$7.2 million was utilized and charged against the accrual primarily related to
severance and exit costs. At December 31, 1999 and 1998, $2.3 million and $4.8
million of this total was included in Other accrued liabilities in the
Consolidated Balance Sheets, respectively, and is expected to be paid out
through 2000.
NOTE 25 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for
the way public companies report information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial reports. The adoption
of SFAS No. 131 did not have a material impact on the Company's segment
disclosures.
The Company reports its results in two business segments: Coated Board and
Containerboard. These segments are evaluated by the chief operating decision
maker based primarily on income from operations and EBITDA. The Coated Board
business segment includes the production and sale of coated board for beverage
carrierboard and folding cartons from its West Monroe, Louisiana and Macon,
Georgia mills and from its mill in Sweden; carton converting facilities in the
United States, Europe and Australia (through the date of sale); and the design,
manufacture and installation of packaging machinery related to the assembly of
beverage cartons. The Containerboard business segment includes the production
and sale of linerboard, corrugating medium and kraft paper from paperboard mills
in the United States.
The Company's four separate geographic areas are the United States,
Central/South America, Europe and Asia-Pacific. The United States area includes
paper mills, beverage and folding carton facilities, and packaging machinery
facilities. The Europe area includes a coated recycled paperboard mill, beverage
and folding carton plants and a packaging machinery facility. The Asia-Pacific
area includes beverage and folding carton plants.
Business segment information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
NET SALES:
Coated Board.............................................. $1,010,068 $1,055,270 $1,029,493
Containerboard............................................ 102,643 80,299 109,361
---------- ---------- ----------
$1,112,711 $1,135,569 $1,138,854
========== ========== ==========
</TABLE>
59
<PAGE> 63
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
INCOME FROM OPERATIONS:
Coated Board.............................................. $ 142,541 $ 78,752 $ 64,819
Containerboard............................................ (10,235) (23,682) (41,244)
Corporate(A).............................................. (11,843) (27,392) (16,663)
---------- ---------- ----------
$ 120,463 $ 27,678 $ 6,912
========== ========== ==========
EBITDA:
Coated Board.............................................. $ 269,509 $ 225,191 $ 187,589
Containerboard............................................ 7,000 (8,965) (15,544)
Corporate and Eliminations................................ (3,034) (12,768) (6,118)
---------- ---------- ----------
$ 273,475 $ 203,458 $ 165,927
========== ========== ==========
CAPITAL EXPENDITURES:
Coated Board.............................................. $ 42,505 $ 36,151 $ 131,119
Containerboard............................................ 3,782 2,680 5,203
Corporate................................................. 19,731 9,720 5,992
---------- ---------- ----------
$ 66,018 $ 48,551 $ 142,314
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Coated Board.............................................. $ 120,991 $ 130,368 $ 115,779
Containerboard............................................ 18,068 16,404 20,388
Corporate................................................. 3,538 (257) 1,217
---------- ---------- ----------
$ 142,597 $ 146,515 $ 137,384
========== ========== ==========
IDENTIFIABLE ASSETS AT DECEMBER 31,:
Coated Board(B)........................................... $1,775,894 $1,957,062 $2,033,072
Containerboard(B)......................................... 282,200 256,485 332,850
Corporate(C).............................................. 305,048 204,054 240,263
---------- ---------- ----------
$2,363,142 $2,417,601 $2,606,185
========== ========== ==========
</TABLE>
Business geographic area information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
NET SALES:
United States............................................. $ 897,891 $ 877,323 $ 844,990
Central/South America..................................... 6,587 5,966 1,898
Europe.................................................... 220,291 245,679 249,607
Asia Pacific.............................................. 81,473 84,786 132,565
Eliminations(D)........................................... (93,531) (78,185) (90,206)
---------- ---------- ----------
$1,112,711 $1,135,569 $1,138,854
========== ========== ==========
</TABLE>
60
<PAGE> 64
RIVERWOOD HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25 -- BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1997
- ------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
INCOME FROM OPERATIONS:
United States............................................. $ 131,070 $ 58,726 $ (2,609)
Central/South America..................................... (1,954) (2,989) (4,031)
Europe.................................................... (2,779) (19,712) 10,017
Asia Pacific.............................................. 4,707 (6,978) 322
Eliminations(D)........................................... (10,581) (1,369) 3,213
---------- ---------- ----------
$ 120,463 $ 27,678 $ 6,912
========== ========== ==========
IDENTIFIABLE ASSETS AT DECEMBER 31,:
United States............................................. $1,806,764 $1,855,621 $1,930,542
Central/South America..................................... 9,701 10,826 14,198
Europe.................................................... 265,820 239,223 233,534
Asia -- Pacific........................................... 112,304 105,433 188,983
Corporate(C).............................................. 167,582 204,054 240,263
Eliminations(D)........................................... 971 2,444 (1,335)
---------- ---------- ----------
$2,363,142 $2,417,601 $2,606,185
========== ========== ==========
</TABLE>
- ---------------
Notes:
(A) Primarily consists of unallocated general corporate expenses.
(B) Certain mill assets are allocated based on production.
(C) Corporate assets are principally the equity investment in Igaras, U.S. cash
and equivalents, prepaid pension costs and other prepayments, deferred loan
costs, deferred tax assets and a portion of property, plant and equipment.
(D) Represents primarily the elimination of intergeographic sales and profits
from transactions between the Company's U.S., Europe, Asia-Pacific and
Central/South America operations.
NOTE 26 -- RELATED PARTY TRANSACTIONS
On November 18, 1999, the Company loaned $5.0 million to a principal
employee in a non-interest bearing note due March 26, 2002. This receivable is
included in Other Assets on the Consolidated Balance Sheet as of December 31,
1999.
The Company receives certain management services provided by Clayton,
Dubilier and Rice, Inc. ("CD&R"), an affiliate of an equity investor in the
Company. Charges for such services, including reimbursement of expenses, totaled
approximately $0.6 million, $0.7 million, and $0.6 million for the years ended
December 31, 1999, 1998, and 1997, respectively, and were included in operating
expenses in the Consolidated Statements of Operations.
61
<PAGE> 65
RIVERWOOD HOLDING, INC.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Results of operations for the four quarters of 1999 and 1998 are shown
below:
<TABLE>
<CAPTION>
(LOSS)
BEFORE
EXTRAORDINARY
ITEM AND
CUMULATIVE
INCOME EFFECT OF AN
NET GROSS (LOSS) FROM ACCOUNTING
(IN THOUSANDS OF DOLLARS) SALES PROFIT OPERATIONS CHANGE NET LOSS
- ------------------------- ---------- -------- ----------- ------------- ---------
(QUARTER)
- ---------
<S> <C> <C> <C> <C> <C>
Company:
1999
First......................... $ 255,867 $ 48,108 $ 18,871 $ (26,479) $ (26,479)
Second........................ 299,497 66,080 35,254 (9,933) (9,933)
Third......................... 268,694 57,477 31,733 (13,713) (13,713)
Fourth(A)..................... 288,653 69,076 34,605 (4,546) (4,546)
---------- -------- -------- --------- ---------
Total............... $1,112,711 $240,741 $120,463 $ (54,671) $ (54,671)
========== ======== ======== ========= =========
1998
First......................... $ 265,435 $ 37,473 $ 7,246 $ (34,545) $ (34,545)
Second........................ 305,975 56,253 10,307 (33,208) (33,208)
Third(B)...................... 292,766 56,376 26,575 (11,125) (11,125)
Fourth(B)(C)(D)............... 271,393 48,510 (16,450) (61,426) (61,426)
---------- -------- -------- --------- ---------
Total............... $1,135,569 $198,612 $ 27,678 $(140,304) $(140,304)
========== ======== ======== ========= =========
</TABLE>
- ---------------
Notes:
(A) During the fourth quarter of 1999, the Company recorded a credit of $5.3
million related to a LIFO inventory valuation. No LIFO adjustments were made
during the first three quarters.
(B) The Company recorded an impairment loss in accordance with SFAS 121
totaling $15.7 million relating to the revaluation of packaging machinery.
The fair value of the machines was determined based on expected future
lease revenues and potential disposition.
(C) The Company recorded a charge of $25.6 million in the fourth quarter of 1998
to accrue for the closing costs primarily relating to the restructuring of
its European operations, primarily the ongoing rationalization of its
international folding carton converting operations.
(D) During the fourth quarter of 1998, the Company recorded a credit of $9.4
million related to a LIFO inventory valuation offset by $3.7 million in
charges taken in the first three quarters of 1998. The net credit relating
to LIFO inventory valuation for the year ended December 31, 1998, was $5.7
million.
62
<PAGE> 66
MANAGEMENT'S REPORT
The accompanying consolidated financial statements have been prepared by
Management in conformity with generally accepted accounting principles
appropriate under the circumstances. The representations in the financial
statements and the fairness and integrity of such statements are the
responsibility of Management. All of the other financial information in the
Annual Report and Form 10-K is consistent with the financial statements.
The financial statements necessarily include some amounts that are based on
Management's best estimates and judgments. Management believes that the
financial statements reflect, in all material respects, the substance of
transactions that should be included and appropriately account for or disclose
all material uncertainties.
The consolidated financial statements prepared by Management have been
audited in accordance with generally accepted auditing standards by Deloitte &
Touche LLP (for the years ended December 31, 1999, 1998, and 1997), Independent
Auditors, whose report is also presented.
Riverwood International Corporation maintains internal accounting control
systems to provide reliable financial information for preparation of financial
statements, to safeguard assets against loss or unauthorized use and to ensure
proper authorization and accounting for all transactions. Management is
responsible for maintenance of these systems, which is accomplished through
communication of established written codes of conduct, systems, policies and
procedures; employee training; and appropriate delegation of authority and
segregation of responsibilities.
In establishing and maintaining its internal accounting control systems,
Management considers the inherent limitations of the various control procedures
and weighs their costs against the benefits derived. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.
Oversight of Management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors through the
Audit Committee, which consists solely of outside directors. The Audit Committee
meets periodically with financial management and the Independent Auditors to
review how each is carrying out its responsibilities and to discuss matters
concerning auditing, internal accounting control and financial reporting. The
Independent Auditors have free access to meet with the Audit Committee without
Management's presence.
<TABLE>
<S> <C>
Stephen Humphrey Daniel J. Blount
Chief Executive Officer Senior Vice President
and President and Chief Financial Officer
</TABLE>
63
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS'
To the Stockholders and Directors of Riverwood Holding, Inc.:
We have audited the accompanying consolidated balance sheets of Riverwood
Holding, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the financial statement Schedule listed in
the Index at Item 14. These consolidated financial statements and financial
statement Schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement Schedule based on our audits. We did not
audit the financial statements of Igaras Papeis e Embalagens S.A. (Igaras), the
Company's investment in which is accounted for by use of the equity method. The
Company's equity in Igaras' net assets of $140,693,000 and $138,496,000 at
December 31, 1999 and 1998, respectively, and in Igaras' net income of
$5,177,000, $5,873,000, and $21,480,000 for the years ended December 31, 1999,
1998, and 1997, respectively, are included in the accompanying consolidated
financial statements. The financial statements of Igaras were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Igaras, is based on the report of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Riverwood Holding, Inc. and subsidiaries at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement Schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 24, 2000
64
<PAGE> 68
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,223 $ 10,493
Trade Accounts Receivable (less Allowance for
Doubtful Accounts of $605 and $424) 26,708 32,068
Inventories 27,201 31,925
Prepaid Income Tax 2,300 1,977
Other Assets 1,027 6,040
-------- --------
Total Current Assets 59,459 82,503
Property, Plant and Equipment, Net 414,145 439,624
Deferred Income Taxes 11,069 3,412
Other Noncurrent Assets 5,734 8,886
-------- --------
Total Assets $490,407 $534,425
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
65
<PAGE> 69
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED BALANCE SHEETS (Continued)
------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term Debt $ 41,261 $ 31,213
Current Portion of Long-term Debt 19,540 33,167
Accounts Payable, Trade 14,113 17,081
Other Accrued Liabilities 17,810 16,495
-------- --------
Total Current Liabilities 92,724 97,956
Long-term Debt, less Current Portion 67,936 106,129
Accrued Pension 3,338 2,645
Deferred Income Taxes 12,081 15,310
Other Noncurrent Liabilities 7,754 8,782
-------- --------
Total Liabilities 183,833 230,822
-------- --------
Contingencies and Commitments (Note 9)
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A (No Par Value; 32 Shares Authorized,
Issued and Outstanding in 1999 and 1998, respectively) -- --
Class B (No Par Value; No Shares Authorized,
Issued and Outstanding in 1999 and 1998, respectively) -- --
Common Stock (No Par Value; 167,309,968 Shares
Authorized, Issued and Outstanding in 1999 and
1998, respectively) 170,984 170,984
Retained Earnings 135,590 132,619
-------- --------
Total Shareholders' Equity 306,574 303,603
-------- --------
Total Liabilities and Shareholders' Equity $490,407 $534,425
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
66
<PAGE> 70
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars)
------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net Sales $ 202,156 $ 257,026 $ 239,454
Cost of Sales 165,911 205,047 165,983
Selling, General and Administrative Expenses 17,956 25,412 20,174
Translation (Loss) or Gain, Net (1,337) 631 (2,466)
Other Expense, Net (1,160) (3,757) (1,637)
--------- --------- ---------
Income from Operations 15,792 23,441 49,194
Interest Income 910 2,838 4,864
Interest Expense 17,222 10,769 3,968
--------- --------- ---------
(Loss) Income before Income Taxes (520) 15,510 50,090
Current Income Tax Expense 12 686 7,739
Income Tax (Credit) Expense (10,886) 3,077 (322)
--------- --------- ---------
Net Income $ 10,354 $ 11,747 $ 42,673
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
67
<PAGE> 71
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 10,354 $ 11,747 $ 42,673
Noncash Items Included in Net Income:
Depreciation, Amortization and Cost of Timber Harvested 40,025 27,462 19,561
Deferred Income Taxes (Income) Expense (10,886) 3,077 (322)
Other -- 378 99
Decrease (Increase) in Current Assets:
Accounts Receivable 5,360 (4,705) 1,270
Inventories 4,724 (1,270) 946
Prepaid Income Taxes (323) (1,967) (4,512)
Other Assets 5,013 (534) (109)
(Decrease) Increase in Current Liabilities:
Accounts Payable (2,831) 4,876 (2,345)
Other Accrued Liabilities 1,315 3,072 (1,705)
Increase (Decrease) in Other Noncurrent Liabilities (335) 2,838 5,073
--------- --------- --------
Net Cash Provided by Operating Activities 52,416 44,974 60,629
--------- --------- --------
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment (15,207) (116,288) (98,661)
Proceeds from Sales of Property, Plant and Equipment 661 2,402 297
Decrease (Increase) in Other Noncurrent Assets 3,152 (1,631) (608)
--------- --------- --------
Net Cash (Used in) Investing Activities (11,394) (115,517) (98,972)
--------- --------- --------
Cash Flows from Financing Activities:
Proceeds from Long-term Debt 22,749 71,292 90,927
Proceeds from Short-term Debt 38,056 54,963 55,166
Payments on Short-term Debt (102,714) (73,605) (80,441)
Dividends (7,383) (11,708) (10,392)
--------- --------- --------
Net Cash (Used in) Provided by Financing Activities (49,292) 40,942 55,260
--------- --------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (8,270) (29,601) 16,917
Cash and Cash Equivalents at Beginning of Period 10,493 40,094 23,177
--------- --------- --------
Cash and Cash Equivalents at End of Period $ 2,223 $ 10,493 $ 40,094
========= ========= ========
Supplemental Disclosure of Cash Flow Information:
Cash Paid during the Year for:
Income Taxes $ 12 $ 1,967 $ 12,083
========= ========= ========
Interest $ 21,039 $ 17,849 $ 6,699
========= ========= ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
68
<PAGE> 72
IGARAS PAPEIS E EMBALAGENS S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of U.S. dollars)
------
<TABLE>
<CAPTION>
PREFERRED STOCK TOTAL
---------------------- COMMON RETAINED SHAREHOLDERS'
CLASS A CLASS B STOCK EARNINGS EQUITY
-------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $170,984 $ 100,299 $ 271,283
Net Income -- -- -- 42,673 42,673
Dividends of $0.061 per Share on
Common Stock -- -- -- (10,392) (10,392)
-------- -------- -------- --------- ---------
Balances at December 31, 1997 170,984 132,580 303,564
Net Income -- -- -- 11,747 11,747
Dividends of $0.070 per Share on
Common Stock -- -- -- (11,708) (11,708)
-------- -------- -------- --------- ---------
Balances at December 31, 1998 170,984 132,619 303,603
Net Income -- -- 10,354 10,354
Dividends of $0.044 per Share on
Common Stock -- -- (7,383) (7,383)
-------- -------- -------- --------- ---------
Balances at December 31, 1999 $170,984 $ 135,590 $ 306,574
======== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
69
<PAGE> 73
IGARAS PAPEIS E EMBALAGENS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Igaras Papeis e Embalagens S.A. and its wholly-owned subsidiary,
Igaras Servico Florestal Ltda. (herein referred to as "the Company").
All significant intercompany transactions and balances have been
eliminated.
(B) PRINCIPLES OF TRANSLATION
The accounting records of the Company are maintained in local currency.
The Company's financial statements, including the adjustments made
outside the local books of account, have been translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation" ("SFAS No. 52"), as follows:
BALANCE SHEETS
Inventories, prepaid expenses, property, plant and equipment,
advances for energy supply and shareholders' equity were translated at
historical exchange rates. All other assets and liabilities were
translated at the year-end Brazilian Real/U.S. dollar exchange rates of
R$1.7890 and R$1.2087, for 1999 and 1998, respectively.
STATEMENTS OF OPERATIONS
Cost of sales, depreciation, cost of timber harvested and
amortization of other assets were translated at historical exchange
rates. All other income and expense items were translated at average
exchange rates for the period.
70
<PAGE> 74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
All translation gains and losses are included in income from
operations. Effective January 1, 1998, and concurrent with the
determination that Brazil is no longer a highly inflationary economy,
the Company determined that its functional currency is the U.S. dollar.
Accordingly, the Company continues to present its consolidated
financial statements prepared in accordance with accounting principles
generally accepted in the United States translated under the historical
rate method.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates and
receipts of deposits and other marketable securities with original
maturities of three months or less, and are denominated in Brazilian
reais.
(D) INVENTORIES
Inventories are stated at average cost, which is lower than market.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Cost includes
capitalized interest incurred during the construction phase. In 1999,
1998 and 1997, $912,000, $9,060,000 and $4,592,000 of interest expense
were capitalized, respectively.
Expenditures for significant improvements, or for replacement parts,
which extend the useful life of an asset for more than one year, are
capitalized, while maintenance and repair costs are charged against
operations as incurred. The Company reviews for impairment whenever
events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable.
(F) DEPRECIATION AND COST OF TIMBER HARVESTED
Depreciation of cost is provided over the estimated useful lives of the
related assets using the straight-line method.
71
<PAGE> 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
The estimated useful lives used in computing depreciation were as
follows for all years presented:
<TABLE>
<S> <C>
Land Improvements 35 years
Buildings and Building Equipment 35 years
Machinery, Equipment and Vehicles 5 to 20 years
Furniture and Fixtures 16 years
Computer Hardware 5 years
</TABLE>
Timber and timberlands are stated at cost. Cost of timber harvested is
based on unit cost rates calculated using the total estimated yield of
timber to be harvested and the unamortized timber costs. The costs
related to timber preservation (fertilizers and other costs) are
capitalized by the Company and represent in December 1999 and 1998 the
amounts of $2,776,000 and $3,900,000, respectively.
(G) INCOME TAXES
Deferred income taxes are recognized in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires, among other
things, the use of the liability method of computing deferred income
taxes. Under the liability method, the effect of changes in corporate
tax rates on deferred income taxes is recognized currently as an
adjustment to income tax expense. The liability method also requires
that deferred tax assets or liabilities be recorded based on the
difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
(H) REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped to customers.
(I) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
72
<PAGE> 76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
NOTE 2 EXPORT SALES
Export sales by geographic area were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Europe $13,181 $12,123 $ 8,245
Asia - Africa 12,294 6,379 17,506
Latin America, Other than Brazil 31,266 24,959 27,453
------- ------- -------
Total Export Sales $56,741 $43,461 $53,204
======= ======= =======
</TABLE>
The remaining net sales for each of the periods presented were to
customers, which were not concentrated in any specific region, but were
concentrated primarily in the consumer products industry. No single
customer accounted for more than 10% of the Company's net sales, and
there was no significant accounts receivable from a single customer.
The Company reviews a customer's credit history before extending
credit. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information. Bad debt expense was $181,000,
$124,000 and $104,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 3 INVENTORIES
The major classes of inventories were as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Finished Goods $ 1,891 $ 2,852
Work-in-process 673 1,152
Raw Materials 12,742 14,422
Maintenance Materials and Other Supplies 14,120 15,607
Less: Reserve for Obsolete and Slow-moving Inventory (2,225) (2,108)
-------- --------
$ 27,201 $ 31,925
======== ========
</TABLE>
73
<PAGE> 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
Land and Land Improvements $ 12,512 $ 13,074
Buildings and Building Equipment 56,347 55,084
Machinery, Equipment and Vehicles 463,038 431,883
Furniture and Fixtures 4,949 4,723
Computer Hardware 5,677 2,537
Construction in Progress 11,892 37,243
-------- --------
554,415 544,544
Less: Accumulated Depreciation 203,331 167,678
-------- --------
351,084 376,866
Timber and Timberlands, less Cost of Timber
Harvested 63,061 62,758
-------- --------
$414,145 $439,624
======== ========
</TABLE>
74
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
NOTE 5 LONG-TERM DEBT
Long-term debt, denominated substantially in dollars, consisted of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
PRINCIPAL PERIOD (IN THOUSANDS OF U.S.
DUE OUTSTANDING ANNUAL INTEREST RATE DOLLARS)
- -------------------- ------- --------- ------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C>
Frances e Brasileiro Monthly 1994-1999 LIBOR + 2.50% (8.96% at December 31, 1998) $ - $ 81
Frances e Brasileiro Monthly 1994-1999 LIBOR + 2.50% (9.37% at December 31, 1998) - 100
ING Bank Annually 1997-1999 LIBOR + 0.12% (9.67% at December 31, 1998) - 3,374
ING Bank Annually 1997-1999 LIBOR + 0.12% (9.67% at December 31, 1998) - 658
BNDES Monthly 1994-1999 UMBNDES + 1.50% (13.46% at December 31, 1998) - 404
BNDES Monthly 1997-2000 URTJLP + 6.00% (18.17% at December 31, 1999) 28 270
BNDES Monthly 1995-2000 URTJLP + 6.00% (19.42% at December 31, 1999) 102 353
BNDES Monthly 1995-2000 URTJLP + 6.00% (17.42% at December 31, 1999) 153 394
BNDES Monthly 1996-2001 URTJLP + 6.00% (18.92% at December 31, 1999) 883 1,889
Chase Triannually 1997-2000 LIBOR DM + 0.12% (6.62% at December 31, 1999) 1,614 1,885
Santander Semi-annually 1997-2001 LIBOR + 0.25% (6.19% at December 31, 1999) 413 619
Unibanco Semi-annually 1997-2002 LIBOR + 5.40% (10.43% at December 31, 1999) 2,250 3,000
ING Bank Annually 1997-2001 LIBOR + 1.75% (6.84% at December 31, 1998) - 15,000
BNDES Monthly 1997-2007 UMBNDES + 1.50% (10.73% at December 31, 1999) 13,743 14,284
BNDES Monthly 1997-2007 UMBNDES + 1.50% (10.73% at December 31, 1999) 29,808 30,983
Frances Monthly 1997-2002 URTJLP + 6.00% (16.92% at December 31, 1999) 1,578 2,956
Frances Monthly 1997-2002 URTJLP + 6.00% (17.92% at December 31, 1999) 387 724
Unibanco Monthly 1997-2002 URTJLP + 6.00% (17.42% at December 31, 1999) 322 618
Unibanco Monthly 1997-2002 URTJLP + 6.00% (17.92% at December 31, 1999) 314 603
ING Bank Annually 1997-1999 LIBOR + 2.12% (8.01% at December 31, 1998) - 1,690
ING Bank Annually 1997-1999 LIBOR + 0.12% (8.01% at December 31, 1998) - 2,181
EPP - Credit Lyonnais Annually 1997-1999 LIBOR + 2.00% (7.84% at December 31, 1998) - 5,042
Frances Semi-annually 1997-2002 LIBOR + 0.37% (5.90% at December 31, 1999) 1,122 1,563
Frances Annually 1997-1999 LIBOR + 2.75% (8.87% at December 31, 1998) - 1,721
ING Bank Annually 1998-1999 LIBOR + 0.12% (9.20% at December 31, 1998) - 1,256
Credibanco Annually 1998-1999 LIBOR + 0.12% (10.31% at December 31, 1998) - 1,690
Real Annually 1998-1999 LIBOR + 1.75% (6.84% at December 31, 1998) - 1,819
Real Annually 1998-1999 LIBOR + 2.75% (7.84% at December 31, 1998) - 2,243
Real Annually 1998-1999 LIBOR + 3.35% (8.44% at December 31, 1998) - 441
Real Annually 1998-1999 LIBOR + 3.50% (8.59% at December 31, 1998) - 3,071
Real Annually 1998-1999 LIBOR + 1.75% (6.84% at December 31, 1998) - 1,458
Real Annually 1998-1999 LIBOR + 2.50% (7.14% at December 31, 1998) - 1,181
Real Annually 1998-1999 LIBOR + 2.50% (7.59% at December 31, 1998) - 308
Unibanco Annually 1998-2003 LIBOR + 0.50% (6.80% at December 31, 1999) 1,873 2,081
Unibanco Annually 1998-2003 LIBOR + 0.20% (5.70% at December 31, 1999) 2,744 3,429
Unibanco Annually 1998-2003 LIBOR + 1.62% (7.71% at December 31, 1998) - 2,268
Unibanco Annually 1998-2003 LIBOR + 2.50% (8.66% at December 31, 1998) - 1,955
Unibanco Annually 1998-2003 LIBOR + 1.37% (7.42% at December 31, 1998) - 1,699
BFB/BNDES Monthly 1998-2000 URTJLP + 6.00% (16.92% at December 31, 1999) 3,230 2,055
BNDES Monthly 1998-2000 URTJLP + 6.00% (15.92% at December 31, 1999) 14,433 18,592
Credibanco Annually 1998-2003 URTJLP + 6.00% (16.92% at December 31, 1999) 199 314
Unibanco Annually 1998-2003 URTJLP + 6.00% (16.67% at December 31, 1999) 1,489 628
Chase Annually 1998-2000 LIBOR DM + 2.12% (6.64% at December 31, 1999) 1,381 1,613
Credibanco Annually 1998-1999 LIBOR + 2.70% (8.76% at December 31, 1998) - 432
Unibanco Semi-annually 1999-2003 8.47% at December 31, 1999 1,012 -
HSBC Monthly 1999-2001 LIBOR + 3.50% (9.16 at December 31, 1999) 5,000 -
Itau Annually 1999-2000 11.80% at December 31, 1999 2,000 -
Pinusprev Annually 1999-2000 19.39% at December 31, 1999 827 -
Frances Monthly 1999-2004 URTJLP + 6% (16.92% at December 31, 1999) 286 -
Others 285 371
--------- ---------
87,476 139,296
Less Current Portion 19,540 33,167
--------- ---------
$ 67,936 $ 106,129
========= =========
</TABLE>
75
<PAGE> 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
OF U.S. DOLLARS)
----------------
<S> <C>
2000 $ 19,540
2001 18,321
2002 12,275
2003 10,500
2004 - 2008 26,840
------
$ 87,476
======
</TABLE>
The weighted average interest rate on short-term debt approximated 10%
and 11% at December 31, 1999 and 1998, respectively.
Loans and financing obtained from BNDES and Credibanco are guaranteed
by first mortgages on farms located in the State of Santa Catarina
with a book value of $13,714,000 at December 31, 1999 and chattel
mortgages and pledged machinery and equipment with a book value of
$31,500,000 at December 31, 1999. There are no other restrictions,
guarantees, collateral or covenants associated with long-term debt.
NOTE 6 OTHER ACCRUED LIABILITIES
The components of other accrued liabilities were as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Wages and Compensation $ 4,697 $ 6,350
Value-added and Other Taxes Payable 1,213 2,029
Amount Due to Affiliate 7,588 1,789
Interest payable 2,081 4,985
Other 2,231 1,342
---------- ---------
$ 17,810 $ 16,495
========== =========
</TABLE>
76
<PAGE> 80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
NOTE 7 EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit plan to
supplement the pension benefit provided by the government pension
system.
The plan covers all employees meeting minimum eligibility
requirements. Pension benefits are based primarily on years of service
and the employee's compensation near retirement. The Company's funding
policy is to contribute funds to trusts as necessary. Plan assets are
primarily invested in listed stocks and Brazilian government bonds.
The components of the periodic pension expense were as follows for the
following years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Service Cost - Benefits Earned during the Year $ 945 $ 923 $ 844
Interest Cost on Projected Benefit Obligation 674 677 620
Return on Plan Assets (560) (545) (446)
Amortization 102 130 112
------- ------- -------
Total Pension Expense $ 1,161 $ 1,185 $ 1,130
======= ======= =======
</TABLE>
Certain assumptions used in determining the pension expense and net
pension liability for 1999, 1998 and 1997 were as follows:
Discount Rates 5% per annum
Rates of Increase in Future Compensation
Levels 3% per annum
Expected Long-term Rates of Return on
Assets 5% per annum
77
<PAGE> 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
The following table sets forth the funded status of the plan as of
December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Projected Benefit Obligation at Beginning
of Year $ 13,625 $ 13,663
Service Cost 945 923
Interest Cost 674 677
Actuarial Gain (4,214) (1,256)
Benefit Paid (197) (382)
-------- --------
Projected Benefit Obligation at End of Year $ 10,833 $ 13,625
======== ========
CHANGE IN PLAN ASSETS
Fair Value of Plan Assets at Beginning of
Year 10,991 10,650
Actual Return on Assets 3,292 (84)
Actual Contributions 468 807
Actual Distributions (197) (382)
Loan to Plan Sponsor (988) --
Effect of Dollar devaluation (3,444) --
-------- --------
Fair Value of Plan Assets at End of Year $ 10,122 $ 10,991
======== ========
NET PENSION LIABILITY
Funded Status $ (712) $ (2,634)
Unrecognized Net (Gain) Loss (4,204) (1,582)
Unrecognized Prior Service Cost 428 1,417
Reserve to Plan Sponsor 988 --
-------- --------
Net Pension Liability $ (3,500) $ (2,799)
======== ========
</TABLE>
The unrecognized prior service cost is amortized on a straight-line
basis over the average remaining service of employees, which
approximates 23 years.
NOTE 8 INCOME TAXES
During 1999, 1998 and 1997, the statutory income tax rates including
the social contribution tax on ordinary profits were approximately
37%, 33% and 33%, respectively.
78
<PAGE> 82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
Approximate tax effects of temporary differences giving rise to the
net deferred tax assets and liabilities were as follows at December
31:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Provision for Loss on Eletrobras Bonds $ 578 $ 856
Pensions 1,155 926
Tax loss carryfoward 6,664 --
Other 2,672 1,630
------- -------
Total Deferred Tax Assets $11,069 $ 3,412
======= =======
Deferred Tax Liabilities:
Inflationary Profit $ 3,144 $ 3,333
Property, Plant and Equipment 8,717 11,788
Other 220 189
------- -------
Total Deferred Tax Liabilities $12,081 $15,310
======= =======
</TABLE>
The reported amount of income tax expense on income before income
taxes differs from the amount of income tax expense that would result
from applying the Brazilian statutory income tax rate to income before
income taxes for the following reasons:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
-------- ------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Brazilian Statutory (Benefit)
Expense $ (192) $ 5,118 $ 16,529
Interest on Own Capital Deductible
Dividends -- (3,400) (2,335)
Inflationary Profit (3,025) 2,374 (5,915)
Devaluation Loss Deductible for
Brazilian Taxes (6,664) -- --
Other, Net (993) (329) (862)
-------- ------- --------
Income Tax (Benefit)
Expense $(10,874) $ 3,763 $ 7,417
======== ======= ========
</TABLE>
79
<PAGE> 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
The tax loss carryforward was generated mainly by the exchange loss of
$34,000,000 on the dollar denominated debt recorded for Brazilian tax
purposes. The exchange loss is currently deductible under Brazilian
tax law.
NOTE 9 CONTINGENCIES AND COMMITMENTS
The Company is a party to a number of lawsuits arising out of the
conduct of its business. While there can be no assurance as to their
ultimate outcome, the Company does not believe that these lawsuits
will have a material impact on the results of operations, cash flows
or financial condition of the Company.
As of December 31, 1998, outstanding purchase commitments relating to
capital projects totaled approximately $5,000,000.
The Company is guarantor of advances on export contracts in amounts of
$23,569,000 and $16,348,000, in 1999 and 1998, respectively.
On June 28, 1999, the State Finance Department of Santa Catarina made
assessment notices against the Company, in the approximate amount of
US$4,135,000, basically referring to the use of monetary restatement
credits on credit balance of ICMS (State VAT) in 1994 and 1995. The
Company's Management is questioning such assessment notices. The legal
counselor believes that there are arguments favorable to the defense,
however, the final outcome of this litigation cannot be presently
determined and, therefore, no allowance for losses was recorded in the
financial statements.
NOTE 10 SHAREHOLDERS' EQUITY
The capital shares consist of 167,309,968 common shares, of which
Riverwood International Corporation ("Riverwood") owns 83,654,984
common shares and Saragy S.A owns 83,654,984 common shares. In
addition, the Company has authorized and issued 32 shares of Class A
preferred stock. These preferred shares have preference in the event
of a liquidation of the Company.
These Class A preferred shares also have rights to dividends equal to
those of the common shares.
The Class A preferred shares are not entitled to vote and are not
convertible into common shares. As of April 30, 1996, one Class B
preferred share was converted into one common share with no par value
for Saragy S.A. and, additionally, 50,309,984 common shares with no
par value were issued, of which 25,154,992 were distributed to
Riverwood and 25,154,992 to Saragy S.A. This change was included
retroactively in average shares outstanding.
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<PAGE> 84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Concluded
Earnings may be distributed only out of retained earnings in local
currency reflected in the books of Igaras Papeis e Embalagens S.A. The
Company has accumulated losses in the amount of $4,800,000 in the
books; consequently, there is no amount available for distribution as
of December 31, 1999.
NOTE 11 RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1999, 1998 and 1997, the Company
purchased approximately $23,000,000, $14,900,000 and $21,000,000 of
paper and machinery, respectively, from Riverwood.
NOTE 12 ACQUISITION
On January 6, 1998, the Company acquired Ponte Nova Papeis e
Embalagens Ltda. ("Ponte Nova"), created as a result of a spin-off
from Trombini Papel e Embalagens S.A. ("Trombini"). Ponte Nova was
formed with the property, plant and equipment and certain liabilities
of two corrugated containers plant and a recycling pulp and paper
plant. The total purchase price was approximately $35,000,000, not
subject to financing.
The acquisition was accounted for by the purchase method. Accordingly,
the purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair market values.
Operating results of the acquired business have been included in the
Statement of Consolidated Income since the date of acquisition. Pro
forma results, assuming the acquisition had been made at the beginning
of the year, would not be materially different from the results
reported.
* * * * * * * * * * * *
81
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
IGARAS PAPEIS E EMBALAGENS S.A.:
We have audited the accompanying consolidated balance sheets of IGARAS PAPEIS E
EMBALAGENS S.A. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IGARAS PAPEIS E
EMBALAGENS S.A. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
Sao Paulo, Brazil
January 31, 2000.
82
<PAGE> 86
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no such changes in or disagreements with accountants on
accounting or financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the current directors of the Company and
executive officers of Riverwood are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen M. Humphrey......... 55 President, Chief Executive Officer and Director
Thomas M. Gannon............ 50 Executive Vice President, Commercial Operations
Daniel J. Blount............ 44 Senior Vice President and Chief Financial Officer
Robert H. Burg.............. 55 Senior Vice President, Human Resources
Steven D. Saucier........... 46 Senior Vice President, Paperboard Operations
B. Charles Ames............. 74 Chairman and Director
Kevin J. Conway............. 41 Director
Leon J. Hendrix, Jr......... 58 Director
Hubbard C. Howe............. 71 Director
Alberto Cribiore............ 54 Director
Brian J. Richmand........... 46 Director
Lawrence C. Tucker.......... 57 Director
Samuel M. Mencoff........... 43 Director
G. Andrea Botta............. 46 Director
Gianluigi Gabetti........... 75 Director
</TABLE>
Stephen M. Humphrey is the President and Chief Executive Officer and a
director of Holding, RIC Holding and Riverwood. Mr. Humphrey joined Riverwood in
March 1997. From 1994 through 1996, Mr. Humphrey was Chairman, President and
Chief Executive Officer of National Gypsum Company, a manufacturer and supplier
of building products and services. From 1981 until 1994 Mr. Humphrey was
employed by Rockwell International Corporation, a manufacturer of electronic
industrial automation, automotive and aerospace products, and systems
("Rockwell"), where he held a number of key executive positions.
Thomas M. Gannon is Executive Vice President, Commercial Operations, a
position he assumed in September 1998. From July 1997 until September 1998 Mr.
Gannon was Senior Vice President and Chief Financial Officer of Riverwood. From
August 1995 until July 1997, Mr. Gannon was employed by Libby-Owens-Ford Co., a
manufacturer of home, commercial and automobile flat glass products, most
recently as Corporate Vice President of Finance and Administration and Chief
Financial Officer. From April 1976 through August 1995, Mr. Gannon served in
various positions with Rockwell.
Daniel J. Blount is Senior Vice President and Chief Financial Officer,
positions he assumed in September 1999. From September 1998 until September
1999, Mr. Blount was Vice President and Chief Financial Officer. Prior to
joining Riverwood, Mr. Blount spent 13 years at Montgomery Kone, Inc., an
elevator, escalator and moving ramp product manufacturer, installer and service
provider, most recently as Senior Vice President, Finance. From 1983 until 1985,
Mr. Blount was an international auditor at United Technologies Corporation,
where he conducted and led operational and financial audits of subsidiary
companies, mainly
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<PAGE> 87
outside the United States. From 1979 until 1983, Mr. Blount served in various
positions at Ernst and Whinney, most recently as Audit Manager.
Robert H. Burg is Senior Vice President, Human Resources of Riverwood. Mr.
Burg joined Riverwood in January 1993. From 1981 until he joined Riverwood, Mr.
Burg was employed by Colgate-Palmolive Company, a manufacturer and distributor
of household and personal care products, most recently as Vice President of
Global Compensation and Development.
Steven D. Saucier is Senior Vice President, Paperboard Operations of
Riverwood. Mr. Saucier joined Riverwood in November 1998. From July 1998 until
October 1998, Mr. Saucier was Senior Vice President, Manufacturing, of JPS
Packaging, a manufacturer of flexible packaging. From April 1996 until July
1998, Mr. Saucier was Senior Vice President, Supply Chain, of Sealright Co.,
Inc., a manufacturer of rigid and flexible packaging, and from September 1975
until April 1996 Mr. Saucier was employed by Mobil Corporation, where his last
position was General Manager, Manufacturing with Mobil Films division.
B. Charles Ames is Chairman of the Boards of Holding, RIC Holding and
Riverwood. Since 1987, Mr. Ames has been a principal of Clayton, Dubilier &
Rice, Inc., a New York-based private investment firm ("CD&R"). Mr. Ames is a
director of CD&R Investment Associates II, Inc. ("Associates II Inc."), a Cayman
Islands exempted company that is the managing general partner of CD&R Associates
V Limited Partnership, a Cayman Islands exempted limited partnership
("Associates V"), the general partner of Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership ("CD&R Fund V"). Mr.
Ames is also a limited partner of Associates V and serves as a director of
Remington Arms Company, Inc., a manufacturer of sporting goods products for the
hunting, shooting sports and fishing markets ("Remington"), and its parent RACI
Holding, Inc. ("RACI"). RACI is a company in which an investment fund managed by
CD&R has an investment. He is also a director of The Progressive Corporation, a
holding company.
Kevin J. Conway is a principal of CD&R, a director of Associates II Inc.
and a limited partner of Associates V. Mr. Conway is also a director of Allied
Worldwide, a moving services and logistics company, and U.S. Office Products, a
distributor of office supplies. Prior to joining CD&R in 1994, Mr. Conway worked
at Goldman, Sachs & Co., an investment banking firm.
Leon J. Hendrix, Jr. has been a principal of CD&R since 1993. From 1973
until 1993, Mr. Hendrix was employed by Reliance Electric Company, a
manufacturer of industrial drives, transmissions and telecommunications
equipment, most recently as its Chief Operating Officer and a director. Mr.
Hendrix serves as a director of Keithley Instruments, Inc., a manufacturer of
electronic test and measurement instruments and systems, NACCO Industries Inc.,
a manufacturer of forklift trucks and small electric appliances, a supplier of
kitchenware, and the mining and marketing of fuel for power generation by
electric utilities, and Cambrex Corporation, an international manufacturer of a
broad line of specialty and fine chemicals. Mr. Hendrix is also the Chairman of
the Board and a director of Remington and RACI, and a limited partner of
Associates V.
Hubbard C. Howe was a principal of CD&R from 1990 until his retirement in
1998. Mr. Howe is a limited partner of Associates V. Mr. Howe has served as
Chairman and a director of A.P.S., Inc., a distributor of automotive replacement
parts ("A.P.S."), and its parent corporation, APS Holding Corporation, a
corporation in which an investment fund managed by CD&R had an investment ("APS
Holding"), since prior to 1993. Mr. Howe served as interim Chief Executive
Officer of A.P.S. and APS Holding from March 1997 until January 1998. On
February 2, 1998, A.P.S. and several of its direct and indirect subsidiaries
filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code with the United States Bankruptcy Court for the District of Delaware. APS
was liquidated in 1999. Mr. Howe has been a director of Remington and RACI since
1993, and was Chairman and Chief Executive Officer of Remington and RACI until
December 1997. Mr. Howe served as Vice Chairman from February 1994 until
November 1997, and as Chairman from prior to 1993 until February 1994, of
Nu-kote International, Inc., a printing supplies manufacturer, and its parent
Nu-kote Holding, Inc., a corporation in which an investment fund managed by CD&R
had an investment.
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<PAGE> 88
Alberto Cribiore was a principal of CD&R from 1985 to March 1997 and a
co-President of CD&R from 1995 to March 1997. Mr. Cribiore currently serves as
Managing Principal of Brera Capital Partners, LLC, a private equity investment
firm in New York. Mr. Cribiore serves on the Board of Directors of Western
Industries, Inc., Classic Cable, Inc. and GAB Robins North America. Mr. Cribiore
also serves as a director of Hansberger Global Investors, Inc., an international
money management firm, and Cambridge Energy Research Associates, Inc., a leading
strategic knowledge firm focusing on the energy industry ("CERA"). Mr. Cribiore
has served as the Chairman and a director of McCarthy, Crisanti & Maffei, Inc.,
a provider of financial information ("MCM"), and its parent MCM Group, Inc.
("MGI"), since August 1996, and also currently serves as the Chairman and a
director of Global Decisions Group, LLC, the parent company of CERA, MCM and
MGI.
Brian J. Richmand has served as a Special Limited Partner of Chase Capital
Partners, the general partner of Chase Equity Associates, L.P., since January 1,
2000, and as a General Partner of Chase Capital Partners from August 1, 1993 to
December 31, 1999. Prior to joining Chase Capital Partners, Mr. Richmand was a
partner at the law firm of Kirkland & Ellis. Mr. Richmand is also currently a
director of La Petite Academies, Inc., Reiman Publishing, LLC, Transtar Metals,
LLC and EMP Group, L.L.C.
Lawrence C. Tucker has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979. He also serves as a director of MCI
WorldCom, Inc., an international provider of long distance voice, data and video
services, MCI WorldCom Investment Fund, National Healthcare Corp., an owner,
operator and manager of long-term care facilities, retirement apartments and
assisted living units, VAALCO Energy Inc., an international oil and gas
exploration company, World Access, Inc., a competitive international
telecommunications carrier, National Equipment Services, Inc., a rental
equipment company, and US Unwired, Inc., a digital wireless telephony carrier.
Brown Brothers Harriman & Co. is the general partner of The 1818 Fund, L.P., The
1818 Fund II, L.P. ("1818 Fund"), The 1818 Fund III, L.P. and The 1818 Mezzanine
Fund, L.P.
Samuel M. Mencoff has been employed principally as a Managing Director of
Madison Dearborn Partners, Inc., the general partner of Madison Dearborn
Partners, L.P., the general partner of Madison Dearborn Capital Partners, L.P.
since 1993. From 1987 until 1993, Mr. Mencoff served as Vice President of First
Chicago Venture Capital, a private equity investment firm. Mr. Mencoff is a
member of the operating committee of the general partner of Golden Oak Mining
Company, L.P., a coal mining company, and is a director of Buckeye Technologies
Inc., a manufacturer of specialty cellulose pulps and non-woven fiber products,
and Bay State Paper Holding Company, a producer of recycled containerboard and
related products and Packaging Corporation of America, a producer of
containerboard and corrugated packaging products.
G. Andrea Botta has been a managing director of Morgan Stanley Dean Witter
from September 5, 1999. Previously he was President of EXOR America, Inc.
(formerly IFINT-USA Inc.) ("EXOR America") from 1993 until September 5, 1999 and
for more than five years prior thereto, Vice President of Acquisitions of
IFINT-USA, Inc.
Gianluigi Gabetti has been Vice Chairman of IFI S.p.A. -- Istituto
Finanziario Industriale (the holding company of the Agnelli family) since 1993,
and had been its Chief Executive Officer from 1972 to 1993. Mr. Gabetti had been
a director of FIAT S.p.A. from 1971 to 1999 where, upon mandatory retirement, he
was appointed Director Emeritus. Mr. Gabetti is also Vice Chairman of EXOR
Group, an international investment holding company of the Agnelli Group;
Chairman of FIAT U.S.A., the U.S. arm of the Italian industrial group; and a
director of Club Mediterranee S.A., an international leisure and travel
organization and Deutsche Bank, S.p.A., the Italian branch of the German
financial institution.
ELECTION AND COMPENSATION OF DIRECTORS
All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation. The
Stockholders Agreement entered into among Holding and each of CD&R Fund V, EXOR
Group S.A. ("EXOR"), 1818 Fund, HWH Investment Pte Ltd, Chase, First Plaza Group
Trust, Madison Dearborn Capital Partners, L.P. and Wolfensohn-River LLC
(collectively, the "Equity Investors"), provides that CD&R Fund V is entitled to
nominate five persons, EXOR is entitled to nominate
85
<PAGE> 89
two persons, the 1818 Fund is entitled to nominate one person and Madison
Dearborn Capital Partners, L.P. is entitled to nominate one person to serve on
the Boards of Directors (the "Boards") of each of Holding, RIC Holding and
Riverwood. There is also an understanding between Chase and CD&R Fund V with
respect to the nomination of CD&R Fund V's fifth nominee to such Boards. CD&R
Fund V exercised its intention to nominate a designee of Chase (the "Chase
Designee") as its nominee to such Boards; however, Chase does not have a legally
enforceable right to such directorship. The Chairman of each of the Boards is to
be selected from one of the CD&R Fund V nominees (other than the Chase
Designee). Each of the Boards of Holding, RIC Holding and Riverwood has an
Executive Committee, a Compensation and Benefits Committee and an Audit
Committee. The Executive Committee consists of the Chief Executive Officer, two
of the CD&R Fund V-nominated directors (other than the Chase Designee), one of
the EXOR-nominated directors and the director nominated by 1818 Fund. The
Compensation and Benefits Committee consists of two of the CD&R Fund V-nominated
directors (other than the Chase Designee), one of the EXOR-nominated directors
and two directors nominated by the Equity Investors other than CD&R Fund V and
EXOR (but including the Chase Designee) (the "Other Investors"). The Audit
Committee consists of one of the CD&R Fund V-nominated directors (other than the
Chase Designee), one of the EXOR-nominated directors, two of the Other
Investor-nominated directors and one independent director. The Executive
Committee's current members are Messrs. Ames, Botta, Conway, Humphrey and
Tucker. The members of the Compensation and Benefits Committee are currently
Messrs. Hendrix, Ames, Botta, Cribiore and Richmand; and the Audit Committee
consists of Messrs. Tucker, Conway and Mencoff.
Non-employee directors who are not employed by or affiliated with CD&R will
receive compensation for their services on the Boards of $30,000 per year plus
$2,500 per board meeting attended. Currently, three of the Company's directors
are employees of CD&R, to which the Company pays fees for management and
financial consulting services. See "Item 13. Certain Relationships and Related
Transactions."
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<PAGE> 90
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT COMPENSATION SUMMARY
The following table summarizes the compensation paid for services rendered
during the fiscal years indicated below by the Company to the Chief Executive
Officer and the four most highly compensated executive officers (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARD
--------------------------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
SALARY BONUS OTHER ANNUAL STOCK ALL OTHER
NAME YEAR $ $ COMPENSATION(5) OPTIONS COMPENSATION(8)
---- ---- -------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Humphrey.......... 1999 $558,833 $511,612 $ 119,295(6) 75,000 --
President and Chief 1998 510,000 544,430 -- -- --
Executive Officer 1997 376,894 250,000(1) 118,433 225,000 --
Thomas M. Gannon............. 1999 $318,167 $353,782 $ -- 24,000 $8,789
Executive Vice President, 1998 280,000 423,903 342 30,000 9,600
Commercial Operations 1997 123,466 200,000(2) 187,986 -- 3,313
Daniel J. Blount............. 1999 $210,000 $192,255 $ -- 15,000 --
Sr. Vice President and 1998 144,583 230,509(3) 52,024 -- --
Chief Financial Officer 1997 -- -- -- -- --
Steven D. Saucier............ 1999 $225,000 $205,988 $ 113,406(7) 25,667 $8,789
Sr. Vice President, 1998 37,500 50,000(4) -- -- --
Paperboard Operations 1997 -- -- -- -- --
Robert H. Burg............... 1999 $234,083 $214,303 -- 5,000 $8,789
Sr. Vice President, 1998 228,333 243,748 -- -- 9,600
Human Resources 1997 220,000 55,000 -- -- 4,750
</TABLE>
- ---------------
(1) Upon the commencement of his employment with the Company on March 31, 1997,
the Company guaranteed a minimum annual bonus to Mr. Humphrey for 1997 of at
least $250,000.
(2) Upon the commencement of his employment with the Company on July 14, 1997,
the Company paid Mr. Gannon a commencement incentive bonus of $100,000 and
guaranteed a minimum annual bonus to Mr. Gannon for 1997 of at least
$100,000.
(3) Upon commencement of his employment with the Company on March 16, 1998, the
Company paid Mr. Blount a commencement bonus of $75,000.
(4) Upon commencement of his employment with the Company on November 1, 1998,
the Company paid Mr. Saucier a commencement bonus of $50,000.
(5) Except as otherwise noted, amounts consist of certain taxable perquisites
the value of none of which exceeded 25% of the total value of the
perquisites provided.
(6) Includes $86,957 of perquisites of which $76,898 consisted of tax
reimbursements paid in respect of certain taxable perquisites. Also includes
$32,338 which is the amount of interest that would have been paid by the
Named Executive Officer on a $5,000,000 non-interest bearing loan made by
Holding to the Named Executive Officer had such loan borne interest at 5.49%
per annum, the applicable federal rate at the time such loan was made.
(7) Includes $78,632 of tax reimbursements paid in respect of taxable
perquisites.
(8) Amounts consist of Company contributions on behalf of the Named Executive
Officers to the Company's savings plan.
87
<PAGE> 91
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE
GRANTED EMPLOYEES IN PER SHARE GRANT DATE VALUE
NAME (#) FISCAL YEAR ($/sh) EXPIRATION DATE (4)
---- ------------------ ------------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
S. Humphrey........... 75,000(1) 31.6% $100 May 7, 2009 $2,123,250
T. Gannon............. 24,000(1) 10.1 100 June 30, 2009 679,440
D. Blount............. 6,000(2) 2.5 100 June 11, 2009 174,840
3,000(3) 1.3 100 June 11, 2009 58,410
6,000(1) 2.5 100 June 30, 2009 169,860
S. Saucier............ 10,000(2) 4.2 100 December 1, 2009 303,800
5,000(3) 2.1 100 December 1, 2009 103,600
10,667(1) 4.5 100 December 1, 2009 314,783
R. Burg............... 5,000(1) 2.1 100 June 30, 2009 141,550
</TABLE>
- ---------------
(1) Options granted under the Company's Supplemental Long-Term Incentive Plan
generally vest in three equal vested units following the end of each of the
Company's 1999, 2000 and 2001 fiscal years, if the Company achieves certain
pre-established EBITDA targets for such fiscal years, subject to the Named
Executive Officer's continuous employment. Any such options that do not
become vested as described above will become vested nine years and six
months following the date of grant, subject to the Named Executive Officer's
continuous employment.
(2) Options granted under the Company's Stock Incentive Plan will become vested
in five equal annual installments, on each of the first five anniversaries
of the date of grant, subject in each case to the Named Executive Officer's
continuous employment.
(3) Options granted under the Company's Stock Incentive Plan become vested
(subject in all cases to the Named Executive Officer's continuous
employment) on the date, and only if, the Company achieves its cumulative
five year EBITDA target for the five fiscal years ended December 31, 2003.
Any Performance Options that do not become vested as described above will
become vested nine years and six months following the date of grant, subject
to the Named Executive Officer's continuous employment.
(4) The dollar amounts set forth under this heading are based on an economic
option pricing model commonly used to value option grants on the basis of
certain assumptions. An economic option pricing model will produce different
results depending on the assumptions made, and the values shown above are
merely good faith estimates of the present value of the option grants.
Because one of the assumptions in the model is the future volatility in the
value of the Common Stock, the actual present value of such option grants
cannot be determined.
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<PAGE> 92
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information for each Named Executive Officer
with regard to stock option exercises during 1999 and the aggregate value of
options held at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SARs AT FISCAL
FISCAL YEAR-END YEAR-END ($)
SHARES ---------------------- ----------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- -------------- ----------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
S. Humphrey.................. -- -- 91,402/208,598 $3,221,655/$6,903,345
T. Gannon.................... 6,000 $0 10,360/ 36,140 $ 155,400/$542,100
D. Blount.................... -- -- 1,390/ 13,610 $ 20,850/$204,150
S. Saucier................... -- -- 2,471/ 23,196 $ 37,065/$347,940
R. Burg...................... -- -- 4,758/ 9,242 $ 71,370/$138,630
</TABLE>
- ---------------
(1) The dollar amounts set forth under this heading are calculated based on a
price per share of Holding Common Stock of $115, the estimated fair market
value of Holding Common Stock as of December 31, 1999, minus the exercise
price for such options.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUT
PERFORMANCE OR OTHER --------------------------------------
NAME PERIOD UNTIL PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
---- -------------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
S. Humphrey........................... March 26, 2002(1) $0 N/A $10,000,000
T. Gannon............................. December 31, 2001(1) 0 N/A 880,000
December 31, 2008(2) 0 460,000 920,000
D. Blount............................. December 31, 2001(1) 0 N/A 360,000
S. Saucier............................ December 31, 2008(2) 0 172,500 345,000
December 31, 2001(1) 0 N/A 600,000
June 1, 2009(2) 0 306,705 613,410
R. Burg............................... December 31, 2001(1) 0 N/A 350,000
December 31, 2008(2) 0 149,500 299,000
</TABLE>
- ---------------
(1) Under the Company's Supplemental Long-Term Incentive Plan the Company has
granted to the Named Executive officers the right to receive from the
Company a cash payment (or in certain circumstances shares of Holding Common
Stock) in the amount specified under the column headed "maximum" if a Change
in Control of the Company occurs prior to December 31, 2001 (March 26, 2002
in the case of Mr. Humphrey), and certain conditions are met (including
continued employment). The actual amount payable will, in effect, be reduced
by any gross proceeds received by such person in the transaction
constituting such change in control with respect to certain equity purchases
and awards.
(2) Awards consist of incentive units granted under the Company's Supplemental
Long-Term Incentive Plan, which represent the right to receive a payment
equal the value of a share of Holding Common Stock if a change in control
(as defined with plan) occurs prior to December 31, 2001 and certain
conditions (including continued employment) are met. The number of incentive
units that will vest, if any, is determined based on the price for the
Holding Common Stock in the transaction that constitutes the change in
control. To the extent not previously vested, all incentive units vest on
the date that is nine years and six months after the date of grant. Amounts
reported are based on a value of the Holding Common Stock covered by the
award at the fair market value of $115 per share at the close of the fiscal
year. Dividends are not paid on incentive units.
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PENSION PLAN
All U.S. salaried employees who satisfy the service eligibility criteria
are participants in the Riverwood International Employees Retirement Plan (the
"Retirement Plan"). Pension benefits under the Retirement Plan are limited in
accordance with the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), governing tax qualified pension plans. The Company has adopted a
Supplemental Pension Plan (the "Supplemental Plan" and, together with the
Retirement Plan, the "Pension Plans") that provides for payment to participants
of the retirement benefits equal to the excess of the benefits that would have
been earned by each such participant had the limitations of the Code not applied
to the Retirement Plan and the amount actually earned by such participant under
the Retirement Plan. Each of the Named Executive Officers is eligible to
participate in the Pension Plans. Benefits under the Supplemental Plan are not
pre-funded; such benefits are paid by the Company when due. The Pension Plan
Table below sets forth the estimated annual benefits payable upon retirement,
including amounts attributable to the Supplemental Plan, for specified
remuneration levels and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.................................... $ 24,476 $ 32,634 $ 40,793 $ 48,952 $ 57,110
150,000.................................... 29,726 39,634 49,543 59,452 69,360
175,000.................................... 34,976 46,634 58,293 69,952 81,610
200,000.................................... 40,226 53,634 67,043 80,452 93,860
225,000.................................... 45,476 60,634 75,793 90,952 106,110
250,000.................................... 50,726 67,634 84,543 101,452 118,360
300,000.................................... 61,226 81,634 102,043 122,452 142,860
400,000.................................... 82,226 109,634 137,043 164,452 191,860
450,000.................................... 92,726 123,634 154,543 185,452 216,360
500,000.................................... 103,226 137,634 172,043 206,452 240,860
600,000.................................... 124,226 165,634 207,043 248,452 289,860
700,000.................................... 145,226 193,634 242,043 290,452 338,860
800,000.................................... 166,226 221,634 277,043 332,452 387,860
</TABLE>
- ---------------
(A) Had the Named Executive Officers in the Summary Compensation Table retired
as of December 31, 1999, their respective five-year average salaries, plus
bonuses, for purposes of the table set forth above, would have been as
follows: Mr. Burg, $292,545; Mr. Saucier, $225,000; Mr. Humphrey, $787,754;
Mr. Gannon, $420,690; and Mr. Blount, $282,755.
(B) On December 31, 1999, the Named Executive Officers in the Summary
Compensation Table had the following years of credited service under the
Retirement Plan: Mr. Burg, 7; Mr. Saucier, 1; Mr. Humphrey, 3; Mr. Gannon,
2; and Mr. Blount, 2.
(C) Salary as defined in the Retirement Plan includes payment under the annual
incentive compensation plan but excludes payments under any equity incentive
plan of the Company or Predecessor Company.
EMPLOYMENT AGREEMENTS
Each of Messrs. Humphrey, Gannon, Blount, Saucier and Burg are parties to
employment agreements with the Company. Mr. Humphrey's agreement was entered
into on March 31, 1997, and has an initial term of five years that automatically
extends for additional one-year periods following the expiration of the initial
term. The agreements with Messrs. Gannon, Blount, Saucier and Burg, entered into
as of July 14, 1997, September 1, 1998, November 1, 1998 and March 27, 1996,
have an initial three year term that also automatically extends for additional
one-year periods following the expiration of the initial term. The agreements
provide for minimum base salaries of at least $500,000, $265,000, $200,000,
$225,000 and $220,000, for each of Messrs. Humphrey, Gannon, Blount, Saucier and
Burg, respectively, and for bonuses and other benefits set forth in the Summary
Compensation Table. Mr. Saucier's employment agreement
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provides that he will apply the after-tax proceeds of his bonuses for 1999 and
2000 toward the purchase of 5,000 shares of Holding Common Stock. In the event
of termination of employment by the Company without cause or by the executive
for good reason (in each case as defined in the respective employment
agreement), the agreements provide for severance of a pro rata incentive bonus
for the year in which termination of employment occurs and base salary and
continued welfare benefits for, in the case of Mr. Humphrey, the remainder of
the employment term or, if shorter, three years, or in the case of Messrs.
Gannon, Blount, Saucier and Burg, the longer the reminder of the employment
term, one year or one month for each year of service. The agreements also
contain certain non-competition and nonsolicitation provisions.
CERTAIN CHANGE IN CONTROL ARRANGEMENTS
As described above under "Long-Term Incentive Plans -- Awards in Last
Fiscal Year," in the event of a change in control (as defined with Supplemental
Long-Term Incentive Plan) of the Company, the Company may be obligated to make
the payments to the Named Executive officers described above. In addition, in
the event of such a change in control, service options will generally vest.
COMPENSATION COMMITTEE INTERLOCKS
During fiscal year 1999, Messrs. Hendrix, Ames, Botta, Cribiore and
Richmand served on the Compensation and Benefits Committee of the Holding Board.
Mr. Hendrix, one of the two CD&R Fund V-nominated directors, is an employee of
CD&R. CD&R received a fee from RIC Holding of $12 million in connection with the
Merger and arranging the financing thereof. CD&R received an annual fee of
$470,000 for advisory, management, consulting and monitoring services from
Riverwood. Holding, RIC Holding and Riverwood have also agreed to indemnify the
members of the Boards employed by CD&R and CD&R against liabilities incurred
under securities laws with respect to their services for Holding, RIC Holding
and Riverwood.
Messrs. Hendrix and Cribiore are the CD&R Fund V-nominated directors on the
Compensation and Benefits Committees of Holding, RIC Holding and Riverwood.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Holding owns all of the outstanding common stock of RIC Holding. RIC
Holding owns all of the outstanding common stock of Riverwood. As of March 7,
2000, the Holding Common Stock was beneficially owned as follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- ------------------------ --------- ----------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V Limited Partnership(1)...... 2,250,000 29.8%
1403 Foulk Road
Suite 106
Wilmington, DE 19803
EXOR Group S.A.(2).......................................... 2,250,000 29.8
22-24, Boulevard Royal
L-2449 Luxembourg
The 1818 Fund II, L.P.(3)................................... 750,000 9.9
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
HWH Investment Pte Ltd...................................... 700,000 9.3
250 North Bridge Road
Singapore 179101
Republic of Singapore
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- ------------------------ --------- ----------
<S> <C> <C>
Chase Equity Associates, L.P.(4)............................ 500,000 6.6
380 Madison Avenue
New York, NY 10017
First Plaza Group Trust..................................... 500,000 6.6
Mellon Bank, N.A., as Trustee
c/o General Motors Investment Management Corporation
767 Fifth Avenue
New York, NY 10153
Madison Dearborn Capital Partners, L.P.(5).................. 500,000 6.6
Three First National Plaza
Chicago, IL 60602
Wolfensohn-River LLC........................................ 50,000 0.6
130 Liberty Avenue
New York, NY 10006
--------- ----
Total Equity Investors............................ 7,500,000 99.2%
========= ====
B. Charles Ames(6).......................................... 0 --
Kevin J. Conway(6).......................................... 0 --
Leon J. Hendrix, Jr.(6)..................................... 0 --
Hubbard C. Howe(6).......................................... 0 --
Alberto Cribiore(6)......................................... 0 --
Brian J. Richmand........................................... 0 --
Samuel M. Mencoff(5)........................................ 0 --
Lawrence C. Tucker(3)....................................... 0 --
G. Andrea Botta............................................. 0 --
Gianluigi Gabetti........................................... 0 --
Stephen M. Humphrey(7)...................................... 157,517 (8)
Thomas M. Gannon(7)......................................... 16,360 (8)
Robert H. Burg(7)........................................... 7,758 (8)
Steven D. Saucier(7)........................................ 2,471 (8)
Daniel J. Blount(7)......................................... 4,390 (8)
All directors and executive officers as a group (15
persons)(3)(5)(6)(7)...................................... 188,496 2.5%
Total Management Investors(9)..................... 62,380 0.8%
Total Equity Investors and Management
Investors(9).................................... 7,562,380 100%
========= ====
</TABLE>
- ---------------
(1) CD&R Associates V Limited Partnership, a Cayman Islands exempted limited
partnership ("CD&R Associates V"), is the general partner of Clayton,
Dubilier Rice Fund V Limited Partnership, a Cayman Islands exempted limited
partnership ("CD&R Fund V"), and has the power to direct CD&R Fund V as to
the voting and disposition of shares held by CD&R Fund V. CD&R Investment
Associates II, Inc., a Cayman Islands exempted company ("Investment
Associates II"), is the managing general partner of CD&R Associates V and
has the power to direct CD&R Associates V as to its direction of CD&R Fund
V's voting and disposition of the shares held by CD&R Fund V. No person
controls the voting and dispositive power of Investment Associates II with
respect to the shares owned by CD&R Fund V. Each of CD&R Associates V and
Investment Associates II expressly disclaims beneficial ownership of the
shares owned by CD&R Fund V. The business address for each of CD&R Fund V,
CD&R Associates V and Investment Associates II is 1403 Foulk Road, Suite
106, Wilmington, Delaware 19803.
(2) Reflects transfer on March 2, 1999 of shares formerly held by FIMA Finance
Management Inc. to EXOR Group S.A.
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<PAGE> 96
(3) Mr. Tucker may be deemed to share beneficial ownership of the shares owned
of record by The 1818 Fund II, L.P. by virtue of his affiliation with such
organization. Mr. Tucker expressly disclaims any such beneficial ownership.
(4) Chase Equity Associates, L.P., formerly known as Chemical Equity Associates,
purchased shares of the Class B Common Stock which do not have voting
rights.
(5) Mr. Mencoff may be deemed to share beneficial ownership of the shares owned
of record by Madison Dearborn Capital L.P. by virtue of his affiliation with
such organization. Mr. Mencoff expressly disclaims any such beneficial
ownership.
(6) Excludes shares of Holding Common Stock owned by CD&R Fund V, as to which
Messrs. Ames, Conway, Cribiore, Hendrix and Howe may be deemed to share
beneficial ownership or have an economic interest. See footnote (1).
(7) Includes options to purchase 147,517; 10,360; 4,758; 2,471; and 1,390 shares
of Holding Common Stock which may be exercised by Messrs. Humphrey, Gannon,
Burg, Saucier and Blount, respectively.
(8) Less than 1%.
(9) Excludes options to purchase shares of Holding Common Stock. As of March 7,
2000, a total of 79,370 shares of management investor stock have been
repurchased as a result of death, resignation and other termination of
employment. As of March 7, 2000, Mr. Humphrey and the Named Executive
Officers owned an aggregate of 22,000 shares of Holding Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CD&R Fund V, which is one of Holding's largest stockholders, is a private
investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged acquisition
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buyout transactions. The general partner of CD&R Fund V is CD&R
Associates V, and the general partners of CD&R Associates V are Investment
Associates II, CD&R Investment Associates, Inc. and CD&R Cayman Investment
Associates, Inc., a Cayman Islands exempted company. Mr. Ames, who is a
principal of CD&R, a director of Investment Associates II and a limited partner
of CD&R Associates V, is Chairman of Holding, RIC Holding and Riverwood. Mr.
Conway, who is a principal of CD&R, a director of Investment Associates II and a
limited partner of CD&R Associates V, is a director of Holding, RIC Holding and
Riverwood. Mr. Hendrix, who is a principal of CD&R and a limited partner of CD&R
Associates V, is a director of Holding, RIC Holding and Riverwood. Mr. Howe, who
was until recently a principal of CD&R and continues to be a limited partner of
CD&R Associates V, is a director of Holding, RIC Holding and Riverwood. See
"Item 10. Directors & Executive Officers of the Registrant -- Directors &
Executive Officers." CD&R Fund V purchased $225 million of equity of Holding in
connection with the Merger.
CD&R is a private investment firm which is organized as a Delaware
corporation. CD&R is the manager of a series of investment funds, including CD&R
Fund V. CD&R generally assists in structuring, arranging financing for and
negotiating the transactions in which the funds it manages invest. After the
consummation of such transactions, CD&R generally provides management and
financial advisory and consulting services to the companies in which its
investment funds have invested during the period of such fund's investment. Such
services include helping the company to establish effective banking, legal and
other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the company.
In April 1996, CD&R began to receive monthly payments of an aggregate
annual fee of $375,000 for providing management and financial consulting
services to the Company and reimbursement of out-of-pocket expenses it incurred
during the nine months ended December 31, 1996. Pursuant to a consulting
agreement dated as of March 27, 1996, so long as CD&R Fund V has an investment
in the Company, CD&R will continue to receive an annual fee (and reimbursement
of out-of-pocket expenses) for providing such management and financial
consulting services to the Company. The indentures relating to the Notes allow
the
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payment to CD&R of annual fees for management and financial consulting services
of up to $1 million, although there is no current intention to increase the
amount of the annual fee to be received by CD&R above $500,000. During the year
ended December 31, 1999, the Company paid CD&R annual fees in the amount of
$470,000 for providing such management and financial consulting services.
CD&R, CD&R Fund V, Holding, Riverwood and RIC Holding entered into an
indemnification agreement dated as of March 27, 1996, pursuant to which Holding,
RIC Holding and Riverwood, have agreed to indemnify CD&R, CD&R Fund V,
Associates V, Associates Inc. (together with any other general partner of
Associates V) and their respective directors, officers, partners, employees,
agents, advisors, representatives and controlling persons against certain
liabilities arising under the federal securities laws, liabilities arising out
of the performance of the consulting agreement and certain other claims and
liabilities.
MANAGEMENT
Following the consummation of the Merger, Holding adopted the Equity
Incentive Plan providing for the issuance of up to 695,000 shares of Holding
Common Stock pursuant to the sale of shares of Holding Common Stock and the
grant of options with respect to Holding Common Stock under the plan.
On June 4, 1996, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock. Such management stock purchases included the purchase of 3,000
shares of Holding Common Stock by Mr. Burg. The Company guaranteed certain loans
for $150,000 extended to Mr. Burg.
During 1999 and through March 7, 2000, the Company repurchased 29,520
shares of Holding Common Stock from management investors. Of this total, 14,250
shares were repurchased at $85.00 per share and 15,270 shares were repurchased
at $100.00 per share.
On May 4, 1999, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock. Such management stock purchases included purchases of 10,000;
6,000; and 3,000 shares of Holding Common Stock by Messrs. Humphrey, Gannon and
Blount, respectively. The Company guaranteed certain loans for $200,000 extended
to Mr. Gannon.
In June of 1999, Holding adopted a Supplemental Long-Term Incentive Plan
that provides for, among other things, the grant of options to purchase shares
of Holding Common Stock and incentive stock units and supplemental payments with
respect to, up to an aggregate amount of 457,300 shares of Holding Common Stock.
In November of 1999, Holding lent to Mr. Humphrey $5,000,000 pursuant to a
full-recourse non-interest bearing promissory note entered into by Mr. Humphrey
and Holding. The promissory note will generally become due and payable on March
26, 2002; or, earlier, if Mr. Humphrey voluntarily terminates his employment
other than for "good reason" or the Company terminates his employment for
"cause" (in each case, as defined in Mr. Humphrey's employment agreement).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial statements, financial statement schedule and exhibits filed as
part of this report:
1a. Consolidated financial statements of Riverwood Holding, Inc. and
subsidiaries as of December 31, 1999 and 1998 and for each of the three
years ended December 31, 1999, 1998, and 1997, and report of Independent
Accountants.
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<PAGE> 98
1b. Consolidated financial statements of IGARAS PAPEIS E EMBALAGENS S.A.
and subsidiary as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, 1998, 1997, and report of
Independent Accountants.
2. Schedule II -- Valuation and Qualifying Accounts.
All other schedules are omitted as the information required is either
included elsewhere in the consolidated financial statements herein or is
not applicable.
b. Reports on Form 8-K: None.
c. Exhibit Index to Annual Report on Form 10-K for Year Ended December 31,
1999.
<TABLE>
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<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of Filed as Exhibit 2.1 to the Registration
October 25, 1995, among RIC, RIC Holding, Statement on Form S-1 (Registration No.
Inc. and CDRO Acquisition Corporation. 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33-80475) of New River Holding, Inc.
Acquisition Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of October Filed as Exhibit 10.3 to the Registration
25, 1995, among Manville, RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33-80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, including a and incorporated herein by reference.
list of omitted annexes and an undertaking
of the Registrant to furnish
supplementally a copy of any such omitted
annex to the Securities and Exchange
Commission upon request.
</TABLE>
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<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
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<S> <C> <C>
3.1 Certificate of Incorporation of Riverwood Filed as Exhibit 3.3 to the Registration
Holding, Inc. (formerly known as New River Statement on Form S-1 (Registration No.
Holding, Inc.), dated December 7, 1995. 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate of Filed as Exhibit 3.2 to the Registrant's
Incorporation of Riverwood Holding, Inc., Annual Report on Form 10-K filed March 27,
dated March 27, 1996. 1997 (Commission File No. 1-11113), and
incorporated herein by reference.
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
3.4 Restated By-Laws of Riverwood Holding, Filed as an exhibit hereto.
Inc., as amended effective August 18,
1999.
3.5 Restated By-Laws of RIC Holding, Inc., as Filed as an exhibit hereto.
amended effective August 18, 1999.
3.6 Restated By-Laws of Riverwood Filed as an exhibit hereto.
International Corporation as amended
effective August 18, 1999.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as administrative 1-11113), and incorporated herein by
agent, and the lenders party thereto. reference.
4.3 Amendment No. 1, dated as of September 13, Filed as Exhibit 4a to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.4 Amendment No. 2, dated as of September 17, Filed as Exhibit 4b to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
</TABLE>
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<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
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<S> <C> <C>
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as of Annual Report on Form 10-K filed March 27,
March 27, 1996, among Riverwood 1997 (Commission File No. 1-11113), and
International Corporation, the lenders incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as of Statement on Form S-4 (Registration No.
March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities Act
Bank (formerly known as Chemical Bank), as of 1933, as amended, and incorporated
administrative agent. herein by reference.
4.7 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.6 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Connecticut, as trustee, 1-11113), and incorporated herein by
relating to the 10 1/4% Senior Notes due reference.
2006 of Riverwood International
Corporation, together with the First
Supplemental Indenture and the Second
Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.7 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Corporation, Statement on Form S-4 (Registration No.
RIC Holding, Inc., Riverwood Holding, Inc. 333-33499) of Riverwood International
and State Street Bank & Trust Company, as Corporation, Riverwood Holding, Inc. and
trustee, relating to the 10 5/8% Senior RIC Holding, Inc. under the Securities Act
Notes due 2007 of Riverwood International of 1933, as amended, and incorporated
Corporation. herein by reference.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between Riverwood Holding, Inc. Statement on Form S-1 (Registration No.
(formerly named New River Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and the 33-80475) of New River Holding, Inc.
purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>
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<TABLE>
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DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
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<S> <C> <C>
10.3 Form of Management Stock Option Agreement Filed as Exhibit 10.5 to Registration
between New River Holding, Inc. (renamed Statement on Form S-1 (Registration No.
Riverwood Holding, Inc.) and the grantees 33-80475) of New River Holding, Inc.
named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River Holding, (renamed Riverwood Holding, Inc.) under
Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of New 33-80475) of New River Holding, Inc.
River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., Riverwood International Corporation, 33-80475) of New River Holding, Inc.
Clayton, Dubilier & Rice, Inc. and (renamed Riverwood Holding, Inc.) under
Clayton, Dubilier & Rice Fund V Limited the Securities Act of 1933, as amended,
Partnership. and incorporated herein by reference.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the Registration
Agreements among Riverwood International Statement on Form S-1 (Registration No.
Corporation, Riverwood Holding, Inc. and 33-80475) of New River Holding, Inc.
each of Robert C. Hart and Robert H. Burg. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., the corporation formerly known as 33-80475) of New River Holding, Inc.
Riverwood International Corporation, (renamed Riverwood Holding, Inc.) under
Riverwood International Corporation and the Securities Act of 1933, as amended,
Clayton, Dubilier & Rice, Inc. and incorporated herein by reference.
10.10 Loanout Agreement, dated as of October 8, Filed as Exhibit 10.11 to the Registrant's
1996, among Riverwood Holding Inc., RIC Annual Report on Form 10-K filed March 27,
Holding, Inc., Riverwood International 1997 (Commission File No. 1-11113), and
Corporation and Clayton, Dubilier & Rice, incorporated herein by reference.
Inc.
</TABLE>
98
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<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
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10.11 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the Registrant's
31, 1997, among Riverwood International Quarterly Report on Form 10-Q filed May 9,
Corporation, Riverwood Holding, Inc. and 1997 (Commission File No. 1-11113), and
Stephen Humphrey. incorporated herein by reference.
10.12 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the Registrant's
as of March 31, 1997, between Riverwood Quarterly Report on Form 10-Q filed May 9,
Holding, Inc. and Stephen Humphrey. 1997 (Commission File No. 1-11113), and
incorporated herein by reference.
10.13 Employment Agreement, dated as of July 14, Filed as Exhibit 10.13 to the Registrant's
1997, among Riverwood International Annual Report on Form 10-K filed March 5,
Corporation, Riverwood Holding, Inc. and 1999 (Commission File No. 1-11113), and
Thomas M. Gannon. incorporated herein by reference.
10.14 Management Stock Option Agreement, dated Filed as Exhibit 10.14 to the Registrant's
as of August 19, 1998, between Riverwood Annual Report on Form 10-K filed March 5,
Holding, Inc. and Thomas M. Gannon. 1999 (Commission File No. 1-11113), and
incorporated herein by reference.
10.15 Form of Riverwood Holding, Inc. Filed as an exhibit hereto.
Supplemental Long-Term Incentive Plan.
10.16 Employment Agreement, dated as of Filed as an exhibit hereto.
September 1, 1998, among Riverwood
International Corporation, Riverwood
Holding, Inc. and Daniel J. Blount.
10.17 Employment Agreement, dated as of November Filed as an exhibit hereto.
1, 1998, among Riverwood International
Corporation, Riverwood Holding, Inc. and
Steven D. Saucier.
10.18 Agreement, dated as of November 18, 1999, Filed as an exhibit hereto.
between Riverwood Holding, Inc. and
Stephen M. Humphrey.
10.19 Promissory Note, dated as of November 18, Filed as an exhibit hereto.
1999, by Stephen M. Humphrey.
21 List of subsidiaries. Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>
99
<PAGE> 103
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Holding hereby agrees to
furnish a copy of each document set forth below upon request of the Securities
and Exchange Commission:
Indenture, dated as of June 24, 1992, between RIC and Continental Bank,
National Association, as trustee, relating to 10 3/4% Senior Notes Due 2000 (the
"10 3/4% Indenture").
First Supplemental Indenture to the 10 3/4% Indenture, dated as of February
13, 1996, between RIC and First Trust of Illinois, National Association (as
successor trustee to Continental Bank, National Association).
Indenture, dated as of June 24, 1992, between RIC and NationsBank of
Georgia, National Association, as trustee, relating to 11 1/4% Senior
Subordinated Notes Due 2002 (the "11 1/4% Indenture").
First Supplemental Indenture to the 11 1/4% Indenture, dated as of February
13, 1996, between RIC and The Bank of New York (as successor trustee to
NationsBank of Georgia, National Association).
Indenture, dated as of September 15, 1993, between RIC and Morgan Guaranty
Trust Company of New York, relating to 6 3/4% Convertible Subordinated Notes due
2003 (the "6 3/4% Indenture").
First Supplemental Indenture to the 6 3/4% Indenture, dated as of March 27,
1996, between RIC and First Trust of New York, National Association (as
successor trustee to Morgan Guaranty Trust Company of New York).
Second Supplemental Indenture to the 6 3/4% Indenture, dated as of March
28, 1996, between RIC Holding, Inc. (as successor to RIC) and First Trust of New
York, National Association (as successor trustee to Morgan Guaranty Trust
Company of New York).
100
<PAGE> 104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of the 17th day of
March, 2000.
RIVERWOOD HOLDING, INC.
By: /s/ STEPHEN M. HUMPHREY
------------------------------------
Stephen M. Humphrey
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ B. CHARLES AMES Chairman of the Board March 17, 2000
- -----------------------------------------------------
B. Charles Ames
/s/ STEPHEN M. HUMPHREY President and Chief Executive March 17, 2000
- ----------------------------------------------------- Officer (Principal Executive
Stephen M. Humphrey Officer)
/s/ THOMAS M. GANNON Executive Vice President, March 17, 2000
- ----------------------------------------------------- Commercial Operations
Thomas M. Gannon
/s/ DANIEL J. BLOUNT Senior Vice President and Chief March 17, 2000
- ----------------------------------------------------- Financial Officer (Principal
Daniel J. Blount Financial and Accounting
Officer)
/s/ ROBERT H. BURG Senior Vice President, Human March 17, 2000
- ----------------------------------------------------- Resources
Robert H. Burg
/s/ STEVEN D. SAUCIER Senior Vice President, March 17, 2000
- ----------------------------------------------------- Paperboard Operations
Steven D. Saucier
/s/ KEVIN J. CONWAY Director March 17, 2000
- -----------------------------------------------------
Kevin J. Conway
/s/ LEON J. HENDRIX, JR. Director March 17, 2000
- -----------------------------------------------------
Leon J. Hendrix, Jr.
/s/ HUBBARD C. HOWE Director March 17, 2000
- -----------------------------------------------------
Hubbard C. Howe
/s/ ALBERTO CRIBIORE Director March 17, 2000
- -----------------------------------------------------
Alberto Cribiore
</TABLE>
101
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ BRIAN J. RICHMAND Director March 17, 2000
- -----------------------------------------------------
Brian J. Richmand
/s/ G. ANDREA BOTTA Director March 17, 2000
- -----------------------------------------------------
G. Andrea Botta
/s/ GIANLUIGI GABETTI Director March 17, 2000
- -----------------------------------------------------
Gianluigi Gabetti
/s/ LAWRENCE C. TUCKER Director March 17, 2000
- -----------------------------------------------------
Lawrence C. Tucker
/s/ SAMUEL M. MENCOFF Director March 17, 2000
- -----------------------------------------------------
Samuel M. Mencoff
</TABLE>
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RIVERWOOD HOLDING, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
ADDITIONS
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
(CLASSIFICATION) OF PERIOD EXPENSES ACCOUNTS (A) OF PERIOD
- ---------------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable............... $ 2,132 $ 3,313 $ -- $(1,945) $ 3,500
Deferred tax assets........................ 175,612 39,299 -- -- 214,911
-------- ------- ---- ------- --------
Total.............................. $177,744 $42,612 $ -- $(1,945) $218,411
======== ======= ==== ======= ========
YEAR ENDED DECEMBER 31, 1998:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable............... $ 560 $ 1,665 $120 $ (213) $ 2,132
Deferred tax assets........................ 96,232 79,380 -- -- 175,612
-------- ------- ---- ------- --------
Total.............................. $ 96,792 $81,045 $120 $ (213) $177,744
======== ======= ==== ======= ========
YEAR ENDED DECEMBER 31, 1997:
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable............... $ 829 $ 449 $ -- $ (718) $ 560
Deferred tax assets........................ 92,019 4,213 -- -- 96,232
-------- ------- ---- ------- --------
Total.............................. $ 92,848 $ 4,662 $ -- $ (718) $ 96,792
======== ======= ==== ======= ========
</TABLE>
- ---------------
Note:
(a) The reductions in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of recoveries.
103
<PAGE> 107
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934.
The Company did not send an annual report or proxy materials to security
holders during the year ended December 31, 1999.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as Filed as Exhibit 2.1 to the Registration
of October 25, 1995, among RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33- 80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33- 80475) of New River Holding, Inc.
Acquisition Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of Filed as Exhibit 10.3 to the
October 25, 1995, among Manville, RIC, Registration Statement on Form S-1
RIC Holding, Inc. and CDRO Acquisition (Registration No. 33- 80475) of New
Corporation. River Holding, Inc. (renamed Riverwood
Holding, Inc.) under the Securities Act
of 1933, as amended, and incorporated
herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, including a and incorporated herein by reference.
list of omitted annexes and an
undertaking of the Registrant to furnish
supplementally a copy of any such
omitted annex to the Securities and
Exchange Commission upon request.
</TABLE>
104
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<S> <C> <C>
3.1 Certificate of Incorporation of Filed as Exhibit 3.3 to the Registration
Riverwood Holding, Inc. (formerly known Statement on Form S-1 (Registration No.
as New River Holding, Inc.), dated 33- 80475) of New River Holding, Inc.
December 7, 1995. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate Filed as Exhibit 3.2 to the Registrant's
of Incorporation of Riverwood Holding, Annual Report on Form 10-K filed March
Inc., dated March 27, 1996. 27, 1997 (Commission File No. 1-11113),
and incorporated herein by reference.
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
3.4 Restated By-Laws of Riverwood Holding, Filed as an exhibit hereto.
Inc., as amended effective August 18,
1999.
3.5 Restated By-Laws of RIC Holding, Inc., Filed as an exhibit hereto.
as amended effective August 18, 1999.
3.6 Restated By-Laws of Riverwood Filed as an exhibit hereto.
International Corporation as amended
effective August 18, 1999.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as 1-11113), and incorporated herein by
administrative agent, and the lenders reference.
party thereto.
4.3 Amendment No. 1, dated as of September Filed as Exhibit 4a to the Registrant's
13, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.4 Amendment No. 2, dated as of September Filed as Exhibit 4b to the Registrant's
17, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
</TABLE>
105
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<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<S> <C> <C>
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as Annual Report on Form 10-K filed March
of March 27, 1996, among Riverwood 27, 1997 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as Statement on Form S-4 (Registration No.
of March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities
Bank (formerly known as Chemical Bank), Act of 1933, as amended, and
as administrative agent. incorporated herein by reference.
4.7 Indenture, dated March 27, 1996, among Filed as Exhibit 4.6 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Connecticut, as 1-11113), and incorporated herein by
trustee, relating to the 10 1/4% Senior reference.
Notes due 2006 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among Filed as Exhibit 4.7 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Statement on Form S-4 (Registration No.
Corporation, RIC Holding, Inc., 333-33499) of Riverwood International
Riverwood Holding, Inc. and State Street Corporation, Riverwood Holding, Inc. and
Bank & Trust Company, as trustee, RIC Holding, Inc. under the Securities
relating to the 10 5/8% Senior Notes due Act of 1933, as amended, and
2007 of Riverwood International incorporated herein by reference.
Corporation.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between Riverwood Holding, Statement on Form S-1 (Registration No.
Inc. (formerly named New River Holding, 33-80475) of New River Holding, Inc.
Inc.) and each of the investors named on (renamed Riverwood Holding, Inc.) under
the schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>
106
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<S> <C> <C>
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.3 Form of Management Stock Option Filed as Exhibit 10.5 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the grantees named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River (renamed Riverwood Holding, Inc.) under
Holding, Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of 33-80475) of New River Holding, Inc.
New River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., Riverwood International (Registration No. 33-80475) of New River
Corporation, Clayton, Dubilier & Rice, Holding, Inc. (renamed Riverwood
Inc. and Clayton, Dubilier & Rice Fund V Holding, Inc.) under the Securities Act
Limited Partnership. of 1933, as amended, and incorporated
herein by reference.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the
Agreements among Riverwood International Registration Statement on Form S-1
Corporation, Riverwood Holding, Inc. and (Registration No. 33-80475) of New River
each of Robert C. Hart and Robert H. Holding, Inc. (renamed Riverwood
Burg. Holding, Inc.) under the Securities Act
of 1933, as amended, and incorporated
herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., the corporation formerly known as (Registration No. 33-80475) of New River
Riverwood International Corporation, Holding, Inc. (renamed Riverwood
Riverwood International Corporation and Holding, Inc.) under the Securities Act
Clayton, Dubilier & Rice, Inc. of 1933, as amended, and incorporated
herein by reference.
</TABLE>
107
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<S> <C> <C>
10.10 Loanout Agreement, dated as of October Filed as Exhibit 10.11 to the
8, 1996, among Riverwood Holding Inc., Registrant's Annual Report on Form 10-K
RIC Holding, Inc., Riverwood filed March 27, 1997 (Commission File
International Corporation and Clayton, No. 1-11113), and incorporated herein by
Dubilier & Rice, Inc. reference.
10.11 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the
31, 1997, among Riverwood International Registrant's Quarterly Report on Form
Corporation, Riverwood Holding, Inc. and 10-Q filed May 9, 1997 (Commission File
Stephen Humphrey. No. 1-11113), and incorporated herein by
reference.
10.12 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the
as of March 31, 1997, between Riverwood Registrant's Quarterly Report on Form
Holding, Inc. and Stephen Humphrey. 10-Q filed May 9, 1997 (Commission File
No. 1-11113), and incorporated herein by
reference.
10.13 Employment Agreement, dated as of July Filed as Exhibit 10.13 to the
14, 1997, among Riverwood International Registrant's Annual Report on Form 10-K
Corporation, Riverwood Holding, Inc. and filed March 5, 1999 (Commission File No.
Thomas M. Gannon. 1-11113), and incorporated herein by
reference.
10.14 Management Stock Option Agreement, dated Filed as Exhibit 10.14 to the
as of August 19, 1998, between Riverwood Registrant's Annual Report on Form 10-K
Holding, Inc. and Thomas M. Gannon. filed March 5, 1999 (Commission File No.
1-11113), and incorporated herein by
reference.
10.15 Form of Riverwood Holding, Inc. Filed as an exhibit hereto.
Supplemental Long-Term Incentive Plan.
10.16 Employment Agreement, dated as of Filed as an exhibit hereto.
September 1, 1998, among Riverwood
International Corporation, Riverwood
Holding, Inc. and Daniel J. Blount.
10.17 Employment Agreement, dated as of Filed as an exhibit hereto.
November 1, 1998, among Riverwood
International Corporation, Riverwood
Holding, Inc. and Steven D. Saucier.
10.18 Agreement, dated as of November 18, Filed as an exhibit hereto.
1999, between Riverwood Holding, Inc.
and Stephen M. Humphrey.
10.19 Promissory Note, dated as of November Filed as an exhibit hereto.
18, 1999, by Stephen M. Humphrey.
21 List of subsidiaries. Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>
108
<PAGE> 1
EXHIBIT 3.4
RIVERWOOD HOLDING, INC.
BY-LAWS
As amended and restated effective as of August 18, 1999
<PAGE> 2
RIVERWOOD HOLDING, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C> <C>
ARTICLE I STOCKHOLDERS.................................................................1
Section 1.01. Annual Meetings..............................................................1
Section 1.02. Special Meetings.............................................................1
Section 1.03. Notice of Meetings; Waiver...................................................1
Section 1.04. Quorum.......................................................................2
Section 1.05. Voting.......................................................................2
Section 1.06. Voting by Ballot.............................................................2
Section 1.07. Adjournment..................................................................2
Section 1.08. Proxies......................................................................2
Section 1.09. Organization; Procedure......................................................3
Section 1.10. Consent of Stockholders in Lieu of Meeting...................................3
ARTICLE II BOARD OF DIRECTORS...........................................................4
Section 2.01. General Powers...............................................................4
Section 2.02. Number and Term of Office....................................................4
Section 2.03. Election of Directors........................................................5
Section 2.04. Annual and Regular Meetings..................................................5
Section 2.05. Special Meetings; Notice.....................................................5
Section 2.06. Quorum; Voting...............................................................6
Section 2.07. Adjournment..................................................................6
Section 2.08. Action Without a Meeting.....................................................6
Section 2.09. Regulations; Manner of Acting................................................6
Section 2.10. Action by Telephonic Communications..........................................6
Section 2.11. Resignations.................................................................6
Section 2.12. Removal of Directors.........................................................6
Section 2.13. Vacancies and Newly Created Directorships....................................7
Section 2.14. Compensation.................................................................7
Section 2.15. Reliance on Accounts and Reports, etc........................................7
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES...................................8
Section 3.01. How Constituted..............................................................8
Section 3.02. Powers ..................................................................8
Section 3.03. Proceedings..................................................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.04. Quorum and Manner of Acting..................................................10
Section 3.05. Action by Telephonic Communications..........................................10
Section 3.06. Absent or Disqualified Members of Additional Committees......................10
Section 3.07. Resignations.................................................................10
Section 3.08. Removal......................................................................10
Section 3.09. Vacancies....................................................................11
ARTICLE IV OFFICERS.....................................................................11
Section 4.01. Number.......................................................................11
Section 4.02. Election.....................................................................11
Section 4.03. Salaries.....................................................................11
Section 4.04. Removal and Resignation; Vacancies...........................................11
Section 4.05. Authority and Duties of Officers.............................................11
Section 4.06. The President and Chief Executive Officer....................................12
Section 4.07. The Chief Operating Officer..................................................12
Section 4.08. The Vice Presidents..........................................................12
Section 4.09. The Secretary................................................................12
Section 4.10. The Chief Financial Officer..................................................13
Section 4.11. The Treasurer................................................................14
Section 4.12. Additional Officers..........................................................14
Section 4.13. Security.....................................................................14
ARTICLE V CAPITAL STOCK................................................................15
Section 5.01. Certificates of Stock........................................................15
Section 5.02. Signatures; Facsimile........................................................15
Section 5.03. Lost, Stolen or Destroyed Certificates.......................................15
Section 5.04. Transfer of Stock............................................................15
Section 5.05. Record Date..................................................................16
Section 5.06. Registered Stockholders......................................................16
Section 5.07. Transfer Agent and Registrar.................................................17
ARTICLE VI INDEMNIFICATION..............................................................17
Section 6.01. Nature of Indemnity..........................................................17
Section 6.02. Successful Defense...........................................................17
Section 6.03. Determination That Indemnification is Proper.................................18
Section 6.04. Advance Payment of Expenses..................................................18
Section 6.05. Procedure for Indemnification................................................18
Section 6.06. Survival; Preservation of Other Rights.......................................19
Section 6.07. Insurance....................................................................19
Section 6.08. Severability.................................................................19
Section 6.09. Definitions..................................................................19
ARTICLE VII OFFICES......................................................................20
Section 7.01. Registered Office............................................................20
Section 7.02. Other Offices................................................................20
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII GENERAL PROVISIONS.............................................................20
Section 8.01. Dividends....................................................................20
Section 8.02. Reserves.....................................................................21
Section 8.03. Execution of Instruments.....................................................21
Section 8.04. Corporate Indebtedness.......................................................21
Section 8.05. Deposits.....................................................................21
Section 8.06. Checks.......................................................................21
Section 8.07. Sale, Transfer, etc. of Securities...........................................22
Section 8.08. Voting as Stockholder........................................................22
Section 8.09. Fiscal Year..................................................................22
Section 8.10. Seal.........................................................................22
Section 8.11. Books and Records; Inspection................................................22
Section 8.12. Definitions..................................................................22
ARTICLE IX AMENDMENT OF BY-LAWS.........................................................23
Section 9.01. Amendment....................................................................23
ARTICLE X CONSTRUCTION.................................................................24
Section 10.01. Construction.................................................................24
</TABLE>
<PAGE> 5
RIVERWOOD HOLDING, INC.
BY-LAWS
[As amended and restated effective as of August 18, 1999]
Certain defined terms used herein without definition shall have the
meanings set forth in Section 8.12.
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of directors and for the transaction of
such other business as properly may come before such meeting shall be held at
such place, either within or without the State of Delaware, and at 10:00 a.m.
local time on the first Tuesday in May (or, if such day is a legal holiday,
then on the next succeeding business day), or at such other date and hour, as
may be fixed from time to time by resolution of the Board of Directors and set
forth in the notice or waiver of notice of the meeting. [Sections 211(a),
(b).]1
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman or by the Board of Directors. A
special meeting shall be called by the President and Chief Executive Officer or
by the Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within 20 days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or without the State
of Delaware, as shall be specified in the respective notices or waivers of
notice thereof. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he shall have filed with the Secretary of the Corporation a written request
that notices to him be mailed to some other address, then directed to him at
such other address. Such further notice shall be given as may be required by
law.
- --------
1 Citations are to the General Corporation Law of the State of Delaware as
in effect on April 15, 1999 (the "GCL"), and are inserted for reference
only, and do not constitute a part of the By-Laws.
<PAGE> 6
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his name on the
books of the Corporation at the close of business on the day next preceding the
day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of
Incorporation, the vote of a majority of the shares represented in person or by
proxy at any meeting at which a quorum is present shall be sufficient for the
transaction of any business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot or conducted by Inspectors of Elections unless
otherwise required by law. Any vote which need not be taken by ballot may be
conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of
these By-Laws, a notice of the adjourned meeting, conforming to the
requirements of Section 1.03 hereof, shall be given to each stockholder of
record entitled to vote at such meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted on the original date of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
of the stockholders or to express consent to or dissent from corporate action
without a meeting may authorize another person or persons to vote at any such
meeting and express such consent or
2
<PAGE> 7
dissent for him by proxy. A stockholder may authorize a valid proxy by
executing a written instrument signed by such stockholder, or by causing his or
her signature to be affixed to such writing by any reasonable means including,
but not limited to, by facsimile signature, or by transmitting or authorizing
the transmission of a telegram, cablegram or other means of electronic
transmission to the person designated as the holder of the proxy, a proxy
solicitation firm or a like authorized agent. No such proxy shall be voted or
acted upon after the expiration of three years from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. Proxies by
telegram, cablegram or other electronic transmission must either set forth or
be submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. Any copy, facsimile telecommunication or other reliable
reproduction of a writing or transmission created pursuant to this section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or
transmission. [Sections 212(b), (c), (d), (e).]
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President and Chief Executive
Officer or, in the event of his absence, disability or other inability so to
act, a presiding officer chosen by a majority of the stockholders present in
person or by proxy. The Secretary, or in the event of his absence or
disability, the Assistant Secretary, if any, or if there be no Assistant
Secretary, in the absence of the Secretary, an appointee of the presiding
officer, shall act as Secretary of the meeting. The order of business and all
other matters of procedure at every meeting of stockholders may be determined
by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder or member who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner
3
<PAGE> 8
required by law to the Corporation, written consents signed by a sufficient
number of holders or members to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders or members are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. [Section 228.]
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. Certain stockholders of the
Corporation shall have rights and obligations with respect to the nomination
and election of Directors of the Corporation as set forth in the Stockholders
Agreement during the term of such agreement. The number of Directors
constituting the entire Board of Directors shall be at least 10 and no more
than 14, which number may be modified from time to time by resolution of the
Board of Directors, but in no event shall the number of Directors be less than
one, provided that for so long as Section 1 of the Stockholders Agreement is in
effect the number of Directors shall in any event be automatically increased or
decreased in the manner set forth below:
(a) If and to the extent permitted by applicable law, (1) upon the
termination for any reason of any Nominating Party's right to nominate one or
more persons to serve as a Director or Directors of the Corporation (including
any temporary termination attributable to the waiver by such Nominating Party
of its rights under the Stockholders Agreement), such Director or Directors
shall be deemed to be removed without cause in accordance with Section 141(k)
of the GCL and the number of Directors shall be automatically reduced by such
number of Directors that the Nominating Party would otherwise be entitled to
nominate (or such lesser number the Nominating Party had previously elected to
nominate) and (2) upon the request of a Nominating Party to nominate one or
more Directors pursuant to Section 1 of the Stockholders Agreement, the number
of Directors of the Corporation shall be automatically increased by such number
of Directors as such Nominating Party is entitled to nominate (or such lesser
number the Nominating Party elects to nominate), provided that, if any such
nominee is an Unaffiliated Nominee, the number of Directors shall not be so
increased unless and until the Board of Directors of the Corporation shall have
approved such Unaffiliated Nominee.
(b) During any period in which any Nominating Party has, and shall
have exercised, the right to nominate a Director as provided herein, in the
event of any vacancy or vacancies in the Board of Directors created by the
death, disability, retirement, resignation or removal, with or without cause,
of a Director so nominated, (1) the Board will request such Nominating Party to
nominate a candidate to be appointed by such Board to fill such vacancy or (2)
in the event that a
4
<PAGE> 9
candidate to fill such vacancy is to be elected at the annual meeting of
stockholders of the Corporation, such Nominating Party shall have the right to
nominate the individual to fill such vacancy, and the provisions of Section
1(b) of the Stockholders Agreement shall apply with respect to the nomination
and election of such nominee to fill such vacancy.
(c) Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal. [Section 141(b).]
(d) During the term of the Stockholders Agreement, the Chairman of
the Board shall be selected by the Directors from one of the Directors
nominated pursuant to the Stockholders Agreement by the CD&R Fund. The Chairman
of the Board shall not be an officer of the Corporation but shall preside at
all meetings of the Board of Directors at which he is present. [Section
141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders in a manner that complies with the
provisions of Section 2.02 of these By-Laws and Section 1 of the Stockholders
Agreement during the term of such agreement. If the annual meeting for the
election of Directors is not held on the date designated therefor, the
Directors shall cause the meeting to be held as soon thereafter as convenient.
At each meeting of the stockholders for the election of Directors, provided a
quorum is present, the Directors shall be elected by a plurality of the votes
validly cast in such election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time
to time may by resolution provide for the holding of regular meetings and fix
the place (which may be within or without the State of Delaware) and the date
and hour of such meetings. Notice of regular meetings need not be given,
provided, however, that if the Board of Directors shall fix or change the time
or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by telegram, radio or cable, to each Director who shall not
have been present at the meeting at which such action was taken, addressed to
him at his usual place of business, or shall be delivered to him personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of
notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting. [Sections 141(g), 229.]
Section 2.05. Special Meetings; Notice. Special meetings of the
Board of Directors shall be held whenever called by the Chairman of the Board
or by a majority of the Directors then in office, at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on 24 hours' notice, if notice is given to
each Director personally or by telephone or telegram, or on five days' notice,
if notice is mailed to each
5
<PAGE> 10
Director, addressed to him at his usual place of business. Notice of any
special meeting need not be given to any Director who attends such meeting
without protesting the lack of notice to him, prior to or at the commencement
of such meeting, or to any Director who submits a signed waiver of notice,
whether before or after such meeting, and any business may be transacted
thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total then authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Chairman of the Board and a copy of such notice to the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
[Section 141(b).]
Section 2.12. Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of
a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director, cast at a special meeting of
stockholders called for the purpose, provided that so long as Section 1(d) of
the Stockholders Agreement is in effect, (a) no such removal without cause
shall occur except as
6
<PAGE> 11
provided in such Section 1(d) and (b) in the event of the removal of a Director
nominated by a Nominating Party for cause, the provisions of Section 1(d) of
the Stockholders Agreement shall apply with respect to the filling of the
vacancy created thereby. Any vacancy in the Board of Directors caused by any
such removal may be filled at such meeting by the stockholders entitled to vote
for the election of the Director so removed in accordance with Section 2.13
hereof. If such stockholders do not fill such vacancy at such meeting (or in
the written instrument effecting such removal, if such removal was effected by
consent without a meeting), such vacancy may be filled in the manner provided
in Section 2.13 of these By-Laws. [Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and
such vacancies and newly created directorships may be filled by a majority of
the Directors then in office, although less than a quorum, provided that no
such vacancy in the Board of Directors shall be filled in a manner that fails
to comply with the requirements of Section 2.02 of these By-Laws and Section
1(d) of the Stockholders Agreement during the term of such agreement, and
provided, further, that the Board of Directors shall from time to time make
such requests for nominations of individuals to fill vacancies in the Board of
Directors as shall be necessary to cause compliance with the requirements of
such Section 2.02 and Section 1(d) of the Stockholders Agreement during the
term of such agreement. A Director elected to fill a vacancy or a newly created
directorship shall hold office until his successor has been elected and
qualified or until his earlier death, resignation or removal. Any such vacancy
or newly created directorship may also be filled at any time by vote of the
stockholders, in the manner provided in Section 1(d) of the Stockholders
Agreement during the term of such agreement. [Sections 141(b), 223.]
Section 2.14. Compensation. The amount, if any, that each Director
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors, provided that
(a) no director who is an officer or employee of CD&R at any time that CD&R is
providing consulting services to the Corporation or one or more of its
subsidiaries and (b) no director who is an officer or employee of the
Corporation, shall be entitled to receive any compensation for his or her
services as a Director (although such Director shall be entitled to be
reimbursed for any reasonable out-of-pocket expenses incurred in connection
with his or her services as a Director). [Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. [Section 141(e).]
7
<PAGE> 12
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors, by resolution
adopted by a majority of the whole Board, (a) shall designate an Executive
Committee, a Compensation and Benefits Committee and an Audit Committee (each,
a "Standing Committee" and, collectively, the "Standing Committees") and (b)
may designate one or more additional committees (each, an "Additional
Committee" and, together with the Standing Committees, the "Committees").
During the term of the Stockholders Agreement, each Standing Committee shall
consist of such number of Directors as provided by this Section 3.01. Each
Additional Committee shall consist of such number of Directors as from time to
time may be fixed by the Board of Directors. The Executive Committee shall
consist of the President and Chief Executive Officer of the Corporation and
four other Directors selected in the manner provided in Section 2 of the
Stockholders Agreement. One of the Directors nominated by the CD&R Fund (as
provided in Section 2(a) of the Stockholders Agreement) shall serve as the
Chairman of the Executive Committee. Each of the Compensation and Benefits
Committee and the Audit Committee shall consist of five Directors who shall be
selected in the manner provided in Section 2 of the Stockholders Agreement. Any
Additional Committee may be abolished or re-designated from time to time by the
Board of Directors. The Board of Directors may designate one or more Directors
as alternate members of any Additional Committee, who may replace any absent or
disqualified member or members at any meeting of such Additional Committee.
Members of any Standing Committee or any Additional Committee shall (and
alternate members, if any, of any Additional Committee may) be designated at
the annual meeting of the Board of Directors. Each member of any Standing
Committee or any Additional Committee (and any alternate member of any
Additional Committee) (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his
successor shall have been designated or until he shall cease to be a Director,
or until his earlier death, resignation or removal. [Section 141(c).]
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including, without limitation, all the powers and authority to
make determinations from time to time of the Fair Market Value of the Common
Stock of the Corporation for purposes of and as contemplated by (i) the
Compensation Plan or (ii) any agreement entered into from time to time by the
Corporation or any of its subsidiaries and a Management Investor evidencing any
award to such Management Investor granted under the Compensation Plan,
including, without limitation, (x) the management stock subscription agreements
entered into from time to time by the Corporation and certain Management
Investors and (y) the management stock option agreements entered into from time
to time by the Corporation and certain Management Investors. Each such other
Committee, except as otherwise provided in this section, shall have and may
exercise such powers of the Board of Directors as may be provided by resolution
or resolutions of the Board of Directors. Neither the Executive Committee nor
any such other Committee shall have the power or authority:
8
<PAGE> 13
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the GCL, fix
the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of
such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series);
(b) to adopt an agreement of merger or consolidation or a
certificate of ownership or merger;
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) to declare a dividend;
(f) to authorize the issuance of stock;
(g) to remove the President and Chief Executive Officer of
the Corporation or a Director;
(h) (i) to authorize the Corporation to enter into or amend
any agreement for the borrowing of funds that provides for additional
indebtedness in excess of $25 million or (ii) to authorize a material
modification of any existing facility, unless, in the Executive
Committee's good faith judgment, such modification is not adverse to
the Corporation;
(i) to authorize the Corporation to enter into any guarantee
of indebtedness in excess of $25 million;
(j) to authorize any new compensation or benefit program;
(k) to appoint or discharge the Corporation's independent
public accountants;
(l) to authorize the annual operating plan, annual capital
expenditure plan and strategic plan;
(m) to abolish or usurp the authority of the Board of
Directors; or
(n) to amend these By-Laws of the Corporation.
9
<PAGE> 14
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers that may require it. [Section 141(c).]
Section 3.03. Proceedings. Each such Committee may fix its own rules
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine
from time to time. Each such Committee shall keep minutes of its proceedings
and shall present a report of such proceedings, including the minutes thereof,
to the Board of Directors at the meeting of the Board of Directors next
following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating any Additional Committee, at all meetings
of any Committee the presence of members (or alternate members) constituting a
majority of the total then authorized membership of such Committee shall
constitute a quorum for the transaction of business. The act of the majority of
the members present at any meeting at which a quorum is present shall be the
act of such Committee. Any action required or permitted to be taken at any
meeting of any such Committee may be taken without a meeting, if all members of
such Committee shall consent to such action in writing and such writing or
writings are filed with the minutes of the proceedings of the Committee. The
members of any such Committee shall act only as a Committee, and the individual
members of such Committee shall have no power as such. [Section 141(c), (f).]
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.06. Absent or Disqualified Members of Additional Committees.
In the absence or disqualification of a member of any Additional Committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. [Section 141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President and Chief
Executive Officer. Unless otherwise specified therein, such resignation shall
take effect upon delivery. [Section 141(b).]
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by
resolution adopted by a majority of the whole Board of Directors, provided that
no such action shall be taken with respect to any member of any Standing
Committee that is inconsistent with the provisions of Sections 1(d) and 2 of
the Stockholders Agreement during the term of such agreement.
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Section 3.09. Vacancies. If any vacancy shall occur in any Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors, provided that no vacancy
in any Committee shall be filled in a manner that fails to comply with the
provisions of Section 2 of the Stockholders Agreement during the term of such
agreement.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President and Chief Executive Officer,
a Chief Operating Officer, a Chief Financial Officer, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of Directors also may elect
one or more Assistant Secretaries and Assistant Treasurers in such numbers as
the Board of Directors may determine and appoint such other officers as the
Board of Directors deems desirable. Any number of offices may be held by the
same person. No officer need be a Director of the Corporation. [Section 142(a),
(b).]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal. In
the event of a vacancy in the office of Vice President, Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer, the President and Chief Executive
Officer may appoint a replacement to service until the next meeting of the
Board of Directors where a successor is elected and qualified. [Section
142(b).]
Section 4.03. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President and Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
[Section 142(b), (e).]
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified
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in these By-Laws, except that in any event each officer shall exercise such
powers and perform such duties as may be required by law. [Section 142(a).]
Section 4.06. The President and Chief Executive Officer. The President
and Chief Executive Officer shall, subject to the direction of, and subject to
general or specific resolutions approved by, the Board of Directors, (a)
preside at all meetings of the stockholders and directors at which he is
present, and be the chief executive officer of the Corporation, (b) have
general control and supervision of the policies and operations of the
Corporation, see that all orders and resolutions of the Board of Directors are
carried into effect, and report to the Board of Directors, (c) manage and
administer the Corporation's business and affairs and perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer of a corporation, (d) have the authority to sign, in the name and on
behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and
other documents and instruments in connection with the business of the
Corporation, and together with the Secretary or an Assistant Secretary,
conveyances of real estate and other documents and instruments to which the
seal of the Corporation is affixed, (e) have the authority to cause the
employment or appointment of such employees and agents of the Corporation as
the conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President and Chief Executive Officer or the Board of
Directors, and (f) have such other powers as are contemplated by the other
provisions of these By-Laws. The President and Chief Executive Officer shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 4.07. The Chief Operating Officer. The Chief Operating Officer
shall be the chief operating officer of the Corporation and shall perform, in
general, all duties incident to the office of Chief Operating Officer and shall
be responsible for the operations of the Corporation, including manufacturing,
engineering, marketing, distribution, sales, labor relations and administrative
responsibilities and such other duties as may be specified in these By-Laws or
as may be assigned to him from time to time by the President and Chief
Executive Officer. The Chief Operating Officer shall report to the President
and Chief Executive Officer. In the absence of the President and Chief
Executive Officer, the duties of the President and Chief Executive Officer
shall be performed and his powers may be exercised by the Chief Operating
Officer; subject in any case to review and superseding action by the President
and Chief Executive Officer.
Section 4.08. The Vice Presidents. Each Vice President shall perform
such duties and exercise such powers as may be assigned to him from time to
time by the President and Chief Executive Officer.
Section 4.09. The Secretary. The Secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose. [Section 142(a).]
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(b) He shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he shall furnish a copy of such
resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal
of the Corporation and cause such seal (or a facsimile thereof) to be
affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-Laws, and when so affixed he
may attest the same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required
by law, the Certificate of Incorporation or these By-Laws.
(f) He shall have charge of the stock books and ledgers of
the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and
the date as of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant
Treasurer or Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall
have been authorized by the Board of Directors.
(h) He shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him from time to time by the Board of
Directors or the President and Chief Executive Officer.
Section 4.10. The Chief Financial Officer. The Chief Financial Officer
shall be the chief financial officer of the Corporation and shall have the
following powers and duties:
(a) He shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He shall render to the Board of Directors or the Audit
Committee, whenever requested, a statement of the financial condition
of the Corporation and of all his transactions as Chief Financial
Officer, and render a full financial report at the annual meeting of
the stockholders, if called upon to do so.
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(c) He shall be empowered from time to time to require from
all officers or agents of the Corporation reports or statements giving
such information as he may desire with respect to any and all
financial transactions of the Corporation.
(d) He shall perform, in general, all duties incident to the
office of chief financial officer and such other duties as may be
specified in these By-Laws or as may be assigned to him from time to
time by the Board of Directors or the Chairman of the Board.
(e) The Chief Financial Officer shall report to the President
and Chief Executive Officer.
Section 4.11. The Treasurer. The Treasurer shall be the treasurer of
the Corporation and shall have the following powers and duties:
(a) He shall cause the moneys and other valuable effects of
the Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or
other depositaries as shall be selected in accordance with Section
8.05 of these By-Laws.
(b) He shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys
disbursed.
(c) He may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(d) He shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him from time to time by the Board of
Directors or the Chief Financial Officer, to whom he shall report.
Section 4.12. Additional Officers. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate
to any officer or agent the power to appoint subordinate officers or agents and
to prescribe their respective rights, terms of office, authorities and duties.
Any such officer or agent may remove any such subordinate officer or agent
appointed by him, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors. [Section 142(c).]
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ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the President and Chief Executive Officer or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be in such form as the
Board of Directors may determine, to the extent consistent with applicable law,
the Certificate of Incorporation and these By-Laws. [Section 158.]
Section 5.02. Signatures; Facsimile. Any or all of such signatures on
the certificate may be a facsimile, engraved or printed, to the extent
permitted by law. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
[Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the GCL.
Subject to the provisions of the Certificate of Incorporation and these
By-Laws, the Board of Directors may prescribe such additional rules and
regulations as it may deem appropriate relating to the issue, transfer and
registration of shares of the Corporation. [Section 151.]
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Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
In order to determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required
by law, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required
by law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order to determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action.
If no record date is fixed, the record date for determining stockholders for
any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
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Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may
indemnify any person who was or is a party or is threatened to be made a party
to such an action, suit or proceeding by reason of the fact that he is or was
or has agreed to become an employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding had no reasonable cause to believe
his conduct was unlawful; except that in the case of an action or suit by or in
the right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Section 6.01 hereof or in defense of any claim, issue or matter
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therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 6.03. Determination That Indemnification is Proper. Any
indemnification under Section 6.01 hereof (unless ordered by a court) shall be
made by the Corporation unless a determination is made that indemnification of
the director, officer, employee or agent is not proper in the circumstances
because he has not met the applicable standard of conduct set forth in Section
6.01 hereof. Any such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate. The Board of Directors may authorize
the Corporation's counsel to represent such director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification. Any indemnification of a
person seeking indemnification under Sections 6.01 and 6.02, or advance of
costs, charges and expenses to such person under Section 6.04 of this Article,
shall be made promptly, and in any event within 30 days, upon the written
request of such person. If a determination by the Corporation that such person
is entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within 30 days, the right to indemnification or advances as granted
by this Article shall be enforceable by the indemnified person in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 6.04 of this
Article where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 6.01 of this Article, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) to have made
a determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.01 of this Article, nor
the fact that there has been an actual determination by the Corporation
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(including its Board of Directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was or has
agreed to become a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
or on his behalf in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made
by a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
Section 6.09. Definitions. For purposes of this Article VI, the
following terms shall have the following meanings:
(a) references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power
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and authority to indemnify its directors, officers, employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this Article VI with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued;
(b) references to "other enterprises" shall include employee benefit
plans;
(c) references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and
(d) references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation that imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Delaware Corporate
Management, Inc., 1105 North Market Street, Suite 1300, in the City of
Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock, provided that stock
dividends on the Corporation's Class A Common Stock shall be paid in shares of
Class A Common Stock and dividends on the Corporation's Class B Common Stock
shall be paid in shares of Class B Common Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors, shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the
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Corporation by any of its officers or employees, or Committees of the Board of
Directors, or by any other person as to matters the director reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation,
as to the value and amount of the assets, liabilities and/or net profits of the
Corporation, or any other facts pertinent to the existence and amount of
surplus or other funds from which dividends might properly be declared and
paid. [Sections 170, 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors,
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation,
and the Board of Directors may similarly modify or abolish any such reserve.
[Section 171.]
Section 8.03. Execution of Instruments. The Board of Directors may
authorize the President and Chief Executive Officer or any other officer or
agent to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. Any such authorization may be general or
limited to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or, to the extent the
Executive Committee has the power to authorize such loan or evidence of
indebtedness, the Executive Committee. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
Executive Committee, as the case may be, shall authorize. When so authorized by
the Board of Directors or the Executive Committee, as the case may be, any part
of or all the properties, including contract rights, assets, business or good
will of the Corporation, whether then owned or thereafter acquired, may be
mortgaged, pledged, hypothecated or conveyed or assigned in trust as security
for the payment of such bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation, and of the interest thereon, by
instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositaries as may
be determined by (a) the Board of Directors or the President and Chief
Executive Officer or (b) such officers or agents as may be authorized to make
such determination by the Board of Directors or the President and Chief
Executive Officer.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President and Chief Executive Officer from time to time may determine.
21
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Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors, the President and Chief Executive Officer
or any other officers designated by the Board of Directors may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors or the Executive Committee, (a) the
President and Chief Executive Officer or any Vice President shall have full
power and authority on behalf of the Corporation to attend any meeting of
stockholders of any corporation in which the Corporation may hold stock, and to
act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock,
and (b) such officers acting on behalf of the Corporation shall have full power
and authority to execute any instrument expressing consent to or dissent from
any action of any such corporation without a meeting. The Board of Directors
may by resolution from time to time confer such power and authority upon any
other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on the last day of December.
Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
Section 8.12. Definitions.
"Additional Committee": See Section 3.01.
"CD&R" means Clayton, Dubilier & Rice, Inc., a Delaware corporation.
"CD&R Fund" means Clayton, Dubilier & Rice Fund V Limited Partnership,
a Cayman Islands exempted limited partnership, and any successors and
assigns.
"Committee": See Section 3.01.
22
<PAGE> 27
"Compensation Plan" means the Corporation's Stock Incentive and
Deferred Compensation Plan, as approved by the stockholders of the
Corporation and as in effect from time to time.
"Investor": See "Stockholders Agreement."
"Management Investor" means an executive or other key
employee of the Corporation or any of its subsidiaries who acquires
shares of Class A Common Stock of the Corporation, pursuant to the
Compensation Plan or any agreement entered into from time to time by
the Corporation and such executive or other key employee of the
Corporation or any of its subsidiaries.
"Nominating Party" means any one of the investors named in
Section 1(b) of the Stockholders Agreement entitled to nominate such
number of persons as specified therein for election to the Board of
Directors of the Corporation.
"Standing Committee": See Section 3.01.
"Stockholders Agreement" means the Stockholders Agreement,
dated as of March 27, 1996, among the Corporation, CD&R Fund, EXOR
Group S.A., First Plaza Group Trust, The 1818 Fund II, L.P., Madison
Dearborn Capital Partners, L.P., Chase Equity Associates, L.P., HWH
Investment Pte Ltd. and Wolfensohn-River LLC (each an "Investor" and,
collectively, the "Investors"), as amended and as in effect from time
to time.
"Unaffiliated Nominee" means any person nominated for
election to the Board of Directors of the Corporation by a Nominating
Party who is not an employee, officer, general partner or general
partner of the general partner of the Nominating Party or of an
Affiliate (as defined in Section 9 of the Stockholders Agreement) of
the Nominating Party.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. These By-Laws may be amended, altered or
repealed
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting; or
(b) at any regular or special meeting of the stockholders if,
in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting. [Section 109(a).]
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<PAGE> 28
Notwithstanding the foregoing sentence, during the term of the
Stockholders Agreement, these By-Laws may not be amended, altered or repealed
in a manner inconsistent with the terms and provisions of the Stockholders
Agreement.
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and (a) the
provisions of the certificate of incorporation of the Corporation as in effect
from time to time, or (b) the provisions of the Stockholders Agreement, the
provisions of such certificate of incorporation or the Stockholders Agreement,
as the case may be, shall be controlling.
24
<PAGE> 1
EXHIBIT 3.5
RIC HOLDING, INC.
BY-LAWS
As amended and restated effective as of August 18, 1999
- -------------------------------------------------------------------------------
1
<PAGE> 2
RIC HOLDING, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I. STOCKHOLDERS.................................................................... 1
Section 1.01. Annual Meetings ................................................................ 1
Section 1.02. Special Meetings ............................................................... 1
Section 1.03. Notice of Meetings; Waiver ..................................................... 1
Section 1.04. Quorum ......................................................................... 2
Section 1.05. Voting ......................................................................... 2
Section 1.06. Voting by Ballot ............................................................... 2
Section 1.07. Adjournment .................................................................... 2
Section 1.08. Proxies ........................................................................ 2
Section 1.09. Organization; Procedure ........................................................ 3
Section 1.10. Consent of Stockholders in Lieu of Meeting ..................................... 3
ARTICLE II. BOARD OF DIRECTORS............................................................. 4
Section 2.01. General Powers ................................................................. 4
Section 2.02. Number and Term of Office ...................................................... 4
Section 2.03. Election of Directors .......................................................... 5
Section 2.04. Annual and Regular Meetings .................................................... 5
Section 2.05. Special Meetings; Notice ....................................................... 5
Section 2.06. Quorum; Voting ................................................................. 6
Section 2.07. Adjournment .................................................................... 6
Section 2.08. Action Without a Meeting ....................................................... 6
Section 2.09. Regulations; Manner of Acting .................................................. 6
Section 2.10. Action by Telephonic Communications ............................................ 6
Section 2.11. Resignations ................................................................... 6
Section 2.12. Removal of Directors ........................................................... 6
Section 2.13. Vacancies and Newly Created Directorships ...................................... 7
Section 2.14. Compensation ................................................................... 7
Section 2.15. Reliance on Accounts and Reports, etc .......................................... 7
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES....................................... 8
Section 3.01. How Constituted ................................................................ 8
Section 3.02. Powers ......................................................................... 9
Section 3.03. Proceedings .................................................................... 9
Section 3.04. Quorum and Manner of Acting .................................................... 10
Section 3.05. Action by Telephonic Communications ............................................ 10
Section 3.06. Absent or Disqualified Members of Additional Committees ........................ 10
Section 3.07. Resignations ................................................................... 10
</TABLE>
<PAGE> 3
3
<TABLE>
<S> <C>
Section 3.08. Removal ........................................................................ 10
Section 3.09. Vacancies ...................................................................... 10
ARTICLE IV. OFFICERS ....................................................................... 11
Section 4.01. Number ......................................................................... 11
Section 4.02. Election ....................................................................... 11
Section 4.03. Salaries ....................................................................... 11
Section 4.04. Removal and Resignation; Vacancies ............................................. 11
Section 4.05. Authority and Duties of Officers ............................................... 11
Section 4.06. The President and Chief Executive Officer ...................................... 11
Section 4.07. The Chief Operating Officer .................................................... 12
Section 4.08. The Vice Presidents ............................................................ 12
Section 4.09. The Secretary .................................................................. 12
Section 4.10. The Chief Financial Officer .................................................... 13
Section 4.11. The Treasurer .................................................................. 14
Section 4.12. Additional Officers ............................................................ 14
Section 4.13. Security ....................................................................... 14
ARTICLE V. CAPITAL STOCK................................................................... 15
Section 5.01. Certificates of Stock .......................................................... 15
Section 5.02. Signatures; Facsimile .......................................................... 15
Section 5.03. Lost, Stolen or Destroyed Certificates ......................................... 15
Section 5.04. Transfer of Stock .............................................................. 15
Section 5.05. Record Date 16
Section 5.06. Registered Stockholders ........................................................ 16
Section 5.07. Transfer Agent and Registrar ................................................... 17
ARTICLE VI. INDEMNIFICATION................................................................. 17
Section 6.01. Nature of Indemnity ............................................................ 17
Section 6.02. Successful Defense ............................................................. 17
Section 6.03. Determination That Indemnification is Proper ................................... 18
Section 6.04. Advance Payment of Expenses .................................................... 18
Section 6.05. Procedure for Indemnification .................................................. 18
Section 6.06. Survival; Preservation of Other Rights ......................................... 19
Section 6.07. Insurance ...................................................................... 19
Section 6.08. Severability ................................................................... 19
Section 6.09. Definitions .................................................................... 19
ARTICLE VII. OFFICES ........................................................................ 20
Section 7.01. Registered Office .............................................................. 20
Section 7.02. Other Offices .................................................................. 20
ARTICLE VIII. GENERAL PROVISIONS.............................................................. 20
Section 8.01. Dividends ...................................................................... 20
Section 8.02. Reserves ....................................................................... 21
Section 8.03. Execution of Instruments ....................................................... 21
</TABLE>
<PAGE> 4
4
<TABLE>
<C> <C>
Section 8.04. Corporate Indebtedness ......................................................... 21
Section 8.05. Deposits ....................................................................... 21
Section 8.06. Checks ......................................................................... 21
Section 8.07. Sale, Transfer, etc. of Securities ............................................. 21
Section 8.08. Voting as Stockholder .......................................................... 22
Section 8.09. Fiscal Year .................................................................... 22
Section 8.10. Seal ........................................................................... 22
Section 8.11. Books and Records; Inspection .................................................. 22
Section 8.12. Definitions .................................................................... 22
ARTICLE IX. AMENDMENT OF BY-LAWS............................................................ 23
Section 9.01. Amendment ...................................................................... 23
ARTICLE X. CONSTRUCTION ................................................................... 24
Section 10.01. Construction ................................................................... 24
</TABLE>
<PAGE> 5
RIC HOLDING, INC.
BY-LAWS
[As amended and restated effective as of August 18, 1999]
Certain defined terms used herein without definition shall have the
meanings set forth in Section 8.12.
ARTICLE I.
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of directors and for the transaction of
such other business as properly may come before such meeting shall be held at
such place, either within or without the State of Delaware, and at 10:00 a.m.
local time on the first Tuesday in May (or, if such day is a legal holiday,
then on the next succeeding business day), or at such other date and hour, as
may be fixed from time to time by resolution of the Board of Directors and set
forth in the notice or waiver of notice of the meeting. [Sections 211(a),
(b).](1)
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman or by the Board of Directors. A
special meeting shall be called by the President and Chief Executive Officer or
by the Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within 20 days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or without the State
of Delaware, as shall be specified in the respective notices or waivers of
notice thereof. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he shall have filed with the Secretary of the Corporation a written request
that notices to him be mailed to some other address, then directed to him at
such other address. Such further notice shall be given as may be required by
law.
- -------------------------
(1) Citations are to the General Corporation Law of the State of Delaware as
in effect on April 15, 1999 (the "GCL"), and are inserted for reference
only, and do not constitute a part of the By-Laws.
<PAGE> 6
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his name on the
books of the Corporation at the close of business on the day next preceding the
day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of
Incorporation, the vote of a majority of the shares represented in person or by
proxy at any meeting at which a quorum is present shall be sufficient for the
transaction of any business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot or conducted by Inspectors of Elections unless
otherwise required by law. Any vote which need not be taken by ballot may be
conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of
these By-Laws, a notice of the adjourned meeting, conforming to the
requirements of Section 1.03 hereof, shall be given to each stockholder of
record entitled to vote at such meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted on the original date of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
of the stockholders or to express consent to or dissent from corporate action
without a meeting may authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. A stockholder may
authorize a valid proxy by executing a written
2
<PAGE> 7
instrument signed by such stockholder, or by causing his or her signature to be
affixed to such writing by any reasonable means including, but not limited to,
by facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated as the holder of the proxy, a proxy solicitation firm or a like
authorized agent. No such proxy shall be voted or acted upon after the
expiration of three years from the date of such proxy, unless such proxy
provides for a longer period. Every proxy shall be revocable at the pleasure of
the stockholder executing it, except in those cases where applicable law
provides that a proxy shall be irrevocable. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the Secretary. Proxies by telegram,
cablegram or other electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of a
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that
such copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or transmission. [Sections
212(b), (c), (d), (e).]
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President and Chief Executive
Officer or, in the event of his absence, disability or other inability so to
act, a presiding officer chosen by a majority of the stockholders present in
person or by proxy. The Secretary, or in the event of his absence or
disability, the Assistant Secretary, if any, or if there be no Assistant
Secretary, in the absence of the Secretary, an appointee of the presiding
officer, shall act as Secretary of the meeting. The order of business and all
other matters of procedure at every meeting of stockholders may be determined
by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder or member who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by law to
the Corporation, written consents signed by a sufficient number of holders or
3
<PAGE> 8
members to take action are delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders or members are recorded. Delivery made
to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. [Section 228.]
ARTICLE II.
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. Certain stockholders of
Riverwood Holding, the sole stockholder of the Corporation, shall have rights
and obligations with respect to the nomination and election of Directors of the
Corporation as set forth in the Stockholders Agreement during the term of such
agreement. The number of Directors constituting the entire Board of Directors
shall be at least 10 and no more than 14, which number may be modified from
time to time by resolution of the Board of Directors, but in no event shall the
number of Directors be less than one, provided that for so long as Section 1 of
the Stockholders Agreement is in effect the number of Directors shall in any
event be automatically increased or decreased in the manner set forth below:
(a) If and to the extent permitted by applicable law, (1) upon the
termination for any reason of any Nominating Party's right to nominate one or
more persons to serve as a Director or Directors of the Corporation (including
any temporary termination attributable to the waiver by such Nominating Party
of its rights under the Stockholders Agreement), such Director or Directors
shall be deemed to be removed without cause in accordance with Section 141(k)
of the GCL and the number of Directors shall be automatically reduced by such
number of Directors that the Nominating Party would otherwise be entitled to
nominate (or such lesser number the Nominating Party had previously elected to
nominate) and (2) upon the request of a Nominating Party to nominate one or
more Directors pursuant to Section 1 of the Stockholders Agreement, the number
of Directors of the Corporation shall be automatically increased by such number
of Directors as such Nominating Party is entitled to nominate (or such lesser
number the Nominating Party elects to nominate), provided that, if any such
nominee is an Unaffiliated Nominee, the number of Directors shall not be so
increased unless and until the Board of Directors of the Corporation shall have
approved such Unaffiliated Nominee.
(b) During any period in which any Nominating Party has, and shall
have exercised, the right to nominate a Director as provided herein, in the
event of any vacancy or vacancies in the Board of Directors created by the
death, disability, retirement, resignation or removal, with or without cause,
of a Director so nominated, (1) the Board will request such Nominating Party to
nominate a candidate to be appointed by such Board to fill such vacancy or (2)
in the event that a
4
<PAGE> 9
candidate to fill such vacancy is to be elected at the annual meeting of
stockholders of the Corporation, such Nominating Party shall have the right to
nominate the individual to fill such vacancy, and the provisions of Section
1(b) of the Stockholders Agreement shall apply with respect to the nomination
and election of such nominee to fill such vacancy.
(c) Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal. [Section 141(b).]
(d) During the term of the Stockholders Agreement, the Chairman of the
Board shall be selected by the Directors from one of the Directors nominated
pursuant to the Stockholders Agreement by the CD&R Fund. The Chairman of the
Board shall not be an officer of the Corporation but shall preside at all
meetings of the Board of Directors at which he is present. [Section 141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders in a manner that complies with the
provisions of Section 2.02 of these By-Laws and Section 1 of the Stockholders
Agreement during the term of such agreement. If the annual meeting for the
election of Directors is not held on the date designated therefor, the
Directors shall cause the meeting to be held as soon thereafter as convenient.
At each meeting of the stockholders for the election of Directors, provided a
quorum is present, the Directors shall be elected by a plurality of the votes
validly cast in such election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time
to time may by resolution provide for the holding of regular meetings and fix
the place (which may be within or without the State of Delaware) and the date
and hour of such meetings. Notice of regular meetings need not be given,
provided, however, that if the Board of Directors shall fix or change the time
or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by telegram, radio or cable, to each Director who shall not
have been present at the meeting at which such action was taken, addressed to
him at his usual place of business, or shall be delivered to him personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of
notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting. [Sections 141(g), 229.]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or by a
majority of the Directors then in office, at such place (within or without the
State of Delaware), date and hour as may be specified in the respective notices
or waivers of notice of such meetings. Special meetings of the Board of
Directors may be called on 24 hours' notice, if notice is given to each
Director personally or by telephone or telegram, or on five days' notice, if
notice is mailed to each
5
<PAGE> 10
Director, addressed to him at his usual place of business. Notice of any
special meeting need not be given to any Director who attends such meeting
without protesting the lack of notice to him, prior to or at the commencement
of such meeting, or to any Director who submits a signed waiver of notice,
whether before or after such meeting, and any business may be transacted
thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total then authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Chairman of the Board and a copy of such notice to the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
[Section 141(b).]
Section 2.12. Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of
a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director, cast at a special meeting of
stockholders called for the purpose, provided that so long as Section 1(d) of
the Stockholders Agreement is in effect, (a) no such removal without cause
shall occur except as
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provided in such Section 1(d) and (b) in the event of the removal of a Director
nominated by a Nominating Party for cause, the provisions of Section 1(d) of
the Stockholders Agreement shall apply with respect to the filling of the
vacancy created thereby. Any vacancy in the Board of Directors caused by any
such removal may be filled at such meeting by the stockholders entitled to vote
for the election of the Director so removed in accordance with Section 2.13
hereof. If such stockholders do not fill such vacancy at such meeting (or in
the written instrument effecting such removal, if such removal was effected by
consent without a meeting), such vacancy may be filled in the manner provided
in Section 2.13 of these By-Laws. [Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and
such vacancies and newly created directorships may be filled by a majority of
the Directors then in office, although less than a quorum, provided that no
such vacancy in the Board of Directors shall be filled in a manner that fails
to comply with the requirements of Section 2.02 of these By-Laws and Section
1(d) of the Stockholders Agreement during the term of such agreement, and
provided, further, that the Board of Directors shall from time to time make
such requests for nominations of individuals to fill vacancies in the Board of
Directors as shall be necessary to cause compliance with the requirements of
such Section 2.02 and Section 1(d) of the Stockholders Agreement during the
term of such agreement. A Director elected to fill a vacancy or a newly created
directorship shall hold office until his successor has been elected and
qualified or until his earlier death, resignation or removal. Any such vacancy
or newly created directorship may also be filled at any time by vote of the
stockholders, in the manner provided in Section 1(d) of the Stockholders
Agreement during the term of such agreement. [Sections 141(b), 223.]
Section 2.14. Compensation. The amount, if any, that each Director
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors, provided that
(a) no director who is an officer or employee of CD&R at any time that CD&R is
providing consulting services to the Corporation or one or more of its
subsidiaries and (b) no director who is an officer or employee of the
Corporation, shall be entitled to receive any compensation for his or her
services as a Director (although such Director shall be entitled to be
reimbursed for any reasonable out-of-pocket expenses incurred in connection
with his or her services as a Director). [Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. [Section 141(e).]
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ARTICLE III.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors, by resolution
adopted by a majority of the whole Board, (a) shall designate an Executive
Committee, a Compensation and Benefits Committee and an Audit Committee (each,
a "Standing Committee" and, collectively, the "Standing Committees") and (b)
may designate one or more additional committees (each, an "Additional
Committee" and, together with the Standing Committees, the "Committees").
During the term of the Stockholders Agreement, each Standing Committee shall
consist of such number of Directors as provided by this Section 3.01. Each
Additional Committee shall consist of such number of Directors as from time to
time may be fixed by the Board of Directors. The Executive Committee shall
consist of the President and Chief Executive Officer of the Corporation and
four other Directors selected in the manner provided in Section 2 of the
Stockholders Agreement. One of the Directors nominated by the CD&R Fund (as
provided in Section 2(a) of the Stockholders Agreement) shall serve as the
Chairman of the Executive Committee. Each of the Compensation and Benefits
Committee and the Audit Committee shall consist of five Directors who shall be
selected in the manner provided in Section 2 of the Stockholders Agreement. Any
Additional Committee may be abolished or re-designated from time to time by the
Board of Directors. The Board of Directors may designate one or more Directors
as alternate members of any Additional Committee, who may replace any absent or
disqualified member or members at any meeting of such Additional Committee.
Members of any Standing Committee or any Additional Committee shall (and
alternate members, if any, of any Additional Committee may) be designated at
the annual meeting of the Board of Directors. Each member of any Standing
Committee or any Additional Committee (and any alternate member of any
Additional Committee) (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his
successor shall have been designated or until he shall cease to be a Director,
or until his earlier death, resignation or removal. [Section 141(c).]
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing
for the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the GCL, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series);
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(b) to adopt an agreement of merger or consolidation or a certificate
of ownership or merger;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution;
(e) to declare a dividend;
(f) to authorize the issuance of stock;
(g) to remove the President and Chief Executive Officer of the
Corporation or a Director;
(h) (i) to authorize the Corporation to enter into or amend any
agreement for the borrowing of funds that provides for additional
indebtedness in excess of $25 million or (ii) to authorize a material
modification of any existing facility, unless, in the Executive
Committee's good faith judgment, such modification is not adverse to the
Corporation;
(i) to authorize the Corporation to enter into any guarantee of
indebtedness in excess of $25 million; (j) to authorize any new
compensation or benefit program;
(k) to appoint or discharge the Corporation's independent public
accountants;
(l) to authorize the annual operating plan, annual capital expenditure
plan and strategic plan;
(m) to abolish or usurp the authority of the Board of Directors; or
(n) to amend these By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers that may require it. [Section 141(c).]
Section 3.03. Proceedings. Each such Committee may fix its own rules
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine
from time to time. Each such Committee shall keep minutes of its proceedings
and shall present a report of such proceedings, including the minutes thereof,
to the Board of Directors at the meeting of the Board of Directors next
following any such proceedings.
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Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating any Additional Committee, at all meetings
of any Committee the presence of members (or alternate members) constituting a
majority of the total then authorized membership of such Committee shall
constitute a quorum for the transaction of business. The act of the majority of
the members present at any meeting at which a quorum is present shall be the
act of such Committee. Any action required or permitted to be taken at any
meeting of any such Committee may be taken without a meeting, if all members of
such Committee shall consent to such action in writing and such writing or
writings are filed with the minutes of the proceedings of the Committee. The
members of any such Committee shall act only as a Committee, and the individual
members of such Committee shall have no power as such. [Section 141(c), (f).]
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.06. Absent or Disqualified Members of Additional Committees.
In the absence or disqualification of a member of any Additional Committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. [Section 141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President and Chief
Executive Officer. Unless otherwise specified therein, such resignation shall
take effect upon delivery. [Section 141(b).]
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by
resolution adopted by a majority of the whole Board of Directors, provided that
no such action shall be taken with respect to any member of any Standing
Committee that is inconsistent with the provisions of Sections 1(d) and 2 of
the Stockholders Agreement during the term of such agreement.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors, provided that no vacancy
in any Committee shall be filled in a manner that fails to comply with the
provisions of Section 2 of the Stockholders Agreement during the term of such
agreement.
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ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President and Chief Executive Officer,
a Chief Operating Officer, a Chief Financial Officer, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of Directors also may elect
one or more Assistant Secretaries and Assistant Treasurers in such numbers as
the Board of Directors may determine and appoint such other officers as the
Board of Directors deems desirable. Any number of offices may be held by the
same person. No officer need be a Director of the Corporation. [Section 142(a),
(b).]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal. In
the event of a vacancy in the office of Vice President, Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer, the President and Chief Executive
Officer may appoint a replacement to service until the next meeting of the
Board of Directors where a successor is elected and qualified. [Section
142(b).]
Section 4.03. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President and Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
[Section 142(b), (e).]
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law. [Section 142(a).]
Section 4.06. The President and Chief Executive Officer. The President
and Chief Executive Officer shall, subject to the direction of, and subject to
general or specific resolutions approved by, the Board of Directors, (a)
preside at all meetings of the stockholders and directors at which he is
present, and be the chief executive officer of the Corporation, (b) have
general control and supervision of the policies and operations of the
Corporation, see that all orders and resolutions of the Board of Directors are
carried into effect, and report to the Board of Directors,
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(c) manage and administer the Corporation's business and affairs and perform
all duties and exercise all powers usually pertaining to the office of a chief
executive officer of a corporation, (d) have the authority to sign, in the name
and on behalf of the Corporation, checks, orders, contracts, leases, notes,
drafts and other documents and instruments in connection with the business of
the Corporation, and together with the Secretary or an Assistant Secretary,
conveyances of real estate and other documents and instruments to which the
seal of the Corporation is affixed, (e) have the authority to cause the
employment or appointment of such employees and agents of the Corporation as
the conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President and Chief Executive Officer or the Board of
Directors, and (f) have such other powers as are contemplated by the other
provisions of these By-Laws. The President and Chief Executive Officer shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 4.07. The Chief Operating Officer. The Chief Operating Officer
shall be the chief operating officer of the Corporation and shall perform, in
general, all duties incident to the office of Chief Operating Officer and shall
be responsible for the operations of the Corporation, including manufacturing,
engineering, marketing, distribution, sales, labor relations and administrative
responsibilities and such other duties as may be specified in these By-Laws or
as may be assigned to him from time to time by the President and Chief
Executive Officer. The Chief Operating Officer shall report to the President
and Chief Executive Officer. In the absence of the President and Chief
Executive Officer, the duties of the President and Chief Executive Officer
shall be performed and his powers may be exercised by the Chief Operating
Officer; subject in any case to review and superseding action by the President
and Chief Executive Officer.
Section 4.08. The Vice Presidents. Each Vice President shall perform
such duties and exercise such powers as may be assigned to him from time to
time by the President and Chief Executive Officer.
Section 4.09. The Secretary. The Secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings
of the meetings of the stockholders and of the Board of Directors in books
provided for that purpose. [Section 142(a).]
(b) He shall cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he shall furnish a copy of such resolution to
the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed to
all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on
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behalf of the Corporation under its seal shall have been duly authorized
in accordance with these By-Laws, and when so affixed he may attest the
same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in
such manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names
(alphabetically arranged) and the addresses of the holders of record of
such shares, the number of shares held by each holder and the date as of
which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall have signed) certificates representing shares of
the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(h) He shall perform, in general, all duties incident to the office
of secretary and such other duties as may be specified in these By-Laws or
as may be assigned to him from time to time by the Board of Directors or
the President and Chief Executive Officer.
Section 4.10. The Chief Financial Officer. The Chief Financial
Officer shall be the chief financial officer of the Corporation and shall
have the following powers and duties:
(a) He shall have charge and supervision over and be responsible for
the moneys, securities, receipts and disbursements of the Corporation, and
shall keep or cause to be kept full and accurate records of all receipts
of the Corporation.
(b) He shall render to the Board of Directors or the Audit Committee,
whenever requested, a statement of the financial condition of the
Corporation and of all his transactions as Chief Financial Officer, and
render a full financial report at the annual meeting of the stockholders,
if called upon to do so.
(c) He shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he may desire with respect to any and all financial
transactions of the Corporation.
(d) He shall perform, in general, all duties incident to the office
of chief financial officer and such other duties as may be specified in
these By-Laws or as may be assigned to him from time to time by the Board
of Directors or the Chairman of the Board.
(e) The Chief Financial Officer shall report to the President and
Chief Executive Officer.
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Section 4.11. The Treasurer. The Treasurer shall be the treasurer of
the Corporation and shall have the following powers and duties:
(a) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.05 of these
By-Laws.
(b) He shall cause the moneys of the Corporation to be disbursed by
checks or drafts (signed as provided in Section 8.06 of these By-Laws)
upon the authorized depositaries of the Corporation and cause to be taken
and preserved proper vouchers for all moneys disbursed.
(c) He may sign (unless an Assistant Treasurer or the Secretary or an
Assistant Secretary shall have signed) certificates representing stock of
the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(d) He shall perform, in general, all duties incident to the office
of treasurer and such other duties as may be specified in these By-Laws or
as may be assigned to him from time to time by the Board of Directors or
the Chief Financial Officer, to whom he shall report.
Section 4.12. Additional Officers. The Board of Directors may appoint
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate
to any officer or agent the power to appoint subordinate officers or agents and
to prescribe their respective rights, terms of office, authorities and duties.
Any such officer or agent may remove any such subordinate officer or agent
appointed by him, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors. [Section 142(c).]
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ARTICLE V.
CAPITAL STOCK
Section 5.01. Certificates of Stock. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the President and Chief Executive Officer or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be in such form as the
Board of Directors may determine, to the extent consistent with applicable law,
the Certificate of Incorporation and these By-Laws. [Section 158.]
Section 5.02. Signatures; Facsimile. Any or all of such signatures on
the certificate may be a facsimile, engraved or printed, to the extent
permitted by law. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
[Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the GCL.
Subject to the provisions of the Certificate of Incorporation and these
By-Laws, the Board of Directors may prescribe such additional rules and
regulations as it may deem appropriate relating to the issue, transfer and
registration of shares of the Corporation. [Section 151.]
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may
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fix, in advance, a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted by the Board of
Directors, and which shall not be more than sixty nor less than ten days before
the date of such meeting. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
In order to determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required
by law, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required
by law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order to determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action.
If no record date is fixed, the record date for determining stockholders for
any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
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Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI.
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may
indemnify any person who was or is a party or is threatened to be made a party
to such an action, suit or proceeding by reason of the fact that he is or was
or has agreed to become an employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding had no reasonable cause to believe
his conduct was unlawful; except that in the case of an action or suit by or in
the right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Section 6.01 hereof or in defense of any claim, issue or matter
17
<PAGE> 22
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 6.03. Determination That Indemnification is Proper. Any
indemnification under Section 6.01 hereof (unless ordered by a court) shall be
made by the Corporation unless a determination is made that indemnification of
the director, officer, employee or agent is not proper in the circumstances
because he has not met the applicable standard of conduct set forth in Section
6.01 hereof. Any such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate. The Board of Directors may authorize
the Corporation's counsel to represent such director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification. Any indemnification of a
person seeking indemnification under Sections 6.01 and 6.02, or advance of
costs, charges and expenses to such person under Section 6.04 of this Article,
shall be made promptly, and in any event within 30 days, upon the written
request of such person. If a determination by the Corporation that such person
is entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within 30 days, the right to indemnification or advances as granted
by this Article shall be enforceable by the indemnified person in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 6.04 of this
Article where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 6.01 of this Article, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) to have made
a determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.01 of this Article, nor
the fact that there has been an actual determination by the Corporation
18
<PAGE> 23
(including its Board of Directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was or has
agreed to become a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
or on his behalf in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made
by a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
Section 6.09. Definitions. For purposes of this Article VI, the
following terms shall have the following meanings:
(a) references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power
19
<PAGE> 24
and authority to indemnify its directors, officers, employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this Article VI with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued;
(b) references to "other enterprises" shall include employee
benefit plans;
(c) references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and
(d) references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation that imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
ARTICLE VII.
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Delaware Corporate
Management, Inc., 1105 North Market Street, Suite 1300, in the City of
Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors, shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on
20
<PAGE> 25
behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends
might properly be declared and paid. [Sections 170, 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors,
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation,
and the Board of Directors may similarly modify or abolish any such reserve.
[Section 171.]
Section 8.03. Execution of Instruments. The Board of Directors may
authorize the President and Chief Executive Officer or any other officer or
agent to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. Any such authorization may be general or
limited to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or, to the extent the
Executive Committee has the power to authorize such loan or evidence of
indebtedness, the Executive Committee. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
Executive Committee, as the case may be, shall authorize. When so authorized by
the Board of Directors or the Executive Committee, as the case may be, any part
of or all the properties, including contract rights, assets, business or good
will of the Corporation, whether then owned or thereafter acquired, may be
mortgaged, pledged, hypothecated or conveyed or assigned in trust as security
for the payment of such bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation, and of the interest thereon, by
instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
from time to time in such banks, trust companies or other depositaries as may
be determined by (a) the Board of Directors or the President and Chief
Executive Officer or (b) such officers or agents as may be authorized to make
such determination by the Board of Directors or the President and Chief
Executive Officer .
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President and Chief Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors, the President and Chief Executive Officer
or any other officers designated by the Board of Directors may sell, transfer,
endorse, and assign any shares of stock, bonds or other
21
<PAGE> 26
securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors or the Executive Committee, (a) the
President and Chief Executive Officer or any Vice President shall have full
power and authority on behalf of the Corporation to attend any meeting of
stockholders of any corporation in which the Corporation may hold stock, and to
act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock,
and (b) such officers acting on behalf of the Corporation shall have full power
and authority to execute any instrument expressing consent to or dissent from
any action of any such corporation without a meeting. The Board of Directors
may by resolution from time to time confer such power and authority upon any
other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on the last day of December.
Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
Section 8.12. Definitions.
"Additional Committee": See Section 3.01.
"CD&R" means Clayton, Dubilier & Rice, Inc., a Delaware corporation.
"CD&R Fund" means Clayton, Dubilier & Rice Fund V Limited Partnership,
a Cayman Islands exempted limited partnership, and any successors and
assigns.
"Committee": See Section 3.01.
"Investor": See "Stockholders Agreement."
"Nominating Party" means any one of the investors named in Section
1(b) of the Stockholders Agreement entitled to nominate such number of
persons as specified therein for election to the Board of Directors of the
Corporation.
22
<PAGE> 27
"Riverwood Holding": Riverwood Holding, Inc., a Delaware corporation
and the sole stockholder of the Corporation.
"Standing Committee": See Section 3.01.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of March 27, 1996, among Riverwood Holding, CD&R Fund, EXOR Group S.A.,
First Plaza Group Trust, The 1818 Fund II, L.P., Madison Dearborn Capital
Partners, L.P., Chase Equity Associates, L.P., HWH Investment Pte Ltd. and
Wolfensohn-River LLC (each an "Investor" and, collectively, the
"Investors"), as amended and as in effect from time to time.
"Unaffiliated Nominee" means any person nominated for election to the
Board of Directors of the Corporation by a Nominating Party who is not an
employee, officer, general partner or general partner of the general
partner of the Nominating Party or of an Affiliate (as defined in Section
9 of the Stockholders Agreement) of the Nominating Party.
ARTICLE IX.
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. These By-Laws may be amended, altered or
repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such
special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
[Section 109(a).]
Notwithstanding the foregoing sentence, during the term of the
Stockholders Agreement, these By-Laws may not be amended, altered or repealed
in a manner inconsistent with the terms and provisions of the Stockholders
Agreement.
23
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ARTICLE X.
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and (a) the
provisions of the certificate of incorporation of the Corporation as in effect
from time to time, or (b) the provisions of the Stockholders Agreement, the
provisions of such certificate of incorporation or the Stockholders Agreement,
as the case may be, shall be controlling.
24
<PAGE> 1
EXHIBIT 3.6
RIVERWOOD INTERNATIONAL CORPORATION
BY-LAWS
As amended and restated effective as of August 18, 1999
<PAGE> 2
RIVERWOOD INTERNATIONAL CORPORATION
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE I STOCKHOLDERS.................................................................1
Section 1.01. Annual Meetings..............................................................1
Section 1.02. Special Meetings.............................................................1
Section 1.03. Notice of Meetings; Waiver...................................................1
Section 1.04. Quorum.......................................................................2
Section 1.05. Voting.......................................................................2
Section 1.06. Voting by Ballot.............................................................2
Section 1.07. Adjournment..................................................................2
Section 1.08. Proxies......................................................................2
Section 1.09. Organization; Procedure......................................................3
Section 1.10. Consent of Stockholders in Lieu of Meeting...................................3
ARTICLE II BOARD OF DIRECTORS...........................................................4
Section 2.01. General Powers...............................................................4
Section 2.02. Number and Term of Office....................................................4
Section 2.03. Election of Directors........................................................5
Section 2.04. Annual and Regular Meetings..................................................5
Section 2.05. Special Meetings; Notice.....................................................5
Section 2.06. Quorum; Voting...............................................................6
Section 2.07. Adjournment..................................................................6
Section 2.08. Action Without a Meeting.....................................................6
Section 2.09. Regulations; Manner of Acting................................................6
Section 2.10. Action by Telephonic Communications..........................................6
Section 2.11. Resignations.................................................................6
Section 2.12. Removal of Directors.........................................................6
Section 2.13. Vacancies and Newly Created Directorships....................................7
Section 2.14. Compensation.................................................................7
Section 2.15. Reliance on Accounts and Reports, etc........................................7
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES.....................................8
Section 3.01. How Constituted..............................................................8
Section 3.02. Powers.......................................................................8
Section 3.03. Proceedings..................................................................9
Section 3.04. Quorum and Manner of Acting..................................................10
Section 3.05. Action by Telephonic Communications..........................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.06. Absent or Disqualified Members of Additional Committees......................10
Section 3.07. Resignations.................................................................10
Section 3.08. Removal......................................................................10
Section 3.09. Vacancies....................................................................10
ARTICLE IV OFFICERS.....................................................................11
Section 4.01. Number.......................................................................11
Section 4.02. Election.....................................................................11
Section 4.03. Salaries.....................................................................11
Section 4.04. Removal and Resignation; Vacancies...........................................11
Section 4.05. Authority and Duties of Officers.............................................11
Section 4.06. The President and Chief Executive Officer....................................11
Section 4.07. The Chief Operating Officer..................................................12
Section 4.08. The Vice Presidents..........................................................12
Section 4.09. The Secretary................................................................12
Section 4.10. The Chief Financial Officer..................................................13
Section 4.11. The Treasurer................................................................14
Section 4.12. Additional Officers..........................................................14
Section 4.13. Security.....................................................................14
ARTICLE V CAPITAL STOCK................................................................15
Section 5.01. Certificates of Stock........................................................15
Section 5.02. Signatures; Facsimile........................................................15
Section 5.03. Lost, Stolen or Destroyed Certificates.......................................15
Section 5.04. Transfer of Stock............................................................15
Section 5.05. Record Date..................................................................16
Section 5.06. Registered Stockholders......................................................16
Section 5.07. Transfer Agent and Registrar.................................................17
ARTICLE VI INDEMNIFICATION..............................................................17
Section 6.01. Nature of Indemnity..........................................................17
Section 6.02. Successful Defense...........................................................17
Section 6.03. Determination That Indemnification Is Proper.................................18
Section 6.04. Advance Payment of Expenses..................................................18
Section 6.05. Procedure for Indemnification................................................18
Section 6.06. Survival; Preservation of Other Rights.......................................19
Section 6.07. Insurance....................................................................19
Section 6.08. Severability.................................................................19
Section 6.09. Definitions..................................................................19
ARTICLE VII OFFICES......................................................................24
Section 7.01. Registered Office............................................................20
Section 7.02. Other Offices................................................................20
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII GENERAL PROVISIONS...........................................................20
Section 8.01. Dividends....................................................................20
Section 8.02. Reserves.....................................................................21
Section 8.03. Execution of Instruments.....................................................21
Section 8.04. Corporate Indebtedness.......................................................21
Section 8.05. Deposits.....................................................................21
Section 8.06. Checks.......................................................................21
Section 8.07. Sale, Transfer, etc. of Securities...........................................21
Section 8.08. Voting as Stockholder........................................................22
Section 8.09. Fiscal Year..................................................................22
Section 8.10. Seal.........................................................................22
Section 8.11. Books and Records; Inspection................................................22
Section 8.12. Definitions..................................................................22
ARTICLE IX AMENDMENT OF BY-LAWS.........................................................23
Section 9.01. Amendment....................................................................23
ARTICLE X CONSTRUCTION.................................................................24
Section 10.01. Construction.................................................................24
</TABLE>
<PAGE> 5
RIVERWOOD INTERNATIONAL CORPORATION
BY-LAWS
[As amended and restated effective as of August 18, 1999]
Certain defined terms used herein without definition shall have the
meanings set forth in Section 8.12.
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or without the State of Delaware, and at 10:00 a.m. local
time on the first Tuesday in May (or, if such day is a legal holiday, then on
the next succeeding business day), or at such other date and hour, as may be
fixed from time to time by resolution of the Board of Directors and set forth in
the notice or waiver of notice of the meeting. [Sections 211(a), (b).](1)
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman or by the Board of Directors. A
special meeting shall be called by the President and Chief Executive Officer or
by the Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within 20 days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or without the State of
Delaware, as shall be specified in the respective notices or waivers of notice
thereof. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he shall have filed with the Secretary of the Corporation a written request that
notices to him be mailed to some other address, then directed to him at such
other address. Such further notice shall be given as may be required by law.
- -----------------
(1) Citations are to the General Corporation Law of the
State of Delaware as in effect on April 15, 1999 (the "GCL"), and are
inserted for reference only, and do not constitute a part of the
By-Laws.
<PAGE> 6
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws,
a record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of business
on such record date. If no record date has been fixed, then every holder of
record of shares entitled to vote at a meeting of stockholders shall be entitled
to one vote for each share of stock standing in his name on the books of the
Corporation at the close of business on the day next preceding the day on which
notice of the meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. Except
as otherwise required by law or by the Certificate of Incorporation, the vote of
a majority of the shares represented in person or by proxy at any meeting at
which a quorum is present shall be sufficient for the transaction of any
business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot or conducted by Inspectors of Elections unless otherwise
required by law. Any vote which need not be taken by ballot may be conducted in
any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of these
By-Laws, a notice of the adjourned meeting, conforming to the requirements of
Section 1.03 hereof, shall be given to each stockholder of record entitled to
vote at such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any
meeting of the stockholders or to express consent to or dissent from corporate
action without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him by proxy. A stockholder
may authorize a valid proxy by executing a written
2
<PAGE> 7
instrument signed by such stockholder, or by causing his or her signature to be
affixed to such writing by any reasonable means including, but not limited to,
by facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated as the holder of the proxy, a proxy solicitation firm or a like
authorized agent. No such proxy shall be voted or acted upon after the
expiration of three years from the date of such proxy, unless such proxy
provides for a longer period. Every proxy shall be revocable at the pleasure of
the stockholder executing it, except in those cases where applicable law
provides that a proxy shall be irrevocable. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the Secretary. Proxies by telegram,
cablegram or other electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. [Sections 212(b),
(c), (d), (e).]
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President and Chief Executive
Officer or, in the event of his absence, disability or other inability so to
act, a presiding officer chosen by a majority of the stockholders present in
person or by proxy. The Secretary, or in the event of his absence or disability,
the Assistant Secretary, if any, or if there be no Assistant Secretary, in the
absence of the Secretary, an appointee of the presiding officer, shall act as
Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder or member who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by law to
the Corporation, written consents signed by a sufficient number of holders or
members to take action are delivered to the Corporation by delivery to its
registered office in the
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State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders or members are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. [Section 228.]
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
Section 2.02. Number and Term of Office. Certain stockholders of
Riverwood Holding, the sole stockholder of the sole stockholder of the
Corporation, shall have rights and obligations with respect to the nomination
and election of Directors of the Corporation as set forth in the Stockholders
Agreement during the term of such agreement. The number of Directors
constituting the entire Board of Directors shall be at least 10 and no more than
14, which number may be modified from time to time by resolution of the Board of
Directors, but in no event shall the number of Directors be less than one,
provided that for so long as Section 1 of the Stockholders Agreement is in
effect the number of Directors shall in any event be automatically increased or
decreased in the manner set forth below:
(a) If and to the extent permitted by applicable law, (1) upon the
termination for any reason of any Nominating Party's right to nominate one or
more persons to serve as a Director or Directors of the Corporation (including
any temporary termination attributable to the waiver by such Nominating Party of
its rights under the Stockholders Agreement), such Director or Directors shall
be deemed to be removed without cause in accordance with Section 141(k) of the
GCL and the number of Directors shall be automatically reduced by such number of
Directors that the Nominating Party would otherwise be entitled to nominate (or
such lesser number the Nominating Party had previously elected to nominate) and
(2) upon the request of a Nominating Party to nominate one or more Directors
pursuant to Section 1 of the Stockholders Agreement, the number of Directors of
the Corporation shall be automatically increased by such number of Directors as
such Nominating Party is entitled to nominate (or such lesser number the
Nominating Party elects to nominate), provided that, if any such nominee is an
Unaffiliated Nominee, the number of Directors shall not be so increased unless
and until the Board of Directors of the Corporation shall have approved such
Unaffiliated Nominee.
(b) During any period in which any Nominating Party has, and shall
have exercised, the right to nominate a Director as provided herein, in the
event of any vacancy or vacancies in the Board of Directors created by the
death, disability, retirement, resignation or removal, with or without cause, of
a Director so nominated, (1) the Board will request such Nominating Party to
nominate a candidate to be appointed by such Board to fill such vacancy or (2)
in the event that a candidate to fill such vacancy is to be elected at the
annual meeting of stockholders of the Cor-
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poration, such Nominating Party shall have the right to nominate the individual
to fill such vacancy, and the provisions of Section 1(b) of the Stockholders
Agreement shall apply with respect to the nomination and election of such
nominee to fill such vacancy.
(c) Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal. [Section 141(b).]
(d) During the term of the Stockholders Agreement, the Chairman of
the Board shall be selected by the Directors from one of the Directors nominated
pursuant to the Stockholders Agreement by the CD&R Fund. The Chairman of the
Board shall not be an officer of the Corporation but shall preside at all
meetings of the Board of Directors at which he is present. [Section 141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders in a manner that complies with the provisions
of Section 2.02 of these By-Laws and Section 1 of the Stockholders Agreement
during the term of such agreement. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him at his usual place
of business, or shall be delivered to him personally. Notice of such action need
not be given to any Director who attends the first regular meeting after such
action is taken without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting. [Sections 141(g), 229.]
Section 2.05. Special Meetings; Notice. Special meetings of the
Board of Directors shall be held whenever called by the Chairman of the Board or
by a majority of the Directors then in office, at such place (within or without
the State of Delaware), date and hour as may be specified in the respective
notices or waivers of notice of such meetings. Special meetings of the Board of
Directors may be called on 24 hours' notice, if notice is given to each Director
personally or by telephone or telegram, or on five days' notice, if notice is
mailed to each Director, addressed to him at his usual place of business. Notice
of any special meeting need not
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be given to any Director who attends such meeting without protesting the lack of
notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total then authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
[Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Certificate of Incorporation and these
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Chairman of the Board and a copy of such notice to the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
[Section 141(b).]
Section 2.12. Removal of Directors. Any Director may be removed at
any time, either for or without cause, upon the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director, cast at a special meeting of
stockholders called for the purpose, provided that so long as Section 1(d) of
the Stockholders Agreement is in effect, (a) no such removal without cause shall
occur except as provided in such Section 1(d) and (b) in the event of the
removal of a Director nominated by a
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Nominating Party for cause, the provisions of Section 1(d) of the Stockholders
Agreement shall apply with respect to the filling of the vacancy created
thereby. Any vacancy in the Board of Directors caused by any such removal may be
filled at such meeting by the stockholders entitled to vote for the election of
the Director so removed in accordance with Section 2.13 hereof. If such
stockholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws. [Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
Directors then in office, although less than a quorum, provided that no such
vacancy in the Board of Directors shall be filled in a manner that fails to
comply with the requirements of Section 2.02 of these By-Laws and Section 1(d)
of the Stockholders Agreement during the term of such agreement, and provided,
further, that the Board of Directors shall from time to time make such requests
for nominations of individuals to fill vacancies in the Board of Directors as
shall be necessary to cause compliance with the requirements of such Section
2.02 and Section 1(d) of the Stockholders Agreement during the term of such
agreement. A Director elected to fill a vacancy or a newly created directorship
shall hold office until his successor has been elected and qualified or until
his earlier death, resignation or removal. Any such vacancy or newly created
directorship may also be filled at any time by vote of the stockholders, in the
manner provided in Section 1(d) of the Stockholders Agreement during the term of
such agreement. [Sections 141(b), 223.]
Section 2.14. Compensation. The amount, if any, that each Director
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors, provided that
(a) no director who is an officer or employee of CD&R at any time that CD&R is
providing consulting services to the Corporation or one or more of its
subsidiaries and (b) no director who is an officer or employee of the
Corporation, shall be entitled to receive any compensation for his or her
services as a Director (although such Director shall be entitled to be
reimbursed for any reasonable out-of-pocket expenses incurred in connection with
his or her services as a Director). [Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or
a member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. [Section 141(e).]
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ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors, by resolution
adopted by a majority of the whole Board, (a) shall designate an Executive
Committee, a Compensation and Benefits Committee and an Audit Committee (each, a
"Standing Committee" and, collectively, the "Standing Committees") and (b) may
designate one or more additional committees (each, an "Additional Committee"
and, together with the Standing Committees, the "Committees"). During the term
of the Stockholders Agreement, each Standing Committee shall consist of such
number of Directors as provided by this Section 3.01. Each Additional Committee
shall consist of such number of Directors as from time to time may be fixed by
the Board of Directors. The Executive Committee shall consist of the President
and Chief Executive Officer of the Corporation and four other Directors selected
in the manner provided in Section 2 of the Stockholders Agreement. One of the
Directors nominated by the CD&R Fund (as provided in Section 2(a) of the
Stockholders Agreement) shall serve as the Chairman of the Executive Committee.
Each of the Compensation and Benefits Committee and the Audit Committee shall
consist of five Directors who shall be selected in the manner provided in
Section 2 of the Stockholders Agreement. Any Additional Committee may be
abolished or re-designated from time to time by the Board of Directors. The
Board of Directors may designate one or more Directors as alternate members of
any Additional Committee, who may replace any absent or disqualified member or
members at any meeting of such Additional Committee. Members of any Standing
Committee or any Additional Committee shall (and alternate members, if any, of
any Additional Committee may) be designated at the annual meeting of the Board
of Directors. Each member of any Standing Committee or any Additional Committee
(and any alternate member of any Additional Committee) (whether designated at an
annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his successor shall have been designated or until he
shall cease to be a Director, or until his earlier death, resignation or
removal. [Section 141(c).]
Section 3.02. Powers. During the intervals between the meetings of
the Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation. Each such other Committee, except as otherwise provided in this
section, shall have and may exercise such powers of the Board of Directors as
may be provided by resolution or resolutions of the Board of Directors. Neither
the Executive Committee nor any such other Committee shall have the power or
authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the GCL, fix
the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of
such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation or fix the
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number of shares of any series of stock or authorize the increase or
decrease of the shares of any series);
(b) to adopt an agreement of merger or consolidation or a
certificate of ownership or merger;
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) to declare a dividend;
(f) to authorize the issuance of stock;
(g) to remove the President and Chief Executive Officer of the
Corporation or a Director;
(h) (i) to authorize the Corporation to enter into or amend
any agreement for the borrowing of funds that provides for additional
indebtedness in excess of $25 million or (ii) to authorize a material
modification of any existing facility, unless, in the Executive
Committee's good faith judgment, such modification is not adverse to
the Corporation;
(i) to authorize the Corporation to enter into any guarantee of
indebtedness in excess of $25 million;
(j) to authorize any new compensation or benefit program;
(k) to appoint or discharge the Corporation's independent public
accountants;
(l) to authorize the annual operating plan, annual capital
expenditure plan and strategic plan;
(m) to abolish or usurp the authority of the Board of Directors; or
(n) to amend these By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers that may require it. [Section 141(c).]
Section 3.03. Proceedings. Each such Committee may fix its own rules
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall present a report of such proceedings, including the minutes
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thereof, to the Board of Directors at the meeting of the Board of Directors next
following any such proceedings.
Section 3.04. Quorum and Manner of Acting . Except as may be
otherwise provided in the resolution creating any Additional Committee, at all
meetings of any Committee the presence of members (or alternate members)
constituting a majority of the total then authorized membership of such
Committee shall constitute a quorum for the transaction of business. The act of
the majority of the members present at any meeting at which a quorum is present
shall be the act of such Committee. Any action required or permitted to be taken
at any meeting of any such Committee may be taken without a meeting, if all
members of such Committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings of the
Committee. The members of any such Committee shall act only as a Committee, and
the individual members of such Committee shall have no power as such. [Section
141(c), (f).]
Section 3.05. Action by Telephonic Communications . Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
[Section 141(i).]
Section 3.06. Absent or Disqualified Members of Additional
Committees. In the absence or disqualification of a member of any Additional
Committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. [Section
141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President and Chief
Executive Officer. Unless otherwise specified therein, such resignation shall
take effect upon delivery. [Section 141(b).]
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the whole Board of Directors, provided that no such
action shall be taken with respect to any member of any Standing Committee that
is inconsistent with the provisions of Sections 1(d) and 2 of the Stockholders
Agreement during the term of such agreement.
Section 3.09. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors, provided that
no vacancy in any Committee shall be filled in a manner that fails to comply
with the provisions of Section 2 of the Stockholders Agreement during the term
of such agreement.
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ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and Chief Executive
Officer, a Chief Operating Officer, a Chief Financial Officer, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of Directors also may elect
one or more Assistant Secretaries and Assistant Treasurers in such numbers as
the Board of Directors may determine and appoint such other officers as the
Board of Directors deems desirable. Any number of offices may be held by the
same person. No officer need be a Director of the Corporation. [Section 142(a),
(b).]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his successor has been elected
and qualified, or until his earlier death, resignation or removal. In the event
of a vacancy in the office of Vice President, Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer, the President and Chief Executive Officer may
appoint a replacement to service until the next meeting of the Board of
Directors where a successor is elected and qualified. [Section 142(b).]
Section 4.03. Salaries. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President and Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
[Section 142(b), (e).]
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
Section 4.06. The President and Chief Executive Officer. The
President and Chief Executive Officer shall, subject to the direction of, and
subject to general or specific resolutions approved by, the Board of Directors,
(a) preside at all meetings of the stockholders and directors at which he is
present, and be the chief executive officer of the Corporation, (b) have general
control and supervision of the policies and operations of the Corporation, see
that all orders and resolutions of the Board of Directors are carried into
effect, and report to the Board of Directors,
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(c) manage and administer the Corporation's business and affairs and perform all
duties and exercise all powers usually pertaining to the office of a chief
executive officer of a corporation, (d) have the authority to sign, in the name
and on behalf of the Corporation, checks, orders, contracts, leases, notes,
drafts and other documents and instruments in connection with the business of
the Corporation, and together with the Secretary or an Assistant Secretary,
conveyances of real estate and other documents and instruments to which the seal
of the Corporation is affixed, (e) have the authority to cause the employment or
appointment of such employees and agents of the Corporation as the conduct of
the business of the Corporation may require, to fix their compensation, and to
remove or suspend any employee or agent elected or appointed by the President
and Chief Executive Officer or the Board of Directors, and (f) have such other
powers as are contemplated by the other provisions of these By-Laws. The
President and Chief Executive Officer shall perform such other duties and have
such other powers as the Board of Directors or the Chairman may from time to
time prescribe.
Section 4.07. The Chief Operating Officer. The Chief Operating
Officer shall be the chief operating officer of the Corporation and shall
perform, in general, all duties incident to the office of Chief Operating
Officer and shall be responsible for the operations of the Corporation,
including manufacturing, engineering, marketing, distribution, sales, labor
relations and administrative responsibilities and such other duties as may be
specified in these By-Laws or as may be assigned to him from time to time by the
President and Chief Executive Officer. The Chief Operating Officer shall report
to the President and Chief Executive Officer. In the absence of the President
and Chief Executive Officer, the duties of the President and Chief Executive
Officer shall be performed and his powers may be exercised by the Chief
Operating Officer; subject in any case to review and superseding action by the
President and Chief Executive Officer.
Section 4.08. The Vice Presidents. Each Vice President shall perform
such duties and exercise such powers as may be assigned to him from time to time
by the President and Chief Executive Officer.
Section 4.09. The Secretary. The Secretary shall have the following
powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings
of the meetings of the stockholders and of the Board of Directors in
books provided for that purpose. [Section 142(a).]
(b) He shall cause all notices to be duly given in accordance with
the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he shall furnish a copy of such
resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the
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Corporation prior to the issuance thereof and to all instruments the
execution of which on behalf of the Corporation under its seal shall
have been duly authorized in accordance with these By-Laws, and when so
affixed he may attest the same.
(e) He shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required
by law, the Certificate of Incorporation or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in
such manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names
(alphabetically arranged) and the addresses of the holders of record of
such shares, the number of shares held by each holder and the date as
of which each became such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall have signed) certificates representing shares
of the Corporation the issuance of which shall have been authorized by
the Board of Directors.
(h) He shall perform, in general, all duties incident to the office
of secretary and such other duties as may be specified in these By-Laws
or as may be assigned to him from time to time by the Board of
Directors or the President and Chief Executive Officer.
Section 4.10. The Chief Financial Officer. The Chief Financial
Officer shall be the chief financial officer of the Corporation and shall have
the following powers and duties:
(a) He shall have charge and supervision over and be responsible for
the moneys, securities, receipts and disbursements of the Corporation,
and shall keep or cause to be kept full and accurate records of all
receipts of the Corporation.
(b) He shall render to the Board of Directors or the Audit Committee,
whenever requested, a statement of the financial condition of the
Corporation and of all his transactions as Chief Financial Officer, and
render a full financial report at the annual meeting of the
stockholders, if called upon to do so.
(c) He shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he may desire with respect to any and all financial
transactions of the Corporation.
(d) He shall perform, in general, all duties incident to the office
of chief financial officer and such other duties as may be specified in
these By-Laws or as may be assigned to him from time to time by the
Board of Directors or the Chairman of the Board.
(e) The Chief Financial Officer shall report to the President and
Chief Executive Officer.
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Section 4.11. The Treasurer. The Treasurer shall be the treasurer
of the Corporation and shall have the following powers and duties:
(a) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or
other depositaries as shall be selected in accordance with Section 8.05
of these By-Laws.
(b) He shall cause the moneys of the Corporation to be disbursed by
checks or drafts (signed as provided in Section 8.06 of these By-Laws)
upon the authorized depositaries of the Corporation and cause to be
taken and preserved proper vouchers for all moneys disbursed.
(c) He may sign (unless an Assistant Treasurer or the Secretary or
an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been
authorized by the Board of Directors.
(d) He shall perform, in general, all duties incident to the office
of treasurer and such other duties as may be specified in these By-Laws
or as may be assigned to him from time to time by the Board of
Directors or the Chief Financial Officer, to whom he shall report.
Section 4.12. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors. [Section 142(c).]
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ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the President and Chief Executive Officer or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws. [Section 158.]
Section 5.02. Signatures; Facsimile. Any or all of such signatures
on the certificate may be a facsimile, engraved or printed, to the extent
permitted by law. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
[Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the GCL. Subject
to the provisions of the Certificate of Incorporation and these By-Laws, the
Board of Directors may prescribe such additional rules and regulations as it may
deem appropriate relating to the issue, transfer and registration of shares of
the Corporation. [Section 151.]
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Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order to determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order to determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
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Section 5.07. Transfer Agent and Registrar. The Board of Directors
may appoint one or more transfer agents and one or more registrars, and may
require all certificates representing shares to bear the signature of any such
transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter
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therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification under Section 6.01 hereof (unless ordered by a court) shall be
made by the Corporation unless a determination is made that indemnification of
the director, officer, employee or agent is not proper in the circumstances
because he has not met the applicable standard of conduct set forth in Section
6.01 hereof. Any such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
Section 6.05. Procedure for Indemnification. Any indemnification of
a person seeking indemnification under Sections 6.01 and 6.02, or advance of
costs, charges and expenses to such person under Section 6.04 of this Article,
shall be made promptly, and in any event within 30 days, upon the written
request of such person. If a determination by the Corporation that such person
is entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within 30 days, the right to indemnification or advances as granted by this
Article shall be enforceable by the indemnified person in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action (other than an action brought to enforce a claim for
the advance of costs, charges and expenses under Section 6.04 of this Article
where the required undertaking, if any, has been received by the Corporation)
that the claimant has not met the standard of conduct set forth in Section 6.01
of this Article, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 6.01 of this Article, nor the fact that
there has been an actual determination by the Corporation
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(including its Board of Directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was or has
agreed to become a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
or on his behalf in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article, provided that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
Section 6.09. Definitions. For purposes of this Article VI, the
following terms shall have the following meanings:
(a) references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power
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and authority to indemnify its directors, officers, employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued;
(b) references to "other enterprises" shall include employee benefit
plans;
(c) references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and
(d) references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the Corporation
that imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants,
or beneficiaries.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at CSC, The United States
Corporation Company, 1013 Centre Road in the City of Wilmington, County of New
Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors, shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on
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behalf of the Corporation, as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 170, 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors, from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve. [Section 171.]
Section 8.03. Execution of Instruments. The Board of Directors may
authorize the President and Chief Executive Officer or any other officer or
agent to enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. Any such authorization may be general or
limited to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or, to the extent the
Executive Committee has the power to authorize such loan or evidence of
indebtedness, the Executive Committee. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
Executive Committee, as the case may be, shall authorize. When so authorized by
the Board of Directors or the Executive Committee, as the case may be, any part
of or all the properties, including contract rights, assets, business or good
will of the Corporation, whether then owned or thereafter acquired, may be
mortgaged, pledged, hypothecated or conveyed or assigned in trust as security
for the payment of such bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation, and of the interest thereon, by
instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by (a) the Board of Directors or the President and Chief
Executive Officer or (b) such officers or agents as may be authorized to make
such determination by the Board of Directors or the President and Chief
Executive Officer.
Section 8.06. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or the
President and Chief Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors, the President and Chief Executive Officer
or any other officers designated by the Board of Directors may sell, transfer,
endorse, and assign any shares of stock, bonds or other
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securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors or the Executive Committee, (a) the
President and Chief Executive Officer or any Vice President shall have full
power and authority on behalf of the Corporation to attend any meeting of
stockholders of any corporation in which the Corporation may hold stock, and to
act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock, and
(b) such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on the last day of December.
Section 8.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
Section 8.12. Definitions.
"Additional Committee": See Section 3.01.
"CD&R" means Clayton, Dubilier & Rice, Inc., a Delaware
corporation.
"CD&R Fund" means Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership, and any
successors and assigns.
"Committee": See Section 3.01.
"Investor": See "Stockholders Agreement."
"Nominating Party" means any one of the investors named in Section
1(b) of the Stockholders Agreement entitled to nominate such number
of persons as specified therein for election to the Board of
Directors of the Corporation.
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"Riverwood Holding": Riverwood Holding, Inc., a Delaware
corporation and the sole stockholder of the sole stockholder of the
Corporation.
"Standing Committee": See Section 3.01.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of March 27, 1996, among Riverwood Holding, CD&R Fund, EXOR Group
S.A., First Plaza Group Trust, The 1818 Fund II, L.P., Madison
Dearborn Capital Partners, L.P., Chase Equity Associates, L.P., HWH
Investment Pte Ltd. and Wolfensohn-River LLC (each an "Investor" and,
collectively, the "Investors"), as amended and as in effect from time
to time.
"Unaffiliated Nominee" means any person nominated for election to
the Board of Directors of the Corporation by a Nominating Party who
is not an employee, officer, general partner or general partner of
the general partner of the Nominating Party or of an Affiliate (as
defined in Section 9 of the Stockholders Agreement) of the Nominating
Party.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. These By-Laws may be amended, altered or
repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such
special meeting only, notice of such amendment, alteration or repeal is
contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such
meeting. [Section 109(a).]
Notwithstanding the foregoing sentence, during the term of the
Stockholders Agreement, these By-Laws may not be amended, altered or repealed in
a manner inconsistent with the terms and provisions of the Stockholders
Agreement.
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ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between
the provisions of these By-Laws as in effect from time to time and (a) the
provisions of the certificate of incorporation of the Corporation as in effect
from time to time, or (b) the provisions of the Stockholders Agreement, the
provisions of such certificate of incorporation or the Stockholders Agreement,
as the case may be, shall be controlling.
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EXHIBIT 10.15
RIVERWOOD HOLDING, INC.
SUPPLEMENTAL LONG-TERM INCENTIVE PLAN
Section 1. Purpose
The purpose of this Riverwood Holding, Inc. Supplemental Long-Term
Incentive Plan is to foster and promote the long-term financial success of the
Company and the Subsidiaries and to increase materially stockholder value by
(a) motivating superior performance by participants in the Plan, (b) providing
participants in the Plan with an ownership interest in the Company and (c)
enabling the Company and the Subsidiaries to attract and retain the services of
an outstanding management team upon whose judgment, interest and special effort
the successful conduct of its operations is largely dependent.
Section 2. Definitions
2.1. Definitions. Whenever used herein, the following terms shall have
the respective meanings set forth below:
(a) "Affiliate" means, with respect to any person, any other person
controlled by, controlling or under common control with such person.
(b) "Award Agreement" means the agreement evidencing the grant of any
Incentive Award under the Plan, including an Option Agreement, Incentive
Unit and Supplemental Payment Agreement and Subscription Agreement.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" shall mean (i) the willful failure of the Participant to
perform substantially his employment-related duties, (ii) the
Participant's willful or serious misconduct that has caused or could
reasonably be expected to result in material injury to the business or
reputation of Company or any Subsidiary, (iii) the Participant's
conviction of, or entering a plea of guilty or nolo contendere to, a crime
constituting a felony or (iv) the breach by the Participant of any written
covenant or agreement with the Company or any Subsidiary not to disclose
any information
<PAGE> 2
pertaining to the Company or any Subsidiary, not to compete or interfere
with the Company or any Subsidiary or relating to the take-along rights
described in Section 10.3 hereof; provided that, with respect to any
Participant who is party to an employment or individual severance
agreement with the Company any Subsidiary that provides for a definition
of "cause", "Cause" shall have the meaning specified in such agreement.
(e) "CD&R Fund" means the Clayton, Dubilier & Rice Fund
V Limited Partnership, a Cayman Islands exempted limited partnership, and
any successor investment vehicle managed by Clayton, Dubilier & Rice, Inc.
(f) "Change in Control" means the first to occur of the following
events after the Effective Date:
(i) the acquisition by any person, entity or "group" (as defined
in Section 13(d) of the Securities Exchange Act of 1934, as amended),
other than the Company, the Subsidiaries, any employee benefit plan
of the Company or the Subsidiaries, the CD&R Fund, any Investor or
any Affiliate of the CD&R Fund or of an Investor, of 50% or more of
the combined voting power of the Company's or Riverwood's then
outstanding voting securities;
(ii) the merger or consolidation of the Company or Riverwood, as
a result of which persons who were stockholders of the Company or
Riverwood, as the case may be, immediately prior to such merger or
consolidation, do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the merged or
consolidated company;
(iii) the liquidation or dissolution of the Company or Riverwood
other than a liquidation of Riverwood into the Company or into any
Subsidiary; and
(iv) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or Riverwood to one or
more persons or entities that are not, immediately prior to such
sale, transfer or other disposition, Affiliates of the Company,
Riverwood, the CD&R Fund or any Investor.
(g) "Change in Control Price" means the price per share of Common
Stock paid in conjunction with any transaction resulting in a Change in
Control on a fully-diluted basis and after taking into account any
Incentive Awards granted under the Plan and any options or other awards
that granted under any other stock incentive or other incentive plan of
the Company or any of its Affiliates (as determined in good faith by the
Board).
<PAGE> 3
(h) "Committee" means the Compensation Committee of the Board (or
such other committee of the Board which shall have jurisdiction over the
compensation of officers).
(i) "Common Stock" means the Class A Common Stock, par value $.01 per
share, of the Company.
(j) "Company" means Riverwood Holding, Inc., a Delaware corporation
formerly known as New River Holding, Inc., and any successor thereto.
(k) "Credit Agreement" means the Credit Agreement, dated as of March
21, 1996, among Riverwood (as successor to RIC Holding, Inc.), the other
borrowers party thereto, The Chase Manhattan Bank (formerly known as
Chemical Bank), as administrative agent, and the lenders party thereto
from time to time, as the same has previously been and may be amended from
time to time.
(l) "EBITDA," for any period, shall, unless otherwise provided in an
Award Agreement, have the meaning assigned to such term in the Credit
Agreement.
(m) "EBITDA Shortfall" means the failure by the Company to maintain
the minimum EBITDA specified for any period in Section 8.1 of the Credit
Agreement as of the date hereof (as such EBITDA minima may be amended in
connection with a material acquisition, disposition, divestiture or other
similar transaction).
(n) "Effective Date" means the date the Plan is approved by the
Company's shareholders.
(o) "Extraordinary Termination" means a termination of a
Participant's employment with the Company and the Subsidiaries by reason
of the Participant's death, Permanent Disability or Retirement.
(p) "Fair Market Value" means, as of any date, the fair market value
on such date per share of Common Stock as determined in good faith by the
Executive Committee of the Board. In making a determination of Fair Market
Value, the Executive Committee shall give due consideration to such
factors as it deems appropriate, including, without limitation, the
earnings and certain other financial and operating information of the
Company and the Subsidiaries in recent periods, the potential value of the
Company and the Subsidiaries as a whole, the future prospects of the
Company and the Subsidiaries and the industries in which they compete, the
history and management of the Company and the Subsidiaries, the
<PAGE> 4
general condition of the securities markets, the fair market value of
securities of companies engaged in businesses similar to those of the
Company and the Subsidiaries and a valuation of the Common Stock performed
by an independent valuation firm chosen by the Executive Committee.
Notwithstanding the foregoing, following a Public Offering, Fair Market
Value shall mean the average of the high and low trading prices for a
share of Common Stock on the primary national exchange (including NASDAQ)
on which the Common Stock is then traded on the trading day immediately
preceding the date as of which such Fair Market Value is determined. The
determination of Fair Market Value will not give effect to any
restrictions on transfer of the shares of Common Stock or the fact that
such Common Stock would represent a minority interest in the Company.
(q) "Incentive Award" means an award of Options, Incentive Stock
Units and Supplemental Payments under the Plan.
(r) "Incentive Stock Unit" means a right to receive a share of Common
Stock (or under certain circumstances provided herein, shares of a New
Employer or cash payments) at the time and subject to the terms and
conditions set forth herein and in the Award Agreement.
(s) "Incentive Unit and Supplemental Payment Agreement" means an
agreement between the Company and the Participant setting forth the terms
and conditions of any Incentive Units and Supplemental Payments granted
hereunder, which agreement shall, unless the Board otherwise determines,
be substantially in the form attached hereto as Exhibit B.
(t) "Investors" means each of the investors who purchased shares of
Common Stock or shares of Class B Common Stock of the Company concurrently
with the consummation of the merger contemplated by the Merger Agreement,
and their "specified affiliates," within the meaning of the Stockholders
Agreement of the Company, as amended from time to time.
(u) "Key Employee" means any executive officer or other key
management employee of the Company.
(v) "Merger Agreement" means the Agreement and Plan of Merger, dated
as of October 25, 1995, among CDRO Acquisition Corporation, an indirect,
wholly owned subsidiary of the Company, RIC Holding, Inc. a wholly owned
subsidiary of the Company, and Riverwood International Corporation.
(w) "New Employer" means a Participant's employer, or the parent or a
subsidiary of such employer, immediately following a Change in Control.
<PAGE> 5
(x) "Option" means the right granted to a Participant under the Plan
to purchase a stated number of shares of Common Stock at a stated price,
not less than Fair Market Value on the date of grant, for a specified
period of time.
(y) "Option Agreement" means an agreement between the Company and the
Participant setting forth the terms and conditions of any Options granted
hereunder, which agreement shall, unless the Board otherwise determines,
be substantially in the form attached hereto as Exhibit A.
(z) "Participant" means any Employee designated by the Board to
participate in the Plan.
(aa) "Permanent Disability" means a physical or mental disability or
infirmity that prevents the performance of a Participant's
employment-related duties lasting (or likely to last, in the judgment of
the Board) for a period of six months or longer and within 30 days after
Riverwood notifies the Participant in writing that it intends to replace
him, the Participant shall not have returned to the performance of his
employment-related duties on a full-time basis. The Board's reasoned and
good faith judgment of Permanent Disability shall be final, binding and
conclusive and shall be based on such competent medical evidence as shall
be presented to it by such Participant and/or by any physician or group of
physicians or other competent medical expert employed by the Participant,
the Company or Riverwood to advise the Board; provided that, with respect
to any Participant who is party to an employment or individual severance
agreement with the Company or Riverwood, "Permanent Disability" shall have
the meaning, if any, assigned in such agreement to such term or to a
similar term such as "Disability" or "Disabled."
(bb) "Plan" means this Riverwood Holding, Inc. Supplemental Long-Term
Incentive Plan, as the same may be amended from time to time.
(cc) "Public Offering" means the first day as of which sales of
Common Stock are made to the public in the United States pursuant to an
underwritten public offering of the Common Stock led by one or more
underwriters at least one of which is an underwriter of nationally
recognized standing.
(dd) "Registration and Participation Agreement" means the
Registration and Participation Agreement, dated as of March 27, 1996,
among the Company and certain stockholders of the Company, as the same may
be amended from time to time.
<PAGE> 6
(ee) "Retirement" means a Participant's retirement from active
employment with the Company and the Subsidiaries at or after age 65.
(ff) "Riverwood" means Riverwood International Corporation, a
Delaware corporation formerly known as Riverwood International USA, Inc.,
and any successor thereto.
(gg) "Subscription Agreement" means the Management Stock Subscription
Agreement entered into by the Company and a Participant setting forth the
terms and conditions of any purchase of Common Stock by such Participant
under the Plan which agreement shall be substantially in the form attached
hereto as Exhibit C, unless the Board determines otherwise.
(hh) "Subsidiary" means any corporation or other person, a majority
of whose outstanding voting securities or other equity interests are
owned, directly or indirectly, by the Company.
(ii) "Supplemental Payment" means a payment that may be made in the
event of a Change in Control in fiscal years 1999, 2000 or 2001 (or such
other period as the Board may determine at the time of or following the
date of grant) intended to provide the Participant with a minimum value
upon occurrence of such Change in Control, at the time and subject to the
terms and conditions set forth herein and in the Award Agreement.
2.2. Gender and Number. Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
Section 3. Eligibility and Participation
Participants in the Plan shall be those Key Employees selected by the
Board to participate in the Plan from time to time. The selection of a Key
Employee as a Participant shall neither entitle such Key Employee to nor
disqualify such Key Employee from participation in any other award or incentive
plan.
Section 4. Powers of the Board
4.1. Power to Grant and Establish Terms of Incentive Awards. The
Board shall, subject to the terms of the Plan, determine the Participants to
whom Incentive Awards
<PAGE> 7
shall be granted and the terms and conditions of such Incentive Awards,
provided that nothing in the Plan shall limit the right of members of the Board
who are Key Employees to receive Incentive Awards hereunder.
4.2. Administration. The Board shall be responsible for the
administration of the Plan. Any authority exercised by the Board under the Plan
shall be exercised by the Board in its sole discretion. The Board, by majority
action thereof, is authorized to prescribe, amend and rescind rules and
regulations relating to the administration of the Plan, to provide for
conditions and assurances deemed necessary or advisable to protect the
interests of the Company and the Subsidiaries, and to make all other
determinations necessary or advisable for the administration and interpretation
of the Plan or to carry out its provisions and purposes. Determinations,
interpretations or other actions made or taken by the Board pursuant to the
provisions of the Plan shall be final, binding and conclusive for all purposes
and upon all persons.
4.3 Delegation by the Board. All of the powers, duties and
responsibilities of the Board specified in the Plan may, to the full extent
permitted by applicable law, be exercised and performed by the Committee or any
other duly constituted committee of the Board, in any such case, to the extent
authorized by the Board to exercise and perform such powers, duties and
responsibilities.
Section 5. Stock Subject to Plan
5.1. Number. Subject to the provisions of Section 5.3, the maximum
number shares of Common Stock subject to Incentive Awards under the Plan
(including shares that become available for grant pursuant to Section 5.2) may
not exceed, in the aggregate, 457,300 shares. The shares to be delivered under
the Plan may consist, in whole or in part, of Common Stock held in treasury or
authorized but unissued shares of Common Stock, not reserved for any other
purpose.
5.2. Canceled, Terminated or Forfeited Incentive Awards. Any shares
of Common Stock subject to any portion of an Incentive Award which for any
reason expires, or is canceled, terminated, forfeited or otherwise settled
without the issuance of such shares of Common Stock, shall again be available
for award under the Plan, subject to the maximum limitation specified in
Section 5.1.
5.3. Adjustment in Capitalization. The number and class of Incentive
Awards (and the number of shares of Common Stock available for issuance upon
exercise or settlement of such Incentive Awards) granted under the Plan, and
the number, class and exercise price of any outstanding Options, may be
adjusted by the Board, in its sole
<PAGE> 8
discretion, if it shall deem such an adjustment to be necessary or appropriate
to reflect any Common Stock dividend, stock split or share combination or any
recapitalization, merger, consolidation, exchange of shares, liquidation or
dissolution of the Company.
Section 6. Terms of Options
6.1. Grant of Options. Options may be granted to Participants at such
time or times as shall be determined by the Board. Each Option granted to a
Participant shall be evidenced by an Option Agreement that shall specify the
exercise price at which a share of Common Stock may be purchased pursuant to
such Option, the duration of such Option and such other terms and conditions
consistent with the Plan as the Board shall determine, including customary
representations, warranties and covenants with respect to securities law
matters. Unless otherwise determined by the Board, such Option Agreement shall
also state that the holder thereof is entitled to the benefits of and shall be
bound by the obligations set forth in the Registration and Participation
Agreement, dated as of March 27, 1996 and as the same may be amended from time
to time, among the Company and certain stockholders of the Company, to the
extent set forth therein.
6.2. Option Price. The exercise price per share of Common Stock to be
purchased upon exercise of an Option shall be determined by the Board but shall
not be less than the Fair Market Value on the date the option is granted.
6.3. Exercise of Options.
(a) In General. Unless otherwise provided by the Board in the Option
Agreement evidencing such Incentive Award, and except as otherwise provided
herein, no portion of any Options shall become vested with respect to any
Fiscal Year in the performance period specified in the Option Agreement
evidencing such Options unless and until the Company shall have achieved
the EBITDA target specified in such Option Agreement for such Fiscal Year,
provided that the Participant is in the continuous employment of the
Company or one of the Subsidiaries from the date of grant to the date such
target is achieved; provided, further, that if, within the performance
period specified in such Option Agreement (i) the CD&R Fund and, if
applicable, its Affiliates effect a sale or other disposition of all of the
Common Stock then held by the CD&R Fund and its Affiliates to one or more
persons other than any person who is an Affiliate of the CD&R Fund and (ii)
thereafter, the Participant's employment with the Company and the
Subsidiaries is terminated by the Company other than for Cause or, to the
extent provided in the Award Agreement evidencing such Options, by the
Participant for "good reason" (as defined in such Option Agreement) (a
"Disposition Transaction and Termination"),
<PAGE> 9
a proportionate share of any Options that have not vested and become
exercisable on or prior to the date of such Disposition Transaction and
Termination shall vest and become exercisable as of such date, such
proportionate share to equal the portion that would have vested and become
exercisable in accordance with the terms of such Option Agreement during
the remainder of the performance period assuming the Company's EBITDA
results were the EBITDA achieved by the Company as of the last day of the
calendar quarter ending coincident with or immediately prior to the date
of the Disposition Transaction and Termination annualized through for the
remainder of the Fiscal Year(s) in the performance period. Notwithstanding
the foregoing provisions of this paragraph (a), subject to the continuous
employment of the Participant with the Company or one of the Subsidiaries,
Options shall become vested in full, nine years and six months following
the date of grant.
(b) Conditions. Notwithstanding any other provision herein, the Board
may accelerate the vesting or exercisability of any Option, all Options or
any class of Options, at any time and from time to time. On or before the
date upon which any Participant will exercise any exercisable Option, the
Company and such Participant shall enter into a Subscription Agreement
with respect to the Common Stock to be purchased upon exercise of such
Option. Notwithstanding any other provision of the Plan, no Option shall
be exercisable for more than 10 years after the date on which it is
granted.
6.4. Payment. The Board shall establish procedures governing the
exercise of Options, which procedures shall generally require that written
notice of the exercise thereof be given and that the exercise price thereof be
paid in full in cash or cash equivalents, including by personal check, at the
time of exercise. The exercise price of any Options exercised at any time
following a Public Offering may be paid in full or in part in the form of
shares of Common Stock that have been owned by the Participant for at least six
months, based on the Fair Market Value of such shares of Common Stock on the
date of exercise, subject to such rules and procedures as may be adopted by the
Board and, if the Board deems it necessary or appropriate, subject to
shareholder approval of the Plan. Subject to Section 6.3, as soon as
practicable after receipt of a written exercise notice and payment in full of
the exercise price of any Options, the Company shall deliver to the Participant
a certificate or certificates representing the shares of Common Stock acquired
upon the exercise thereof, bearing appropriate legends if applicable.
Section 7. Incentive Stock Units and Supplemental Payments
7.1. Grant of Incentive Stock Units. Incentive Stock Units may be
granted to Participants at such time or times as shall be determined by the
Board. Each Incentive
<PAGE> 10
Stock Unit granted to a Participant shall be evidenced by an Incentive Stock
and Supplemental Payment Agreement that shall specify the terms and conditions
of such Incentive Stock Units consistent with the Plan as the Board shall
determine, including customary representations, warranties and covenants with
respect to securities law matters. Unless otherwise determined by the Board,
such Incentive Unit and Supplemental Payment Agreement shall also state that in
respect of any shares of Common Stock delivered to the Participant shall be
entitled to certain of the benefits (relating to the right to participate in
certain sales and purchases of Common Stock by the Investors) set forth in the
Registration and Participation Agreement and shall be bound by the obligations
set forth in such Registration and Participation Agreement, in each case, to
the extent set forth in the Incentive Stock and Supplemental Payment Agreement.
7.2. Payment of Incentive Stock Units.
(a) In General. Unless otherwise provided by the Board in the
Incentive Unit and Supplemental Payment Agreement evidencing such
Incentive Award, and except as otherwise provided herein, no portion of
any Incentive Stock Units shall become payable unless and until a Change
in Control shall have occurred and the Change in Control Price equals or
exceeds the targets specified in the Incentive Unit and Supplemental
Payment Agreement evidencing such Incentive Award, provided that (i) the
Participant is in the continuous employment of the Company or one of the
Subsidiaries from the date of grant to the date such Change in Control
occurs or (ii) if a Disposition and Termination Transaction occurs within
six months of such Change in Control, that Participant is in the
continuous employment of the Company or one of the Subsidiaries from the
date of grant to the date of such Disposition and Termination Transaction.
Notwithstanding the foregoing provisions of this paragraph (a), subject to
the continuous employment of the Participant with the Company or one of
the Subsidiaries, Incentive Stock Units shall become payable in full, nine
years and six months following the date of grant.
(b) Payments. In the event that Incentive Stock Units become payable
as a result of the last sentence of Section 7.2(b), the Company shall
deliver to the Participant the number of shares of Common Stock underlying
the Incentive Stock Units that have become so payable and, on or before
the date such shares are delivered to the Participant, the Company and
such Participant shall enter into a Subscription Agreement with respect to
the Common Stock to be so acquired. Notwithstanding the foregoing, in the
event of a Change of Control, any Incentive Stock Units that become
payable as a result shall be canceled in exchange for a payment in an
amount equal to the product of (i) the Change in Control Price multiplied
by (ii) the number of shares of Common Stock covered by the Incentive
Stock Units that have become so payable, and the remainder of such
Incentive Stock
<PAGE> 11
Units shall be canceled. Notwithstanding the preceding sentence, if so
determined by the Board (as constituted immediately prior to the Change in
Control), such payment may be made in shares of the stock of the New
Employer having an aggregate fair market value (as determined by the Board
in good faith) equal to such amount, provided that such shares of common
stock of the New Employer are publicly traded. Such payment shall be
payable in full, as soon as reasonably practicable, but in no event later
than 30 days, following the Change in Control.
(c) Power to Accelerate. Notwithstanding any other provision herein,
the Board may accelerate the payment of any Incentive Stock Units at any
time and from time to time, on such terms and conditions as the Board may
determine.
7.3. Supplemental Payments.
(a) Grant of Supplemental Payments. Supplemental Payments may be
granted to Participants at such time or times as shall be determined by
the Board, and shall be set forth in the Incentive Unit and Supplemental
Payment Agreement with respect to such Incentive Award that shall specify
the terms and conditions of such Supplemental Payments consistent with the
Plan as the Board shall determine.
(b) Payment of Supplemental Payments. Unless otherwise provided by
the Board in the Incentive Unit and Supplemental Payment Agreement
evidencing such Incentive Award, and except as otherwise provided herein,
a Supplemental Payment shall be made to the Participant if and only if (i)
there is a Change in Control of the Company in any of fiscal years 1999,
2000 or 2001 (or such other period as the Board may determine at the time
of or following the date of grant), (ii) no EBITDA Shortfall shall have
occurred and (iii) (x) the Participant shall have remained continuously
employed with the Company and its Subsidiaries from the date of grant to
the date of such Change in Control or (y) if a Disposition and Termination
Transaction occurs within six months of such Change in Control, the
Participant is in the continuous employment of the Company or one of the
Subsidiaries from the date of grant to the date of such Disposition and
Termination Transaction. The amount of the Supplemental Payment, if any,
payable to a Participant shall be determined in accordance with the
Incentive Unit and Supplemental Payment Agreement evidencing such
Incentive Award. A Supplemental Payment shall be payable in cash or, if so
determined by the Board (as constituted immediately prior to the Change in
Control), such payment may be made in shares of the stock of the New
Employer having an aggregate fair market value (as determined by the Board
in good faith) equal to such amount, provided that such shares of common
stock of the New Employer are publicly traded. Such payment shall be
payable in full, as
<PAGE> 12
soon as reasonably practicable, but in no event later than 30 days,
following the Change in Control.
Section 8. Termination of Employment
8.1. Extraordinary Termination. Unless otherwise provided in the
Option Agreement or otherwise determined by the Board, in the event that a
Participant's employment with the Company and the Subsidiaries terminates by
reason of an Extraordinary Termination, all vested Options shall remain
exercisable solely until the first to occur of (x) the one year anniversary of
the date of the Participant's termination of employment or (y) the expiration
of the term of any such Option. Any Options or other Incentive Awards that are
not vested as of the date of an Extraordinary Termination shall terminate and
be canceled immediately upon such Extraordinary Termination and all other
Options that are not exercised within the period described in the preceding
sentence shall terminate and be canceled upon the expiration of such period.
8.2. Termination for Cause. Unless otherwise provided in the Award
Agreement or otherwise determined by the Board, in the event a Participant's
employment with the Company and the Subsidiaries is terminated by the Company
or a Subsidiary for Cause, any Incentive Awards held by such Participant
(whether or not then vested or exercisable) shall terminate and be canceled
immediately upon such termination of employment and any Common Stock purchased
by or granted to the Participant may be repurchased for a purchase price
calculated in accordance with the terms of the Subscription Agreement.
8.3. Other Termination of Employment. Unless otherwise determined by
the Board at the time of grant, the Board shall provide in the Option Agreement
evidencing options granted hereunder that, in the event that a Participant's
employment with the Company and the Subsidiaries terminates for any reason
other than (i) an Extraordinary Termination or (ii) for Cause, any Options then
held by such Participant that have become vested on or prior to the date of
such termination shall, subject to Section 8.4, remain exercisable until the
first to occur of (x) the 60th day after the expiration of the period, if any,
specified in such Participant's Option Agreement during which the Company or
the CD&R Fund has a right to purchase such Options from the Participant or (y)
the expiration of the term of such Option. Any Options held by the Participant
that are not vested Options as of the date of the Participant's termination of
employment shall terminate and be canceled immediately upon such termination,
and any vested Options that are not exercised within the period described in
the preceding sentence shall terminate and be canceled upon the expiration of
such period.
<PAGE> 13
8.4. Certain Rights upon Termination of Employment Prior to Public
Offering. Unless otherwise determined by the Board at the time of grant, the
Board shall provide in each Award Agreement evidencing Incentive Awards granted
hereunder that, upon a termination of a Participant's employment with the
Company and the Subsidiaries prior to a Public Offering for any reason, the
Company and the CD&R Fund and its Affiliates shall have successive rights to
repurchase for cash any vested Options or shares of Common Stock then held by
the Participant, and, upon an Extraordinary Termination, the Participant shall
have the right to require the Company to repurchase shares of Common Stock then
owned by him (provided the Participant has held such shares of Common Stock for
at least six months), for a repurchase price equal to the Fair Market Value,
reduced in the case of any Options by the exercise price per share of Common
Stock for such Option, and upon such additional terms and conditions as are set
forth in such Award Agreement.
Section 9. Change in Control
9.1. Accelerated Vesting and Payment of Options.
(a) In General. Unless the Board otherwise determines in the manner
set forth in Section 9.2, in the event of a Change of Control prior to the
date as of which Options have become vested in accordance with Section
6.3, a proportionate share (determined in accordance with the immediately
succeeding sentence) of each outstanding Option shall be canceled in
exchange for a payment in an amount equal to the product of (i) the
excess, if any, of the Change in Control Price over the Option Price,
multiplied by (ii) the number of shares of Common Stock covered by the
vested portion of the Option, and the remainder of such Option shall be
canceled. Such proportionate share shall be the portion of such Options as
shall have vested in accordance with the Section 6.3 plus an additional
portion, if any, that the Board determines in its sole discretion would
have vested with respect to the fiscal year in which such Change in
Control occurs based on the EBITDA results for the portion of the fiscal
year ending on the date in which such Change in Control occurs.
(b) Timing of Option Cancellation Payments. The payment described in
paragraph (a) above shall be payable in full, as soon as reasonably
practicable, but in no event later than, 30 days following the Change in
Control, unless provided otherwise by the Board in the Award Agreement
evidencing such Options.
9.2. Alternative Options. Notwithstanding Section 9.1, no cash
settlement or other payment shall be made with respect to any Option in the
event that the transaction constituting the Change in Control is to be
accounted for using the "pooling of interest"
<PAGE> 14
method of accounting. In such event, each Option then held by a Participant
shall become fully vested immediately prior to the consummation of such
transaction and each such Participant shall have the right, subject to
compliance with all applicable securities laws, to (i) exercise his Options in
connection with the Change in Control or (ii) provided such opportunity is made
available by the New Employer, exchange such Options for fully exercisable
options to purchase common stock of the New Employer having substantially
equivalent economic value to the Options being exchanged therefor (determined
at the time of the Change in Control).
9.3 Certain Take-Along Rights Prior to a Public Offering. Unless
otherwise determined by the Board at time of grant, the Board shall provide in
each Incentive Agreement evidencing Incentive Awards granted hereunder that,
upon certain transactions constituting a Change in Control, the Participant
will be required to sell shares of Common Stock then owned by him, for a cash
payment per share of Common Stock equal to the Change in Control Price, and
upon such additional terms and conditions as are set forth in such Incentive
Agreement.
Section 10. Amendment, Modification, and
Termination of the Plan
The Board at any time may terminate or suspend the Plan, and from
time to time may amend or modify the Plan. No amendment, modification,
termination or suspension of the Plan shall in any manner adversely affect any
Incentive Award theretofore granted under the Plan, without the consent of the
Participant holding such Incentive Award. Shareholder approval of any such
amendment, modification, termination or suspension shall be obtained to the
extent mandated by applicable law, or if otherwise deemed appropriate by the
Board.
Section 11. Miscellaneous Provisions
11.1. Nontransferability of Awards. No Options granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
All rights with respect to any Option granted to a Participant under the Plan
shall be exercisable during his lifetime only by such Participant.
Restrictions, if any, on the transfer of Common Stock purchased pursuant to
Section 7.1 of the Plan or upon exercise of any Options shall be set forth in
the applicable Award Agreement evidencing such Incentive Award, including
without limitations, restrictions described in Section 8.4 herein.
<PAGE> 15
11.2. Beneficiary Designation. Each Participant under the Plan may
from time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
or by whom any right under the Plan is to be exercised in case of his death.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Board and will be effective only when
filed by the Participant in writing with the Board during his lifetime. In the
absence of any such designation, benefits remaining unpaid or Options
outstanding at the Participant's death shall be paid to or exercised by the
Participant's surviving spouse, if any, or otherwise to or by his estate.
11.3. No Guarantee of Employment or Participation. Nothing in the
Plan shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time and for any
reason, nor confer upon any Participant any right to continue in the employ of
the Company or any Subsidiary. No Employee shall have a right to be selected as
a Participant, or, having been so selected, to receive any Incentive Awards
under the Plan.
11.4. Tax Withholding. The Company and the Subsidiaries shall have
the power to withhold, or require a Participant to remit to the Company or a
Subsidiary promptly upon notification of the amount due, an amount determined
by the Company or such Subsidiary to be sufficient to satisfy all Federal,
state, local and foreign withholding tax requirements in respect of any
Incentive Award and the Company may (or may cause a Subsidiary to) defer
payment of cash or issuance or delivery of Common Stock until such requirements
are satisfied. The Board may permit or require a Participant to satisfy his tax
withholding obligation hereunder in such other manner, subject to such
conditions, as the Board shall determine.
11.5. Indemnification. Each person who is or shall have been a member
of the Committee or the Board shall be indemnified and held harmless by the
Company and Riverwood to the fullest extent permitted by law against and from
any loss, cost, liability or expense (including any related attorney's fees and
advances thereof) in connection with, based upon or arising or resulting from
any claim, action, suit or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
or in connection with the Plan or any Award Agreement and from and against any
and all amounts paid by him in settlement thereof, with the Company's approval,
or paid by him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive and shall be independent of any other rights of
indemnification to which such persons may be
<PAGE> 16
entitled under the Company's or Riverwood's Articles of Incorporation or
By-laws, by contract, as a matter of law or otherwise.
11.6. No Limitation on Compensation. Nothing in the Plan shall be
construed to limit the right of the Company to establish other plans or to pay
compensation to its employees in cash or property, in a manner which is not
expressly authorized under the Plan.
11.7. Requirements of Law. The granting of Incentive Awards and the
issuance of shares of Common Stock shall be subject to all applicable laws,
rules and regulations, and to such approvals by any governmental agencies or
national or foreign securities exchanges as may be appropriate or required, as
determined by the Board. Notwithstanding any other provision of the Plan or any
Award Agreement, no Incentive Awards shall be granted under the Plan, and no
shares of Common Stock shall be issued upon exercise of, or otherwise in
connection with, any Incentive Award granted under the Plan, if such grant or
issuance would result in a violation of applicable law, including the federal
securities laws and any applicable state or foreign securities laws.
11.8. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of New York,
except to the extent that the corporate law of the State of Delaware
specifically and mandatorily applies.
11.9. No Impact On Benefits. Incentive Awards granted under the Plan
are not compensation for purposes of calculating an Employee's rights under any
employee benefit plan, except to the extent provided in any such plan.
11.10. Freedom of Action. Subject to Section 10, nothing in the Plan
or any Award Agreement shall be construed as limiting or preventing the Company
or any Subsidiary from taking any action with respect to the operation or
conduct of its business that it deems appropriate or in its best interest.
11.11. Term of Plan. The Plan shall be effective as of the Effective
Date. The Plan shall expire on the tenth anniversary of the Effective Date
(except as to Incentive Awards outstanding on that date), unless sooner
terminated pursuant to Section 10.
11.12. No Right to Particular Assets. Nothing contained in this Plan
and no action taken pursuant to this Plan shall create or be construed to
create a trust of any kind or any fiduciary relationship between the Company
and the Subsidiaries, on the one hand, and any Participant or executor,
administrator or other personal representative or designated beneficiary of
such Participant, on the other hand, or any other persons. Any
<PAGE> 17
reserves that may be established by the Company or any Subsidiary in connection
with this Plan shall continue to be held as part of the general funds of the
Company or such Subsidiary, and no individual or entity other than the Company
or such Subsidiary shall have any interest in such funds until paid to a
Participant. To the extent that any Participant or his executor, administrator
or other personal representative, as the case may be, acquires a right to
receive any payment from the Company or any Subsidiary pursuant to this Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company or such Subsidiary.
11.13. Notices. Each Participant shall be responsible for furnishing
the Board with the current and proper address for the mailing of notices and
delivery of agreements and shares of Common Stock. Any notices required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Participant furnishes the
proper address.
11.14. Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provision had not been included.
11.15. Incapacity. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receiving such
benefit shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and other
parties with respect thereto.
11.16. No Rights as Stockholder. No Participant shall have any voting
or other rights as a stockholder of the Company with respect to any Common
Stock covered by any Incentive Award until the issuance of a certificate or
certificates to the Participant for such Common Stock. No adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11.17. Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of
this Plan and shall not be employed in the construction of this Plan.
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into as of this 1st day of
September, 1998 by and among Riverwood International Corporation, a Delaware
corporation ("Employer"), Riverwood Holding, Inc., a Delaware corporation
("Holding") and Daniel J. Blount ("Executive").
W I T N E S S E T H :
WHEREAS, Employer desires to employ Executive as its Vice
President, and Chief Financial Officer on the terms and conditions set forth
herein;
WHEREAS, Executive desires to accept such employment on the terms
and conditions set forth herein;
WHEREAS, each of Employer, Holding and Executive agrees that
Executive will have a prominent role in the management of the business, and the
development of the goodwill, of Employer and its Affiliates (as defined below)
and will establish and develop relations and contacts with the principal
customers and suppliers of Employer and its Affiliates in the United States and
the rest of the world, all of which constitute valuable goodwill of, and could
be used by Executive to compete unfairly with, Employer and its Affiliates;
WHEREAS, (i) in the course of his employment with Employer,
Executive will obtain confidential and proprietary information and trade
secrets concerning the business and operations of Employer and its Affiliates
in the United States and the rest of the world that could be used to compete
unfairly with Employer and its Affiliates; (ii) the covenants and restrictions
contained in Sections 8 through 13, inclusive, are intended to protect the
legitimate interests of Employer and its Affiliates in their respective
goodwill, trade secrets and other confidential and proprietary information; and
(iii) Executive desires to be bound by such covenants and restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein and for other good and valuable
consideration, Employer, Holding and Executive hereby agree as follows:
1. Agreement to Employ. Upon the terms and subject to the
conditions of this Agreement, Employer hereby employs Executive, and Executive
hereby accepts employment by Employer.
<PAGE> 2
2. Term; Position and Responsibilities.
(a) Term of Employment. Unless Executive's employment shall sooner
terminate pursuant to Section 7, Employer shall employ Executive for a term
commencing on the date hereof and ending on the third anniversary of the date
hereof (the "Initial Term"). Effective upon the expiration of the Initial Term
and of each Additional Term (as defined below), Executive's employment
hereunder shall be deemed to be automatically extended, upon the same terms and
conditions, for an additional period of one year (each, an "Additional Term"),
in each such case, commencing upon the expiration of the Initial Term or the
then current Additional Term, as the case may be, unless Employer, at least 180
days prior to the expiration of the Initial Term or such Additional Term, shall
give written notice (a "Non-Extension Notice") to Executive of its intention
not to extend the Employment Period (as defined below) hereunder, provided that
a Non-Extension Notice shall not constitute a notice to Executive of the
termination of his employment by Employer unless such notice specifically
provides for such termination of employment and the specific date thereof. The
period during which Executive is employed pursuant to this Agreement, including
any extension thereof in accordance with the preceding sentence, shall be
referred to as the "Employment Period".
(b) Position and Responsibilities. During the Employment Period,
Executive shall serve as Vice President and Chief Financial Officer of Employer
and have such duties and responsibilities as are customarily assigned to
individuals serving in such position and such other duties consistent with
Executive's title and position as the Board of Directors of Employer
("Employer's Board") specifies from time to time. Executive shall report to the
Company's President and Chief Executive Officer. Executive shall devote all of
his skill, knowledge and working time (except for (i) vacation time as set
forth in Section 6(c) and absence for sickness or similar disability and (ii)
to the extent that it does not interfere with the performance of Executive's
duties hereunder, (A) such reasonable time as may be devoted to service on
boards of directors of other corporations and entities, subject to the
provisions of Section 9, and the fulfillment of civic responsibilities and (B)
such reasonable time as may be necessary from time to time for personal
financial matters) to the conscientious performance of the duties and
responsibilities of such position. If so elected or designated by the
respective shareholders thereof, Executive shall serve as a member of the
Boards of Directors of Holding, Employer and their respective Affiliates during
the Employment Period without additional compensation.
3. Base Salary. As compensation for the services to be performed
by Executive during the Employment Period, Employer shall pay Executive a base
salary at an annualized rate of $200,000, payable in installments on Employer's
regular payroll dates, and, in the event that Executive's employment hereunder
is terminated by death, for the
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<PAGE> 3
remainder of the pay period in which death occurs and for one month thereafter.
Employer's Board shall review Executive's base salary annually during the
period of his employment hereunder and, in its sole discretion, Employer's
Board may increase (but may not decrease) such base salary from time to time
based upon the performance of Executive, the financial condition of Employer,
prevailing industry salary levels and such other factors as Employer's Board
shall consider relevant. (The annual base salary payable to Executive under
this Section 3, as the same may be increased from time to time and without
regard to any reduction therefrom in accordance with the next sentence, shall
hereinafter be referred to as the "Base Salary".) The Base Salary payable under
this Section 3 shall be reduced to the extent that Executive elects to defer
such Base Salary under the terms of any deferred compensation, savings plan or
other voluntary deferral arrangement that may be maintained or established by
Employer.
4. Incentive Compensation Arrangements.
(a) Incentive Compensation. During the Employment Period,
Executive shall participate in Employer's incentive compensation programs for
its senior executives existing from time to time, at a level commensurate with
his position and duties with Employer and based on such performance targets as
may be established from time to time by Employer's Board or a committee
thereof. For 1998, Executive's aggregate annual target bonus opportunity shall
be 70% of Base Salary, provided that Executive's actual annual bonus for 1998
shall be not less than $60,000. For each subsequent year in the Employment
Period, Executive's aggregate annual target bonus opportunity shall be 70% of
Base Salary; provided that with respect to the year in the Employment Period in
which Executive is offered shares of Common Stock pursuant to Section 4(b) and
each subsequent such year in the Employment Period, Executive=s annual target
bonus opportunity Period shall be 60% of Base Salary, unless Executive
purchases 50% or more of the shares of Common Stock so offered to Executive, in
which case Executive=s annual target bonus opportunity shall be 100% of Base
Salary.
(b) Opportunity to Purchase Shares. Executive will be given the
opportunity to purchase up to 5,000 shares (the "Shares") of the Class A Common
Stock of Holding, par value $.01 per share (the "Common Stock"), for a per
share purchase price equal to the fair market value of such Shares at the time
they are so offered to Executive, but in no event will Holding be required to
offer to sell or to sell any Shares to Executive at any time at which making
such an offer or selling any such Shares would violate any applicable
securities law. The terms and conditions of Executive's purchase of any Shares,
including the restrictions on transfer of the Shares, the right of first
refusal of Holding with respect to such Shares, the right of Holding to
repurchase all or a portion of such Shares from Executive following any
termination of Executive's employment and the applicable repurchase price and
the respective tag along and drag along rights of Executive and Holding, shall
be set forth in a separate Management Stock Subscription
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<PAGE> 4
Agreement, in the form customarily used by Holding for such purpose, to be
entered into by and between Parent and Executive.
(c) Options. For each Share that Executive purchases pursuant to
Section 4(b), Executive shall be granted non-qualified stock options (the
"Service Options") to purchase two shares of Common Stock, and non-qualified
stock options (the "Performance Options" and, together with the Service
Options, the "Options") to purchase an additional one share of Common Stock.
Each Option shall be granted to Executive pursuant to and in accordance with
the terms of the Riverwood Holding, Inc. Stock Incentive Plan and shall
otherwise be subject to the terms and conditions (which shall include those
described in this Section 4(b)) set forth in a separate Management Stock Option
Agreement, in the form customarily used for such purpose, to be entered into by
Executive and Holding (the "Option Agreement").
The per share exercise price for the Common Stock covered by the
Service Options and the Performance Options shall be the fair market value of
such shares at the time of grant, as determined in accordance with the
Riverwood Holding, Inc. Stock Incentive Plan.
5. Employee Benefits. During the Employment Period, employee
benefits, including life, medical, dental, accidental death and dismemberment,
business travel accident, prescription drug and disability insurance, shall be
provided to Executive in accordance with the programs of Employer then
available to its senior executives, as the same may be amended and in effect
from time to time. Executive shall also be entitled to participate in all of
Employer's profit sharing, pension, retirement, deferred compensation and
savings plans, as the same may be amended and in effect from time to time,
applicable to senior executives of Employer. The benefits referred to in this
Section 5 shall be provided to Executive on a basis that is commensurate with
Executive's position and duties with Employer hereunder and that is no less
favorable than that of similarly situated employees of Employer.
6. Perquisites and Expenses.
(a) General. During the Employment Period, Executive shall be
entitled to the perquisites set forth on Schedule I hereto.
(b) Business Travel, Lodging, etc. Employer shall reimburse
Executive for reasonable travel, lodging, meal and other reasonable expenses
incurred by him in connection with his performance of services hereunder upon
submission of evidence, satisfactory to Employer, of the incurrence and purpose
of each such expense and
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<PAGE> 5
otherwise in accordance with Employer's business travel reimbursement policy
applicable to its senior executives as in effect from time to time.
(c) Vacation. During the Employment Period, Executive shall be
entitled to a number of weeks of paid vacation on an annualized basis, without
carryover accumulation, equal to the greater of (i) four weeks and (ii) the
number of weeks of paid vacation per year applicable to senior executives of
Employer in accordance with its vacation policy as in effect from time to time.
7. Termination of Employment.
(a) Termination Due to Death or Disability. In the event that
Executive's employment hereunder terminates due to death or is terminated by
Employer due to Executive's Disability (as defined below), no termination
benefits shall be payable to or in respect of Executive except as provided in
Section 7(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents or would prevent the performance by
Executive of his duties hereunder for a continuous period of six months or
longer. The determination of Executive's Disability shall (i) be made by an
independent physician who is reasonably acceptable to Employer and Executive
(or his representative), (ii) be final and binding on the parties hereto and
(iii) be based on such competent medical evidence as shall be presented to such
independent physician by Executive and/or Employer or by any physician or group
of physicians or other competent medical experts employed by Executive and/or
Employer to advise such independent physician.
(b) Termination by Employer for Cause. Executive may be terminated
for Cause (as defined below) by Employer, provided that Executive shall be
permitted to attend a meeting of Employer's Board within 30 days after delivery
to him of a Notice of Termination (as defined below) pursuant to this Section
7(b) to explain why he should not be terminated for Cause and, if following any
such explanation by Executive, Employer's Board determines that Employer does
not have Cause to terminate Executive's employment, any such prior Notice of
Termination delivered to Executive shall thereupon be withdrawn and of no
further force or effect. "Cause" shall mean (i) the willful failure of
Executive substantially to perform his duties hereunder (other than any such
failure due to Executive's physical or mental illness) or other willful and
material breach by Executive of any of his obligations hereunder or under the
Option Agreement, after a written demand for substantial performance has been
delivered, and a reasonable opportunity to cure has been given, to Executive by
Employer's Board, which demand identifies in reasonable detail the manner in
which Employer's Board believes that Executive has not substantially performed
his duties or has breached his obligations, (ii) Executive's engaging in
willful and serious misconduct that has caused or is reasonably
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<PAGE> 6
expected to result in material injury to Employer or any of its Affiliates or
(iii) Executive's conviction of, or entering a plea of guilty or nolo
contendere to, a crime that constitutes a felony.
(c) Termination Without Cause. A termination "Without Cause" shall
mean a termination of employment by Employer other than due to Disability as
described in Section 7(a) or for Cause as described in Section 7(b).
(d) Termination by Executive. Executive may terminate his
employment for any reason. A termination of employment by Executive for "Good
Reason" shall mean a termination by Executive of his employment with Employer
within 30 days following the occurrence, without Executive's consent, of any of
the following events: (i) the assignment to Executive of duties that are
significantly different from, and that result in a substantial diminution of,
the duties that he is to assume on the date hereof, (ii) the failure of
Employer to obtain the assumption of this Agreement by any Successor (as
defined below) to Employer as contemplated by Section 14, (iii) a reduction in
the rate of Executive's Base Salary, (iv) a material breach by Employer of any
of its obligations hereunder or by Holding of any of its obligations under the
Option Agreement or (v) delivery to Executive of a Non-Extension Notice,
provided that, in the case of any of clauses (i), (iii) or (iv), within 30 days
following the occurrence of any of the events set forth therein, Executive
shall have delivered written notice to Employer of his intention to terminate
his employment for Good Reason, which notice specifies in reasonable detail the
circumstances claimed to give rise to Executive's right to terminate his
employment for Good Reason, and Employer or Holding, as the case may be, shall
not have cured such circumstances to the reasonable satisfaction of Executive.
(e) Notice of Termination. Any termination by Employer pursuant to
Section 7(a), 7(b) or 7(c), or by Executive pursuant to Section 7(d), shall be
communicated by a written Notice of Termination addressed to the other parties
to this Agreement. A "Notice of Termination" shall mean a notice stating that
Executive's employment with Employer has been or will be terminated.
(f) Payments Upon Certain Terminations.
(i) In the event of a termination of Executive's employment by
Employer Without Cause or a termination by Executive of his employment for Good
Reason during the Employment Period, Employer shall pay to Executive (or,
following his death, to Executive's beneficiaries):
(A) his Base Salary, which shall be payable in installments on
Employer's regular payroll dates, for the period (the "Severance
Period") beginning on the Date
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<PAGE> 7
of Termination (as defined below) and ending on the last to occur of (1)
the last day of the Initial Term or, if applicable, the then current
Additional Term, (2) the first anniversary of the Date of Termination
and (3) and the expiration of a number of months equal to the number of
years of Executive's service with Employer completed as of the Date of
Termination and
(B) the product of (1) the amount of incentive compensation that
would have been payable to Executive for the calendar year in which the
Date of Termination occurs if Executive had remained employed for the
entire calendar year and assuming that all applicable performance
targets had been achieved, multiplied by (2) a fraction, the numerator
of which is equal to the number of days in such calendar year that
precede the Date of Termination and the denominator of which is equal to
365 (such product, the "Pro Rata Bonus"), less
(C) the amount, if any, paid or payable to Executive under the
terms of any severance plan, policy, program or practice of Holding,
Employer or any of their respective Affiliates applicable to Executive,
as in effect on the Date of Termination;
provided that Employer may, at any time, pay to Executive, in a single lump sum
and in satisfaction of Employer's obligations under clauses (A) and (B) of this
Section 7(f)(i), an amount equal to (x) the installments of the Base Salary
then remaining to be paid to Executive pursuant to clause (A) above, and the
amount, if any, then remaining to be paid to Executive pursuant to clause (B)
above, less (y) the amount, if any, remaining to be paid to Executive pursuant
to any plan, policy, program or practice identified under clause (C) above.
If Executive's employment shall terminate and he is entitled to
receive continued payments of his Base Salary under clause (A) of this Section
7(f)(i), Employer shall (x) continue to provide to Executive during the
Severance Period the life, medical, dental, accidental death and dismemberment
and prescription drug benefits referred to in Section 5 (the "Continued
Benefits") and (y) reimburse Executive for expenses incurred by him for
outplacement and career counseling services provided to Executive for an
aggregate amount not in excess of the lesser of (i) $25,000 and (ii) 20% of
Executive's Base Salary.
Executive shall not have a duty to mitigate the costs to Employer
under this Section 7(f)(i), except that Continued Benefits shall be reduced or
canceled to the extent of any comparable benefit coverage earned by (whether or
not paid currently) or offered to Executive during the Severance Period by a
subsequent employer or other Person (as
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<PAGE> 8
defined below) for which Executive performs services, including but not limited
to consulting services.
(ii) If Executive's employment shall terminate upon his death or
Disability or if Employer shall terminate Executive's employment for Cause or
Executive shall terminate his employment without Good Reason during the
Employment Period, Employer shall pay Executive his full Base Salary through
the Date of Termination; plus, in the case of termination upon Executive's
death or Disability, if, as of the Date of Termination, Employer has achieved
the pro rated performance objectives for such calendar year (determined as
provided in Section 7(f)(i)), the Pro Rata Bonus for the portion of the
calendar year preceding Executive's Date of Termination (exclusive of any time
between the onset of a physical or mental disability that prevents the
performance by Executive of his duties hereunder and the resulting Date of
Termination); plus, in the case of termination upon Executive's death, his full
Base Salary for the remainder of the pay period in which death occurs and for
one month thereafter, as provided in Section 3.
(iii) Except as specifically set forth in this Section 7(f), no
benefits payable to Executive under any otherwise applicable plan, policy,
program or practice of Employer shall be limited by this Section 7(f), provided
that (x) Executive shall not be entitled to receive any payments or benefits
under any such plan, policy, program or practice providing any bonus or
incentive compensation (and the provisions of this Section 7(f) shall supersede
the provisions of any such plan, policy, program or practice), and (y) the
amount, if any, paid or payable to Executive under the terms of any such plan,
policy, program or practice relating to severance shall reduce the amounts
payable under Section 7(f)(i) as provided in clause (C) thereof.
(g) Date of Termination. As used in this Agreement, the term "Date
of Termination" shall mean (i) if Executive's employment is terminated by his
death, the date of his death, (ii) if Executive's employment is terminated by
Employer for Cause, the date on which Notice of Termination is given as
contemplated by Section 7(e) or, if later, the date of termination specified in
such Notice, and (iii) if Executive's employment is terminated by Employer
Without Cause, due to Executive's Disability or by Executive for any reason,
the date that is 30 days after the date on which Notice of Termination is given
as contemplated by Section 7(e) or, if no such Notice is given, 30 days after
the date of termination of employment.
(h) Resignation upon Termination. Effective as of any Date of
Termination under this Section 7 or otherwise as of the date of Executive's
termination of employment with Employer, Executive shall resign, in writing,
from all Board memberships and other positions then held by him with Holding,
Employer and their respective Affiliates.
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<PAGE> 9
8. Unauthorized Disclosure. During the period of Executive's
employment with Employer and the ten-year period following any termination of
such employment, without the prior written consent of Employer's Board or its
authorized representative, except to the extent required by an order of a court
having jurisdiction or under subpoena from an appropriate government agency, in
which event, Executive shall use his best efforts to consult with Employer's
Board prior to responding to any such order or subpoena, and except as required
in the performance of his duties hereunder, Executive shall not disclose any
confidential or proprietary trade secrets, customer lists, drawings, designs,
information regarding product development, marketing plans, sales plans,
manufacturing plans, management organization information (including but not
limited to data and other information relating to members of the Board of
Directors of Holding, Employer or any of their respective Affiliates or to
management of Holding, Employer or any of their respective Affiliates),
operating policies or manuals, business plans, financial records, packaging
design or other financial, commercial, business or technical information (a)
relating to Holding, Employer or any of their respective Affiliates or (b) that
Holding, Employer or any of their respective Affiliates may receive belonging
to suppliers, customers or others who do business with Holding, Employer or any
of their respective Affiliates (collectively, "Confidential Information") to
any third person unless such Confidential Information has been previously
disclosed to the public or is in the public domain (other than by reason of
Executive's breach of this Section 8).
9. Non-Competition. During the period of Executive's employment
with Employer and, following any termination thereof, the period ending on the
later of (a) the first anniversary of the Date of Termination and (b) the last
day of the Severance Period, Executive shall not, directly or indirectly,
become employed in an executive capacity by, engage in business with, serve as
an agent or consultant to, or become a partner, member, principal or
stockholder (other than a holder of less than 1% of the outstanding voting
shares of any publicly held company) of, any Person that competes or has a
reasonable potential for competing, anywhere in the United States or Europe,
with any part of the business of Employer or any of its Affiliates that relates
to producing, marketing, manufacturing, designing or installing packaging or
paper products, machines or related materials. Whether any such Person so
competes or so has a reasonable potential for competing shall be determined in
good faith by Employer's Board. For purposes of this Section 9, the phrase
employment "in an executive capacity" shall mean employment in any position in
connection with which Executive has or reasonably would be viewed as having
powers and authorities with respect to any other Person or any part of the
business thereof that are substantially similar, with respect thereto, to the
powers and authorities assigned to the Senior Vice President, Paperboard
Operations or any superior executive officer of Employer in the By-Laws of
Employer as in effect on the date hereof, a copy of the relevant portions of
which has been delivered to Executive on or before the date hereof, and which
Executive hereby confirms that he has reviewed.
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<PAGE> 10
10. Non-Solicitation of Employees. During the period of
Executive's employment with Employer and, following any termination thereof,
the period ending on the later of (a) the first anniversary of the Date of
Termination and (b) the last day of the Severance Period (such periods
collectively, the "Restriction Period"), Executive shall not, directly or
indirectly, for his own account or for the account of any other Person anywhere
in the United States or Europe, (i) solicit for employment, employ or otherwise
interfere with the relationship of Holding, Employer or any of their respective
Affiliates with any natural person throughout the world who is or was employed
by or otherwise engaged to perform services for Holding, Employer or any of
their respective Affiliates at any time during which Executive was employed by
Employer (in the case of any such activity during such time) or during the
six-month period preceding such solicitation, employment or interference (in
the case of any such activity after the Date of Termination), other than any
such solicitation or employment on behalf of Holding, Employer or any of their
respective Affiliates during Executive's employment with Employer, or (ii)
induce any employee of Holding, Employer or any of their respective Affiliates
who is a member of management to engage in any activity which Executive is
prohibited from engaging in under any of Sections 8, 9, 10 or 11 or to
terminate his employment with Employer.
11. Non-Solicitation of Customers. During the Restriction Period,
Executive shall not, directly or indirectly, for his own account or for the
account of any other Person anywhere in the United States or Europe, solicit or
otherwise attempt to establish any business relationship of a nature that is
competitive with the business or relationship of Holding, Employer or any of
their respective Affiliates with any Person throughout the world which is or
was a customer, client or distributor of Holding, Employer or any of their
respective Affiliates at any time during which Executive was employed by
Employer (in the case of any such activity during such time) or during the
twelve-month period preceding the Date of Termination (in the case of any such
activity after the Date of Termination), other than any such solicitation on
behalf of Holding, Employer or any of their respective Affiliates during
Executive's employment with Employer.
12. Return of Documents. In the event of the termination of
Executive's employment for any reason, Executive shall deliver to Employer all
of (a) the property of each of Holding, Employer and their respective
Affiliates and (b) the non-personal documents and data of any nature and in
whatever medium of each of Holding, Employer and their respective Affiliates,
and he shall not take with him any such property, documents or data or any
reproduction thereof, or any documents containing or pertaining to any
Confidential Information. Whether documents or data are "personal" or
"non-personal" shall be determined as follows: Executive shall present any
documents or data that he wishes to take with him to the chief legal officer of
Employer for his review.
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The chief legal officer shall make an initial determination whether any such
documents or data are personal or non-personal, and with respect to such
documents or data that he determines to be non-personal, shall notify Executive
either that such documents or data must be retained by Employer or that
Employer must make and retain a copy thereof before Executive may take such
documents or data with him. Any disputes as to the personal or non-personal
nature of any such documents or data shall first be presented to the Chairman
of Employer's Board or to another representative designated by Employer's
Board, and if such disputes are not promptly resolved by Executive and the
Chairman or such representative, such disputes shall be resolved through
arbitration pursuant to Section 17(b).
13. Injunctive Relief with Respect to Covenants; Forum, Venue and
Jurisdiction. Executive acknowledges and agrees that the covenants, obligations
and agreements of Executive contained in Sections 8, 9, 10, 11, 12 and 13
relate to special, unique and extraordinary matters and that a violation of any
of the terms of such covenants, obligations or agreements will cause Employer
irreparable injury for which adequate remedies are not available at law.
Therefore, Executive agrees that Employer shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) as a court of competent jurisdiction may deem necessary or
appropriate to restrain Executive from committing any violation of such
covenants, obligations or agreements. These injunctive remedies are cumulative
and in addition to any other rights and remedies Employer may have. Employer,
Holding and Executive hereby irrevocably submit to the exclusive jurisdiction
of the courts of the State of New York and the Federal courts of the United
States of America, in each case located in New York City, in respect of the
injunctive remedies set forth in this Section 13 and the interpretation and
enforcement of Sections 8, 9, 10, 11, 12 and 13 insofar as such interpretation
and enforcement relate to any request or application for injunctive relief in
accordance with the provisions of this Section 13, and the parties hereto
hereby irrevocably agree that (a) the sole and exclusive appropriate venue for
any suit or proceeding relating solely to such injunctive relief shall be in
such a court, (b) all claims with respect to any request or application for
such injunctive relief shall be heard and determined exclusively in such a
court, (c) any such court shall have exclusive jurisdiction over the person of
such parties and over the subject matter of any dispute relating to any request
or application for such injunctive relief, and (d) each hereby waives any and
all objections and defenses based on forum, venue or personal or subject matter
jurisdiction as they may relate to an application for such injunctive relief in
a suit or proceeding brought before such a court in accordance with the
provisions of this Section 13. All disputes not relating to any request or
application for injunctive relief in accordance with this Section 13 shall be
resolved by arbitration in accordance with Section 17(b).
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14. Assumption of Agreement. Employer shall require any Successor
thereto, by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Employer would be required to perform it if
no such succession had taken place. Failure of Employer to obtain such
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle Executive to compensation from Employer in
the same amount and on the same terms as Executive would be entitled hereunder
if Employer had terminated Executive's employment Without Cause as described in
Section 7, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
15. Entire Agreement. This Agreement (including the Exhibit
hereto) constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof. All prior correspondence and proposals (including
but not limited to summaries of proposed terms) and all prior promises,
representations, understandings, arrangements and agreements relating to such
subject matter (including but not limited to those made to or with Executive by
any other Person and those contained in any prior employment, consulting or
similar agreement entered into by Executive and Employer or any predecessor
thereto or Affiliate thereof) are merged herein and superseded hereby.
16. Indemnification. Employer hereby agrees that it shall
indemnify and hold harmless Executive to the fullest extent permitted by
Delaware law from and against any and all liabilities, costs, claims and
expenses, including all costs and expenses incurred in defense of litigation
(including attorneys' fees), arising out of the employment of Executive
hereunder, except to the extent arising out of or based upon the gross
negligence or willful misconduct of Executive. Costs and expenses incurred by
Executive in defense of such litigation (including attorneys' fees) shall be
paid by Employer in advance of the final disposition of such litigation upon
receipt by Employer of (a) a written request for payment, (b) appropriate
documentation evidencing the incurrence, amount and nature of the costs and
expenses for which payment is being sought, and (c) an undertaking adequate
under Delaware law made by or on behalf of Executive to repay the amounts so
paid if it shall ultimately be determined that Executive is not entitled to be
indemnified by Employer under this Agreement, including but not limited to as a
result of such exception.
17. Miscellaneous.
(a) Binding Effect; Assignment. This Agreement shall be binding on
and inure to the benefit of Employer, Holding and their respective successors
and permitted assigns. This Agreement shall also be binding on and inure to the
benefit of Executive
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and his heirs, executors, administrators and legal representatives. This
Agreement shall not be assignable by any party hereto without the prior written
consent of the other parties hereto, except as provided pursuant to this
Section 17(a). Each of Holding and Employer may effect such an assignment
without prior written approval of Executive upon the transfer of all or
substantially all of its business and/or assets (by whatever means), provided
that the Successor to Employer shall expressly assume and agree to perform this
Agreement in accordance with the provisions of Section 14.
(b) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement (except in connection with any request or
application for injunctive relief in accordance with Section 13) shall be
resolved by binding arbitration. The arbitration shall be held in the city of
Atlanta, Georgia and except to the extent inconsistent with this Agreement,
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect at the time of the arbitration,
and otherwise in accordance with principles which would be applied by a court
of law or equity. The arbitrator shall be acceptable to both Employer and
Executive. If the parties cannot agree on an acceptable arbitrator, the dispute
shall be heard by a panel of three arbitrators, one appointed by Employer, one
appointed by Executive, and the third appointed by the other two arbitrators.
All expenses of arbitration shall be borne by the party who incurs the expense,
or, in the case of joint expenses, by both parties in equal portions, except
that, in the event Executive prevails on the principal issues of such dispute
or controversy, all such expenses shall be borne by Employer.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
reference to principles of conflicts of laws, provided that the indemnification
provisions contained in Section 16 shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) Taxes. Employer may withhold from any payments made under this
Agreement all applicable taxes, including but not limited to income, employment
and social insurance taxes, as shall be required by law.
(e) Amendments. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is approved
by Employer's Board or a Person authorized thereby and is agreed to in writing
by Executive and, in the case of any such modification, waiver or discharge
affecting the rights or obligations of Holding, is approved by the Board of
Directors of Holding or a Person authorized thereby. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
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provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
its rights hereunder on any occasion or series of occasions.
(f) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
(g) Notices. Any notice or other communication required or
permitted to be delivered under this Agreement shall be (i) in writing, (ii)
delivered personally, by courier service or by certified or registered mail,
first-class postage prepaid and return receipt requested, (iii) deemed to have
been received on the date of delivery or, if so mailed, on the third business
day after the mailing thereof, and (iv) addressed as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):
(A) If to Employer, to it at:
Riverwood International Corporation
3350 Cumberland Circle
Suite 1400 Atlanta, Georgia 30339
Attention: General Counsel
(B) if to Holding, to it at:
c/o Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Attention: General Counsel
(C) if to Executive, to him at his residential address as
currently on file with Employer.
Copies of any notices or other communications given under this Agreement shall
also be given to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
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Attention: Mr. Kevin J. Conway
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
(h) Voluntary Agreement; No Conflicts. Executive, Employer and
Holding each represent that they are entering into this Agreement voluntarily
and that Executive's employment hereunder and each party's compliance with the
terms and conditions of this Agreement will not conflict with or result in the
breach by such party of any agreement to which he or it is a party or by which
he or it or his or its properties or assets may be bound.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(j) Headings. The section and other headings contained in this
Agreement are for the convenience of the parties only and are not intended to
be a part hereof or to affect the meaning or interpretation hereof.
(k) Certain Definitions.
"Affiliate": with respect to any Person, means any other Person
that, directly or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with the first Person, including but
not limited to a Subsidiary of the first Person, a Person of which the first
Person is a Subsidiary, or another Subsidiary of a Person of which the first
Person is also a Subsidiary.
"Control": with respect to any Person, means the possession,
directly or indirectly, severally or jointly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities, by contract or credit arrangement, as trustee
or executor, or otherwise.
"Person": any natural person, firm, partnership, limited liability
company, association, corporation, company, trust, business trust, governmental
authority or other entity.
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"Subsidiary": with respect to any Person, each corporation or
other Person in which the first Person owns or Controls, directly or
indirectly, capital stock or other ownership interests representing 50% or more
of the combined voting power of the outstanding voting stock or other ownership
interests of such corporation or other Person.
"Successor": of a Person means a Person that succeeds to the first
Person's assets and liabilities by merger, liquidation, dissolution or
otherwise by operation of law, or a Person to which all or substantially all
the assets and/or business of the first Person are transferred.
IN WITNESS WHEREOF, Employer and Holding have duly executed this
Agreement by their authorized representatives, and Executive has hereunto set
his hand, in each case effective as of the date first above written.
RIVERWOOD INTERNATIONAL CORPORATION
By: /s/ Stephen M. Humphrey
--------------------------------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive Officer
RIVERWOOD HOLDING, INC.
By: /s/ Stephen M. Humphrey
--------------------------------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive Officer
Executive:
/s/ Daniel J. Blount
--------------------
Daniel J. Blount
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<PAGE> 17
Schedule I
Perquisites
1. Annual executive physical.
2. Reimbursement up to $1,000 annually for expenses relating to
income tax preparation plus additional fees if incurred on account
of job-related circumstances and the cost of representation by
return preparer during any audit.
3. Reimbursement for expenses incurred for financial and estate
planning services of up to $5,000 for expenses incurred in the
first calendar year services are utilized and up to $2,500 for
expenses incurred in calendar years thereafter.
4. Subject to the advance approval of the CEO, reimbursement for
initiation fees ("grossed up" for federal and state income taxes)
and dues for one luncheon or city club.
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into as of this 1st day of
November, 1998 by and among Riverwood International Corporation, a Delaware
corporation ("Employer"), Riverwood Holding, Inc., a Delaware corporation
("Holding") and Steven D. Saucier ("Executive").
W I T N E S S E T H :
WHEREAS, Employer desires to employ Executive as its Senior Vice
President, Paperboard Operations on the terms and conditions set forth herein;
WHEREAS, Executive desires to accept such employment on the terms and
conditions set forth herein;
WHEREAS, each of Employer, Holding and Executive agrees that Executive
will have a prominent role in the management of the business, and the
development of the goodwill, of Employer and its Affiliates (as defined below)
and will establish and develop relations and contacts with the principal
customers and suppliers of Employer and its Affiliates in the United States and
the rest of the world, all of which constitute valuable goodwill of, and could
be used by Executive to compete unfairly with, Employer and its Affiliates;
WHEREAS, (i) in the course of his employment with Employer, Executive
will obtain confidential and proprietary information and trade secrets
concerning the business and operations of Employer and its Affiliates in the
United States and the rest of the world that could be used to compete unfairly
with Employer and its Affiliates; (ii) the covenants and restrictions contained
in Sections 8 through 13, inclusive, are intended to protect the legitimate
interests of Employer and its Affiliates in their respective goodwill, trade
secrets and other confidential and proprietary information; and (iii) Executive
desires to be bound by such covenants and restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein and for other good and valuable
consideration, Employer, Holding and Executive hereby agree as follows:
Agreement to Employ. Upon the terms and subject to the conditions of
this Agreement, Employer hereby employs Executive, and Executive hereby accepts
employment by Employer.
<PAGE> 2
2. Term; Position and Responsibilities.
(a) Term of Employment. Unless Executive's employment shall sooner
terminate pursuant to Section 7, Employer shall employ Executive for a term
commencing on the date hereof and ending on the third anniversary of the date
hereof (the "Initial Term"). Effective upon the expiration of the Initial Term
and of each Additional Term (as defined below), Executive's employment
hereunder shall be deemed to be automatically extended, upon the same terms and
conditions, for an additional period of one year (each, an "Additional Term"),
in each such case, commencing upon the expiration of the Initial Term or the
then current Additional Term, as the case may be, unless Employer, at least 180
days prior to the expiration of the Initial Term or such Additional Term, shall
give written notice (a "Non-Extension Notice") to Executive of its intention
not to extend the Employment Period (as defined below) hereunder, provided that
a Non-Extension Notice shall not constitute a notice to Executive of the
termination of his employment by Employer unless such notice specifically
provides for such termination of employment and the specific date thereof. The
period during which Executive is employed pursuant to this Agreement, including
any extension thereof in accordance with the preceding sentence, shall be
referred to as the "Employment Period".
(b) Position and Responsibilities. During the Employment Period,
Executive shall serve as Senior Vice President, Paperboard Operations of
Employer and have such duties and responsibilities as are customarily assigned
to individuals serving in such position and such other duties consistent with
Executive's title and position as the Board of Directors of Employer
("Employer's Board") specifies from time to time. Executive shall report to the
Company's President and Chief Executive Officer. Executive shall devote all of
his skill, knowledge and working time (except for (i) vacation time as set
forth in Section 6(c) and absence for sickness or similar disability and (ii)
to the extent that it does not interfere with the performance of Executive's
duties hereunder, (A) such reasonable time as may be devoted to service on
boards of directors of other corporations and entities, subject to the
provisions of Section 9, and the fulfillment of civic responsibilities and (B)
such reasonable time as may be necessary from time to time for personal
financial matters) to the conscientious performance of the duties and
responsibilities of such position. If so elected or designated by the
respective shareholders thereof, Executive shall serve as a member of the
Boards of Directors of Holding, Employer and their respective Affiliates during
the Employment Period without additional compensation.
3. Base Salary. As compensation for the services to be performed
by Executive during the Employment Period, Employer shall pay Executive a base
salary at an annualized rate of $225,000, payable in installments on Employer's
regular payroll dates, and, in the event that Executive's employment hereunder
is terminated by death, for the
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<PAGE> 3
remainder of the pay period in which death occurs and for one month thereafter.
Employer's Board shall review Executive's base salary annually during the
period of his employment hereunder and, in its sole discretion, Employer's
Board may increase (but may not decrease) such base salary from time to time
based upon the performance of Executive, the financial condition of Employer,
prevailing industry salary levels and such other factors as Employer's Board
shall consider relevant. (The annual base salary payable to Executive under
this Section 3, as the same may be increased from time to time and without
regard to any reduction therefrom in accordance with the next sentence, shall
hereinafter be referred to as the "Base Salary".) The Base Salary payable under
this Section 3 shall be reduced to the extent that Executive elects to defer
such Base Salary under the terms of any deferred compensation, savings plan or
other voluntary deferral arrangement that may be maintained or established by
Employer.
Following the conclusion of Executive's first month of employment,
Executive shall receive a one-time signing bonus of $50,000.
4. Incentive Compensation Arrangements.
(a) Incentive Compensation. During the Employment Period, Executive
shall participate in Employer's incentive compensation programs for its senior
executives existing from time to time, at a level commensurate with his
position and duties with Employer and based on such performance targets as may
be established from time to time by Employer's Board or a committee thereof.
For 1999, Executive's aggregate annual target bonus opportunity shall be 60% of
Base Salary, provided that Executive's actual annual bonus for 1999 shall be
not less than 30% of his Base Salary; provided, further, that if Executive
commits to purchase 50% or more of the shares of Common Stock offered to
Executive pursuant to Section 4(b) below by December 1, 1999, Executive's
annual target bonus opportunity for the year in which such purchase occurs and
each subsequent year during the Employment Period shall be 100% of Base Salary
and for 1999 and 2000 shall be not less than $200,000.
(b) Commitment to Purchase Shares.
(i) Executive will be given the opportunity to commit to purchase
by no later than May 1, 2001, a minimum of 3,750 and no more than
7,500 shares of the Class A Common Stock of Holding, par value $.01
per share (the "Common Stock"), at a purchase price per share of $100
(the "Per Share Price"). Executive must commit to such purchase by no
later than December 1, 1999 (the shares of Common Stock that Executive
so commits to purchase, the "Equity Commitment"). In no event,
however, will Holding be required to offer to sell or to sell any
Shares to Executive at any time at which making
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<PAGE> 4
such an offer or selling any such Shares would violate any applicable
securities law. The terms and conditions of Executive's purchase of
any Shares, including the restrictions on transfer of the Shares, the
right of first refusal of Holding with respect to such Shares, the
right of Holding to repurchase all or a portion of such Shares from
Executive following any termination of Executive's employment and the
applicable repurchase price and the respective tag along and drag
along rights of Executive and Holding, shall be set forth in a
separate Management Stock Subscription Agreement, in the form
customarily used by Holding for such purpose, to be entered into by
and between Parent and Executive.
(ii) On the date the Company pays its annual bonus each of 1999
and 2000, Executive shall, and hereby agrees to, apply the lesser of
(A) the after-tax proceeds to him of such annual bonus payment less
an amount sufficient to cover any income or employment tax
consequences of his purchase of the Shares pursuant to this paragraph
in the event his purchase price is less than the fair market value of
the Shares at the time of purchase (such tax calculations to be
determined by an accountant or other advisor to the Executive and as
if Executive is subject to the highest marginal income tax rates for
federal, state and local tax purposes that are applicable to Executive
at such time (and taking into account the deductibility of state and
local income taxes for federal income tax purposes), and including,
FICA/FUTA and all other similar taxes and (B) the aggregate purchase
price of such shares of his Equity Commitment that he has remain
unpurchased, to the purchase of any shares of his Equity Commitment
that he has not previously purchased. If, after application of the
available proceeds of Executive's annual bonus with respect to 1999
and 2000 as provided in the preceding sentence, there remains any
portion of Executive's Equity Commitment that he has not purchased,
Executive shall purchase such remaining portion by no later than May
1, 2001. If Executive's employment terminates for any reason prior to
his satisfaction of his entire Equity Commitment, any remaining Equity
Commitment shall be cancelled.
(iii) In the event of a Change in Control (as defined in the
Stock Incentive Plan referred to in Section 4(c) below) prior to the
date Executive has purchases all shares of his Equity Commitment, (i)
Executive's obligation to purchase any remaining shares of his Equity
Commitment shall terminate and (ii) Executive shall receive from
Employer a payment equal to the product of (A) the excess, if any, of
the Per Share Price over the Change in Control Price (as defined in
the Stock Incentive Plan) and (2) the number of shares remaining
unpurchased in his Equity Commitment on the date of such Change in
Control.
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<PAGE> 5
(c) Options. For each Share that Executive commits to purchase
pursuant to Sections 4(b), Executive shall be granted non-qualified stock
options (the "Service Options") to purchase two shares of Common Stock, and
non-qualified stock options (the "Performance Options" and, together with the
Service Options, the "Options") to purchase an additional one share of Common
Stock. In addition, Executive will an award of options and supplemental
guaranteed payment agreement under the Company's Supplemental Long-Term
Incentive Plan. Such awards pursuant to and in accordance with the terms of the
Riverwood Holding, Inc. Stock Incentive Plan and Supplemental Long-Term
Incentive Plan and shall otherwise be subject to the terms and conditions
(which shall include those described in this Section 4(b)) set forth in a
separate agreements, in the form customarily used for such purpose, to be
entered into by Executive and Holding. The per share exercise price for the
options shall be the Per Share Price.
5. Employee Benefits. During the Employment Period, employee
benefits, including life, medical, dental, accidental death and dismemberment,
business travel accident, prescription drug and disability insurance, shall be
provided to Executive in accordance with the programs of Employer then available
to its senior executives, as the same may be amended and in effect from time to
time. Executive shall also be entitled to participate in all of Employer's
profit sharing, pension, retirement, deferred compensation and savings plans, as
the same may be amended and in effect from time to time, applicable to senior
executives of Employer. The benefits referred to in this Section 5 shall be
provided to Executive on a basis that is commensurate with Executive's position
and duties with Employer hereunder and that is no less favorable than that of
similarly situated employees of Employer.
6. Perquisites and Expenses.
(a) General. During the Employment Period, Executive shall be entitled
to the perquisites set forth on Schedule I hereto.
(b) Business Travel, Lodging, etc. Employer shall reimburse Executive
for reasonable travel, lodging, meal and other reasonable expenses incurred by
him in connection with his performance of services hereunder upon submission of
evidence, satisfactory to Employer, of the incurrence and purpose of each such
expense and otherwise in accordance with Employer's business travel
reimbursement policy applicable to its senior executives as in effect from time
to time.
(c) Vacation. During the Employment Period, Executive shall be entitled
to a number of weeks of paid vacation on an annualized basis, without carryover
accumulation, equal to the greater of (i) four weeks and (ii) the number of
weeks of paid
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<PAGE> 6
vacation per year applicable to senior executives of Employer in accordance
with its vacation policy as in effect from time to time.
7. Termination of Employment.
(a) Termination Due to Death or Disability. In the event that
Executive's employment hereunder terminates due to death or is terminated by
Employer due to Executive's Disability (as defined below), no termination
benefits shall be payable to or in respect of Executive except as provided in
Section 7(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents or would prevent the performance by
Executive of his duties hereunder for a continuous period of six months or
longer. The determination of Executive's Disability shall (i) be made by an
independent physician who is reasonably acceptable to Employer and Executive
(or his representative), (ii) be final and binding on the parties hereto and
(iii) be based on such competent medical evidence as shall be presented to such
independent physician by Executive and/or Employer or by any physician or group
of physicians or other competent medical experts employed by Executive and/or
Employer to advise such independent physician.
(b) Termination by Employer for Cause. Executive may be terminated for
Cause (as defined below) by Employer, provided that Executive shall be
permitted to attend a meeting of Employer's Board within 30 days after delivery
to him of a Notice of Termination (as defined below) pursuant to this Section
7(b) to explain why he should not be terminated for Cause and, if following any
such explanation by Executive, Employer's Board determines that Employer does
not have Cause to terminate Executive's employment, any such prior Notice of
Termination delivered to Executive shall thereupon be withdrawn and of no
further force or effect. "Cause" shall mean (i) the willful failure of
Executive substantially to perform his duties hereunder (other than any such
failure due to Executive's physical or mental illness) or other willful and
material breach by Executive of any of his obligations hereunder or under any
option agreement or other incentive award agreement, after a written demand for
substantial performance has been delivered, and a reasonable opportunity to
cure has been given, to Executive by Employer's Board, which demand identifies
in reasonable detail the manner in which Employer's Board believes that
Executive has not substantially performed his duties or has breached his
obligations, (ii) Executive's engaging in willful and serious misconduct that
has caused or is reasonably expected to result in material injury to Employer
or any of its Affiliates or (iii) Executive's conviction of, or entering a plea
of guilty or nolo contendere to, a crime that constitutes a felony.
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(c) Termination Without Cause. A termination "Without Cause" shall mean
a termination of employment by Employer other than due to Disability as
described in Section 7(a) or for Cause as described in Section 7(b).
(d) Termination by Executive. Executive may terminate his employment
for any reason. A termination of employment by Executive for "Good Reason"
shall mean a termination by Executive of his employment with Employer within 30
days following the occurrence, without Executive's consent, of any of the
following events: (i) the assignment to Executive of duties that are
significantly different from, and that result in a substantial diminution of,
the duties that he is to assume on the date hereof, (ii) the failure of
Employer to obtain the assumption of this Agreement by any Successor (as
defined below) to Employer as contemplated by Section 14, (iii) a reduction in
the rate of Executive's Base Salary, (iv) a material breach by Employer of any
of its obligations hereunder or by Holding of any of its obligations under any
option agreement or other incentive award agreement or (v) delivery to
Executive of a Non-Extension Notice, provided that, in the case of any of
clauses (i), (iii) or (iv), within 30 days following the occurrence of any of
the events set forth therein, Executive shall have delivered written notice to
Employer of his intention to terminate his employment for Good Reason, which
notice specifies in reasonable detail the circumstances claimed to give rise to
Executive's right to terminate his employment for Good Reason, and Employer or
Holding, as the case may be, shall not have cured such circumstances to the
reasonable satisfaction of Executive.
(e) Notice of Termination. Any termination by Employer pursuant to
Section 7(a), 7(b) or 7(c), or by Executive pursuant to Section 7(d), shall be
communicated by a written Notice of Termination addressed to the other parties
to this Agreement. A "Notice of Termination" shall mean a notice stating that
Executive's employment with Employer has been or will be terminated.
(f) Payments Upon Certain Terminations.
(i) In the event of a termination of Executive's employment by
Employer Without Cause or a termination by Executive of his employment for Good
Reason during the Employment Period, Employer shall pay to Executive (or,
following his death, to Executive's beneficiaries):
(A) his Base Salary, which shall be payable in installments on
Employer's regular payroll dates, for the period (the "Severance Period")
beginning on the Date of Termination (as defined below) and ending on the
last to occur of (1) the last day of the Initial Term or, if applicable,
the then current Additional Term, (2) the first anniversary of the Date of
Termination and (3) and the expiration of a number of
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<PAGE> 8
months equal to the number of years of Executive's service with Employer
completed as of the Date of Termination and
(B) the product of (1) the amount of incentive compensation that
would have been payable to Executive for the calendar year in which the
Date of Termination occurs if Executive had remained employed for the
entire calendar year and assuming that all applicable performance targets
had been achieved, multiplied by (2) a fraction, the numerator of which
is equal to the number of days in such calendar year that precede the Date
of Termination and the denominator of which is equal to 365 (such product,
the "Pro Rata Bonus"), less
(C) the amount, if any, paid or payable to Executive under the terms
of any severance plan, policy, program or practice of Holding, Employer or
any of their respective Affiliates applicable to Executive, as in effect
on the Date of Termination;
provided that Employer may, at any time, pay to Executive, in a single lump sum
and in satisfaction of Employer's obligations under clauses (A) and (B) of this
Section 7(f)(i), an amount equal to (x) the installments of the Base Salary
then remaining to be paid to Executive pursuant to clause (A) above, and the
amount, if any, then remaining to be paid to Executive pursuant to clause (B)
above, less (y) the amount, if any, remaining to be paid to Executive pursuant
to any plan, policy, program or practice identified under clause (C) above.
If Executive's employment shall terminate and he is entitled to
receive continued payments of his Base Salary under clause (A) of this Section
7(f)(i), Employer shall (x) continue to provide to Executive during the
Severance Period the life, medical, dental, accidental death and dismemberment
and prescription drug benefits referred to in Section 5 (the "Continued
Benefits") and (y) reimburse Executive for expenses incurred by him for
outplacement and career counseling services provided to Executive for an
aggregate amount not in excess of the lesser of (i) $25,000 and (ii) 20% of
Executive's Base Salary.
Executive shall not have a duty to mitigate the costs to Employer
under this Section 7(f)(i), except that Continued Benefits shall be reduced or
canceled to the extent of any comparable benefit coverage earned by (whether or
not paid currently) or offered to Executive during the Severance Period by a
subsequent employer or other Person (as defined below) for which Executive
performs services, including but not limited to consulting services.
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<PAGE> 9
(ii) If Executive's employment shall terminate upon his death or
Disability or if Employer shall terminate Executive's employment for Cause or
Executive shall terminate his employment without Good Reason during the
Employment Period, Employer shall pay Executive his full Base Salary through
the Date of Termination; plus, in the case of termination upon Executive's
death or Disability, if, as of the Date of Termination, Employer has achieved
the pro rated performance objectives for such calendar year (determined as
provided in Section 7(f)(i)), the Pro Rata Bonus for the portion of the
calendar year preceding Executive's Date of Termination (exclusive of any time
between the onset of a physical or mental disability that prevents the
performance by Executive of his duties hereunder and the resulting Date of
Termination); plus, in the case of termination upon Executive's death, his full
Base Salary for the remainder of the pay period in which death occurs and for
one month thereafter, as provided in Section 3.
(iii) Except as specifically set forth in this Section 7(f), no
benefits payable to Executive under any otherwise applicable plan, policy,
program or practice of Employer shall be limited by this Section 7(f), provided
that (x) Executive shall not be entitled to receive any payments or benefits
under any such plan, policy, program or practice providing any bonus or
incentive compensation (and the provisions of this Section 7(f) shall supersede
the provisions of any such plan, policy, program or practice), and (y) the
amount, if any, paid or payable to Executive under the terms of any such plan,
policy, program or practice relating to severance shall reduce the amounts
payable under Section 7(f)(i) as provided in clause (C) thereof.
(g) Date of Termination. As used in this Agreement, the term "Date of
Termination" shall mean (i) if Executive's employment is terminated by his
death, the date of his death, (ii) if Executive's employment is terminated by
Employer for Cause, the date on which Notice of Termination is given as
contemplated by Section 7(e) or, if later, the date of termination specified in
such Notice, and (iii) if Executive's employment is terminated by Employer
Without Cause, due to Executive's Disability or by Executive for any reason,
the date that is 30 days after the date on which Notice of Termination is given
as contemplated by Section 7(e) or, if no such Notice is given, 30 days after
the date of termination of employment.
(h) Resignation upon Termination. Effective as of any Date of
Termination under this Section 7 or otherwise as of the date of Executive's
termination of employment with Employer, Executive shall resign, in writing,
from all Board memberships and other positions then held by him with Holding,
Employer and their respective Affiliates.
8. Unauthorized Disclosure. During the period of Executive's
employment with Employer and the ten-year period following any termination of
such employment, without the prior written consent of Employer's Board or its
authorized representative,
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<PAGE> 10
except to the extent required by an order of a court having jurisdiction or
under subpoena from an appropriate government agency, in which event, Executive
shall use his best efforts to consult with Employer's Board prior to responding
to any such order or subpoena, and except as required in the performance of his
duties hereunder, Executive shall not disclose any confidential or proprietary
trade secrets, customer lists, drawings, designs, information regarding product
development, marketing plans, sales plans, manufacturing plans, management
organization information (including but not limited to data and other
information relating to members of the Board of Directors of Holding, Employer
or any of their respective Affiliates or to management of Holding, Employer or
any of their respective Affiliates), operating policies or manuals, business
plans, financial records, packaging design or other financial, commercial,
business or technical information (a) relating to Holding, Employer or any of
their respective Affiliates or (b) that Holding, Employer or any of their
respective Affiliates may receive belonging to suppliers, customers or others
who do business with Holding, Employer or any of their respective Affiliates
(collectively, "Confidential Information") to any third person unless such
Confidential Information has been previously disclosed to the public or is in
the public domain (other than by reason of Executive's breach of this Section
8).
9. Non-Competition. During the period of Executive's employment
with Employer and, following any termination thereof, the period ending on the
later of (a) the first anniversary of the Date of Termination and (b) the last
day of the Severance Period, Executive shall not, directly or indirectly, become
employed in a similar executive capacity by, engage in business with, serve as
an agent or consultant to, or become a partner, member, principal or stockholder
(other than a holder of less than 1% of the outstanding voting shares of any
publicly held company) of, The Mead Corporation, any of its subsidiaries or any
other current or future direct competitor (or any of such direct competitor's
subsidiaries or affiliates) in the paperboard and paperboard packaging business
of Holding, Employer or any of their respective subsidiaries, as determined in
good faith by Employer's Board. For purposes of this Section 9, the phrase
employment "in a similar executive capacity" shall mean employment in any
position in connection with which Executive has or reasonably would be viewed as
having powers and authorities with respect to any other Person or any part of
the business thereof that are substantially similar, with respect thereto, to
the powers and authorities assigned to the Senior Vice President, Paperboard
Operations or any superior executive officer of Employer in the By-Laws of
Employer as in effect on the date hereof, a copy of the relevant portions of
which has been delivered to Executive on or before the date hereof, and which
Executive hereby confirms that he has reviewed.
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<PAGE> 11
10. Non-Solicitation of Employees. During the period of Executive's
employment with Employer and, following any termination thereof, the period
ending on the later of (a) the first anniversary of the Date of Termination and
(b) the last day of the Severance Period (such periods collectively, the
"Restriction Period"), Executive shall not, directly or indirectly, for his own
account or for the account of any other Person anywhere in the United States or
Europe, (i) solicit for employment, employ or otherwise interfere with the
relationship of Holding, Employer or any of their respective subsidiaries with,
any person who at any time during the six months preceding such solicitation,
employment or interference is or was employed by or otherwise engaged to perform
services for Holding, Employer or any of their respective subsidiaries, other
than any such solicitation or employment during Executive's employment with
Holding and Employer on behalf of Holding, and Employer, or (ii) induce any
employee of Holding, Employer or any of their respective Affiliates who is a
member of management to engage in any activity which Executive is prohibited
from engaging in under any of Sections 8, 9, 10 or 11 or to terminate his
employment with Employer.
11. Non-Solicitation of Customers. During the Restriction Period,
Executive shall not, directly or indirectly, for his own account or for the
account of any other Person anywhere in the United States or Europe, solicit or
otherwise attempt to establish any business relationship of a nature that is
competitive with the paperboard and paperboard packaging business of Holding,
Employer or any of their respective subsidiaries, as determined in good faith by
Employer's Board any Person who is or was a customer, client or distributor of
Holding, Employer or any of their respective Affiliates at any time during which
Executive was employed by Employer (in the case of any such activity during such
time) or during the twelve-month period preceding the Date of Termination (in
the case of any such activity after the Date of Termination), other than any
such solicitation on behalf of Holding, Employer or any of their respective
Affiliates during Executive's employment with Employer.
12. Return of Documents. In the event of the termination of
Executive's employment for any reason, Executive shall deliver to Employer all
of (a) the property of each of Holding, Employer and their respective Affiliates
and (b) the non-personal documents and data of any nature and in whatever medium
of each of Holding, Employer and their respective Affiliates, and he shall not
take with him any such property, documents or data or any reproduction thereof,
or any documents containing or pertaining to any Confidential Information.
Whether documents or data are "personal" or "non-personal" shall be determined
as follows: Executive shall present any documents or data that he wishes to take
with him to the chief legal officer of Employer for his review. The chief legal
officer shall make an initial determination whether any such documents or data
are personal or non-personal, and with respect to such documents or data that he
determines to be non-personal, shall notify Executive either that such documents
or data must be retained by Employer or that Employer must make and retain a
copy thereof before Executive may take such documents or data with him. Any
disputes as to the personal or non-personal nature of any such documents or data
shall first be presented to
11
<PAGE> 12
the Chairman of Employer's Board or to another representative designated by
Employer's Board, and if such disputes are not promptly resolved by Executive
and the Chairman or such representative, such disputes shall be resolved
through arbitration pursuant to Section 17(b).
13. Injunctive Relief with Respect to Covenants; Forum, Venue and
Jurisdiction. Executive acknowledges and agrees that the covenants, obligations
and agreements of Executive contained in Sections 8, 9, 10, 11, 12 and 13 relate
to special, unique and extraordinary matters and that a violation of any of the
terms of such covenants, obligations or agreements will cause Employer
irreparable injury for which adequate remedies are not available at law.
Therefore, Executive agrees that Employer shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) as a court of competent jurisdiction may deem necessary or
appropriate to restrain Executive from committing any violation of such
covenants, obligations or agreements. These injunctive remedies are cumulative
and in addition to any other rights and remedies Employer may have. Employer,
Holding and Executive hereby irrevocably submit to the exclusive jurisdiction of
the courts of the State of New York and the Federal courts of the United States
of America, in each case located in New York City, in respect of the injunctive
remedies set forth in this Section 13 and the interpretation and enforcement of
Sections 8, 9, 10, 11, 12 and 13 insofar as such interpretation and enforcement
relate to any request or application for injunctive relief in accordance with
the provisions of this Section 13, and the parties hereto hereby irrevocably
agree that (a) the sole and exclusive appropriate venue for any suit or
proceeding relating solely to such injunctive relief shall be in such a court,
(b) all claims with respect to any request or application for such injunctive
relief shall be heard and determined exclusively in such a court, (c) any such
court shall have exclusive jurisdiction over the person of such parties and over
the subject matter of any dispute relating to any request or application for
such injunctive relief, and (d) each hereby waives any and all objections and
defenses based on forum, venue or personal or subject matter jurisdiction as
they may relate to an application for such injunctive relief in a suit or
proceeding brought before such a court in accordance with the provisions of this
Section 13. All disputes not relating to any request or application for
injunctive relief in accordance with this Section 13 shall be resolved by
arbitration in accordance with Section 17(b).
14. Assumption of Agreement. Employer shall require any Successor
thereto, by agreement in form and substance reasonably satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Employer would be required to perform it if
no such succession had taken place. Failure of Employer to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to
12
<PAGE> 13
compensation from Employer in the same amount and on the same terms as
Executive would be entitled hereunder if Employer had terminated Executive's
employment Without Cause as described in Section 7, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
15. Entire Agreement. This Agreement (including the Exhibit hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof. All prior correspondence and proposals (including but not
limited to summaries of proposed terms) and all prior promises, representations,
understandings, arrangements and agreements relating to such subject matter
(including but not limited to those made to or with Executive by any other
Person and those contained in any prior employment, consulting or similar
agreement entered into by Executive and Employer or any predecessor thereto or
Affiliate thereof) are merged herein and superseded hereby.
16. Indemnification. Employer hereby agrees that it shall indemnify
and hold harmless Executive to the fullest extent permitted by Delaware law from
and against any and all liabilities, costs, claims and expenses, including all
costs and expenses incurred in defense of litigation (including attorneys'
fees), arising out of the employment of Executive hereunder, except to the
extent arising out of or based upon the gross negligence or willful misconduct
of Executive. Costs and expenses incurred by Executive in defense of such
litigation (including attorneys' fees) shall be paid by Employer in advance of
the final disposition of such litigation upon receipt by Employer of (a) a
written request for payment, (b) appropriate documentation evidencing the
incurrence, amount and nature of the costs and expenses for which payment is
being sought, and (c) an undertaking adequate under Delaware law made by or on
behalf of Executive to repay the amounts so paid if it shall ultimately be
determined that Executive is not entitled to be indemnified by Employer under
this Agreement, including but not limited to as a result of such exception.
17. Miscellaneous.
(a) Binding Effect; Assignment. This Agreement shall be binding on and
inure to the benefit of Employer, Holding and their respective successors and
permitted assigns. This Agreement shall also be binding on and inure to the
benefit of Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall not be assignable by any party hereto
without the prior written consent of the other parties hereto, except as
provided pursuant to this Section 17(a). Each of Holding and Employer may
effect such an assignment without prior written approval of Executive upon the
transfer of all or substantially all of its business and/or assets (by whatever
13
<PAGE> 14
means), provided that the Successor to Employer shall expressly assume and
agree to perform this Agreement in accordance with the provisions of Section
14.
(b) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement (except in connection with any request or
application for injunctive relief in accordance with Section 13) shall be
resolved by binding arbitration. The arbitration shall be held in the city of
Atlanta, Georgia and except to the extent inconsistent with this Agreement,
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect at the time of the arbitration,
and otherwise in accordance with principles which would be applied by a court
of law or equity. The arbitrator shall be acceptable to both Employer and
Executive. If the parties cannot agree on an acceptable arbitrator, the dispute
shall be heard by a panel of three arbitrators, one appointed by Employer, one
appointed by Executive, and the third appointed by the other two arbitrators.
All expenses of arbitration shall be borne by the party who incurs the expense,
or, in the case of joint expenses, by both parties in equal portions, except
that, in the event Executive prevails on the principal issues of such dispute
or controversy, all such expenses shall be borne by Employer.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflicts of laws, provided that the indemnification provisions
contained in Section 16 shall be governed by and construed in accordance with
the laws of the State of Delaware.
(d) Taxes. Employer may withhold from any payments made under this
Agreement all applicable taxes, including but not limited to income, employment
and social insurance taxes, as shall be required by law.
(e) Amendments. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is approved
by Employer's Board or a Person authorized thereby and is agreed to in writing
by Executive and, in the case of any such modification, waiver or discharge
affecting the rights or obligations of Holding, is approved by the Board of
Directors of Holding or a Person authorized thereby. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No waiver of any
provision of this Agreement shall be implied from any course of dealing between
or among the parties hereto or from any failure by any party hereto to assert
its rights hereunder on any occasion or series of occasions.
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<PAGE> 15
(f) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
(g) Notices. Any notice or other communication required or permitted
to be delivered under this Agreement shall be (i) in writing, (ii) delivered
personally, by courier service or by certified or registered mail, first-class
postage prepaid and return receipt requested, (iii) deemed to have been
received on the date of delivery or, if so mailed, on the third business day
after the mailing thereof, and (iv) addressed as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):
(A) If to Employer, to it at:
Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Attention: General Counsel
(B) if to Holding, to it at:
c/o Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Attention: General Counsel
(C) if to Executive, to him at his residential address as currently on
file with Employer.
Copies of any notices or other communications given under this Agreement shall
also be given to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Mr. Kevin J. Conway
and
15
<PAGE> 16
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
(h) Voluntary Agreement; No Conflicts. Executive, Employer and Holding
each represent that they are entering into this Agreement voluntarily and that
Executive's employment hereunder and each party's compliance with the terms and
conditions of this Agreement will not conflict with or result in the breach by
such party of any agreement to which he or it is a party or by which he or it
or his or its properties or assets may be bound.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(j) Headings. The section and other headings contained in this
Agreement are for the convenience of the parties only and are not intended to
be a part hereof or to affect the meaning or interpretation hereof.
(k) Certain Definitions.
"Affiliate": with respect to any Person, means any other Person that,
directly or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with the first Person, including but
not limited to a Subsidiary of the first Person, a Person of which the first
Person is a Subsidiary, or another Subsidiary of a Person of which the first
Person is also a Subsidiary.
"Control": with respect to any Person, means the possession, directly
or indirectly, severally or jointly, of the power to direct or cause the
direction of the management policies of such Person, whether through the
ownership of voting securities, by contract or credit arrangement, as trustee
or executor, or otherwise.
"Person": any natural person, firm, partnership, limited liability
company, association, corporation, company, trust, business trust, governmental
authority or other entity.
"Subsidiary": with respect to any Person, each corporation or other
Person in which the first Person owns or Controls, directly or indirectly,
capital stock or other ownership interests representing 50% or more of the
combined voting power of the outstanding voting stock or other ownership
interests of such corporation or other Person.
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<PAGE> 17
"Successor": of a Person means a Person that succeeds to the first
Person's assets and liabilities by merger, liquidation, dissolution or
otherwise by operation of law, or a Person to which all or substantially all
the assets and/or business of the first Person are transferred.
IN WITNESS WHEREOF, Employer and Holding have duly executed this
Agreement by their authorized representatives, and Executive has hereunto set
his hand, in each case effective as of the date first above written.
RIVERWOOD INTERNATIONAL CORPORATION
By:/s/ Stephen M. Humphrey
-----------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive Officer
RIVERWOOD HOLDING, INC.
By:/s/ Stephen M. Humphrey
-----------------------
Name: Stephen M. Humphrey
Title: President and Chief Executive Officer
Executive:
/s/ Steven D. Saucier
----------------------
Steven D. Saucier
17
<PAGE> 18
Schedule I
Perquisites
1. Annual executive physical.
2. Reimbursement up to $1,000 annually for expenses relating to income
tax preparation plus additional fees if incurred on account of
job-related circumstances and the cost of representation by return
preparer during any audit.
3. Reimbursement for expenses incurred for financial and estate
planning services of up to $5,000 for expenses incurred in the first
calendar year services are utilized and up to $2,500 for expenses
incurred in calendar years thereafter.
4. Subject to the advance approval of the CEO, reimbursement for
initiation fees ("grossed up" for federal and state income taxes) and
dues for one country club and one luncheon or city club.
<PAGE> 1
EXHIBIT 10.18
AGREEMENT
AGREEMENT, dated as of November 18, 1999, between Riverwood
Holding, Inc. (formerly New River Holding, Inc.), a Delaware corporation (the
"Company"), and Stephen M. Humphrey (the "Executive").
The Company and the Executive hereby agree as follows:
1. Supplemental Payment.
(a) In the event that a Change in Control occurs prior to
March 26, 2002, and provided that
(i) no EBITDA Shortfall shall have occurred under the Credit
Agreement and
(ii)(x) the Executive remains continuously employed with the
Company or one of the Subsidiaries from the date hereof through the
date of such Change in Control or (y) if the CD&R Fund and, if
applicable, its Affiliates effect a sale or other disposition of all
of the Common Stock then held by the CD&R Fund and its Affiliates to
one or more persons other than any person who is an Affiliate of the
CD&R Fund and thereafter, the Executive's employment is terminated by
the Company other than for Cause or by the Executive for Good Reason
and such Change in Control occurs within six months of the date of
such termination of employment,
the Executive shall be entitled to a supplemental payment in an amount equal to
the shortfall, if any, between (x) the aggregate value of any Options (as
determined by the Board as constituted immediately prior to the Change in
Control and without regard to any withholding or other similar taxes) and (y)
$10,000,000 (ten million dollars) (the "Supplemental Payment").
(b) Subject to Section 2, the Supplemental Payment, if any,
shall be payable in full, as soon as reasonably practicable, but in no event
later than, 30 days following the Change in Control. Payment of the amount
calculated in accordance with the preceding paragraph shall be made, in cash,
or in the discretion of or the Board (as constituted immediately prior to the
Change in Control) in connection with a transaction that is intended to be a
"pooling of interest" transaction, in shares of the stock of the New Employer
having an aggregate fair market value equal to such amount (provided that the
shares of such New Employer are publicly traded and will be transferable in the
hands of the Executive).
<PAGE> 2
(c) Notwithstanding any other provision of this Agreement, no
shares of the stock of a New Employer shall be delivered, (A) unless all
requisite approvals and consents of any governmental authority of any kind
having jurisdiction with respect thereto shall have been secured, (B) unless
the delivery of such shares shall be exempt from registration under applicable
U.S. federal and state securities laws, and applicable non-U.S. securities
laws, or the shares shall have been registered under such laws, and (C) unless
all applicable U.S. federal, state and local and non-U.S. tax withholding
requirements shall have been satisfied. The Company shall use commercially
reasonable efforts to obtain the consents and approvals referred to in clause
(A) of the preceding sentence and to satisfy the withholding requirements
referred to in clause (C) of the preceding sentence.
(d) No right to a Supplemental Payment may be assigned,
transferred, in whole or in part, and may not be, directly or indirectly,
offered, transferred, sold, pledged, assigned, alienated, hypothecated or
otherwise disposed of or encumbered (including without limitation by gift,
operation of law or otherwise) without the consent of the Board, except to a
trust, partnership, limited liability company or other entity of which the only
beneficiaries, partners or members are members of the Executive's immediate
family.
(e) Whenever any amount is to be paid with respect to a
Supplemental Payment, the Company may require the recipient to remit to the
Company an amount sufficient to satisfy any applicable U.S. federal, state and
local and non-U.S. tax withholding requirements where the payment is not to be
made in cash.
2. Automatic Offset. Any amounts otherwise payable to the
Executive in respect of a Supplemental Payment shall, without any further
action of the Company or the Executive, be applied in full or partial
prepayment of any amounts outstanding under the Promissory Note, dated as of
November __, 1999 between the Company and Executive.
3. Certain Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" shall mean, with respect to any person, any other
person controlled by, controlling or under common control with such
person.
"Board" shall mean the Board of Directors of the Company.
<PAGE> 3
"Cause" shall have the meaning assigned to such term in the
Employment Agreement.
"CD&R Fund" shall mean the Clayton, Dubilier & Rice Fund V
Limited Partnership, a Cayman Islands exempted limited partnership,
and any successor investment vehicle managed by Clayton, Dubilier &
Rice, Inc.
"Change in Control" shall mean the first to occur of the
following events after the date hereof:
(i) the acquisition by any person, entity or "group"
(as defined in Section 13(d) of the Exchange Act), other than
the Company, the Subsidiaries, any employee benefit plan of
the Company or the Subsidiaries, the CD&R Fund, any Investor
or any Affiliate of the CD&R Fund or of an Investor, of 50%
or more of the combined voting power of the Company's or
RIC's then out standing voting securities;
(ii) the merger or consolidation of the Company or
RIC, as a result of which persons who were stockholders of
the Company or RIC, as the case may be, immediately prior to
such merger or consolidation, do not, immediately thereafter,
own, directly or indirectly, more than 50% of the combined
voting power entitled to vote generally in the election of
directors of the merged or consolidated company;
(iii) the liquidation or dissolution of the Company
or RIC other than a liquidation of RIC into the Company or
into any Subsidiary; and
(iv) the sale, transfer or other disposition of all
or substantially all of the assets of the Company or RIC to
one or more persons or entities that are not, immediately
prior to such sale, transfer or other disposition, Affiliates
of the Company, RIC, the CD&R Fund or any Investor.
"Credit Agreement" shall mean the Credit Agreement, dated as
of March 21, 1996, among Riverwood (as successor to RIC Holding,
Inc.), the other borrowers party thereto, The Chase Manhattan Bank
(formerly known as Chemical Bank), as administrative agent, and the
lenders party thereto from time to time, as the same has previously
been and may be amended from time to time.
<PAGE> 4
"EBITDA," for any period, shall, have the meaning assigned to
such term in the Credit Agreement.
"EBITDA Shortfall" shall mean the failure by the Company to
maintain the minimum EBITDA specified for any period in Section 8.1 of
the Credit Agreement as of the same may be amended from time to time.
"Employment Agreement" shall mean the Employment Agreement,
dated as March 26, 1997, by and among the Executive, the Company and
RIC.
"Good Reason" shall have the meaning assigned to such term in
the Employment Agreement.
"Investors" shall mean each of the investors who purchased
shares of Common Stock or shares of Class B Common Stock of the
Company concurrently with the consummation of the merger contemplated
by the Merger Agreement, and their "specified affiliates," within the
meaning of the Stockholders Agreement of the Company, as amended from
time to time.
"New Employer" shall mean the Executive's employer, or the
parent or a subsidiary of the New Employer, immediately following a
Change in Control.
"Options" shall mean any and all options granted to the
Executive to purchase shares of the Company pursuant to any stock or
other similar incentive compensation plan.
"RIC" shall mean Riverwood International Corporation, a
Delaware corporation formerly known as Riverwood International USA,
Inc., and any successor thereto.
"Subsidiary" shall mean any corporation or other person, a
majority of whose outstanding voting securities or other equity
interests are owned, directly or indirectly, by the Company.
4. Miscellaneous.
(a) Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if
<PAGE> 5
delivered personally or sent by certified or express mail, return receipt
requested, postage prepaid, or by any recognized international equivalent of
such delivery, to the Company, the CD&R Fund or the Executive, as the case may
be, at the following addresses or to such other address as the Company, the CD&R
Fund or the Executive, as the case may be, shall specify by notice to the
others:
(i) if to the Company, to it at:
Riverwood Holding, Inc.
Suite 1200
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
Attention: General Counsel
(ii) if to the Executive, to the Executive at his address
last known.
(iii) if to the CD&R Fund, to:
Clayton, Dubilier & Rice Fund V
Limited Partnership
Foulkstone Plaza, Suite 102
1403 Foulk Road
Wilmington, Delaware 19803
Attention: Joseph L. Rice, III
All such notices and communications shall be deemed to have been received on
the date of delivery if delivered personally or on the third business day after
the mailing thereof. Copies of any notice or other communication given under
this Agreement shall also be given to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Kevin J. Conway
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
<PAGE> 6
The CD&R Fund also shall be given a copy of any notice or other communication
between the Executive and the Company under this Agreement at its address as
set forth above.
(b) Binding Effect; Benefits. This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and assigns. Nothing in this Agreement, express or
implied, is intended or shall be construed to give any person other than the
parties to this Agreement or their respective successors or assigns any legal
or equitable right, remedy or claim under or in respect of any agreement or any
provision contained herein.
(c) Waiver; Amendment.
(i) Waiver. Any party hereto or beneficiary hereof
may by written notice to the other parties (A) extend the
time for the performance of any of the obligations or other
actions of the other parties under this Agreement, (B) waive
compliance with any of the conditions or covenants of the
other parties contained in this Agreement and (C) waive or
modify performance of any of the obligations of the other
parties under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation
by or on behalf of any party or beneficiary, shall be deemed
to constitute a waiver by the party or beneficiary taking
such action of compliance with any representations,
warranties, covenants or agreements contained herein. The
waiver by any party hereto or beneficiary hereof of a breach
of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach
and no failure by a party or beneficiary to exercise any
right or privilege hereunder shall be deemed a waiver of such
party's or beneficiary's rights or privileges hereunder or
shall be deemed a waiver of such party's or beneficiary's
rights to exercise the same at any subsequent time or times
hereunder.
(ii) Amendment. This Agreement may not be amended,
modified or supplemented orally, but only by a written
instrument executed by the Executive and the Company, and (in
the case of any amendment, modification or supplement that
adversely affects the rights of the CD&R Fund hereunder)
consented to by the CD&R Fund in writing.
<PAGE> 7
(d) Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Executive without the prior written consent of
the other parties and the CD&R Fund.
(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND
MANDATORILY APPLIES.
(f) Section and Other Headings, etc. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.
(h) No Right to Continued Employment. Nothing in this
Agreement shall be deemed to confer on the Executive any right to continue in
the employ of the Company or any Subsidiary, or to interfere with or limit in
any way the right of the Company or any Subsidiary to terminate such employment
at any time.
(i) Delegation by the Board. All of the powers, duties and
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to exercise
and perform such powers, duties and responsibilities.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date first above written.
RIVERWOOD HOLDING, INC.
By:/s/ Edward W. Stroetz, Jr.
--------------------------
Name: Edward W. Stroetz, Jr.
Title: Secretary
STEPHEN M. HUMPHREY
By:/s/ Stephen M. Humphrey
-----------------------
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned Stephen M. Humphrey,
Chief Executive Officer of Riverwood International Corporation ("Executive"),
hereby promises to pay Riverwood International Corporation ("Employer"), the
principal amount of Five Million and No/100 dollars ($5,000,000), in lawful
money of the United States of America and in immediately available funds on
March 26, 2002, together with interest pursuant to paragraph 2 of this Note.
The principal sum of $5,000,000 may be adjusted from time to time as provided
below, as follows:
1. Repayment of Principal. The entire unpaid principal
balance of this Note shall be due and payable, together with all interest and
other charges due hereunder, on March 26, 2002 (the "Stated Maturity Date"),
unless the Note becomes (1) immediately due and payable pursuant to paragraph 4
of this Note; or (2) forgiven and not payable pursuant to paragraph 5 of this
Note.
2. Interest. Except as provided in the next paragraph,
interest shall not accrue or be payable on the Note, it being understood that
for federal income tax purposes interest shall be deemed to accrue at 5.49% per
annum, semi-annual compounding, which is the "short-term applicable federal
rate" (within the meaning of section 1274 of the Internal Revenue Code of 1986,
as amended) and while the Note remains outstanding Executive will be deemed to
have been paid as compensation an amount equal to such deemed accrued
interest..
If any payment which is to be made hereunder is not paid when
due, such payment shall bear interest, payable on demand, at a rate per annum
equal to the rate set forth above plus 2 percent (2%), but not to exceed the
maximum amount permitted by law.
If the payment of principal or interest on this Note becomes
payable on a Saturday, Sunday or a day on which Holding is to be closed, then
such payment shall be extended to the next succeeding business day with no
additional interest due.
3. Voluntary Prepayments. This Note may be prepaid in whole
or in part at any time without premium or penalty, but with interest on the
amount being prepaid through the date of prepayment, with written notice to
Employer received one (1) business day prior to such prepayment specifying the
amount of prepayment. Partial prepayments of principal shall be in whole
multiples of $1,000.
<PAGE> 2
4. Mandatory Prepayment. In the event a "Termination Event"
(as defined below) occurs, this Note shall automatically become due and
payable, and the Executive shall be required to prepay the outstanding
principal balance of this Note in full, on the date that is no later than
thirty (30) days after the occurrence of the Termination Event. For purposes of
this Note, a "Termination Event" shall be deemed to have occurred in the event
that (a) Executive's employment is terminated by Employer for "Cause" (as
defined in the Employment Agreement, dated as of March 26, 1997, among
Executive, Employer and Riverwood Holding, Inc. (the "Employment Agreement"))
or (b) Executive voluntarily terminates employment with Employer other than for
"Good Reason" (as defined in the Employment Agreement).
In addition, any payments to be made under the Agreement,
dated as of November __, 1999, between Executive and Riverwood Holding, Inc.,
in an amount not to exceed the outstanding principal hereof as of the date of
such payment shall automatically be applied in mandatory full or partial
pre-payment (as the case may be) of this Note.
5. Forgiveness of Loan. Subject to Section 9, this Note,
together with any accrued interest thereon, shall be forgiven, and Executive
will not be required to repay the amount stipulated in this Note, if, on or
prior to the Stated Maturity Date (a) Executive's employment terminates as a
result of his death or "Disability" (as defined in the Employment Agreement;
(b) Executive's employment is terminated by the Employer "Without Cause" (as
defined in the Employment Agreement); or (c) Executive terminates his
employment for "Good Reason" (as defined in the Employment Agreement).
6. Defaults. If any of the following events shall occur: (1)
Executive's failure to make the mandatory prepayment required under paragraph 4
of this Note; or (2) the appointment of a custodian, trustee, liquidator or
receiver for any of the property of, or an assignment for the benefit of
creditors by, Executive; then, at the option of Employer, this Note and all
other obligations of Executive shall become due and payable forthwith, upon
declaration to that effect by Employer, with notice to Executive, anything
contained herein or in any other document, instrument or agreement to the
contrary notwithstanding. This Note shall become immediately and automatically
due and payable, without presentment, demand, protest or notice of any kind,
upon the commencement by or against Executive of a case or proceeding under any
bankruptcy, insolvency or other law relating to the relief of debtors, the
readjustment, composition or extension of indebtedness or reorganization or
liquidation.
7. No Right to Continued Employment. Nothing in this Note
shall be deemed to confer on Executive any right to continue in the employ of
Employer or any of their
<PAGE> 3
respective subsidiaries, or to interfere with or limit in any way the right of
Employer or any such subsidiary to terminate such employment at any time.
8. Costs. The party prevailing in any dispute regarding the
Employer's collection of this Note, enforcement of the obligations of Executive
hereunder or the administration, supervision, preservation or protection of
Employer's rights in connection herewith shall be entitled to reimbursement on
demand of all reasonable costs and expenses in connection therewith, including,
but not limited to, reasonable attorneys' fees and expenses.
9. Withholding Taxes. Executive acknowledges that in the
event this Note is forgiven pursuant to Section 5, such forgiveness will be
treated as compensation income paid to Executive, and Employer will be required
to pay any required United States federal, state or local withholding taxes to
the proper governmental authority. Accordingly, notwithstanding anything herein
to the contrary, Executive shall not be relieved of any obligations with
respect to this Note or any accrued interest thereon unless Executive shall
have provided to Employer an amount sufficient to permit Employer to satisfy
any required withholding or other similar taxes that would arise as a result of
such Note forgiveness ("Withholding Taxes"). Executive agrees and acknowledges
that any amount due from Employer may, at the discretion of the Employer, be
reduced to the maximum extent permitted by applicable law by such Withholding
Taxes.
10. WAIVER OF JURY TRIAL. EXECUTIVE AND HOLDING HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS NOTE OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
11. GOVERNING LAW. THE PROVISIONS OF THIS NOTE SHALL BE
CONSTRUED AND INTERPRETED AND ALL RIGHTS AND OBLIGATIONS HEREUNDER DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS.
12. Advice of Counsel. Executive acknowledges that it has
had the opportunity to obtain the advice of counsel of its own choosing in
entering into this Note and the transactions contemplated hereby. Executive is
fully aware of the contents of this Note and its legal effect and is entering
into this Note without threat, coercion, fraud or duress of any kind. Executive
is not relying on any representation, statement, warranty of any party
regarding this Note or the transaction contemplated hereby.
<PAGE> 4
13. Counter-Claims, Set-Off. Executive waives the right to
interpose any counterclaim or set-off of any kind in any litigation relating to
this Note or the transaction contemplated hereby.
14. Assignment. This Note shall be assignable in full or in
part by Employer without the consent of Executive. No obligation or rights of
Executive hereunder can be assigned or transferred without the prior written
consent of Employer.
15. No Waiver; Cumulative Remedies. No failure on the part
of Employer to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as waiver thereof, nor shall any single or partial
exercise by Employer of any right, remedy or power hereunder preclude any other
or future exercises of any other right, remedy or power.
Each and every right, remedy and power hereby granted to
Employer or allowed it by law or other agreement shall be cumulative and not
exclusive the one of any other, and may be exercised by Employer from time to
time.
16. Severability. Every provision of this Note is intended
to be severable; if any term or provision of this Note shall be invalid,
illegal or unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired.
17. Headings. The section headings in this Note are for
convenience only and are not intended to affect the construction of the
provisions of this Note.
18. ENTIRE AGREEMENT. THIS NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
<PAGE> 5
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES CONCERNING THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of November 18, 1999.
Principal Amount of Loan: $5,000,000
Social Security Number of Executive: ###-##-####
WITNESS Executive
By: /s/ Edward W. Stroetz, Jr. /s/ Stephen M. Humphrey
-------------------------- -----------------------
Name: Edward W. Stroetz, Jr. Stephen M. Humphrey
Date: November 18, 1999 Date: November 18, 1999
ADDRESS OF Executive:
2660 Peachtree Road, N.W.
Atlanta, Georgia 30305
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- ---------------
<S> <C>
Danapak Riverwood Multipack A/S Denmark
Fiskeby Board AB Sweden
Fiskeby Board A/S Denmark
Fiskeby Board Ltd United Kingdom
Fiskeby Holding AB Sweden
Igaras Argentina S.A Argentina
Igaras Papeis e Embalagens S.A Brazil
Igaras Servicos Florestais Ltda Brazil
New Materials Limited United Kingdom
Rengo Riverwood Packaging, Ltd Japan
RIC Holding, Inc Delaware
Riverwood Brazilian Investments, Inc. Delaware
Riverwood Cartons Pty. Ltd. Australia
Riverwood do Brasil Ltda Brazil
Riverwood Espana, S.A Spain
Riverwood International Asia Pacific Limited Hong Kong
Riverwood International Asia Pte Ltd. Singapore
Riverwood International Australia Pty. Ltd. Australia
Riverwood International B.V Netherlands
Riverwood International Corporation Delaware
Riverwood International Corporation Philanthropic Fund Delaware
Riverwood International (Cyprus) Limited Cyprus
Riverwood International Enterprises, Inc. Delaware
Riverwood International (Europe) S.A Belgium
Riverwood International France S.A France
Riverwood International Japan, Ltd. Japan
Riverwood International Limited United Kingdom
Riverwood International Machinery, Inc. Delaware
Riverwood International Mexicana, S. de R.L. de C.V Mexico
Riverwood International Pension Trustee Company Ltd. United Kingdom
Riverwood International, S.A France
Riverwood International S.p.A Italy
Riverwood Mehrstruckverpackung G.m.b.H Germany
Riverwood Swedish Investments, Inc. Delaware
Slevin South Company Arkansas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RIVERWOOD HOLDING, INC. FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 14,108
<SECURITIES> 0
<RECEIVABLES> 156,734
<ALLOWANCES> 3,500
<INVENTORY> 173,610
<CURRENT-ASSETS> 355,442
<PP&E> 1,429,912
<DEPRECIATION> 428,916
<TOTAL-ASSETS> 2,363,142
<CURRENT-LIABILITIES> 243,675
<BONDS> 1,730,898
0
0
<COMMON> 75
<OTHER-SE> 279,573
<TOTAL-LIABILITY-AND-EQUITY> 2,363,142
<SALES> 1,112,711
<TOTAL-REVENUES> 1,112,711
<CGS> 871,970
<TOTAL-COSTS> 871,970
<OTHER-EXPENSES> 120,278
<LOSS-PROVISION> 1,426
<INTEREST-EXPENSE> 179,197
<INCOME-PRETAX> (57,845)
<INCOME-TAX> 3,936
<INCOME-CONTINUING> (54,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,671)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
RIVERWOOD HOLDING, INC.
RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA
(In Thousands of dollars)
<TABLE>
<CAPTION>
Coated Container-
Board board Corporate Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter 1999:
Income (Loss) from Operations $ 29,769 $ (7,448) $ (3,450) $ 18,871
Add: Depreciation and amortization 30,197 4,915 139 35,251
Dividends from equity investments -- -- -- --
Other non-cash charges (A) (173) 103 1,637 1,567
---------- ---------- ---------- ----------
EBITDA (B) $ 59,793 $ (2,430) $ (1,674) $ 55,689
========== ========== ========== ==========
Second Quarter 1999:
Income (Loss) from Operations $ 43,537 $ (3,886) $ (4,397) $ 35,254
Add: Depreciation and amortization 30,910 3,467 1,051 35,428
Dividends from equity investments -- -- 885 885
Other non-cash charges (A) 1,025 103 820 1,948
---------- ---------- ---------- ----------
EBITDA (B) $ 75,472 $ (316) $ (1,641) $ 73,515
========== ========== ========== ==========
Third Quarter 1999:
Income (Loss) from Operations $ 36,977 $ (1,009) $ (4,235) $ 31,733
Add: Depreciation and amortization 30,907 4,336 1,050 36,293
Dividends from equity investments -- -- 1,873 1,873
Other non-cash charges (A) (836) 98 1,436 698
---------- ---------- ---------- ----------
EBITDA (B) $ 67,048 $ 3,425 $ 124 $ 70,597
========== ========== ========== ==========
Fourth Quarter 1999:
Income (Loss) from Operations $ 32,258 2,108 $ 239 34,605
Add: Depreciation and amortization 28,977 5,350 1,298 35,625
Dividends from equity investments 800 -- 957 1,757
Other non-cash charges (A) 5,161 (1,137) (2,337) 1,687
---------- ---------- ---------- ----------
EBITDA (B) $ 67,196 $ 6,321 $ 157 $ 73,674
========== ========== ========== ==========
Year Ended December 31, 1999:
Income (Loss) from Operations $142,541 (10,235) (11,843) 120,463
Add: Depreciation and amortization 120,991 18,068 3,538 142,597
Dividends from equity investments 800 -- 3,715 4,515
Other non-cash charges (A) 5,177 (833) 1,556 5,900
---------- ---------- ---------- ----------
EBITDA (B) $ 269,509 $ 7,000 $ (3,034) $ 273,475
========== ========== ========== ==========
</TABLE>
<PAGE> 2
RIVERWOOD HOLDING, INC.
RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA - (Continued)
(In Thousands of dollars)
<TABLE>
<CAPTION>
Coated Container-
Board board Corporate Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter 1998:
Income (Loss) from Operations $ 16,572 $ (4,620) $ (4,706) 7,246
Add: Depreciation and amortization 30,111 4,789 286 35,186
Dividends from equity investments -- -- 618 618
Other non-cash charges (A) 1,328 286 1,624 3,238
---------- ---------- ---------- ----------
EBITDA (B) $ 48,011 $ 455 $ (2,178) $ 46,288
========== ========== ========== ==========
Second Quarter 1998:
Income (Loss) from Operations $ 17,398 $ (2,711) $ (4,380) 10,307
Add: Depreciation and amortization 32,723 2,687 244 35,654
Dividends from equity investments -- -- 994 994
Other non-cash charges (A) 15,062 465 1,144 16,671
---------- ---------- ---------- ----------
EBITDA (B) $ 65,183 $ 441 $ (1,998) $ 63,626
========== ========== ========== ==========
Third Quarter 1998:
Income (Loss) from Operations $ 35,169 $ (4,482) $ (4,112) 26,575
Add: Depreciation and amortization 31,557 3,874 (925) 34,506
Dividends from equity investments -- -- 915 915
Other non-cash charges (A) 1,894 375 2,321 4,590
---------- ---------- ---------- ----------
EBITDA (B) $ 68,620 $ (233) $ (1,801) $ 66,586
========== ========== ========== ==========
Fourth Quarter 1998:
Income (Loss) from Operations $ 9,613 $ (11,869) $ (14,194) (16,450)
Add: Depreciation and amortization 35,977 5,054 138 41,169
Dividends from equity investments 700 -- 3,736 4,436
Other non-cash charges (A) (2,913) (2,813) 3,529 (2,197)
---------- ---------- ---------- ----------
EBITDA (B) $ 43,377 $ (9,628) $ (6,791) $ 26,958
========== ========== ========== ==========
Year Ended December 31, 1998:
Income (Loss) from Operations $ 78,752 $ (23,682) $ (27,392) $ 27,678
Add: Depreciation and amortization 130,368 16,404 (257) 146,515
Dividends from equity investments 700 -- 6,263 6,963
Other non-cash charges (A) 15,371 (1,687) 8,618 22,302
---------- ---------- ---------- ----------
EBITDA (B) $ 225,191 $ (8,965) $ (12,768) $ 203,458
========== ========== ========== ==========
</TABLE>
<PAGE> 3
RIVERWOOD HOLDING, INC.
RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA - (Continued)
(In Thousands of dollars)
<TABLE>
<CAPTION>
Coated Container-
Board board Corporate Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter 1997:
Income (Loss) from Operations $ 15,779 $ (13,006) $ (4,512) $ (1,739)
Add: Depreciation and amortization 27,032 4,714 358 32,104
Dividends from equity investments -- -- 750 750
Other non-cash charges (A) 1,674 254 110 2,038
---------- ---------- ---------- ----------
EBITDA (B) $ 44,485 $ (8,038) $ (3,294) $ 33,153
========== ========== ========== ==========
Second Quarter 1997:
Income (Loss) from Operations $ 19,307 $ (12,532) $ (6,530) $ 245
Add: Depreciation and amortization 27,910 4,855 289 33,054
Dividends from equity investments -- -- 945 945
Other non-cash charges (A) 629 2,966 1,741 5,336
---------- ---------- ---------- ----------
EBITDA (B) $ 47,846 $ (4,711) $ (3,555) $ 39,580
========== ========== ========== ==========
Third Quarter 1997:
Income (Loss) from Operations $ 17,996 $ (6,385) $ (4,096) $ 7,515
Add: Depreciation and amortization 29,976 4,308 265 34,549
Dividends from equity investments -- -- 1,022 1,022
Other non-cash charges (A) 1,216 75 986 2,277
---------- ---------- ---------- ----------
EBITDA (B) $ 49,188 $ (2,002) $ (1,823) $ 45,363
========== ========== ========== ==========
Fourth Quarter 1997:
Income (Loss) from Operations $ 11,737 $ (9,321) $ (1,525) $ 891
Add: Depreciation and amortization 30,861 6,511 305 37,677
Dividends from equity investments -- -- 2,511 2,511
Other non-cash charges (A) 3,472 2,017 1,263 6,752
---------- ---------- ---------- ----------
EBITDA (B) $ 46,070 $ (793) $ 2,554 $ 47,831
========== ========== ========== ==========
Year Ended December 31, 1997:
Income (Loss) from Operations $ 64,819 $ (41,244) $ (16,663) $ 6,912
Add: Depreciation and amortization 115,779 20,388 1,217 137,384
Dividends from equity investments -- -- 5,228 5,228
Other non-cash charges (A) 6,991 5,312 4,100 16,403
---------- ---------- ---------- ----------
EBITDA (B) $ 187,589 $ (15,544) $ (6,118) $ 165,927
========== ========== ========== ==========
</TABLE>
Notes:
(A) Other non-cash charges include non-cash charges for LIFO accounting,
pension, postretirement and postemployment benefits, and amortization of
premiums on hedging contracts deducted in determining net income.
(B) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the Merger)
before consolidated interest expense, consolidated income taxes, consolidated
depreciation and amortization, and other non-cash charges deducted in
determining consolidated net income, extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from,
non-controlled affiliates. EBITDA excludes equity earnings from non-controlled
affiliates but includes dividends actually received from non-controlled
affiliates. The Company believes that EBITDA provides useful information
regarding the Company's debt service ability, but should not be considered in
isolation or as a substitute for the Condensed Consolidated Statements of
Operations or cash flow data.
