<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
REGISTRATION STATEMENT
ON
FORM S-4
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECIALTY PAPERBOARD, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2631 82-0429330
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
</TABLE>
--------------------------
BRUDIES ROAD
BRATTLEBORO, VERMONT 05302
(802) 257-0365
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
MR. BRUCE MOORE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SPECIALTY PAPERBOARD, INC.
BRUDIES ROAD
BRATTLEBORO, VERMONT 05302
(802) 257-0365
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
Frank L. Schiff, Esq.
White & Case
1155 Avenue of the Americas
New York, New York 10036-2787
(212) 819-8752
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED PROPOSED AMOUNT OF
NOTE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE (1) OFFERING PRICE (1) FEE
<S> <C> <C> <C> <C>
9 3/8% Series B Senior Notes due
2006................................. $100,000,000 100% $100,000,000 $30,303.03
Guarantees of each of the
Guarantors(2)........................ (3) (3) (3) None (3)
</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been computed as of December 6, 1996, of the
outstanding 9 3/8% Senior Notes due 2006 of Specialty Paperboard, Inc. to be
cancelled in the exchange transaction hereunder.
(2) The 9 3/8% Senior Notes due 2006 of Specialty Paperboard, Inc. being
registered will be guaranteed by each of Specialty Paperboard/Endura, Inc.,
CPG Investors Inc., CPG Holdings Inc., Custom Papers Group Inc., CPG-Warren
Glen Inc., Arcon Holdings Corp. and Arcon Coating Mills, Inc.
(3) No additional consideration will be paid by the recipients of the 9 3/8%
Senior Notes due 2006 for the Guarantees. Pursuant to Rule 437(n) under the
Securities Act of 1933, no separate fee is payable for the Guarantees.
------------------------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OTHER REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD IRS
INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME OF CORPORATION INCORPORATION CODE NUMBER NUMBER
- -------------------------------------------------- --------------- ------------------- --------------
<S> <C> <C> <C>
Specialty Paperboard/Endura, Inc.................. Delaware 2631 82-0429330
CPG Investors Inc................................. Delaware 2625 54-1684641
CPG Holdings Inc.................................. Delaware 2625 54-1684644
Custom Papers Group Inc........................... Virginia 2625 54-1684595
CPG-Warren Glen Inc............................... Virginia 2625 54-1684596
Arcon Holdings Corp............................... Delaware 2625 11-3203853
Arcon Coating Mills, Inc.......................... Delaware 2625 13-3459527
<CAPTION>
ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF
NAME OF CORPORATION PRINCIPAL EXECUTIVE OFFICE
- -------------------------------------------------- -----------------------------
<S> <C>
Brudies Road
Brattleboro, VT 05302
Specialty Paperboard/Endura, Inc.................. (802) 257-0365
110 Tredegar St.
Richmond, VA 23219
CPG Investors Inc................................. (804) 649-4368
110 Tredegar St.
Richmond, VA 23219
CPG Holdings Inc.................................. (804) 649-4368
110 Tredegar St.
Richmond, VA 23219
Custom Papers Group Inc........................... (804) 649-4368
110 Tredegar St.
Richmond, VA 23219
CPG-Warren Glen Inc............................... (804) 649-4368
3067 New Street
Oceanside, NY 11572
Arcon Holdings Corp............................... (516) 766-8800
3067 New Street
Oceanside, NY 11572
Arcon Coating Mills, Inc.......................... (516) 766-8800
</TABLE>
<PAGE>
SPECIALTY PAPERBOARD, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF
ITEMS OF FORM S-4
<TABLE>
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover Page; Cross Reference
Outside Front Cover Page of Prospectus..... Sheet; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover
of Prospectus.............................. Page
3. Risk Factors, Ratio of Earnings to Fixed Prospectus Summary; Risk Factors; Unaudited
Charges and Other Information.............. Pro Forma Financial Data; Selected
Historical Consolidated Financial Data --
Specialty Paperboard, Inc; Selected
Historical Con-
solidated Financial Data -- CPG Investors
Inc.; Selected Historical Consolidated
Financial Data -- Arcon Holdings Corp.
4. Terms of the Transaction................... Prospectus Summary; The Exchange Offer;
Description of the Notes; Certain U.S.
Federal Income Tax Consequences
5. Pro Forma Financial Information............ Prospectus Summary; The Acquisitions;
Unaudited Pro Forma Consolidated Financial
Data
6. Material Contacts with the Company Being Not Applicable
Acquired...................................
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties Deemed to
be Underwriters............................
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities................................
B. INFORMATION ABOUT THE
REGISTRANTS
10. Information with Respect to S-3 Not Applicable
Registrants................................
11. Incorporation of Certain Information by Not Applicable
Reference..................................
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants................................
13. Incorporation of Certain Information by Not Applicable
Reference..................................
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
14. Information with Respect to Registrants Prospectus Summary; The Acquisitions;
Other Than S-2 or S-3 Registrants.......... Capitalization; Selected Historical
Consolidated Financial Data -- Specialty
Paperboard, Inc.; Selected Historical
Consolidated Financial Data -- CPG
Investors Inc.; Selected Historical
Consolidated Financial Data -- Arcon
Holdings Corp.; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships and
Related Transactions; Description of
Financing Arrangements; Description of
the Notes; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Not Applicable
Companies..................................
16. Information with Respect to S-2 or S-3 Not Applicable
Companies..................................
17. Information with Respect to Companies Other Not Applicable
Than S-2 or S-3 Companies..................
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Not Applicable
Authorizations are to be Solicited.........
19. Information if Proxies, Consents or Management; Certain Relationships and
Authorizations are not to be Solicited or Related Transactions
in an Exchange Offer.......................
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1996
PROSPECTUS
SPECIALTY PAPERBOARD, INC.
OFFER TO EXCHANGE
9 3/8% SENIOR NOTES DUE 2006, SERIES B
FOR ALL OUTSTANDING 9 3/8% SENIOR NOTES DUE 2006, SERIES A
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
---------------------
Specialty Paperboard, Inc., a Delaware corporation ("SPI"), hereby offers,
upon the terms and subject to conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $100,000,000 of its 9 3/8% Senior Notes
Due 2006, Series B (the "New Notes") for up to an aggregate principal amount of
$100,000,000 of its outstanding 9 3/8% Senior Notes Due 2006, Series A (the "Old
Notes"). The terms of the New Notes are identical in all material respects to
those of the Old Notes, except for certain transfer restrictions, registration
rights and penalty provisions relating to the Old Notes. The New Notes will be
issued pursuant to, and entitled to the benefits of, the Indenture (as defined)
governing the Old Notes. The New Notes and the Old Notes are sometimes referred
to collectively as the "Notes."
The Old Notes were issued in connection with the acquisition by SPI, on
October 31, 1996, of CPG Investors Inc. and Arcon Holdings Corp. See "The
Acquisitions."
Interest on the New Notes will accrue from the date of issuance thereof (the
"Issue Date") at the rate of 9 3/8% PER ANNUM and will be payable semi-annually
in arrears on each April 15 and October 15, commencing on April 15, 1997. The
New Notes will be redeemable, at SPI's option, in whole at any time or in part
from time to time, on or after October 15, 2001 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, thereon to the date of
redemption. In addition, at any time or from time to time, on or prior to
October 15, 1999, SPI may, at its option, use the net cash proceeds of one or
more Public Equity Offerings (as defined herein) to redeem up to $35.0 million
aggregate principal amount of New Notes at the redemption price set forth
herein, plus accrued and unpaid interest, if any, thereon to the date of
redemption; PROVIDED that at least 65% of the principal amount of New Notes
originally issued remains outstanding immediately after giving effect to any
such redemption.
The New Notes will be general unsecured obligations of SPI and will rank
PARI PASSU in right of payment with all existing and future senior indebtedness
of SPI. The New Notes will be guaranteed on a senior basis by each of SPI's
domestic subsidiaries -- Specialty Paperboard/Endura, Inc., CPG Investors Inc.,
CPG Holdings Inc., Custom Papers Group Inc., CPG-Warren Glen Inc., Arcon
Holdings Corp. and Arcon Coating Mills, Inc. (the "Guarantors"). The Guarantees
(as defined) will be general unsecured obligations of the Guarantors and will
rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Guarantors. As of September 30, 1996, after giving pro forma
effect to the Transactions (as defined), SPI and the Guarantors would have no
indebtedness outstanding other than the New Notes.
Upon the occurrence of a Change of Control (as defined herein), each holder
of the New Notes will have the right to require SPI to purchase all or a portion
of such holder's New Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
purchase. In addition, SPI will be obligated to offer to purchase New Notes at
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase in the event of certain asset sales. See
"Description of the Notes."
(CONTINUED ON NEXT PAGE)
------------------------------
See "Risk Factors," which begins at page 9, for a discussion of certain
factors that should be considered by participants in the Exchange Offer.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(CONTINUED FROM COVER)
The Old Notes were originally issued and sold on October 16, 1996 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemptions provided in Rule 144A and
Regulation D under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available.
SPI will accept for exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on
, 1997, unless extended by SPI in its sole discretion (the
"Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. In the event SPI
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, SPI will promptly return the Old Notes to
the holders thereof. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange, but is otherwise
subject to certain customary conditions. The Old Notes may be tendered only in
integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of SPI contained in the Registration Rights Agreement dated October
16, 1996 (the "Registration Rights Agreement") by and among SPI, the Guarantors
and BT Securities Corporation, as the initial purchaser (the "Initial
Purchaser"), with respect to the initial sale of the Old Notes. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") rendered to third parties in similar transactions, the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by respective holders thereof
(other than any such holder which is an "affiliate" of SPI within the meaning of
Rule 405 under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act), provided that the New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement with any person to participate in the distribution of
such New Notes and is not engaged in and does not intend to engage in a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the New Notes received in exchange for Old Notes if such New
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. SPI has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
There has not previously been any public market for the New Notes. SPI does
not intend to list the New Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no assurance
that an active market for the New Notes will develop. To the extent that an
active market for the New Notes does develop, the market value of the New Notes
will depend on market conditions (such as yields on alternative investments),
general economic conditions, the Company's financial condition, and other
factors. Such conditions might cause the New Notes, to the extent that they are
actively traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market."
SPI will not receive any proceeds from the Exchange Offer. SPI has agreed to
pay the expenses incident to the Exchange Offer.
i
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY SPI. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON.
------------------------
Until , 1997 (90 days after commencement of this offering), all
dealers effecting transactions in the New Notes, whether or not participating in
this offering, may be required to deliver a Prospectus.
AVAILABLE INFORMATION
SPI's common stock is currently traded on the NASDAQ National Market System
under the symbol "SPBI." Accordingly, SPI complies with the periodic reporting
and other information requirements of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"). Periodic reports and other information filed by
SPI with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Electronic
filings filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval system (EDGAR) are publicly available through the Commission's home
page on the Internet at http://www.sec.gov.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. SPI's actual results may differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to: failure to integrate the operations acquired in the
Acquisitions (as defined) into the operations of SPI; failure to sustain future
sales growth; failure to identify or carry out suitable strategic acquisitions;
increases in the price of raw materials under market conditions which preclude
passing such increases on to customers; increased competition (especially from
competitors with access to substantially greater resources); and overall
economic conditions in the United States. Each of the foregoing factors is
discussed in greater detail herein.
In addition, SPI has agreed that, whether or not it is required to do so by
the rules and regulations of the Commission, for so long as any Notes remain
outstanding, it will furnish to the holders of the Notes and, following
consummation of the exchange offer referred to above and to the extent permitted
by applicable law or regulation, file with the Commission (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if SPI were required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereof by SPI's independent certified public accountants and
(ii) all reports that would be required to be filed on Form 8-K if it were
required to file such reports. In addition, for so long as any of the Notes
remain outstanding, SPI has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes, in connection with any
sale thereof, the information required by Rule 144(d)(4) under the Securities
Act.
------------------------
Tyvek-Registered Trademark- is a registered trademark of E.I. du Pont de
Nemours and Company. Genuine Pressboard-TM-, is a trademark of SPI.
Arco-Flex-TM- and Super ArcoFlex-TM- are trademarks of Arcon Coating Mills, Inc.
------------------------
SPI, a corporation organized under the laws of the State of Delaware, has
its principal executive office located at Brudies Road, Brattleboro, Vermont
05302; its telephone number is (802) 257-0365.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE STATED IN THIS PROSPECTUS, REFERENCES TO (A) "SPI"
SHALL MEAN SPECIALTY PAPERBOARD, INC., A DELAWARE CORPORATION, AND ITS
SUBSIDIARIES, (B) "CPG" SHALL MEAN CPG INVESTORS INC., A DELAWARE CORPORATION,
AND ITS SUBSIDIARIES, (C) "ARCON" SHALL MEAN ARCON HOLDINGS CORP., A DELAWARE
CORPORATION, AND ITS SUBSIDIARY, AND (D) THE "COMPANY" SHALL MEAN SPI, CPG,
ARCON AND THEIR RESPECTIVE SUBSIDIARIES AFTER GIVING EFFECT TO THE ACQUISITIONS.
THE COMPANY
The Company is a leading manufacturer and converter of specialty paper and
related products with a wide range of consumer and industrial end-uses. Through
its eleven United States paper mills and converting facilities, the Company has
focused on niche markets where it can provide high value-added specialty paper
products which meet rigorous technical specifications and customer service
requirements. The Company's products serve four distinct markets which
represented the following percentages of total pro forma net sales for 1995:
office products (35.0%); technical specialty products (25.4%); saturated
specialty products (22.1%); and filtration products (17.5%). For the latest
twelve month period ended September 30, 1996 ("LTM"), the Company had pro forma
net sales of $225.1 million and pro forma EBITDA (as defined) of $31.3 million.
OFFICE PRODUCTS. The Company manufactures a wide range of materials used in
the manufacture of office products. Management believes that the Company is the
largest domestic supplier of pressboard, which is converted into data binders,
notebook covers, report covers, ring binders, and file and index guides. The
Company believes that it also is the leading provider of tape and edge covering
materials converted from Tyvek-Registered Trademark- and other materials, used
to strengthen and reinforce various office supply products, including note pads,
legal pads, composition books, file folders and red wallet expansion folders.
Other products manufactured for the office supplies market include lightweight
filing and cover materials and other products where the Company believes that
its capabilities and customer relationships give it a competitive advantage in
meeting customer specifications.
TECHNICAL SPECIALTY PRODUCTS. The Company manufactures specialty paper
products with customized physical performance characteristics which meet the
unique requirements of specific end-use markets. Technical specialty products
include paper used as insulation material in electrical transformer coils, acid-
free picture mounting art board used for archival-quality picture mounting and
records storage applications, photographic packaging papers, printed circuit
board substrates, wet-strength tag used in the laundry and dry-cleaning
industries, and paper backings for sandpaper and other abrasives. The Company
has been able to successfully enter niche markets in which it believes its
manufacturing flexibility and technical expertise give it a competitive
advantage in meeting rigorous customer requirements. The Company believes that
it is a market leader in many of its markets, including the markets for
electrical transformer papers, acid-free picture mounting art board and
photographic packaging papers.
SATURATED SPECIALTY PRODUCTS. The Company is one of the largest producers
of specialty tape substrates and a broad range of saturated, coated and
non-woven papers. The Company's tape substrates are used in the manufacture of
industrial and consumer masking tapes, barrier tapes, other pressure-sensitive
tapes and bandoliering tapes. The Company believes that it is also one of the
two leading domestic producers of latex-reinforced material used in book covers
and related products. These materials are used by customers in applications
where durability and distinctive appearance are important, such as flexible
covers for books, menus, photo albums, desktop calendars, appointment books and
reports. The Company
- ------------
Tyvek-Registered Trademark- is a registered trademark of E.I. du Pont de Nemours
and Company ("DuPont").
1
<PAGE>
also converts specialty paper into endsheets and spine reinforcement materials
for use in the bookbinding industry and provides specialty tapes for use in
binding materials for checkbooks and deposit books.
FILTRATION PRODUCTS. The Company is a major supplier of saturated and
non-saturated filter papers used in air and fluid filters for the automotive,
heavy-duty truck and equipment industries. The Company also manufactures filter
papers used in various industrial applications, including fruit juice
processing, the manufacture of paints and lacquers and hot oil filters for the
fast-food industry. The Company pursues niche markets in the filtration products
market where its manufacturing and technical capabilities give it a competitive
advantage in meeting customer specifications.
2
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to increase sales and earnings by consolidating
and strengthening core product lines, by rationalizing production capacity and
by pursuing selected strategic acquisitions. The following are the key elements
of this strategy:
- CONSOLIDATE AND STRENGTHEN CORE PRODUCT LINES. CPG and Arcon have an array
of products which complement SPI's core product lines. By consolidating
these products and streamlining and focusing its marketing efforts, the
Company believes that it will strengthen its core product lines in office
products, technical specialty products and saturated specialty products.
- RATIONALIZE OVERHEAD AND PRODUCTION CAPACITY. The Company believes that
the Acquisitions provide opportunities for the Company to eliminate
redundant overhead, rationalize inefficient facilities and optimize the
manufacturing of the Company's products over its existing capital
equipment base. The Company believes that it can achieve approximately
$4.2 million in annual overhead cost savings through the consolidation of
the administrative functions of CPG and Arcon at SPI's Brattleboro
headquarters and can achieve further operational savings by adjusting
current grade mixes on each of its machines and shifting production among
facilities to better match products, machine capabilities and cost
structures.
- STRATEGIC ACQUISITIONS. The Company intends to continue pursuing growth
through the acquisition of complementary businesses which provide
opportunities to enhance the Company's core product lines and create
operating efficiencies. In implementing this strategy, management intends
to build upon its successful experience in integrating the June 1994
acquisition of the Endura Products Division ("Endura") of W.R. Grace & Co.
(the "Endura Acquisition").
- INVEST IN CAPITAL IMPROVEMENTS. The Company seeks to reduce costs,
increase capacity, enhance manufacturing capabilities and improve product
quality through selected capital investments. The Company has invested
approximately $20 million in new equipment, technology and leasehold
improvements at its facilities over the past 12 months and plans to invest
significant additional capital in facilities and equipment over the next
12 to 24 months.
- INCREASE UTILIZATION OF RECYCLED FIBER. The Company intends to continue to
capitalize on its position as a leading manufacturer of specialty paper
products with recycled fiber content. The Company's office product line
contains between 25% and 100% recycled materials, depending on paper
grades. The Company continually seeks to increase the recycled content of
its products to reduce costs and better service customer demands for
recycled content while still meeting performance expectations. See
"Business -- Manufacturing -- Use of Recycled Fiber."
- EXPAND INTERNATIONAL SALES. While SPI historically has devoted increasing
resources to its international marketing efforts, CPG and Arcon have not
had a similar focus on these markets. SPI has an established network of
international sales offices and sales agents which sell SPI's existing
range of products. SPI believes that by using this sales and distribution
network it will be able to generate incremental sales of CPG's and Arcon's
products.
3
<PAGE>
THE ACQUISITIONS
Pursuant to a Merger Agreement, dated as of August 28, 1996 (the "CPG Merger
Agreement"), on October 31, 1996, a wholly-owned subsidiary of SPI was merged
with and into CPG and CPG became a wholly-owned subsidiary of SPI (the "CPG
Acquisition"). Shareholders of CPG received in the merger aggregate
consideration of $53.0 million less approximately $9.8 million in outstanding
indebtedness of CPG at closing, as adjusted for certain changes in the net worth
of CPG. See "The Acquisitions -- CPG Acquisition."
Pursuant to a Stock Purchase Agreement, dated as of August 28, 1996 (the
"Arcon Stock Purchase Agreement"), on October 31, 1996, SPI purchased all of the
outstanding capital stock of Arcon from its stockholders (the "Arcon
Acquisition", and, collectively with the CPG Acquisition, the "Acquisitions").
The purchase price paid for the capital stock of Arcon was approximately $32.0
million less approximately $8.5 million outstanding indebtedness of Arcon at
closing. See "The Acquisitions -- Arcon Acquisition."
The offering by SPI of the Old Notes (the "Offering") and the Acquisitions
are referred to herein as the "Transactions."
4
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The New Notes....................... The forms and terms of the New Notes are identical in
all material respects to the terms of the Old Notes
for which they may be exchanged pursuant to the
Exchange Offer, except for certain transfer
restrictions, registration rights and penalty
interest provisions relating to the Old Notes
described below under "-- Terms of the Notes."
The Exchange Offer.................. SPI is offering to exchange up to $100,000,000
aggregate principal amount of the New Notes for up to
$100,000,000 aggregate principal amount of the Old
Notes. Old Notes may be exchanged only in integral
multiples of $1,000.
Expiration Date; Withdrawal of The Exchange Offer will expire at 5:00 p.m., New York
Tender............................. City time, on , 1997, or such later date
and time to which it is extended by SPI (the
"Expiration Date"). The tender of Old Notes pursuant
to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer..................... The Exchange Offer is subject to certain customary
conditions, which may be waived by SPI. See "The
Exchange Offer -- Certain Conditions to the Exchange
Offer."
Procedures for Tendering Old Each holder of Old Notes wishing to accept the
Notes.............................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Old Notes and any other required documentation to the
Exchange Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal, each
holder will represent to SPI that, among other
things, (i) any New Notes to be received by it will
be acquired in the ordinary course of its business,
(ii) it has no arrangement with any person to
participate in the distribution of the New Notes and
(iii) it is not an "affiliate," as defined in Rule
405 of the Securities Act, of SPI or, if it is an
affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable. Each holder whose Old
Notes are held through DTC (as defined) and who
wishes to participate in the Exchange Offer may do so
through the DTC's Automated Tender Offer Program
("ATOP") by which each tendering participant will
agree to be bound by the Letter of Transmittal.
Interest on the New Notes........... Interest on the New Notes will accrue from the date
of issuance (the "Issue Date") at the rate of 9 3/8%
per annum, and will be payable semi-annually in
arrears on each April 15 and October 15, commencing
April 15, 1997. Holders of the
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
New Notes will also on April 15, 1997 receive an
amount equal to the accrued interest on the Old
Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the
New Notes.
Special Procedures for Beneficial
Owners............................. Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date.
Guaranteed Delivery Procedure....... Holders of Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or
who cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent, prior to
the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Registration Requirements........... SPI has agreed to use its best efforts to consummate
by , 1997, the registered Exchange Offer
pursuant to which holders of the Old Notes will be
offered an opportunity to exchange their Old Notes
for the New Notes which will be issued without
legends restricting the transfer thereof. In the
event that applicable interpretations of the staff of
the Commission do not permit SPI to effect the
Exchange Offer or in certain other circumstances, SPI
has agreed to file a Shelf Registration Statement
covering resales of the Old Notes and to use its best
efforts to cause such Shelf Registration Statement to
be declared effective under the Securities Act and,
subject to certain exceptions, keep such Shelf
Registration Statement effective until three years
after the original issuance of the Old Notes. If SPI
fails to consummate the Exchange Offer by ,
1997, or, if SPI is required to file a Shelf
Registration Statement and such Shelf Registration
Statement is not declared effective or does not
remain effective under the Securities Act as set
forth under "Old Notes Registration Rights," SPI will
be subject to certain interest rate penalties.
Certain U.S. Federal Income Tax
Consequences....................... For a discussion of certain federal income tax
considerations
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
relating to the exchange of the New Notes for the Old
Notes, see "Certain U.S. Federal Income Tax
Consequences."
Use of Proceeds..................... There will be no proceeds to SPI from the exchange of
Notes pursuant to the Exchange Offer.
Exchange Agent...................... Wilmington Trust Company is the Exchange Agent. The
address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer -- Exchange
Agent."
</TABLE>
TERMS OF THE NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes are registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. See
"Description of the Notes."
OLD NOTES REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") among SPI, the Guarantors and the Initial Purchaser, SPI and the
Guarantors agreed (a) to file a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Old Notes (the
"Exchange Offer") for the New Notes (except that the New Notes will not contain
terms with respect to transfer restrictions) on or prior to the later of (i) 60
days after the Issue Date and (ii) 30 days after the closing of both of the
Acquisitions (the "Exchange Offer Filing Date") and (b) to use their best
efforts to cause such registration statement to become effective under the
Securities Act on or prior to the later of (i) 150 days after the Issue Date and
(ii) 90 days after the Exchange Offer Filing Date. In the event that applicable
law or interpretations of the staff of the Commission do not permit SPI to
effect the Exchange Offer, SPI and the Guarantors will use their best efforts to
cause to become effective a shelf registration statement with respect to the
resale of the Old Notes (and the related guarantees) (the "Shelf Registration
Statement") and to keep the Shelf Registration Statement continuously effective
until three years after the Issue Date or such shorter period ending when all
the New Notes have been sold thereunder. The interest rate on the Old Notes is
subject to increase under certain circumstances if SPI and the Guarantors are
not in compliance with their obligations under the Registration Rights
Agreement. See "Old Notes Registration Rights."
RISK FACTORS
See "Risk Factors," which begins at page 9, for a discussion of certain
factors that should be considered by participants in the Exchange Offer.
7
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
THE COMPANY
The following summary unaudited pro forma financial data gives pro forma
effect in the manner described under "Unaudited Pro Forma Financial Data" and
the notes thereto to the Transactions (including approximately $4.2 million of
annualized cost savings related to the integration of SPI, CPG and Arcon), as if
such transactions had occurred on January 1, 1995 in the case of Income
Statement Data and Other Data, and, in the case of Balance Sheet Data, as if the
Transactions had occurred on September 30, 1996. The Income Statement Data and
Other Data do not purport to represent what the Company's results of operations
actually would have been if the Transactions had occurred as of such date or
what such results will be for any future periods. The final allocation of
purchase price and the resulting amortization expenses in the Income Statement
Data will differ from the preliminary estimates for the reasons described in
more detail in "Unaudited Pro Forma Financial Data." The information contained
in this table should be read in conjunction with "Selected Historical
Consolidated Financial Data -- Specialty Paperboard, Inc.," "Selected Historical
Consolidated Financial Data -- CPG Investors Inc.," "Selected Historical
Consolidated Financial Data -- Arcon Holdings Corp.," "Unaudited Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of SPI and
accompanying notes thereto, the consolidated financial statements of CPG and
accompanying notes thereto and the consolidated financial statements of Arcon
and the accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA LATEST
YEAR ENDED PRO FORMA NINE MONTHS TWELVE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------
<S> <C> <C> <C> <C>
1995 1995 1996 1996
------------ ---------- ---------- -------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................ $ 239,464 $ 183,396 $ 168,986 $ 225,054
Cost of sales........................................ 202,960 155,838 139,612 186,734
------------ ---------- ---------- -------------------
Gross profit....................................... 36,504 27,558 29,374 38,320
General and administrative expenses.................. 13,959 10,495 10,674 14,138
------------ ---------- ---------- -------------------
Income from operations............................. 22,545 17,063 18,700 24,182
Other (income) expenses, net......................... (1,198) (782) (991) (1,407)
Loss on sale of assets............................... 8,302 8,159 -- 143
Cogeneration (income)................................ (6,512) (6,512) -- --
Interest expense..................................... 9,825 7,370 7,370 9,825
------------ ---------- ---------- -------------------
Income before income taxes......................... 12,128 8,828 12,321 15,621
Provision for income taxes........................... 1,360 107 4,748 6,001
------------ ---------- ---------- -------------------
Net income........................................... $ 10,768 $ 8,721 $ 7,573 $ 9,620
------------ ---------- ---------- -------------------
------------ ---------- ---------- -------------------
OTHER DATA:
EBITDA (a)........................................... $ 29,500 $ 22,331 $ 24,107 $ 31,276
Net long-term debt to EBITDA......................... 2.92x
EBITDA to cash interest expense...................... 3.34x
Depreciation and amortization (b).................... 6,955 5,268 5,407 7,094
Capital expenditures................................. 9,445 5,303 6,825 10,967
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 36,992
Total assets....................................................................................... 205,324
Long-term debt, less current maturities............................................................ 100,000
Total stockholders' equity......................................................................... 44,021
</TABLE>
- ------------------------
(a) EBITDA is defined as income from operations plus depreciation and
amortization to the extent such depreciation and amortization are included
in the calculation of income from operations. EBITDA is provided because it
is a measure of an issuer's ability to service its indebtedness commonly
used by certain investors. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.
(b) Depreciation and amortization includes only those items included in income
from operations and excludes $(995), $(646), $(677) and $(1,026) of
amortization included in other (income) expense and $450, $338, $338 and
$450 of amortization included in interest expense, for the year ended
December 31, 1995, the nine months ended September 30, 1995 and 1996 and the
twelve months ended September 30, 1996, respectively.
8
<PAGE>
RISK FACTORS
Prospective participants should carefully consider the following factors in
addition to the other information set forth in this Prospectus before
participating in the Exchange Offer.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE AND REFINANCE DEBT
In connection with the Transactions, the Company incurred a significant
amount of indebtedness. As of September 30, 1996, after giving pro forma effect
to the Transactions, the Company's indebtedness would have been approximately
$100.0 million and its stockholders' equity would have been approximately $44.0
million. In addition, the Company has significant obligations under an operating
lease (the "Sale/ Leaseback Transaction") in respect of its Brattleboro mill the
annual costs of which are reflected in the Company's income statements as cost
of sales. See "Description of Financing Arrangements" and Note 6 to the
consolidated financial statements of Specialty Paperboard, Inc. In addition,
subject to the restrictions in the Credit Facility and the Indenture, the
Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes; (ii) the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures or
acquisitions may be limited; and (iii) the Company's level of indebtedness could
limit its flexibility in reacting to changes in the industry and economic
conditions generally.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. The Company anticipates that
its operating cash flow, together with borrowings under the Credit Facility,
will be sufficient to meet its operating expenses and to service its debt
obligations as they become due. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." SPI's ratio of earnings to fixed charges was 6.79:1, 4.93:1,
4.93:1, 3.11:1 and 1.18:1 for the nine months ended September 30, 1996 and each
of the four years ended December 31, 1995, 1994, 1993 and 1992, respectively.
For the year ended December 31, 1991, SPI's fixed charges exceeded its earnings
by $4.2 million. On a pro forma basis, after giving effect to the Transactions,
the Company's ratio of earnings to fixed charges was 2.41:1, 2.46:1 and 2.12:1
for the twelve months ended September 30, 1996, the nine months ended September
30, 1996 and the fiscal year ended December 31, 1995, respectively.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, impose restrictions on the ability of a subsidiary
to pay dividends or make certain payments to the Company, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Credit Facility and the operating lease entered into pursuant to the
Sale/Leaseback Transaction (the "Sale/Leaseback Agreement") contains other and
more restrictive covenants. See "Description of Notes -- Certain Covenants" and
"Description of Financing Arrangements." A breach of any of these covenants
could result in a default under the Credit Facility, the Sale/Leaseback
Agreement and/or the Indenture. Upon the occurrence of an event of default under
the Credit Facility or the Sale/Leaseback
9
<PAGE>
Agreement, the lenders under the Credit Facility could elect to declare all
amounts outstanding under the Credit Facility and the Sale/Leaseback Agreement
together with accrued interest, to be immediately due and payable. If the
Company were unable to repay those amounts, such lenders could proceed against
the collateral granted to them to secure that indebtedness, which indebtedness
currently is secured by substantially all of the assets of SPI. Following the
consummation of the Transactions, SPI expects that the security under the Credit
Facility will be limited to the accounts receivable and inventory of the
Company. See "Description of Financing Arrangements". If the lenders under the
Credit Facility accelerate the payment of such indebtedness, there can be no
assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes.
EXPOSURE TO FLUCTUATIONS IN RAW MATERIALS COSTS AND SUPPLY
The Company's principal raw materials are hardwood and softwood pulp and
secondary fiber, which are cyclical in both price and supply. The cyclical
nature of pulp pricing presents a potential risk to the Company's gross profit
margins to the extent that the Company is unable to pass along price increases
to its customers on a timely basis. The Company is also subject to the risk that
it will be unable to purchase sufficient quantities of pulp to meet its
production requirements during times of tight supply. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Overview -- Raw Materials." The Company's sole source of
Tyvek-Registered Trademark- is DuPont. Although management believes it has a
good relationship with DuPont, there can be no assurances that the Company will
be able to continually purchase adequate supplies of
Tyvek-Registered Trademark-. Any material limitation or interruption in the
Company's supply of Tyvek-Registered Trademark- could have a material adverse
effect on the financial condition and results of operations of the Company.
Furthermore, significant increases in the price of Tyvek-Registered Trademark-,
if not offset by product price increases, could have a material adverse effect
on the financial condition and results of operations of the Company. There can
be no assurances that the Company will be able to pass any future increases in
the price of Tyvek-Registered Trademark- on to its customers in the form of
price increases.
SPECIALTY PAPER MARKET COMPETITION
The Company's competition within the specific markets in which it operates
comes primarily from a relatively small number of other specialty paper
producers, as well as from producers of vinyl, plastic, fiberglass and other
materials. Some of these producers have substantially greater resources than the
Company. Competition in the Company's markets is based principally on quality,
product performance and characteristics, service and price as they relate to the
specific needs of the customer. Competitors with like materials, and different
competitive materials, could displace the Company's materials and adversely
affect the Company's financial condition and results of operations.
IMPACT OF ENVIRONMENTAL REGULATION; GOVERNMENTAL REGULATION
Like similar companies, the Company's operations and properties are subject
to a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to
environmental protection and health and safety matters and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims. Based upon its experience to date, management of the Company
believes that the future cost of compliance with existing Environmental Laws,
and liability for known claims of this type, will not have a material adverse
effect on the Company's financial condition and results of operations. However,
future events, such as new
- ------------
- -Registered Trademark-DuPont registered trademark.
10
<PAGE>
information, changes in existing Environmental Laws or their interpretation, and
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material to the Company's
financial condition and results of operations. See "Business -- Environmental
Regulation and Compliance."
INTEGRATION OF ACQUIRED COMPANIES; ACQUISITION STRATEGY
The Company intends to manage the operations of SPI, CPG and Arcon as an
integrated entity. While the Company believes that it can successfully integrate
the operations acquired from CPG and Arcon into those of SPI, there can be no
assurance that this will be the case. There also can be no assurance that the
Company will be able to realize expected operating and economic efficiencies
following the Acquisitions. In addition, the Company intends to continue to grow
through selected strategic acquisitions of businesses in complementary markets.
See "Business -- Business Strategy." There can be no assurance that the Company
will be able to locate suitable acquisition candidates, consummate acquisitions
on favorable terms or successfully integrate newly acquired businesses with the
Company's operations.
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive officers and other key management personnel. There can be no assurance
that the Company will be able to retain its executive officers and key personnel
or attract additional qualified management in the future. In addition, the
success of certain of the Company's acquisitions may depend, in part, on the
Company's ability to retain management personnel of the acquired companies.
There can be no assurance that the Company will be able to retain such
management personnel.
FRAUDULENT TRANSFER STATUTES
Under applicable provisions of Federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, if it were found that any
Guarantor (i) had incurred indebtedness represented by its Guarantee with an
intent to hinder, delay or defraud creditors or had received less than a
reasonably equivalent value or fair consideration for such indebtedness and
(ii)(A) was insolvent, (B) was rendered insolvent by reason of such incurrence,
(C) was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital to carry on its business
or (D) intended to incur or believed that it would incur debts beyond its
ability to pay as such debts matured, the obligations of such Guarantor under
its Guarantee could be avoided or claims in respect of such Guarantee and
collateral could be subordinated to all other debts of such Guarantor. A legal
challenge of a Guarantee on fraudulent conveyance grounds could, among other
things, focus on the benefits, if any, realized by a Guarantor as a result of
the issuance by SPI of the Notes. To the extent that a Guarantee was held to be
unenforceable as a fraudulent conveyance for any reason, the holders of the
Notes would cease to have any direct claim in respect of a Guarantor and would
be solely creditors of SPI. In the event a Guarantee was held to be
subordinated, the claims of the holders of the Notes would be subordinated to
claims of other creditors of such Guarantor.
The measures of insolvency for purposes of the foregoing considerations will
vary depending on the law applied in any proceeding with respect to the
foregoing. Generally, however, an issuer would be considered insolvent if the
sum of its debts, including contingent liabilities, were greater than the fair
saleable value of its assets at a fair valuation or if the present fair saleable
value of its assets were less than the amount that would be required to pay its
probable liabilities on its existing debts, including contingent liabilities, as
they become absolute and mature. There can be no assurance, however, as to what
standard a court would apply in making such determination.
11
<PAGE>
SPI believes that the Guarantors will receive equivalent value at the time
the indebtedness is incurred under the Guarantees. In addition, SPI believes
that none of the Guarantors (i) is or will be insolvent, (ii) is or will be
engaged in a business or transaction for which its remaining assets constitute
unreasonable small capital, or (iii) intends or will intend to incur debt beyond
its ability to repay such debts as they mature. Since each of the components of
the question of whether a Guarantee is a fraudulent conveyance is inherently
fact based and fact specific, there can be no assurance that a court passing on
such questions would agree with SPI. Neither counsel for SPI nor counsel for the
Initial Purchaser will express any opinion as to Federal or state laws relating
to fraudulent transfers.
SEASONALITY
The Company's business is seasonal in nature. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources -- Seasonality."
ABSENCE OF PUBLIC MARKET
There has not previously been any public market for the New Notes. There can
be no assurance as to the liquidity of any markets that may develop for the New
Notes, the ability of holders to sell the New Notes, or the price at which
holders would be able to sell the New Notes. Future trading prices of the New
Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's operating results and the market for similar
securities. Historically, the market for securities similar to the New Notes,
including non-investment grade debt, has been subject to disruptions that have
caused substantial volatility in the prices of such securities. There can be no
assurance that any market for the New Notes, if such market develops, will not
be subject to similar disruptions.
12
<PAGE>
THE ACQUISITIONS
CPG ACQUISITION. Pursuant to the CPG Merger Agreement, on October 31, 1996,
a wholly-owned subsidiary of SPI was merged with and into CPG and CPG became a
wholly-owned subsidiary of SPI. The beneficial owners of the issued and
outstanding capital stock of CPG, including members of CPG's management,
received in the merger aggregate consideration of $53.0 million less
approximately $9.8 million in outstanding indebtedness of CPG at closing. The
purchase price is subject to post closing adjustments equal to the amount by
which the Closing Net Worth of CPG differs from approximately $22.8 million (the
"CPG Purchase Price"). "Closing Net Worth" is defined in the Merger Agreement to
mean the total assets of CPG, including cash, less total liabilities of CPG,
excluding outstanding indebtedness, in each case as set forth in a closing
balance sheet of CPG as of the open of business on the closing date of the CPG
Acquisition. Out of the CPG Purchase Price (a) $300,000 was placed into an
escrow account as security for the satisfaction of certain environmental
indemnification obligations contained in the CPG Merger Agreement (the "CPG
Environmental Escrow") and (b) $3.0 million was placed into an escrow account as
security for the satisfaction of certain other indemnification obligations
contained in the CPG Merger Agreement (including environmental indemnification
matters which exceed the amount of the CPG Environmental Escrow).
ARCON ACQUISITION. Pursuant to the Arcon Stock Purchase Agreement, on
October 31, 1996, SPI purchased all of the issued and outstanding capital stock
of Arcon for an aggregate purchase price of approximately $32.0 million less
approximately $8.5 million in outstanding indebtedness of Arcon at closing (the
"Arcon Purchase Price"). Two million dollars of the Arcon Purchase Price was
placed into an escrow account as security for the satisfaction of certain
indemnification obligations contained in the Arcon Stock Purchase Agreement.
USE OF PROCEEDS OF THE NEW NOTES
This Exchange Offer is intended to satisfy certain obligations of SPI under
the Registration Rights Agreement. SPI will not receive any proceeds from the
issuance of the New Notes offered hereby. In consideration for issuing the New
Notes as contemplated in this Prospectus, SPI will receive, in exchange, Old
Notes in like principal amount. The form and terms of the New Notes are
identical in all material respects to the form and terms of the Old Notes,
except as otherwise described herein under "The Exchange Offer--Terms of the
Exchange Offer." The Old Notes surrendered in exchange for the New Notes will be
retired and cancelled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the outstanding debt of SPI.
13
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement by and among SPI, the
Guarantors and the Initial Purchaser, SPI has agreed (a) to file a registration
statement with respect to an offer to exchange the Old Notes for senior debt
securities of SPI with terms substantially identical to the Old Notes (except
that the New Notes will not contain terms with respect to transfer restrictions)
on or prior to the later of (i) the 60th day after the Issue Date and (ii) the
30th day after the Exchange Offer Filing Date and (b) to use their best efforts
to cause such registration statement to become effective under the Securities
Act on or prior to the later of (i) the 150th day after the Issue Date and (ii)
the 90th day after the Exchange Offer Filing Date. In the event that applicable
law or interpretations of the staff of the Commission do not permit SPI to file
the registration statement containing this Prospectus or to effect the Exchange
Offer, or if certain holders of the Old Notes notify SPI that they are not
permitted to participate in, or would not receive freely tradeable New Notes
pursuant to, the Exchange Offer, SPI will use its best efforts to cause to
become effective the Shelf Registration Statement with respect to the resale of
the Old Notes and to keep the Shelf Registration Statement effective until three
years after the original issuance of the Old Notes. The interest rate on the Old
Notes is subject to increase under certain circumstances if SPI is not in
compliance with its obligations under the Registration Rights Agreement. See
"Old Notes Registration Rights."
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of SPI or, if
it is an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. See "Old Notes
Registration Rights."
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, SPI believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than a holder which is an "affiliate" of SPI within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate and has no arrangement
or understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention or for
the purpose of participating in a distribution of the New Notes cannot rely on
such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling security
holders information required by Item 507 of Regulation S-K under the Securities
Act. This Prospectus may be used for an offer to resell, resale or other
retransfer of New Notes only as specifically set forth herein. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, SPI will accept for exchange any and all Old
Notes properly tendered and not withdrawn prior
14
<PAGE>
to 5:00 p.m., New York City time, on the Expiration Date. SPI will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes surrendered pursuant to the Exchange Offer. Old Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $100 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
SPI intends to conduct the Exchange Offer in accordance with the provisions
of the Registration Rights Agreement and the applicable requirements of the
Exchange Act, and the rules and regulations of the Commission thereunder. Old
Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
SPI shall be deemed to have accepted for exchange properly tendered Old
Notes when, as and if SPI shall have given oral or written notice thereof to the
Exchange Agent and complied with the provisions of Section 2 of the Registration
Rights Agreement. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the New Notes from SPI. SPI expressly reserves the
right to amend or terminate the Exchange Offer, and not to accept for exchange
any Old Notes not theretofore accepted for exchange, upon the occurrence of any
of the conditions specified below under "-- Certain Conditions to the Exchange
Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. SPI will pay all charges and expenses, other
than certain applicable taxes described below, in connection with the Exchange
Offer. "See -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, SPI will notify the Exchange Agent of
any extension by oral or written notice and will mail to the registered holders
of Old Notes an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
SPI reserves the right, in its sole discretion, (i) to delay accepting for
exchange any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "The Exchange
Offer -- Conditions" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders of Old
Notes. If the Exchange Offer is amended in a manner determined by SPI to
constitute a material change, SPI will
15
<PAGE>
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and SPI will extend the Exchange
Offer, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 9 3/8% per annum, payable
semi-annually, on each April 15 and October 15, commencing April 15, 1997.
Holders of New Notes will receive interest on April 15, 1997 from the date of
initial issuance of the New Notes, plus an amount equal to the accrued interest
on the Old Notes. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, SPI will not be
required to accept for exchange, or exchange any New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in SPI's reasonable judgment, might materially impair the ability of
SPI to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in SPI's reasonable judgment, might
materially impair the ability of SPI to proceed with the Exchange Offer; or
(c) any governmental approval has not been obtained, which approval SPI
shall, in its reasonable discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
SPI expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written notice
of such extension to the holders thereof. During any such extensions, all Old
Notes previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by SPI. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of the Exchange
Offer.
SPI expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above under "-- Certain Conditions to the Exchange Offer." SPI will
give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
The foregoing conditions are for the sole benefit of SPI and may be asserted
by SPI regardless of the circumstances giving rise to any such condition or may
be waived by SPI in whole or in part at any time and from time to time in its
sole discretion. The failure by SPI at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, SPI will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any such Old Notes, if at such time any
stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Indenture under the Trust Indenture Act of 1939 (the "TIA").
16
<PAGE>
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must (i) complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date or (ii) comply with
DTC's ATOP procedures described below. In addition, either (i) Old Notes must be
received by the Exchange Agent or (ii) a timely confirmation of book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility" or "DTC") pursuant to the procedure for
book-entry transfer described below together with the Letter of Transmittal or a
properly transmitted Agent's Message (as defined below) must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents or a
properly transmitted Agent's Message must be received by the Exchange Agent at
the address set forth below under "-- Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and SPI in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT (INCLUDING DELIVERY THROUGH DTC AND ANY
ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED THROUGH ATOP), IS AT THE ELECTION
AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO SPI. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder of Old Notes to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered holder of Old Notes. The transfer of registered ownership
may take considerable time and may not be able to be completed prior to the
Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Old Notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
17
<PAGE>
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Old Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by SPI, evidence
satisfactory to SPI of their authority to so act must be submitted with the
Letter of Transmittal.
The Exchange Agent and the DTC have confirmed that any financial institution
that is a participant in the DTC's system may utilize the DTC's ATOP to tender
Old Notes. Accordingly, participants in the DTC's ATOP may, in lieu of
physically completing and signing the Letter of Transmittal and delivering it to
the Exchange Agent, electronically transmit their acceptance of the Exchange
Offer by causing the DTC to transfer the Old Notes to the Exchange Agent in
accordance with the DTC's ATOP procedures for transfer. The DTC will then send
an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that the DTC has received an express acknowledgment from a participant in the
DTC's ATOP that is tendering Old Notes, which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by SPI in its sole discretion, which determination will be
final and binding. SPI reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes SPI's acceptance of which would, in
the opinion of counsel for SPI, be unlawful. SPI also reserves the right to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. SPI's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as SPI shall
determine. Although SPI intends to notify holders of defects or irregularities
with respect to tenders of Old Notes, neither SPI, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Notes or a timely Book-Entry Confirmation of such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Notes are not accepted for exchange for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
18
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or, if
the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Dates, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange trading days after the Expiration Date, either
(i) the Letter of Transmittal (or facsimile thereof) together with the Old
Notes or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent or (ii) the Exchange Agent will
receive a properly transmitted Agent's Message; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal or a properly transmitted
Agent's Message, are received by the Exchange Agent within three (3) New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, (i) a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent" or (ii) the participant must comply with the appropriate
procedures of DTC's ATOP system. Any such notice of withdrawal must specify the
name of the person having tendered the Old Notes to be withdrawn, identify the
Old Notes to be withdrawn (including the principal amount of such Old Notes),
and (where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes were registered, if different from that of the withdrawing
holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the
19
<PAGE>
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by SPI, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
20
<PAGE>
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL OR BY BY HAND:
OVERNIGHT COURIER:
Wilmington Trust Company Wilmington Trust Company
Corporate Trust Administration c/o Harris Trust Company of New York,
1100 North Market Street as Agent
Rodney Square North 75 Water Street
Wilmington, Delaware 19890-0001 New York, New York 10004
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
Facsimile: (302) 651-1079
Confirm by Telephone: (302) 651-8864
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by SPI. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by officers and regular employees of SPI
and its affiliates.
SPI has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to broker-dealers or others soliciting
acceptances of the Exchange Offer. SPI, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by SPI and are estimated in the aggregate to be approximately $ .
Such expenses include registration fees, fees and expenses of the Exchange Agent
and Trustee, accounting and legal fees and printing costs, and related fees and
expenses.
SPI will pay all transfer taxes, if any, applicable to the exchange of Notes
pursuant to the Exchange Offer. If, however, certificates representing Old Notes
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be issued in the name of, any person other than the registered
holder of Old Notes tendered, or if tendered Old Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
21
<PAGE>
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct SPI
to register New Notes in the name of, or request that Old Notes not tendered or
not accepted in the Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth (i) in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws and (ii) otherwise set forth under
"Transfer Restrictions" in the Offering Memorandum dated October 4, 1996
distributed in connection with the Offering. In general, the Old Notes may not
be offered or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. SPI does not currently anticipate that it will
register the Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission, New Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is an "affiliate" of SPI within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer. Any holder who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or such securities laws have been complied
with. SPI has agreed, pursuant to the Registration Rights Agreement and subject
to certain specified limitations therein, to register or qualify the New Notes
for offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the New Notes reasonably requests in writing.
22
<PAGE>
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Company giving
effect to the Transactions as if they had occurred on September 30, 1996. This
table should be read in conjunction with the "Selected Historical Consolidated
Financial Data -- Specialty Paperboard, Inc.," "Selected Historical Consolidated
Financial Data -- CPG Investors Inc.," "Selected Historical Consolidated
Financial Data -- Arcon Holdings Corp." and "Unaudited Pro Forma Consolidated
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL PRO FORMA
--------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash..................................................................... $ 3.2 $ 8.7
Credit Facility(1)....................................................... 1.8 --
Senior Notes............................................................. -- 100.0
--------- -----------
Total Debt........................................................... 1.8 100.0
Stockholders' Equity..................................................... 45.8 44.0
--------- -----------
Total Capitalization................................................. $ 47.6 $ 144.0
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) SPI may obtain revolving credit loans under the Credit Facility in the
amounts equal to the lesser of (a) $15 million or (b) a borrowing base
amount equal to a specified percentage of certain accounts receivable and
inventory. See "Description of Financing Arrangements." SPI is in the final
stages of negotiation with The CIT Group/Business Credit, Inc. to amend the
Credit Facility to increase the amount available as revolving loans under
the Credit Facility to the lesser of (a) $20.0 million or (b) a borrowing
base amount equal to a specified percentage of certain accounts receivable
and inventory. Currently SPI has no outstanding revolving credit loans. See
"Description of Financing Arrangements."
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Combined Consolidated Statements of Income
give effect to the Transactions as if they had occurred on January 1, 1995. The
unaudited pro forma financial data are based on the historical consolidated
financial statements of SPI, CPG and Arcon and the assumptions and adjustments
described in the accompanying notes. The Unaudited Pro Forma Combined
Consolidated Statements of Income do not (a) purport to represent what the
Company's results of operations actually would have been if the Transactions had
occurred as of the date indicated or what such results will be for any future
periods or (b) give effect to certain non-recurring charges expected to result
from the Transactions.
The following Unaudited Pro Forma Combined Consolidated Balance Sheet as of
September 30, 1996 was prepared as if the Transactions had occurred on such
date. The Unaudited Pro Forma Combined Consolidated Balance Sheet reflects the
preliminary allocation of the purchase prices for the Acquisitions to the
Company's tangible and intangible assets and liabilities. The final allocation
of such purchase prices, and the resulting amortization expense in the
accompanying Unaudited Pro Forma Combined Statements of Income, will differ from
the preliminary estimates due to the final allocation being based on: (a) actual
closing date amounts of assets and liabilities, and (b) actual values of
property, plant and equipment and any identifiable intangible assets.
The unaudited pro forma financial data are based upon assumptions that SPI
believes are reasonable and should be read in conjunction with the consolidated
financial statements of SPI and the accompanying notes thereto, the consolidated
financial statements of CPG and the accompanying notes thereto and the
consolidated financial statements of Arcon and the accompanying notes thereto
included elsewhere in this Prospectus.
Although Arcon's fiscal year ends October 31, the historical information of
Arcon in the pro forma statements of income is presented for the twelve months
ended December 31, 1995 and the nine months ended September 30, 1996 and 1995.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
OFFERING ACQUISITIONS COMPANY
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------------------------------- ----------- -------------------- -----------
<CAPTION>
SPI CPG ARCON CPG ARCON
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash....................... $ 3,174 $ 3 $ 1,825 $ 73,053(a) $ (45,124 (d) $ (24,223 (f) $ 8,708
Accounts receivable........ 11,278 11,030 1,964 -- -- -- 24,272
Cogen receivable........... 1,512 -- -- -- -- -- 1,512
Inventories................ 16,402 8,317 2,695 -- 1,415(e) -- 28,829
Deferred taxes............. -- 716 114 -- -- (114 (g) 716
Other...................... 1,016 307 180 -- -- -- 1,503
----------- ----------- --------- ----------- --------- --------- -----------
Total current assets..... 33,382 20,373 6,778 73,053 (43,709) (24,337) 65,540
Property, plant and
equipment, net........... 36,030 19,444 1,209 -- 36,940(e) -- 93,623
Organizational and
financing costs.......... 1,988 303 401 1,808(b) -- -- 4,500
Other long-term assets..... 487 976 -- -- -- -- 1,463
Goodwill................... -- -- 10,222 -- 7,916(e) 17,781(g) 35,919
Deferred income taxes...... 4,128 135 16 -- -- -- 4,279
----------- ----------- --------- ----------- --------- --------- -----------
Total assets............. $ 76,015 $ 41,231 $ 18,626 $ 74,861 $ 1,147 $ (6,556) $ 205,324
----------- ----------- --------- ----------- --------- --------- -----------
----------- ----------- --------- ----------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt........... $ -- $ 1,750 $ 1,550 $ (3,300)(a) $ -- $ -- $ --
Accounts payable........... 7,155 4,520 1,699 -- -- -- 13,374
Accrued liabilities........ 8,175 5,396 1,065 (1,191)(c) 450(e) 1,279(g) 15,174
----------- ----------- --------- ----------- --------- --------- -----------
Total current
liabilities............ 15,330 11,666 4,314 (4,491) 450 1,279 28,548
LONG-TERM LIABILITIES:
Senior Notes............... -- -- -- 100,000(a) -- -- 100,000
Long-term debt............. 1,845 10,540 6,477 (18,862)(a) -- -- --
----------- ----------- --------- ----------- --------- --------- -----------
Total long-term debt..... 1,845 10,540 6,477 81,138 -- 100,000
Deferred gain.............. 13,033 -- -- -- -- -- 13,033
Deferred income taxes...... -- -- -- -- 15,342(e) -- 15,342
Warrant -- -- 1,752 -- -- (1,752 (h) --
Other long-term liabilities -- 4,380 -- -- -- -- 4,380
----------- ----------- --------- ----------- --------- --------- -----------
Total long-term
liabilities 14,878 14,920 8,229 81,138 15,342 (1,752) 132,755
----------- ----------- --------- ----------- --------- --------- -----------
STOCKHOLDERS' EQUITY:
Common stock............... 4 5 1 -- (5 (h) (1 (h) 4
Preferred stock............ -- -- 6,187 -- -- (6,187 (h) --
Additional paid in
capital.................. 44,733 4,565 179 -- (4,565 (h) (179 (h) 44,733
Unearned compensation...... (26) -- -- -- -- -- (26)
Retained earnings
(deficit)................ 1,096 10,140 (284) (1,786)(c) (10,140 (h) 602(h) (690)
Minimum pension
adjustment............... -- (65) -- -- 65(h) -- --
----------- ----------- --------- ----------- --------- --------- -----------
Total stockholders'
equity................. 45,807 14,645 6,083 (1,786) (14,645) (6,083) 44,021
----------- ----------- --------- ----------- --------- --------- -----------
Total liabilities and
stockholders' equity... $ 76,015 $ 41,231 $ 18,626 $ 74,861 $ 1,147 $ (6,556) $ 205,324
----------- ----------- --------- ----------- --------- --------- -----------
----------- ----------- --------- ----------- --------- --------- -----------
</TABLE>
See accompanying notes
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The Pro Forma Combined Consolidated Balance Sheet reflects the Transactions
as if they had occurred as of September 30, 1996 as follows:
(a) Reflects the issuance of the Notes and application of proceeds
therefrom:
<TABLE>
<S> <C>
Issuance of the Notes............................................. $ 100,000
Expenses for issuance of the Notes................................ (4,500)
Retirement of current maturities of long-term debt................ (3,300)
Retirement of long-term debt...................................... (18,862)
Elimination of debt discount...................................... (285)
---------
$ 73,053
---------
---------
</TABLE>
(b) Reflects the following:
<TABLE>
<CAPTION>
Financing costs related to the Offering............................. $ 4,500
<S> <C>
Write off of financing costs and expenses relating to debt to be
retired........................................................... (2,692)
---------
$ 1,808
---------
---------
</TABLE>
(c) Reflects the following:
<TABLE>
<S> <C>
Elimination of debt discount relating to debt to be retired........ $ (285)
Write off of financing costs and expenses relating to debt to be
retired.......................................................... (2,692)
Tax benefit from above adjustments................................. 1,191
---------
$ (1,786)
---------
---------
</TABLE>
(d) Represents the following cash payments related to the CPG Acquisition:
<TABLE>
<S> <C>
Purchase price--CPG Acquisition................................... $ (53,000)
Net purchase price adjustment..................................... (4,164)
Less debt outstanding............................................. 12,290
---------
Payment to sellers................................................ (44,874)
Acquisition expenses.............................................. (250)
---------
$ (45,124)
---------
---------
</TABLE>
26
<PAGE>
(e) The CPG Acquisition will be accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations." The
purchase price is being allocated first to the tangible and identifiable
intangible assets and liabilities of CPG based upon preliminary estimates of
their fair market values, with the remainder allocated to goodwill.
<TABLE>
<S> <C>
Payment to sellers -- CPG Acquisition.............................. $ 44,874
Acquisition expenses............................................... 250
Book value of net assets acquired.................................. (14,645)
---------
Increase in basis.................................................. $ 30,479
---------
---------
Allocation of increase in basis:
Increase in inventory value to convert LIFO to fair value.......... $ 1,415
Increase in fair value of property, plant and equipment, net....... 36,940
Increase in Goodwill............................................... 7,916
Accrual for Acquisition-related severance costs to be incurred at
CPG.............................................................. (450)
Increase in deferred tax liabilities--long-term.................... (15,342)
---------
$ 30,479
---------
---------
</TABLE>
(f) Represents the following cash payments related to the Arcon Acquisition:
<TABLE>
<S> <C>
Purchase price--Arcon Acquisition................................. $ (32,000)
Less debt outstanding............................................. 8,027
---------
Payment to sellers for shares, options and warrant................ (23,973)
Acquisition expenses.............................................. (250)
---------
$ (24,223)
---------
---------
</TABLE>
(g) The Arcon Acquisition will be accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations." The
purchase price is being allocated first to the tangible and identifiable
intangible assets and liabilities of Arcon based upon preliminary estimates of
their fair market values, with the remainder allocated to goodwill.
<TABLE>
<S> <C>
Payment to sellers for shares, options and warrant--Arcon
Acquisition...................................................... $ 23,973
Acquisition expenses............................................... 250
Book value of net assets acquired.................................. (7,835)
---------
Increase in basis.................................................. $ 16,388
---------
---------
Allocation of increase in basis:
Increase in goodwill............................................... $ 17,781
Decrease in deferred compensation.................................. 284
Accrual for acquisition-related severance and relocation costs to
be incurred at Arcon............................................. (1,563)
Decrease in deferred tax asset--current............................ (114)
---------
$ 16,388
---------
---------
</TABLE>
(h) Reflects the elimination of CPG and Arcon equity balances and warrant
pursuant to purchase accounting.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL PRO FORMA COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SPI CPG ARCON
---------- --------- ----------
Net sales..................................... $ 117,516 $ 95,795 $ 26,153 $ 239,464 $ -- $ 239,464
Cost of product sold.......................... 100,106 84,419 19,135 203,660 (700)(a) 202,960
---------- --------- ---------- ---------- ----------- -----------
Gross profit................................ 17,410 11,376 7,018 35,804 700 36,504
General and administrative.................... 8,397 5,310 3,401 17,108 (3,149)(b) 13,959
---------- --------- ---------- ---------- ----------- -----------
Income from operations...................... 9,013 6,066 3,617 18,696 3,849 22,545
Other (income) expenses, net.................. (1,198) -- -- (1,198) -- (1,198)
Loss on sale of assets........................ 8,302 -- -- 8,302 -- 8,302
Cogeneration income........................... (6,512) -- -- (6,512) -- (6,512)
Interest expense.............................. 892 1,345 1,793 4,030 5,796(c) 9,825
---------- --------- ---------- ---------- ----------- -----------
Income before income taxes.................. 7,529 4,721 1,824 14,074 (1,946) 12,128
Income tax provision (benefit)................ (424) 1,842 956 2,374 (1,014)(d) 1,360
---------- --------- ---------- ---------- ----------- -----------
Net income.................................... $ 7,953 $ 2,879 $ 868 $ 11,700 $ (932) $ 10,768
---------- --------- ---------- ---------- ----------- -----------
---------- --------- ---------- ---------- ----------- -----------
Other Data:
EBITDA (e).................................. $ 23,885 $ 29,500
Depreciation and amortization (f)........... 5,189 6,955
Capital expenditures........................ 9,445 9,445
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The Pro Forma Combined Consolidated Statement of Income for the year ended
December 31, 1995 reflects the Transactions as if they had occurred on January
1, 1995 as follows:
<TABLE>
<C> <S> <C>
(a) Reflects the following:
Conversion of CPG inventory from LIFO to fair value...................... $ (1,272)
Additional depreciation expense on increased property basis due to
purchase accounting adjustment......................................... 1,847
Reduction in headcount and operational expenses due to integration of
Arcon.................................................................. (1,275)
---------
$ (700)
---------
---------
(b) Reflects the following:
Reversal of amortization of intangible assets............................ $ (987)
Reversal of management fees.............................................. (100)
Amortization of goodwill acquired........................................ 898
Reversal of deferred compensation expense................................ (135)
Reduction in headcount and operational expense due to integration of
CPG and Arcon.......................................................... (2,825)
---------
$ (3,149)
---------
---------
(c) Reflects the following:
Interest costs on the Notes.............................................. $ 9,375
Reversal of interest expense............................................. (3,247)
Reversal of warrant accretion............................................ (500)
Reversal of amortization of financing costs relating to debt to be
retired................................................................ (283)
Amortization of financing costs relating to the issuance of the Notes.... 450
---------
$ 5,795
---------
---------
</TABLE>
(d) Reflects the net additional income tax provision (benefit) as a result of
the above adjustments, except the goodwill amortization adjustment, at an
effective tax rate of 40%.
(e) EBITDA is defined as income from operations plus depreciation and
amortization to the extent such depreciation and amortization are included
in the calculation of income from operations. EBITDA is provided because it
is a measure of an issuer's ability to service its indebtedness commonly
used by certain investors. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.
(f) Depreciation and amortization includes only those items included in income
from operations and excludes $(995) and $(995) of amortization included in
other (income) expense and $283 and $450 of amortization included in
interest expense in the total historical and pro forma results,
respectively.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------------------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SPI CPG ARCON
--------- --------- ---------
Net sales....................................... $ 91,557 $ 72,395 $ 19,444 $ 183,396 $ -- $ 183,396
Cost of product sold............................ 78,601 63,674 14,274 156,549 (711)(a) 155,838
--------- --------- --------- ---------- ----------- -----------
Gross profit.................................. 12,956 8,721 5,170 26,847 711 27,558
General and administrative...................... 6,189 4,064 2,570 12,823 (2,328)(b) 10,496
--------- --------- --------- ---------- ----------- -----------
Income from operations........................ 6,767 4,657 2,600 14,024 3,039 17,063
Other (income) expenses, net.................... (782) -- -- (782) (782)
Loss on sale of assets.......................... 8,159 -- -- 8,159 8,159
Cogeneration income............................. (6,512) -- -- (6,512) (6,512)
Interest expense................................ 811 1,037 1,238 3,086 4,284(c) 7,370
--------- --------- --------- ---------- ----------- -----------
Income before income taxes.................... 5,091 3,620 1,362 10,073 (1,245) 8,828
Income tax provisions (benefit)................. (1,364) 1,376 707 719 (612)(d) 107
--------- --------- --------- ---------- ----------- -----------
Net income...................................... $ 6,455 $ 2,244 $ 655 $ 9,354 $ (633) $ 8,721
--------- --------- --------- ---------- ----------- -----------
--------- --------- --------- ---------- ----------- -----------
Other Data:
EBITDA (e).................................... $ 17,959 $ 22,331
Depreciation and amortization (f)............. 3,935 5,268
Capital expenditures.......................... 5,303 5,303
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
The Pro Forma Combined Consolidated Statement of Income for the nine months
ended September 30, 1995 reflects the Transactions as if they had occurred on
January 1, 1995 as follows:
<TABLE>
<C> <S> <C>
(a) Reflects the following:
Conversion of CPG inventory from LIFO to fair value...................... $ (1,140)
Additional depreciation expense on increased property basis due to
purchase accounting adjustment......................................... 1,385
Reduction in headcount and operational expenses due to integration of
Arcon.................................................................. (956)
---------
$ (711)
---------
---------
(b) Reflects the following:
Reversal of amortization of intangible assets............................ $ (732)
Reversal of management fees.............................................. (75)
Amortization of goodwill acquired........................................ 673
Reversal of deferred compensation expense................................ (76)
Reduction in headcount and operational expenses due to integration of CPG
and Arcon.............................................................. (2,119)
---------
$ (2,328)
---------
---------
(c) Reflects the following:
Interest costs on the Notes.............................................. $ 7,031
Reversal of interest expense............................................. (2,610)
Reversal of warrant accretion............................................ (262)
Reversal of amortization of financing costs relating to debt to be
retired................................................................ (213)
Amortization of financing costs relating to the issuance of the Notes.... 338
---------
$ 4,284
---------
---------
</TABLE>
(d) Reflects the net additional income tax provision (benefit) as a result of
the above adjustments, except the goodwill amortization adjustment, at an
effective tax rate of 40%.
(e) EBITDA is defined as income from operations plus depreciation and
amortization to the extent such depreciation and amortization are included
in the calculation of income from operations. EBITDA is provided because it
is a measure of an issuer's ability to service its indebtedness commonly
used by certain investors. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.
(f) Depreciation and amortization includes only those items included in income
from operations and excludes $(646) and $(646) of amortization included in
other (income) expense and $213 and $338 of amortization included in
interest expense in the total historical and pro forma results,
respectively.
31
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------------------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SPI CPG ARCON
--------- --------- ---------
Net sales....................................... $ 77,734 $ 69,719 $ 21,533 $ 168,986 $ -- $ 168,986
Cost of product sold............................ 64,105 58,469 15,541 138,115 1,497(a) 139,612
--------- --------- --------- ---------- ----------- -----------
Gross profit.................................. 13,629 11,250 5,992 30,871 (1,497) 29,374
General and administrative...................... 6,316 4,330 2,324 12,970 (2,296)(b) 10,674
--------- --------- --------- ---------- ----------- -----------
Income from operations........................ 7,313 6,920 3,668 17,901 799 18,700
Other (income) expenses, net.................... (991) -- -- (991) (991)
Interest expense................................ 310 797 1,717 2,824 4,546(c) 7,370
--------- --------- --------- ---------- ----------- -----------
Income before income taxes.................... 7,994 6,123 1,951 16,068 (3,747) 12,321
Income tax provision (benefit).................. 3,037 2,449 1,226 6,712 (1,964)(d) 4,748
--------- --------- --------- ---------- ----------- -----------
Net income...................................... $ 4,957 $ 3,674 $ 725 $ 9,356 $ (1,783) $ 7,573
--------- --------- --------- ---------- ----------- -----------
--------- --------- --------- ---------- ----------- -----------
Other Data:
EBITDA (e).................................... $ 21,972 $ 24,107
Depreciation and amortization (f)............. 4,071 5,407
Capital expenditures.......................... 6,825 6,825
</TABLE>
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The Pro Forma Combined Consolidated Statement of Income for the nine months
ended September 30, 1996 reflects the Transactions as if they had occurred on
January 1, 1996 as follows:
<TABLE>
<C> <S> <C>
(a) Reflects the following:
Conversion of CPG inventory from LIFO to fair value............................ $ 1,068
Additional depreciation expense on increased property basis due to purchase
accounting adjustment.......................................................... 1,385
Reduction in headcount and operational expense due to integration of Arcon..... (956)
---------
$ 1,497
---------
---------
(b) Reflects the following:
Reversal of amortization of intangible assets............................ $ (728)
Reversal of management fees.............................................. (74)
Amortization of goodwill acquired........................................ 673
Reversal of deferred compensation expense................................ (48)
Reduction in headcount and operational expenses due to integration of CPG
and Arcon.............................................................. (2,119)
---------
$ (2,296)
---------
---------
(c) Reflects the following:
Interest costs on the Notes.............................................. $ 7,031
Reversal of interest expense............................................. (1,500)
Reversal of warrant accretion............................................ (1,110)
Reversal of amortization of financing cost relating to debt to be
retired................................................................ (213)
Amortization of financing costs relating to the issuance of the Notes.... 338
---------
$ 4,546
---------
---------
</TABLE>
(d) Reflects the net additional income tax provision (benefit) as a result of
the above adjustments, except the goodwill amortization adjustment, at an
effective tax rate of 40%.
(e) EBITDA is defined as income from operations plus depreciation and
amortization to the extent such depreciation and amortization are included
in the calculation of income from operations. EBITDA is provided because it
is a measure of an issuer's ability to service its indebtedness commonly
used by certain investors. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.
(f) Depreciation and amortization includes only those items included in income
from operations and excludes $(677) and $(677) of amortization included in
other (income) expense and $213 and $338 of amortization included in
interest expense, in the total historical and pro forma results,
respectively.
33
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
SPECIALTY PAPERBOARD, INC.
The following selected historical consolidated financial data for each of
the years in the three-year period ended December 31, 1995 have been derived
from, and are qualified by reference to, the audited consolidated financial
statements of SPI included elsewhere in this Prospectus. The selected historical
consolidated financial data for each of the years in the two year period ended
December 31, 1992 have been derived from the audited consolidated financial
statements of SPI. The selected historical consolidated unaudited financial data
set forth below for the nine month periods ended September 30, 1995 and 1996
have been derived from, and are qualified by reference to, SPI's consolidated
unaudited financial statements included elsewhere herein and include all
adjustments, consisting of normal recurring adjustments, which management
considers necessary for a fair presentation of the results of SPI for such
periods. Results for the interim periods are not necessarily indicative of the
results for the full year. The selected historical consolidated financial data
set forth below should be read in conjunction with, and are qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of SPI and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................... $ 82,549 $ 84,219 $ 79,982 $ 105,416 $ 117,516 $ 91,557
Cost of products sold................................... 67,505 68,614 66,360 88,138 100,106 78,601
--------- --------- --------- --------- --------- ---------
Gross profit.......................................... 15,044 15,605 13,622 17,728 17,410 12,956
General and administrative.............................. 9,322 5,955 7,881 8,584 8,397 6,189
--------- --------- --------- --------- --------- ---------
Income from operations................................ 5,722 9,650 5,741 8,694 9,013 6,767
Loss on disposition of asset, net....................... 1,047 -- -- -- 8,302 8,159
Other (income) expenses, net............................ 651 464 374 (658) (1,198) (782)
Cogeneration income (a)................................. -- -- (4,404) -- (6,512) (6,512)
Interest expense........................................ 8,231 7,752 3,137 1,356 892 811
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
items............................................... (4,207) 1,434 6,634 7,996 7,529 5,091
Income tax provision (benefit).......................... -- 583 1,921 2,768 (424) (1,364)
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items.............. (4,207) 851 4,713 5,228 7,953 6,455
Extraordinary items..................................... -- 573 (2,103) (149) -- --
--------- --------- --------- --------- --------- ---------
Net income (loss)....................................... ($ 4,207) $ 1,424 $ 2,610 $ 5,079 $ 7,953 $ 6,455
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (b).............................................. $ 10,233 $ 12,911 $ 8,920 $ 11,988 $ 11,779 $ 8,806
Depreciation and amortization (c)....................... 4,511 3,261 3,179 3,294 2,766 2,039
Capital expenditures.................................... 850 1,235 900 1,603 4,865 4,298
<CAPTION>
<S> <C>
1996
---------
<S> <C>
INCOME STATEMENT DATA:
Net sales............................................... $ 77,734
Cost of products sold................................... 64,105
---------
Gross profit.......................................... 13,629
General and administrative.............................. 6,316
---------
Income from operations................................ 7,313
Loss on disposition of asset, net....................... --
Other (income) expenses, net............................ (991)
Cogeneration income (a)................................. --
Interest expense........................................ 310
---------
Income (loss) before income taxes and extraordinary
items............................................... 7,994
Income tax provision (benefit).......................... 3,037
---------
Income (loss) before extraordinary items.............. 4,957
Extraordinary items..................................... --
---------
Net income (loss)....................................... $ 4,957
---------
---------
OTHER DATA:
EBITDA (b).............................................. $ 9,090
Depreciation and amortization (c)....................... 1,777
Capital expenditures.................................... 2,303
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 18,214
Total assets....................................................................................... 76,015
Long-term debt, less current maturities............................................................ 1,845
Stockholders' equity............................................................................... 45,807
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
34
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
- ------------------------------
(a) SPI has entered into agreements with Kamine/Besicorp Beaver Falls L.P.
("Kamine"), pursuant to which the Company is the host to a cogeneration
facility developed by Kamine at the Company's Beaver Falls mill, in
consideration of which the Company is entitled to receive cash payments
totalling $7.0 million from Kamine between May 1995 and May 1997. The
present value of these cash payments, in the amount of $6.5 million, was
recorded as income in the first quarter of 1995. Cash payments of $3.0
million and $2.0 million, respectively, were received in May 1995 and May
1996 and a final payment of $2.0 million is due in May 1997.
(b) EBITDA is defined as income from operations plus depreciation and
amortization to the extent such depreciation and amortization are included
in the calculation of income from operations. EBITDA is provided because it
is a measure of an issuer's ability to service its indebtedness commonly
used by certain investors. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity.
(c) Depreciation and amortization includes only those items included in income
from operations and excludes $849, $828, $1,565, $(65), $(995), $(646) and
$(677) of amortization included in other (income) expense for the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, respectively.
35
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
CPG INVESTORS INC.
The following selected historical consolidated financial data for each of
the years in the two year period ended December 31, 1995 have been derived from,
and are qualified by reference to, the audited consolidated financial statements
of CPG included elsewhere in this Prospectus. The selected historical financial
data for the nine month periods ended September 30, 1995 and 1996 have been
derived from, and are qualified by reference to, the unaudited consolidated
financial statements of CPG, included elsewhere herein, and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the results of CPG for such
periods. Results for the interim periods are not necessarily indicative of
results for the full year. The selected historical consolidated financial data
for each of the years in the three year period ended December 31, 1993 have been
derived from the unaudited consolidated financial statements of CPG and its
predecessor businesses. CPG was formed on November 1, 1993. Its predecessor
business operated as a subsidiary of Rexam plc during the period from March 18,
1993 to October 31, 1993, as a subsidiary of Specialty Coatings International
Inc. during the period from April 30, 1991 to March 18, 1993, and as a division
of James River Corporation of Virginia prior to April 30, 1991. The selected
historical consolidated financial data set forth below should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of CPG and accompanying notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $ 91,596 $ 87,660 $ 90,606 $ 95,952 $ 95,795 $ 72,395 $ 69,719
Cost of products sold..................... 73,294 71,766 75,823 82,079 84,419 63,674 58,469
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 18,302 15,894 14,783 13,873 11,376 8,721 11,250
Selling, general and administrative....... 10,125 9,171 6,066 6,169 5,310 4,064 4,330
--------- --------- --------- --------- --------- --------- ---------
Operating income (a).................... 8,177 6,723 8,717 7,704 6,066 4,657 6,920
Interest expense.......................... -- -- -- 1,440 1,345 1,037 797
--------- --------- --------- ---------
Income before income taxes (a).......... -- -- -- 6,264 4,721 3,620 6,123
Income tax provision (benefit) (a)........ -- -- -- 2,388 1,842 1,376 2,449
--------- --------- --------- ---------
Net income (a)............................ -- -- -- $ 3,876 $ 2,879 $ 2,244 $ 3,674
--------- --------- --------- ---------
--------- --------- --------- ---------
OTHER DATA:
EBITDA (b)................................ $ 8,951 $ 6,883 $ 9,141 $ 8,653 $ 7,250 $ 5,641 $ 8,223
Depreciation and amortization (c)......... 774 160 424 949 1,184 984 1,303
Capital expenditures...................... 2,000 2,141 3,175 2,888 4,366 2,868 2,464
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 8,707
Total assets....................................................................................... 41,231
Long-term debt, less current maturities............................................................ 10,540
</TABLE>
(FOOTNOTES CONTINUED ON NEXT PAGE)
36
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
- ------------------------------
(a) Interest expense and income tax provision are not available for the years
ended December 31, 1991, 1992 and 1993. During these years, CPG was a
component of larger companies with different capital structures and no
separate amounts are calculable for this period.
(b) EBITDA is defined as operating income, plus depreciation and amortization to
the extent such depreciation and amortization are included in the
calculation of operating income. EBITDA is provided because it is a measure
of an issuer's ability to service its indebtedness commonly used by certain
investors. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity.
(c) Depreciation and amortization includes only those items included in the
calculation of operating income and excludes $194, $225, $169 and $169 of
amortization included in interest expense for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
37
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
ARCON HOLDINGS CORP.
The following selected historical consolidated financial data for the year
ended October 31, 1995 has been derived from, and are qualified by reference to,
the audited consolidated financial statements of Arcon included elsewhere in
this Prospectus. The selected historical financial data for the year ended
October 31, 1994 have been derived from the audited financial statements of
Arcon Coating Mills, Inc. for the period from November 1, 1993 to April 14, 1994
and from the audited financial statements of Arcon for the period from April 14,
1994 to October 31, 1995. Arcon acquired all of the outstanding capital stock of
Arcon Coating Mills, Inc. on April 14, 1994. The selected historical financial
data for the year ended October 31, 1993 have been derived from, and are
qualified by reference to, the audited financial statements of Arcon Coating
Mills, Inc. included elsewhere in this Prospectus. The selected historical
financial data for each of the years in the two year period ended October 31,
1992 have been derived from the unaudited financial statements of Arcon. The
selected historical financial data for the two months ended December 31, 1994
and 1995 and for the nine month periods ended September 30, 1995 and 1996 have
been derived from, and are qualified by reference to, the unaudited financial
statements of Arcon, included elsewhere herein, and include all adjustments,
consisting only of normal recurring adjustments, which management considers
necessary for a fair presentation of the results of Arcon for such periods.
Results for the interim periods are not necessarily indicative of results for
the full year. The selected historical financial data set forth below should be
read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Arcon and the financial statements of
Arcon Coating Mills, Inc. and accompanying notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
TWO MONTHS ENDED
YEAR ENDED YEAR ENDED ENDED SEPTEMBER
OCTOBER 31, OCTOBER 31, DECEMBER 31, 30,
-------------------- ------------------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994(A) 1995 1994 1995 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $ 16,160 $ 18,325 $ 19,052 $ 21,285 $ 25,789 $ 4,088 $ 4,452 $ 19,444
Cost of products sold................ 12,263 13,645 14,423 16,095 18,893 3,043 3,285 14,272
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 3,897 4,680 4,629 5,190 6,896 1,045 1,167 5,170
Selling, general and
administrative..................... 2,519 2,552 2,626 2,687 3,410 540 531 2,570
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income................. 1,378 2,128 2,003 2,503 3,486 505 636 2,600
Interest expense..................... 1,580 1,610 1,633 1,317 1,576 255 471 1,238
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes.......................... (202) 518 370 1,186 1,910 250 165 1,362
Income tax provision................. 50 321 214 496 887 124 193 707
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (252) $ 197 $ 156 $ 690 $ 1,023 $ 126 $ (28) $ 655
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (b)........................... $ 2,284 $ 3,033 $ 3,038 $ 3,403 $ 4,723 $ 708 $ 841 $ 3,512
Depreciation and amortization (c).... 906 905 1,340 900 1,237 203 205 912
Capital expenditures................. 155 199 130 181 187 15 42 132
<CAPTION>
<S> <C>
1996
---------
<S> <C>
INCOME STATEMENT DATA:
Net sales............................ $ 21,533
Cost of products sold................ 15,541
---------
Gross profit..................... 5,992
Selling, general and
administrative..................... 2,324
---------
Operating income................. 3,668
Interest expense..................... 1,717
---------
Income (loss) before income
taxes.......................... 1,951
Income tax provision................. 1,226
---------
Net income (loss).................... $ 725
---------
---------
OTHER DATA:
EBITDA (b)........................... $ 4,659
Depreciation and amortization (c).... 991
Capital expenditures................. 63
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 2,748
Total assets....................................................................................... 18,626
Long-term debt, less current maturities............................................................ 6,477
</TABLE>
(FOOTNOTES ON NEXT PAGE)
38
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
- ------------------------------
(a) Amounts were derived by combining the historical financial statements of
Arcon Coating Mills, Inc. for the period November 1, 1993 to April 14, 1994
with the historical financial statements of Arcon for the period April 14,
1994 to October 31, 1994. The audited financial statements of these
companies, contained elsewhere in this Prospectus, should be read to fully
understand how the change in ownership and the use of different accounting
policies affects the above presentation and comparability of the results of
operations of Arcon for the twelve months ended October 31, 1994.
<TABLE>
<CAPTION>
APRIL 14, 1994
THROUGH
NOVEMBER 1, 1993 OCTOBER 31,
TO APRIL 14, 1994 1995 TOTAL
----------------- --------------- ---------
<S> <C> <C> <C>
Net sales.................................. $ 9,112 $ 12,173 $ 21,285
Cost of products sold...................... 6,944 9,151 16,095
------ ------- ---------
Gross profit............................. 2,168 3,022 5,190
Selling, general and administration........ 986 1,701 2,687
------ ------- ---------
Operating income......................... 1,182 1,321 2,503
Interest expense........................... 585 732 1,317
------ ------- ---------
Income before income taxes............... 597 589 1,186
Income tax provisions...................... 270 226 496
------ ------- ---------
Net income................................. $ 327 $ 363 $ 690
------ ------- ---------
------ ------- ---------
</TABLE>
(b) EBITDA is defined as operating income, plus depreciation and amortization to
the extent such depreciation and amortization are included in the
calculation of operating income. EBITDA is provided because it is a measure
of an issuer's ability to service its indebtedness commonly used by certain
investors. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity.
(c) Depreciation and amortization includes only those items included in
operating income and excludes $58, $44 and $44 of amortization included in
interest expense, for the year ended October 31, 1995 and the nine months
ended September 30, 1995 and 1996.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading manufacturer and converter of specialty paper and
related products with a wide range of consumer and industrial end-uses. Pursuant
to the CPG Merger Agreement and the Arcon Stock Purchase Agreement, SPI acquired
all of the outstanding capital stock of both CPG and Arcon. The Company believes
that it can achieve approximately $4.2 million in annual overhead cost savings
through the consolidation of the administrative functions of CPG and Arcon at
SPI's Brattleboro headquarters and can achieve further operational savings by
adjusting current grade mixes on each of its machines and shifting production
among facilities to better match products, machine capabilities and cost
structures. The Company believes that its future operating results may not be
directly comparable to historical operating results of SPI, CPG or Arcon due to
the Company's increased size, integration of the three businesses and related
cost savings. Certain factors which have affected or may affect the operating
results of the Company are discussed below.
ACQUISITION AND DISPOSITION. On June 30, 1994, SPI completed the Endura
Acquisition for a total purchase price of approximately $26.4 million plus
approximately $1.0 million in expenses paid. The acquisition was accounted for
on the purchase method, which resulted in goodwill of approximately $526,000,
which is being amortized over 30 years. On March 22, 1995, SPI sold the assets
of its Lewis mill and gasket business to Armstrong World Industries, Inc.
("Armstrong") for $12.9 million, together with $1.1 million of inventory, which
was sold to Armstrong at book value. This transaction resulted in a loss of $8.3
million before taxes. In addition, the Company intends to close the Arcon
facility in Oceanside in early 1997 and relocate those operations to the
Company's facility in Quakertown. The Company has initiated a review of its
combined papermaking and converting facilities and, at the completion of the
Transactions, will initiate a product line rationalization to ensure optimal use
of available assets.
PURCHASE ACCOUNTING. The Acquisitions will be accounted for as purchases of
CPG and Arcon by SPI. As a result, the assets and liabilities of CPG and Arcon
will be recorded at their estimated fair market value. An amount equal to the
excess of the purchase prices over the fair value of assumed liabilities will be
allocated to inventories, property and equipment, identifiable intangible assets
and goodwill. Goodwill will be amortized over 40 years. Consequently, the
post-Acquisitions statements of income will be affected by the amortization of
such excess purchase prices. See "Unaudited Pro Forma Consolidated Financial
Data."
RAW MATERIALS. Hardwood and softwood pulp and secondary fiber are the
Company's primary raw material requirement. These materials are cyclical in both
price and supply with the cyclic trends generally coinciding with the strength
of the overall economy and therefore the overall demand level for the Company's
products. Historically, there have been periods of significant and rapid
short-term pulp price changes, both up and down, with a concurrent short-term
impact on the Company's operating margins. However, over the full cycle of the
pulp market, the Company generally has been able to maintain margin stability
with the larger impact to earnings coming from the overall level of demand for
the Company's products.
40
<PAGE>
RESULTS OF OPERATIONS
SPECIALTY PAPERBOARD, INC.
SPI has three principal product lines: office products, saturated specialty
products and technical specialty products. The following table summarizes SPI's
historical net sales by product line.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- --------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Office Products......................................... $ 46,191 $ 50,361 $ 52,999 $ 39,837 $ 37,134
Saturated Specialty Products............................ 14,431 30,078 44,873 32,816 32,229
Technical Specialty Products............................ 19,360 24,977 19,644 18,904 8,371
--------- ---------- ---------- --------- ---------
$ 79,982 $ 105,416 $ 117,516 $ 91,557 $ 77,734
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales decreased $13.8 million, or 15.1%, to $77.7 million in the first
nine months of 1996 from $91.6 million in the comparable period in 1995. Net
sales of office products decreased $2.7 million, or 6.8%, to $37.1 million as
compared to $39.8 million in the comparable period in 1995, reflecting reduced
orders resulting from customers' reduction of excess inventories built up in
1995 as a hedge against rising paper prices. Net sales of saturated specialties
decreased $0.6 million, or 1.8%, to $32.2 million for the first nine months of
1996, as compared to $32.8 million in the comparable period in 1995, reflecting
reduced orders resulting from customers' reduction of excess inventories built
up in 1995 as a hedge against rising paper prices. Net sales of technical
specialty products material decreased $10.5 million, or 55.7%, to $8.4 million
as compared to $18.9 million in the comparable period in 1995, primarily
reflecting the sale of SPI's gasket business. Net sales of gasket materials
produced under a temporary toll agreement with Armstrong World Industries Inc.,
who bought SPI's gasket business in March 1995, totaled $1.2 million in the
first nine months of 1996, as compared to $7.9 million in the comparable period
in 1995.
Gross profit margin increased to 17.5% for the first nine months of 1996 as
compared to 14.2% for the comparable period in 1995. This improvement was caused
by higher selling prices and lower fiber costs, offset in part by a high level
of production trial activity.
General and administrative expenses increased $0.1 million, or 2.1%, to $6.3
million (8.1% of net sales) in the first nine months of 1996 from $6.2 million
(6.8% of net sales) for the comparable period in 1995. This slight increase
resulted in part from increased selling efforts through SPI's Hong Kong
subsidiary and the addition of a Sales and Marketing Development Manager on
SPI's corporate staff.
Income from operations increased $0.5 million, or 8.1%, to $7.3 million
(9.4% of net sales) in the first nine months of 1996 from $6.8 million (7.4% of
net sales) for the comparable period in 1995. This was the result of decreased
fiber costs, which were partially offset by decreased sales volume. Income from
operations as a percentage of net sales increased as a result of the increase in
gross profit margin which more than offset the increase in general and
administrative expenses as a percentage of net sales.
Other income increased $0.2 million, or 26.7%, to $1.0 million in the first
nine months of 1996 as compared to $0.8 million in the comparable 1995 period.
Interest expense decreased $0.5 million, or 61.8%, to $0.3 million in the
first nine months of 1996 from $0.8 million in the comparable 1995 period. This
decrease was due to lower levels of debt.
41
<PAGE>
The effective tax rate for the first half of 1996 was 38.0%, as compared to
(26.8%) for the comparable period in 1995. The 1995 rate reflects the reversal
of a $3.0 million valuation allowance as SPI concluded that it is appropriate to
recognize all of the deferred tax assets generated in its sale/leaseback
transaction.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales increased $12.1 million, or 11.5%, to $117.5 million from $105.4
million in 1994. Net sales for 1995 included the first full year of net sales
from the Endura Products Division which was acquired by SPI on June 30, 1994.
Net sales of office products materials increased $2.6 million, or 5.2%, to
$53.0 million in 1995 from $50.4 million in 1994. This increase was primarily
due to strong order levels which SPI believes were principally related to a
build-up of customer inventories as a hedge against rising paper prices during
the first half of 1995. Net sales of saturated specialty products increased
$14.8 million, or 49.2%, to $44.9 million in 1995 from $30.1 million in 1994.
This increase is primarily due to the Endura Acquisition, which occurred in June
1994. Net sales of technical specialty products decreased $5.4 million, or
21.4%, to $19.6 million from $25.0 million in 1994. This decrease is primarily
due to the March 1995 sale of SPI's gasket business.
Gross profit margin decreased to 14.8% in 1995 from 16.4% in 1994. This
decline was primarily due to higher purchase prices for pulp and recycled fiber
and higher lease expenses related to sale-leaseback financing entered into in
April 1994. These increased costs were offset in part by higher selling prices
and the benefits of an upgrade to the Brattleboro paper machine in October 1995
which allowed greater use of lower-cost recycled fiber to manufacture the office
products line.
General and administrative expenses decreased $0.2 million, or 2.2%, to $8.4
million (7.2% of net sales) in 1995 from $8.6 million (8.1% of net sales) in
1994. This decrease resulted from reduced levels of expenses due to the sale of
SPI's gasket business and lower premiums for directors and officers insurance.
Income from operations increased $0.3 million, or 3.7% to $9.0 million (7.7%
of net sales) in 1995 from $8.7 million (8.3% of net sales) in 1994. This
increase resulted primarily from lower levels of general and administrative
expenses described above, offset in part by higher costs for pulp and secondary
fiber. Income from operations decreased as a percentage of net sales due to the
decrease in gross profit margin previously discussed.
Other income increased $0.5 million, or 82.1% to $1.2 million in 1995 as
compared to $0.7 million in 1994. In April 1994, SPI sold and leased back
certain assets at its Brattleboro mill for $25.0 million. This sale is being
amortized over the ten-year life of the lease, resulting in $1.7 million of
deferred gain per year, a $0.8 million annual reduction in depreciation expense
and a $3.2 million annual increase in interest expense. Other income in 1995
included the amortization of $1.7 million in deferred gain on the sale-leaseback
transaction.
Interest expense decreased $0.5 million, or 34.2%, to $0.9 million in 1995
from $1.4 million in 1994. This decrease was due to lower levels of debt
resulting primarily from debt repayment using proceeds from the Lewis mill sale.
Income tax benefit was $0.4 million in 1995. This represents an effective
tax rate of (5.6%) and reflects the reversal of a $3.0 million valuation
allowance. Income tax expense was $2.8 million in 1994 which represented an
effective tax rate of 34.6% and reflects utilization of $21.4 million of net
operating loss carryforwards.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales increased $25.4 million, or 31.8%, to $105.4 million from $80.0
million in 1993.
42
<PAGE>
Net sales of office products materials increased $4.2 million, or 9.0%, to
$50.4 million in 1994 from $46.2 million in 1993. This increase was primarily
due to stronger order levels which SPI believes were principally related to
improved economic conditions and to the absence of internal inventory reduction
programs by several major customers that affected sales in 1993. Net sales of
saturated specialty products increased $15.7 million, or 108.4%, to $30.1
million in 1994 from $14.4 million in 1993. This increase is primarily due to
the Endura Acquisition which occurred in June 1994. Net sales of technical
specialty products increased $5.6 million, or 29.0%, to $25.0 million in 1994
from $19.4 million in 1993. This increase was due to strong economic conditions
in the domestic automobile market and to the Endura Acquisition.
Gross profit margin decreased to 16.4% in 1994 from 17.0% in 1993. In 1994,
the sale and leaseback of certain operating assets of the Brattleboro mill
resulted in a net increase of $1.5 million in the cost of sales which represents
a 1.4% reduction in gross margin. This reduction in gross margin was partially
offset by the higher sales volume as described above.
Pulp prices rose sharply during the first half of 1994. The negative effect
of these increases on gross margin was largely mitigated by SPI's ability to
utilize consigned inventories that had been purchased at previous price levels.
To help offset the impact of these increases during the second half of 1994, SPI
enacted selling price increases. Also, the addition of the higher margin product
lines accompanying the Endura Acquisition also helped offset the impact of these
increases.
General and administrative expenses increased $0.7 million, or 8.9%, to $8.6
million (8.1% of net sales) in 1994 from $7.9 million (9.9% of net sales) in
1993. This increase was primarily due to the additional administrative expenses
incurred in connection with the Endura Acquisition.
Income from operations increased $3.0 million, or 51.4% to $8.7 million
(8.3% of net sales) in 1994 from $5.7 million (7.2% of net sales) in 1993. This
increase resulted from higher sales volume and the Endura Acquisition.
Other (income) expense increased $1.1 million to $0.7 million in 1994 as
compared to other expenses of $0.4 million in 1993. Other income in 1994
included the amortization of $1.1 million in deferred gain on the Brattleboro
sale-leaseback transaction.
Interest expense decreased $1.7 million, or 56.8%, to $1.4 million in 1994
from $3.1 million in 1993. This decrease was due to average lower levels of
debt, primarily resulting from the sale-leaseback in April 1994.
Income tax expense was $2.8 million in 1994. This represents an effective
tax rate of 34.6% and reflects utilization of $21.4 million of net operating
loss carryforwards. Income tax expense was $1.9 million in 1993 which
represented an effective tax rate of 29.0% and reflected utilization of $1.8
million of net operating loss carryforwards.
Extraordinary items for 1994 were $0.1 million. This resulted from a $0.2
million write-off of deferred financing costs related to early extinguishment of
debt, net of an income tax benefit of $0.1 million.
43
<PAGE>
CPG
CPG has three principal product lines: office products, technical specialty
products and filtration products. The following table summarizes CPG's
historical net sales by product line.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Office Products............................................ $ 11,443 $ 11,041 $ 11,933 $ 9,231 $ 6,147
Technical Specialty Products............................... 42,226 42,839 41,887 31,521 31,623
Filtration Products........................................ 36,937 42,072 41,975 31,643 31,949
--------- --------- --------- --------- ---------
$ 90,606 $ 95,952 $ 95,795 $ 72,395 $ 69,719
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales decreased $2.7 million, or 3.7%, to $69.7 million during the nine
months ended September 30, 1996 from $72.4 million for the comparable period of
the prior year. Net sales of office products decreased $3.1 million, or 33.4%,
to $6.1 million for the first three quarters of 1996 as compared with sales of
$9.2 million during the comparable period of 1995. This decline reflects lower
demand for CPG's cover and text products and loss of certain low margin business
as a result of price increases implemented during the second half of 1995 to
offset increases in pulp costs. Net sales of technical specialty products were
essentially flat, increasing $0.1 million, or 0.3%, to $31.6 million for the
first three quarters of 1996 when compared with net sales of $31.5 million for
the comparable period in 1995. Net sales of filtration products increased
slightly during the first nine months of 1996 by $0.3 million, or 1.0%, to $31.9
million from $31.6 million in 1995 reflecting steady customer demand for these
products.
Gross profit margin increased to 16.1% during the nine months ended
September 30, 1996 from 12.0% for the comparable period in 1995. This increase
is due primarily to the higher selling prices which took effect at the end of
1995 and reductions in pulp costs which occurred during the first half of 1996.
Selling, general and administrative expense during the nine months ended
September 30, 1996 increased $0.3 million, or 6.5%, to $4.3 million (6.2% of net
sales) from $4.1 million (5.6% of net sales) during the comparable period of
1995.
Operating income increased $2.3 million, or 48.6%, during the nine months
ended September 30, 1996 to $6.9 million from the $4.7 million earned during the
comparable period of 1995. This increase in operating income is the result of
the improvement in gross margin which has occurred in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 of $95.8 million were essentially equal to net sales in
1994 of $96.0 million. Net sales of office products increased $0.9 million, or
8.1%, to $11.9 million in 1995 from $11.0 million in 1994 due primarily to an
increase in net sales related to a one-time toll-production opportunity. Net
sales of filtration products were $42.0 million in 1995 and were essentially
equal to net sales of $42.1 million in 1994. Net sales of technical specialty
products decreased $0.9 million, or 2.2%, to $41.9 million in 1995 from $42.8
million in 1994. This net sales decline was due in part to reduced volumes of
photographic packaging papers and acid-free art board due to competitive
pressures associated with price increases implemented as a result of pulp cost
increases.
Gross profit margin declined to 11.9% in 1995 from 14.5% in 1994 due to
significantly higher pulp costs in 1995.
44
<PAGE>
Selling, general and administrative expense declined $0.9 million, or 13.9%,
to $5.3 million (5.5% of net sales) in 1995 from $6.2 million (6.4% of net
sales) in 1994. The decrease was the result of cost control programs and lower
incentive compensation expenses resulting from decreased profitability.
Operating income declined $1.6 million, or 21.3%, to 6.1 million (6.3% of
net sales) in 1995 from $7.7 million (8.0% of net sales) in 1994. This decline
was a direct result of the unprecedented increase in pulp prices which began in
1994 and extended through much of 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales increased by $5.4 million, or 5.9%, in 1994 to $96.0 million from
$90.6 million in 1993. This overall increase was driven by strong net sales of
filtration products which increased $5.2 million, or 14.1% to $42.1 million in
1994 from $36.9 million in 1993 due to strong demand for heavy duty lube and
automotive filter media. Net sales of office products decreased $0.4 million, or
3.5%, to $11.0 million in 1994 from $11.4 million in 1993 due to lower net sales
of text and cover papers. Net sales of technical specialty products increased
$0.6 million, or 1.5%, to $42.8 million in 1994 from $42.2 million during the
prior year. This increase was due primarily to unusually high demand for
electrical insulating papers.
Gross profit margin was 14.5% in 1994 as compared to 16.3% in 1993. This
decline was due to the adoption of the last-in, first-out (LIFO) method of
valuing inventory which resulted in a charge to cost of sales of $1.2 million.
Additionally, CPG idled one of its paper machines in 1994 and recorded a
provision of $715,000 to adjust the carrying value of the machine and related
equipment to net realizable value and to recognize the outstanding lease
commitment associated with certain process control equipment.
Selling, general and administrative expense were $6.2 million (6.4% of net
sales) in 1994, an increase of $0.1 million, or 1.7%, from the $6.1 million
(6.7% of net sales) of selling, general and administrative expense incurred
during 1993.
Operating income decreased $1.0 million, or 11.6%, to $7.7 million (8.0% of
net sales) in 1994 from operating income of $8.7 million (9.6% of net sales) in
1993. Operating income would have been $9.6 million (10.0% of net sales) in 1994
had it not been for the $1.2 million charge incurred as a result of the adoption
of LIFO and the $0.7 million cost of idling a paper machine.
ARCON HOLDINGS CORP.
Arcon has two principal product lines: office products and saturated
specialty products. The following table summarizes Arcon's historical net sales
by product line.
<TABLE>
<CAPTION>
FOR THE NINE
FISCAL YEAR ENDED MONTHS ENDED
OCTOBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Office Products............................................ $ 12,990 $ 15,146 $ 18,583 $ 13,884 $ 15,522
Saturated Specialty Products............................... 6,062 6,139 7,206 5,560 6,011
--------- --------- --------- --------- ---------
$ 19,052 $ 21,285 $ 25,789 $ 19,444 $ 21,533
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales increased $2.1 million, or 10.7%, to $21.5 million in the
nine-month period ended September 30, 1996 from $19.4 million in the comparable
period in 1995.
Net sales of office products increased $1.6 million, or 11.8%, to $15.5
million in the nine-month period ended September 30, 1996 as compared to $13.9
million in the comparable period in 1995. This is
45
<PAGE>
the result of the completion of a major customer conversion to Super Arco
Flex-Registered Trademark- and incremental new business. Net sales in saturated
specialty products increased $.4 million, or 8.1%, to $6 million in the nine-
month period ended September 30, 1996 from $5.6 million in the comparable period
in 1995. This increase is the result of incremental new business.
Gross profit margin increased to 27.8% for the nine-month period ended
September 30, 1996 as compared to 26.6% for the comparable period in 1995. This
increase reflects the results of a profit improvement program.
Selling, general and administrative expenses decreased $.3 million, or
10.5%, to $2.3 million (10.7% of net sales) in the nine-month period ended
September 30, 1996 from $2.6 million (13.4% of net sales) for the comparable
period in 1995, reflecting improved management of discretionary spending.
Operating income increased $1.1 million, or 42.4%, to $3.7 million (17.0% of
net sales) in the nine-month period ended September 30, 1996 from $2.6 million
(13.3% of net sales) for the comparable period in 1995, as a result of increased
net sales in all markets and the effect of improved performance in the cost of
products sold and selling, general and administrative expense.
YEAR ENDED OCTOBER 31, 1995 COMPARED TO YEAR ENDED OCTOBER 31, 1994
Net sales increased $4.5 million, or 21.2%, to $25.8 million in 1995 from
$21.3 million in 1994. This increase is the result of improved price and volume
for all product sectors.
Net sales of office products increased $3.5 million, or 22.7%, to $18.6
million in 1995 from $15.1 million in 1994, reflecting strong economic
conditions and a major customer conversion to Super
ArcoFlex-Registered Trademark-. Net sales of saturated specialty products
increased $1.1 million, or 17.4%, from $6.1 million to $7.2 million due to
increased demand.
Gross profit margin increased to 26.7% in 1995 from 24.4% in 1994 as a
consequence of improved sales and more efficient usage of raw materials.
Selling, general and administrative expenses increased $0.7 million, or
26.9%, to $3.4 million (13.2% of net sales) in 1995 from $2.7 million (12.6% of
net sales) in 1994. This increase is the result of additional deferred
compensation charges not previously recorded and increased management incentive
and profit sharing expenses.
Operating income increased $1.0 million, or 39.3%, to $3.5 million (13.5% of
net sales) in 1995 from $2.5 million (11.8% of net sales) in 1994. This increase
is due to the above-mentioned factors.
YEAR ENDED OCTOBER 31, 1994 COMPARED TO YEAR ENDED OCTOBER 31, 1993
Net sales increased $2.2 million, or 11.7% to $21.3 million in 1994 from
$19.1 million in 1993.
Net sales of office products increased $2.1 million, or 16.6%, to $15.1
million in 1994 from $13.0 million in 1993. This increase was primarily due to
stronger order levels principally related to improved economic conditions. Net
sales of saturated specialty products were $6.1 million in 1994 and $6.1 million
in 1993.
Gross profit margin remained relatively flat at 24.4% in 1994 versus 24.3%
in 1993.
Selling, general and administrative expenses increased $0.1 million, or
2.3%, to $2.7 million (12.6% of net sales) from $2.6 million (13.8% of net
sales) in 1993.
Operating income increased $0.5 million, or 25.0%, to $2.5 million (11.8% of
net sales) in 1994 from $2.0 million (10.5% of net sales) in 1993. This
improvement is directly related to sales volume.
46
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's historical requirements for capital have been primarily for
servicing debt, capital expenditures and working capital. Pro forma cash flows
from operating activities were $14.4 million for the year ended December 31,
1995 and $12.7 million and $5.1 million for the nine months ended September 30,
1996 and September 30, 1995, respectively. For the year ended December 31, 1995
and the nine month periods ended September 30, 1996 and September 30, 1995,
respectively, the Company paid an aggregate of $3.4 million, $3.3 million, and
$2.5 million, respectively, in rental obligations pursuant to the sale/leaseback
arrangements in respect of its Brattleboro mill. See "Description of Financing
Arrangements." During these periods, additions to property, plant and equipment
were $9.5 million, $6.8 million and $5.3 million, respectively. As of September
30, 1996, the Company's revolving credit line under the Credit Facility was
undrawn and had a total availability of $15.0 million. SPI is in the final
stages of negotiation with The CIT Group/Business Credit, Inc. to amend the
Credit Facility to increase the amount available as revolving loans under the
Credit Facility to the lesser of (a) $20.0 million and (b) a borrowing base
amount equal to a specified percentage of certain accounts receivable and
inventory. See "Description of Financing Arrangements."
Following the Transactions, the debt service costs associated with the
borrowings under the Notes will significantly increase liquidity requirements.
Management believes that, based on current financial performance and anticipated
growth, cash flow from operations, together with the available sources of funds,
will be adequate for the foreseeable future to service the Company's
indebtedness, to fund anticipated capital expenditures and working capital
requirements and to enable the Company and its subsidiaries to comply with the
terms of their debt agreements. However, actual capital requirements may change,
particularly as a result of acquisitions the Company may make. The Company
expects that capital expenditures (exclusive of acquisitions) will be
approximately $12 million annually from 1996 to 1999. The ability of the Company
to meet its debt service and working capital obligations and capital expenditure
requirements will be dependent, however, upon the future performance of the
Company and its subsidiaries which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control.
INFLATION
The Company attempts to minimize the effect of inflation on earnings by
controlling operating expenses. During the past several years, the rate of
general inflation has been relatively low and has not had a significant impact
on the Company's results of operations. The Company purchases raw materials
which are subject to cyclical changes in costs that may not reflect the rate of
general inflation.
SEASONALITY
The Company's business is seasonal, with the third quarter of each year
typically having the lowest level of net sales and operating income. This
seasonality is the result of a lower level of purchasing activity in the third
quarter, since many converters shut down their operations during portions of
July.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement is required to be adopted by SPI in 1996. SPI has
yet to analyze in detail the potential impact on its financial statements upon
adoption of this pronouncement.
47
<PAGE>
BUSINESS
HISTORY
SPI was created in 1989 when Boise Cascade Corporation sold certain assets
and liabilities of its Specialty Paperboard division to a group of investors
which included SPI's management and McCown De Leeuw & Co., a private investment
firm. SPI completed an initial public offering of its common stock in early 1993
and is currently traded on the NASDAQ National System under the symbol "SPBI."
Since its inception, SPI has pursued a strategy of establishing itself as a
leading manufacturer and converter of specialty paper products for markets where
its manufacturing expertise, proprietary production methods and customer
relationships provide a competitive advantage. SPI's market focus has been in
two core product areas, pressboard and latex-reinforced saturated and coated
book cover. SPI expanded its core product areas with the Endura Acquisition,
which broadened SPI's product offerings to include industrial and consumer
masking tape substrates and printed circuit board substrates. In 1995, SPI sold
its automotive gasket business to Armstrong World Industries, Inc. SPI's
headquarters is in Brattleboro, Vermont and it operates four paper mills and
converting facilities.
CPG was a division of James River Corporation of Virginia ("James River")
until 1991. James River had assembled the operating assets of CPG in a series of
acquisitions beginning in 1969. In 1991, James River sold CPG to a private
investment firm. Following various subsequent transactions, the assets now
constituting CPG were purchased by CPG, a corporation formed by management and
certain institutional investors in 1993. CPG's strategy has been to develop
strong, niche market positions by emphasizing its high product quality,
manufacturing flexibility, technical and product development capabilities and
responsive customer service. As a result of this strategy, CPG has built
leadership positions in the automotive fuel and oil filtration papers,
electrical transformer paper and acid-free picture mounting art board markets.
CPG operates five paper mills.
Arcon was founded in 1953 as a supplier of cloth and paper bindings to the
book industry. Arcon has grown rapidly by pioneering the use of
Tyvek-Registered Trademark- as a low cost, durable binding alternative for books
and a wide range of office products. In 1988, Arcon's founder sold the Company
to an investor group, who then sold it to the current owners in 1994. Arcon's
strategy over the past several years has been to continue to convert office
product customers to the more durable Tyvek-Registered Trademark- edge covering
and binding materials and to continue to develop new applications for
Tyvek-Registered Trademark- and other binding products in existing and new niche
markets. Arcon operates two converting facilities.
Pursuant to the CPG Merger Agreement and the Arcon Stock Purchase Agreement,
SPI acquired CPG and Arcon for aggregate consideration of $85.0 million, less
the outstanding indebtedness of CPG and Arcon, subject to certain adjustments.
See "The Acquisitions." The Company had pro forma LTM net sales and EBITDA of
$225.1 million and $31.3 million, respectively for the twelve month period ended
September 30, 1996.
- ------------
- -Registered Trademark- DuPont registered trademark.
48
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to increase sales and earnings by consolidating
and strengthening core product lines, by rationalizing production capacity and
by pursuing selected strategic acquisitions. The following are the key elements
of this strategy:
- CONSOLIDATE AND STRENGTHEN CORE PRODUCT LINES. CPG and Arcon have an array
of products which complement SPI's core product lines. By consolidating
these products and streamlining and focusing its marketing efforts, the
Company believes that it will strengthen its core product lines in office
products, technical specialty products and saturated specialty products.
- RATIONALIZE OVERHEAD AND PRODUCTION CAPACITY. The Company believes that
the Acquisitions provide opportunities for the Company to eliminate
redundant overhead, rationalize inefficient facilities and optimize the
manufacturing of the Company's products over its existing capital
equipment base. The Company believes that it can achieve approximately
$4.2 million in annual overhead cost savings through the consolidation of
the administrative functions of CPG and Arcon at SPI's Brattleboro
headquarters and can achieve further operational savings by adjusting
current grade mixes on each of its machines and shifting production among
facilities to better match products, machine capabilities and cost
structures.
- STRATEGIC ACQUISITIONS. The Company intends to continue growing through
the acquisition of complementary businesses which provide opportunities to
enhance the Company's core product lines and create operating
efficiencies. In implementing this strategy, management intends to build
upon its successful experience in integrating the Endura Acquisition.
- INVEST IN CAPITAL IMPROVEMENTS. The Company seeks to reduce costs,
increase capacity, enhance manufacturing capabilities and improve product
quality through selected capital investments. The Company has invested
approximately $20 million in new equipment, technology and leasehold
improvements at its facilities over the past 12 months and plans to invest
significant additional capital in facilities and equipment over the next
12 to 24 months.
- INCREASE UTILIZATION OF RECYCLED FIBER. The Company intends to continue to
capitalize on its position as a leading manufacturer of specialty paper
products with recycled fiber content. The Company's office product line
contains between 25% and 100% recycled materials, depending on paper
grades. The Company continually seeks to increase the recycled content of
its products to reduce costs and better service customer demands for
recycled content while still meeting performance expectations. See
"--Manufacturing--Use of Recycled Fiber."
- EXPAND INTERNATIONAL SALES. While SPI historically has devoted increasing
resources to its international marketing efforts, CPG and Arcon have not
had a similar focus on these markets. SPI has an established network of
international sales offices and sales agents which sell SPI's existing
range of products. SPI believes that by using this sales and distribution
network it will be able to generate incremental sales of CPG's and Arcon's
products.
49
<PAGE>
OVERVIEW
The Company has four distinctive categories of products. The following table
provides an overview of the Company's product lines and facilities:
<TABLE>
<CAPTION>
PRODUCT TECHNICAL SPECIALTY SATURATED SPECIALTY
LINES OFFICE PRODUCTS PRODUCTS PRODUCTS FILTRATION PRODUCTS
<S> <C> <C> <C> <C>
SPI - PRESSBOARD FILING, - PRINTED CIRCUIT - TAPE SUBSTRATES
COVER AND BINDER BOARD PAPER - HEAVYWEIGHT BOOK
MATERIALS COVER
- LIGHTWEIGHT FILING - LIGHTWEIGHT BOOK
AND COVER MATERIALS COVER
CPG - PREMIUM COVER AND - ELECTRICAL - SATURATED FILTER
TEXT PAPERS TRANSFORMER PAPER PAPER
- LIGHTWEIGHT FILING - PICTURE MOUNTING ART - NON-SATURATED FILTER
AND COVER MATERIALS BOARD PAPER
- PRESSBOARD FILING - PHOTOGRAPHIC - INDUSTRIAL FILTER
AND BINDER MATERIALS PACKAGING PAPER
- WET STRENGTH TAG
- ABRASIVE BACKING
ARCON - BINDING TAPES - CHECKBOOK TAPE
- HINGE AND - BOOKBINDING
REINFORCING TAPES MATERIALS
FACILITIES BRATTLEBORO, VT HUGHESVILLE, NJ QUAKERTOWN, PA RICHMOND, VA
WARREN GLEN, NJ FITCHBURG, MA OWENSBORO, KY ROCHESTER, MI
OCEANSIDE, NY(1) WARREN GLEN, NJ BEAVER FALLS,NY FITCHBURG, MA
RICHMOND, VA OCEANSIDE, NY (1)
OWENSBORO, KY
BEAVER FALLS, NY
</TABLE>
- ------------------------
(1) After the closing of the Transactions, the Company intends to close this
facility and transfer its production to the Company's Quakertown mill.
PRODUCTS AND SERVICES
The following chart displays pro forma net sales of the Company by product
category.
<TABLE>
<CAPTION>
PRO FORMA NET
SALES BY PRODUCT
CATEGORY
DECEMBER 31, 1995
----------------------
<S> <C> <C>
% $
----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Office Products.................................................... $ 83,822 35.0%
Technical Specialty Products....................................... 60,801 25.4
Saturated Specialty Products....................................... 52,866 22.1
Filtration Products................................................ 41,975 17.5
----------- ---------
Total Net Sales................................................ $ 239,464 100.0%
----------- ---------
----------- ---------
</TABLE>
50
<PAGE>
OFFICE PRODUCTS
Market. The Company manufactures a wide range of materials used in the
manufacture of office products. Management believes that the Company is the
largest domestic supplier of pressboard, which is converted into data binders,
notebook covers, report covers, ring binders, and file and index guides, and of
binding and reinforcing tapes used in file folders and notepads. The Company
also pursues niche markets within the office supplies market where its
capabilities and customer relationships give it a competitive advantage.
The total North American market for office supplies at the wholesale level
was approximately $26.6 billion in 1995, as measured by the Business Products
Industry Association. The Company competes in an approximately $3.0 billion
segment of this market comprised primarily of market categories containing
hanging files, expandable folders, date books, ring binder, report covers and
file and index cards. Based on Business Products Industry Association
statistics, the Company estimates that this market has grown at a compound
annual growth rate of approximately 2.0% annually since 1991.
Products. The table below sets forth the primary office product materials
produced by the Company:
<TABLE>
<CAPTION>
OFFICE PRODUCTS
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
Pressboard filing, cover High density paperboard Data binders; ring binders;
and binder material designed for strength, report covers; notebook covers
rigidity, durability and
appearance; may be embossed or
acrylic coated; high recycled
content
Binding tapes Tyvek-Registered Trademark- Notepads; composition books
and latex-impregnated paper
tapes
Hinge and reinforcing tapes Durable Expandable file folders
Tyvek-Registered Trademark-
high fold- and tear-strength
reinforcing materials
Lightweight filing and Lighter weight paperboard, Filing products; portfolios;
cover materials designed for decorative report covers; document
embellishments and less covers; presentation covers
demanding end-uses than
pressboard
Premium cover and text Well-formed papers with good Printed report covers;
papers strength, color/texture and promotional and advertising
printable surfaces materials
</TABLE>
The Company's largest product is a heavyweight paperboard (pressboard) which
is densified through a proprietary manufacturing process developed by the
Company. This densification process provides pressboard with the strength,
rigidity, durability and appearance required for data binders, ring binders,
notebook covers and report covers. The Company offers many pressboard products
in acrylic coated and embossed form, providing additional durability and
moisture and stain resistance. The Company has the capability to custom
manufacture pressboard in a variety of colors and can finish its pressboard
products to customer specifications, including glazing (densification), coating,
embossing, laminating, sheeting, slitting and rewinding. The Company and its
predecessors have offered their pressboard line of products for over 75 years
and believes it has established significant brand awareness and loyalty among
its customers.
- ------------
- -Registered Trademark-DuPont registered trademark.
51
<PAGE>
The Company is also a leading supplier of binding tapes and hinge and
reinforcing tapes converted from specialty papers and substrates for the
manufacture of office supplies. These products are primarily used to protect,
bind and decorate finished office supply products, many of which also
incorporate the Company's pressboard material. The Company's
Tyvek-Registered Trademark- tapes, marketed under the trade name Super
ArcoFlex-TM-, are used to decorate pad bindings and are able to withstand the
stress incurred during cutting in high volume manufacturing. The Company also
uses Tyvek-Registered Trademark- in the manufacture of supported gussets for red
wallet expansion folders. Gussets are the accordion folder material between the
two folder side sheets that allow the folder to expand. The Company has
developed a method to strengthen the gussets by laminating coated
Tyvek-Registered Trademark- to the cardboard forming the gusset and sells this
material under the name Expanlin. The Company also sells coated
Tyvek-Registered Trademark- to converters who laminate it to the cardboard
themselves. The result is a material that is stronger, longer lasting and more
reliable than unsupported gussets and, as a result, the Company believes that
Expanlin has become the preferred material used in supported gussets by
expansion folder manufacturers.
The Company produces certain types of lightweight filing and cover materials
for conversion into file folders, expanding wallets, notebook covers and report
covers. The Company is continuing its focus on certain products for the
lightweight filing and cover material market, such as colored file folder and
report covers for the growing on-demand document printing market, with specific
emphasis on products with substantial recycled content. The Company's
lightweight filing and cover materials are generally manufactured using similar
equipment and processes and are sold to many of the same customers as the
Company's heavyweight office products. The Brattleboro paper machine upgrade,
completed in October 1995, expanded the machine's ability to use lower-cost
recycled fiber and its capacity to produce lighter weight grades used in filing
and cover applications. The Company is working to build this lightweight
business through the strength of its relationships with office products
converters. These lightweight materials, coupled with increasing consumer demand
for recycled paper products, provide an opportunity for the Company to increase
its penetration in the office products market.
The Company manufactures a line of premium cover and text papers sold
through paper distributors to commercial printers. These papers have good
strength and may have colored or textured surfaces and are typically used for
printed report covers and promotional and advertising materials.
Customers. The Company sells its office products through its own sales
representatives to major domestic office product converters, including: Acco
World Corporation, a division of American Brands Inc.; Ampad Corp.; Smead
Manufacturing Company; Esselte Pendaflex Corp.; Mead Corp.; and Avery Dennison
Corp. These customers collectively account for the majority of the Company's
sales of office product materials with the remainder of the Company's sales
being accounted for by smaller independent manufacturers. The Company has
long-term relationships with all of its major customers in this market. The
Company's customers produce office products from the Company's paper-based
materials and sell end-use products through contract stationers, office product
wholesalers, buying groups, warehouse clubs, catalog sales, office products
superstores, retail office supply stores and other outlets. The Company also
markets its materials through direct sales representatives or manufacturer's
representatives in Asia, Canada, Mexico, Central and South America and Europe.
Competition. In the office products supply market, the Company competes with
a number of other producers of heavyweight pressboard, colored file folder paper
and lightweight filing and cover materials, including International Paper
Company ("International Paper"), Temple-Inland Inc., Brownville Specialty
Products, Merrimac Paper Co. Inc. ("Merrimac") and Crocker Technical Papers,
Inc. ("Crocker"). The Company believes it holds a leading position in the
domestic market for pressboard and a growing presence in the lightweight filing
and cover materials market. In markets that use pressboard, the Company also
competes with producers of vinyl and plastic office product materials.
In the binding tape and hinge and reinforcing tape markets, the Company
competes against several smaller competitors, including Rexford Paper Co.
("Rexford"), Northeast Paper Converting Company and
52
<PAGE>
Southern Label Company, Inc. The Company believes it holds a leading position in
the market for Tyvek-Registered Trademark--based binding tapes and hinge and
reinforcing tapes. In the premium cover and text market, the Company competes
against divisions of International Paper and Georgia Pacific Corp., Fox River
Paper Co., Crown Vantage Inc. and a number of smaller paper manufacturers.
TECHNICAL SPECIALTY PRODUCTS
Market. The Company manufactures specialty paper products with customized
physical performance characteristics which meet the unique requirements of
specific end-use markets. Technical specialty products include paper used as
insulation material in electrical transformer coils, acid-free picture mounting
art board used for archival quality picture mounting and records storage
applications, photographic packaging papers, printed circuit board papers, wet
strength tag used primarily in the laundry and dry-cleaning industries and paper
backings for sandpaper and other abrasives. The Company has been able to
successfully enter niche markets in the technical specialties area in which it
believes its manufacturing flexibility and technical expertise give it a
competitive advantage in meeting rigorous customer requirements. The Company
believes that it is a market leader in many of its markets, including electrical
transformer papers, acid-free picture mounting art board and photographic
packaging papers. Many of the Company's technical specialty products have been
used in their current applications for many years and have proven to be
cost-effective in meeting the performance requirements for which they are
utilized. To supplement these products, the Company works to develop new
products which have the potential to experience rapid growth due to superior
performance, lower cost or both.
Products. The table below sets forth the Company's principal technical
specialty products:
<TABLE>
<CAPTION>
TECHNICAL SPECIALTY PRODUCTS
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS END USES
Electrical transformer High dielectric strength Power transformer coil
paper insulation
Picture mounting art board High pH (acid-free), Archival quality picture
exceptional cleanliness mounting and document
storage
Photographic packaging Totally opaque; high-strength Photographic film protection
papers
Printed circuit board Low density; uniform Interior of printed circuit
papers saturability; high bulk boards
Wet strength tag High-strength saturated sheet; Laundry and dry-cleaning
moisture and solvent labels
resistant
Backing papers for High tear strength, smooth Heavyweight sandpaper and
sandpaper and other surfaces and controlled other commercial abrasives
abrasives electrostatic properties
</TABLE>
The Company is a leading supplier of electrical transformer papers with high
dielectric strength which are wrapped around individual electrical transformer
coils as insulating material. The Company is the major supplier of such paper to
Bedford Materials, Inc., which operates the transformer insulation business
formerly owned by Westinghouse Electrical Corp., and is one of two major
suppliers to the other major U.S. manufacturer of electrical transformers.
The Company believes that it is a leading provider of acid-free board used
as picture mounting art board and archival storage media. Acid-free picture
mounting art board and storage media are designed to
53
<PAGE>
prevent the degradation and discoloration of artwork and documents caused by
acidic exposure. The Company believes that these superior performance
characteristics have resulted in wide acceptance of the Company's acid-free
products.
The Company's photographic packaging papers are primarily dual composition
papers used by Eastman Kodak Company ("Kodak") and Polaroid Corp. ("Polaroid")
to package certain films. Such products must meet demanding standards for
opacity in order to prevent premature exposure of the film. The Company's strong
position in the market for photographic packaging papers is based in part upon
the Company's ability to manufacture multi-ply paper.
The Company also manufactures printed circuit board papers which are used in
the manufacture of circuit boards for remote control devices and other
electrical components. The Company's printed circuit board papers have the
advantage of low density and high bulk, allowing circuit board manufacturers to
lower their costs and increase their output by processing fewer sheets than they
would with competing materials.
The Company's wet strength papers are primarily used as tags in the laundry
and dry cleaning industries to identify clothing as it is processed through
washing machines and dry cleaning equipment. These products, in addition to
withstanding physically and chemically harsh processes, are manufactured in
multiple colors that must not be transferred onto the clothing to which they are
attached. The Company is a major producer of this paper in the United States and
is now exporting to the United Kingdom, with opportunities to expand into other
European markets.
Sandpaper and other abrasive backing papers are used in the manufacture of
heavyweight sandpaper and other commercial abrasives. The Company's sandpaper
and other abrasive backing papers are designed to meet customers' exacting
specifications for tear strength, smooth surfaces and controlled electrostatic
properties.
Customers. The Company sells its technical specialty papers through its own
sales force to a variety of customers. Major customers include: Bedford
Materials, Inc. and the TMC division of Avery Dennison Corp. (electrical
transformer paper); the Nielsen and Bainbridge division of Esselte Corp. and the
Crescent Cardboard division of Potomac Corp. (acid free papers); Kodak and
Polaroid (photographic packaging papers). Other clients include the AlliedSignal
Corp. (printed circuit board paper), PermaFiber Corp. (wet strength tags) and 3M
(abrasive backings) and various commercial printers. The Company works with its
customers to develop new products and to provide technical support for existing
products.
Competition. The Company's competitors in technical specialty papers vary by
product type. Generally, the Company faces competition from both foreign and
domestic specialty manufacturers. The Company's focus is to compete in products
and markets which require manufacturing flexibility, product properties and
quality levels not provided by integrated papermills. The Company's key
competitors include Kimberly Clark, The Sorg Paper Company, a subsidiary of
Mosinee Paper Company, Arjo Wiggins USA, Inc., Robert Cordier AG, Crocker and
Merrimac.
SATURATED SPECIALTY PRODUCTS
Market. The primary markets for the Company's saturated specialty products
are tape substrates (primarily industrial and consumer masking tapes) and book
cover materials. There are seven major North American producers of pressure
sensitive tape, who, together, account for approximately 80% of the industry's
total sales. Most of these producers have self-saturating capabilities for
general purpose tapes and look to suppliers like the Company for specialty paper
backings.
The Company believes that it is one of the two leading domestic producers of
latex-reinforced material used in book covers and related products. These
materials are used by customers in applications where durability and distinctive
appearance are important, such as flexible covers for books, menus, photo
albums, desktop calendars, appointment books and reports.
54
<PAGE>
The Company has also sought out for its saturated specialty products niche
markets in which it believes that it can achieve a competitive advantage. The
Company produces converted specialty paper that is used as end sheets in book
rebinding and in the publishing industry as spine reinforcement materials for
use in the bookbinding industry. Other products include specialty binding tapes
for the checkbook industry, blue jean tag and specialty papers for various tag
and label applications.
Products. The following table sets forth the Company's principal saturated
specialty products:
<TABLE>
<CAPTION>
SATURATED SPECIALTY PRODUCTS
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
Tape substrates Enhanced strength, release, Industrial and commercial
impermeability or heat masking tapes; barrier
resistance tapes; pressure-sensitive
tapes; bandolier tapes;
packaging tapes
Heavyweight book cover Strong cotton fiber base Flexible covers for softbound
sheets; latex reinforced and books, menus, photo albums,
leather-like texture desktop calendars and
accessories, appointment
books and reports
Lightweight book cover Latex-reinforced base sheets Exterior cover material for
of higher bulk and lower hardbound books; photo
weight albums; report covers
</TABLE>
The Company is one of the largest producers of specialty tape substrates and
a broad range of saturated, coated and non-woven papers. The Company's tape
substrates are used in the manufacture of industrial and consumer masking tapes,
barrier tapes, other pressure-sensitive tapes and bandoliering tapes. The
Company's products have the strength and technical properties to meet various
performance demands. These products include barrier-coated and heat-resistant
industrial masking tapes for the automotive paint and aircraft manufacturing
industries and packaging tapes which withstand the rigors of worldwide shipping.
The Company's bandoliering tapes are used by the electronics industry to carry
resistors, capacitators and other items during high-speed automated assembly of
electronic devices.
Using proprietary manufacturing processes, the Company combines pulp, latex,
recycled rag fiber and other materials to produce flexible and durable specialty
materials for use in a variety of book cover applications. The Company sells its
book cover materials directly to customers in this market, who in turn coat,
emboss and decorate the material and sell it to manufacturers of end-use
products. The Company's primary latex product is manufactured using recycled rag
fibers, resulting in increased durability and a leather-like texture and
appearance. These products are used for day books, diaries, menu covers and
soft-cover books. The Company is also a leading supplier of light-weight
materials used in covering hardbound books.
The Company converts specialty paper into endsheets and spine reinforcement
materials for use in the bookbinding industry. The Company has developed papers
used in spinal binding that, with appropriate equipment, allows soft-cover books
to lay flat when opened. The Company also provides specialty tapes for use in
binding materials for checkbooks and deposit books.
Other saturated specialty products include imitation leatherstock which is
sold to garment label manufacturers who cut and print the material with various
brand and product information for use as blue
55
<PAGE>
jean tags. This material is expected to maintain its crisp appearance after
repeated washing cycles. The Company has also developed a tag and label product
line for manufacturers who require tags and labels with the strength of
Tyvek-Registered Trademark-. These products can be color-coated and are used as
luggage tags by the airline industry, as flame-retardant labels for the
automotive industry and other types of demanding packaging applications.
Customers. The Company offers its customers a broad product line with
flexible product development and manufacturing capabilities. This flexibility
has fostered long-term relationships with its client base. The Company sells its
specialty tape substrates to many of the leading tape manufacturers, including
American Tape Company and 3M. The Company believes that the international
customer base for these products may increase as the Company's sales force is
trained to sell these additional product lines.
The Company markets its book cover materials through a sales staff
experienced in serving the specialized book cover market. Endpapers and spine
reinforcing materials are supplied directly to participants in the bookbinding
industry. In the checkbook industry, the Company's major customer is Deluxe
Check Printers, a division of Deluxe Corp. The Company sells blue jean tags and
its other tag and label products to a variety of converters and end-users.
Competition. For tape backing, the Company primarily competes against
Kimberly-Clark, Inc. ("Kimberly-Clark"). In the latex-reinforced book cover
market, the Company primarily competes with Rexam DSI Inc. and, to a lesser
degree, with producers of plastic coated and coated cloth book cover materials.
In the checkbook binding tape market, the Company competes primarily against
Rexford. In its other niche markets, the Company competes with various small
competitors, none of which has a dominant market position.
FILTRATION PRODUCTS
Market. The Company is a major supplier of saturated and non-saturated
filter papers used in fluid and air filters for the automotive and heavy duty
truck and equipment industries. The Company estimates that the market for both
saturated and non-saturated papers was approximately $160 million in 1995, of
which approximately 90% was utilized in the automotive and heavy duty truck and
equipment markets. The other major market for these products is for filters used
to purify the solvents used in the dry cleaning industry. The five largest
manufacturers account for over 60% of total sales to the U.S. automotive and
heavy truck and equipment filter paper market. The market for automotive and
heavy duty truck and equipment filters has grown at a compound annual growth
rate of approximately 5.7% over the ten-year period from 1985-1995. The Company
also manufactures industrial filter paper used in a variety of applications and
processes.
- ------------
- -Registered Trademark-DuPont registered trademark.
56
<PAGE>
Products. The table below sets forth the primary materials produced by the
Company for use in filtration applications.
<TABLE>
<CAPTION>
FILTRATION PRODUCTS
<S> <C> <C>
PRODUCT TYPE CHARACTERISTICS TYPICAL END USES
Saturated filter paper Controlled porosity; enhanced Oil, fuel and hydraulic filters for
strength and rigidity; high heavy and light duty trucks and
temperature and chemical passenger cars; fuel, hydraulic
resistance. fluid and dry-cleaning solvent
filters
Non-saturated filter paper Controlled porosity; high density; Oil filters for heavy-duty equipment
may be impregnated with activated and diesel trucks; home water
carbon and other fillers. filters
Industrial filter paper Controlled porosity; high Hot oil filters for the fast-food
temperature resistance; industry; paint and lacquer
cleanliness. manufacturing; fruit juice
processing
</TABLE>
The Company's major filtration product is solvent-based saturated filter
paper, which is controlled porosity paper saturated with phenolic and other
resins to increase its strength and rigidity for use in various high temperature
applications. This product is purchased by filter manufacturers who cut, pleat
and cure the paper for use in oil, fuel and hydraulic fluid filters for heavy
and light duty trucks and passenger cars. These filters are sold primarily to
the replacement market but also to original equipment manufacturers. The Company
manufactures many grades of saturated filter paper to specifications provided by
its customers. The Company believes that it is one of the three largest
producers of saturated filter paper in the United States.
The Company also produces non-saturated filter paper. This category includes
non-saturated paper containing activated carbons and other fillers and edge
filter media. Primary uses of non-saturated filter paper include oil filtration
in heavy equipment and diesel trucks and home water filters. In addition, the
Company produces industrial filter papers for various food service and
industrial applications, including filtration of hot oil used in fast-food
preparation, the manufacture of paints and lacquers and the processing of fruit
juices.
The Company is nearing completion of a capital improvement plan that will
increase its annual saturated filter paper capacity at its Richmond mill by over
50%. In addition, the Company has improved its manufacturing processes at these
facilities to increase productivity and lower its costs.
Customers. The Company sells its filtration products primarily through its
own sales staff directly to its customers. Principal customers for the Company's
saturated filter papers include the Fleetguard Filtration Systems division of
Cummins Engine Co., Inc. ("Fleetguard"), the Delphi Automotive Systems division
of General Motors Corp. ("General Motors"), AlliedSignal, Inc. (Fram filters),
Purolator Products, Inc. and Miki Sangyo U.S.A. Inc., a trading company and the
major supplier of filter paper used in filters supplied to the U.S.
manufacturing sites of Nissan Motor Co., Ltd and Honda Motor Co., Ltd. The
Company's saturated filter paper is used to make filters which are used on
vehicles manufactured by General Motors, Chrysler Corp. and Ford Motor Corp.
Fleetguard is also the Company's primary customer for non-saturated filter
papers. The Company has long-term relationships with its customers and believes
that these relationships with its customers are based on its ability to provide
superior service and technical support.
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<PAGE>
The Company's major customers for its industrial filter paper products
include National Filters, Inc. and Lubrizol Corp. for commercial manufacturing
applications, Seneca Foods Corp. for food processing applications and the KFC
North America division of PepsiCo Inc. in the hot oil filtration market. In
addition, the Company supplies industrial filter papers to various smaller
manufacturers and users.
Competition. The Company's primary competition in solvent-based saturated
filter papers comes from Ahlstrom Filtration, Inc. ("Ahlstrom"), a division of
A. Ahlstrom Corp. In addition, the Hollingsworth & Vose Company is the dominant
manufacturer of water-based saturated filter papers, a market in which the
Company has a smaller presence. To the extent that industry efforts to develop
water-based alternatives to solvent-based saturated filter papers are
successful, the Company's solvent-based filterpapers may face increased
competition from such water-based alternatives.
In the markets for non-saturated filter papers and industrial filter papers,
the Company competes primarily with Ahlstrom, Knowlton Specialty Papers, Inc.
and Lydall, Inc. In each of these markets, producers tend to manufacture custom
designed products on an exclusive basis for their customers.
MANUFACTURING
Mills and Converting Facilities. The Company operates ten facilities, of
which eight are owned and two are leased. The Company intends to close the Arcon
facility in Oceanside by early 1997 and relocate those operations to the
Company's facility in Quakertown.
The Company has initiated a review of its combined papermaking and
converting facilities and, at the completion of the Transactions, will initiate
a product line rationalization to ensure optimal use of available assets. The
Company believes that additional savings will result from the consolidation and
rationalization of its production capacity.
Provided in the following table is a summary of the Company's facilities:
<TABLE>
<CAPTION>
WIDTH
LOCATION/BUSINESS PRODUCTS(1) MACHINE (INCHES)
- ----------------------------------------- ------------ ------------------------ -------------
<S> <C> <C> <C>
PAPER MANUFACTURING:
Richmond, VA/(CPG) FP,TS Fourdrinier 80
Rochester, MI/(CPG) FP Fourdrinier 60
Brattleboro, VT/(SPI)(2) OP Cylinder: 7 Ultraformers 86
Warren Glen, NJ/(CPG) OP,TS
Cylinder: 5 Vat 108
Owensboro, KY/(SPI) SS,TS Fourdrinier 124
Beaver Falls, NY/(SPI) SS,TS Cylinder: 5 Vat 57
Fourdrinier 59
Hughesville, NJ/(CPG) TS Rotoformer/Fourdrinier 100
Fitchburg, MA/(CPG) FP,TS Fourdrinier 64
Cylinder: 4 Vat 100
CONVERTING FACILITIES:
Quakertown, PA/(SPI) SS 3 Saturators, Water Base 80
2 Coaters, Water Based 60
1 Calendar 63
Oceanside, NY/(Arcon)(3) OP,SS 2 Coaters, Water Based 50
4 Slitters 54
1 Sheeters 60
<CAPTION>
FINISHING
LOCATION/BUSINESS CAPABILITY
- ----------------------------------------- -----------------------------------------
<S> <C>
PAPER MANUFACTURING:
Richmond, VA/(CPG) Off Machine Saturation
Rochester, MI/(CPG) In-line Saturation
Brattleboro, VT/(SPI)(2) Coating, embossing, glazing
Warren Glen, NJ/(CPG)
Duplex Capability
Owensboro, KY/(SPI)
Beaver Falls, NY/(SPI) In-Line Size Press
In-line two side coating
Hughesville, NJ/(CPG) Duplex Capability
Fitchburg, MA/(CPG) Sheeting
Sheeting
CONVERTING FACILITIES:
Quakertown, PA/(SPI)
Oceanside, NY/(Arcon)(3)
</TABLE>
- ------------------------
(1) FP=Filter Products; OP=Office Products; SS=Saturated Specialty Products;
TS=Technical Specialty Products.
(2) The Brattleboro Mill also contains the Company's executive offices.
(3) This facility is scheduled to be closed after the consummation of the
Transactions.
OFFICE PRODUCTS. The Company's main mills for the production of office
products are located in Brattleboro and Warren Glen. In addition, upon the
consummation of the Arcon Acquisition, the Company intends to consolidate the
manufacture of the binding tape and hinge and reinforcing tapes currently
manufactured in Oceanside in the Company's Quakertown converting facility. See
"-- Saturated Specialty Products." The Company has recently completed upgrades
of the Brattleboro and Warren Glen
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<PAGE>
mills. Recent improvements have included an upgrade to the Brattleboro mill
which is expected to increase its capacity, and will enable it to utilize a
higher percentage of recycled fiber and produce a new range of lighter weight
products. The Company has also recently completed a series of capital
improvements at its Warren Glen mill, which have increased productivity, reduced
costs and waste and increased the ability of the mill to use recycled fiber.
The cylinder paper machines in use at the Brattleboro and Warren Glen mills
are configured to produce a broad range of highly densified heavyweight
pressboard products of various weights, colors and finishes. The machine in the
Brattleboro mill features computer-controlled monitoring of color, weight,
thickness and moisture content. The configuration of the cylinder machine allows
the production of multiple-ply products, resulting in greater strength and
stiffness than a comparable one-ply product made on a Fourdrinier paper machine.
In addition, this process enables the Company to use lower-cost recycled fiber
pulp in the interior layers and higher-cost virgin pulp layers on the exterior
of a product providing greater strength and the surface appearance desired by
consumers. Finishing capabilities at the Brattleboro mill include glazing,
coating, embossing, rewinding, laminating and sheeting.
TECHNICAL SPECIALTY PRODUCTS. The Company manufactures technical specialty
products at a number of its facilities, including its Hughesville, Warren Glen,
Richmond, Fitchburg, Owensboro and Beaver Falls facilities. The Hughesville mill
manufactures primarily technical specialty papers, including photographic
packaging, electrical transformer paper and wet-strength tag.
SATURATED SPECIALTY PRODUCTS. Saturated specialty products are manufactured
in the Company's Owensboro and Beaver Falls mills and its Quakertown converting
facility. The Company's main converting facility for saturated specialty
products is located at Quakertown. A significant portion of the saturating base
paper used in this facility is provided by the Owensboro mill. In addition,
substantially all capacity currently located in Oceanside will be relocated to
the Quakertown facility. The Company's mill located in Beaver Falls specializes
in the production of proprietary latex-impregnated materials for use as book
covers and similar products. The stock preparation process at the Beaver Falls
mill allows blending of latex, cork, cotton fiber, pulp and other materials into
a variety of products with specific performance characteristics. The mill has a
fiber reclamation system enabling it to utilize recycled fiber.
FILTRATION PRODUCTS. The Company's filtration products are produced
primarily at its Richmond, Rochester and Fitchburg mills. The Richmond mill uses
a methanol-based resin saturating process that allows the saturation of base
paper off the paper machine. The Rochester mill uses an in-line saturating
process. The Company manufactures its non-saturated filter papers at its
Fitchburg mill.
Raw Materials. The Company uses a wide array of raw materials to formulate
its products, including virgin hardwood and softwood pulp, secondary wood fiber
from pre-and post-consumer waste, secondary cotton fiber from the apparel
industry, synthetic fibers (such as nylon and fiberglass), synthetic latex and a
wide variety of chemicals, pigments and dyes. These materials are procured from
numerous suppliers in the United States and Canada. The Company does not produce
pulp. Pulp and secondary fiber prices are subject to substantial cyclical price
fluctuations. The Company experienced a significant increase in raw material
costs during 1994 and 1995, but was able to partially recover these increases
with selling price increases, cost containment efforts and the early benefits of
the paper machine upgrade performed in 1995. There can be no assurance that the
Company will be able to pass any future increases in the price of pulp through
to its customers in the form of price increases. The Company's sole source of
supply of the Tyvek-Registered Trademark- used in production of certain of its
products is DuPont. The Company has a long-standing relationship with DuPont as
an approved converter of Tyvek-Registered Trademark- and has never experienced a
disruption in supply. Although management believes that is has a good
relationship with DuPont, there can be no assurance that the Company will be
able to continually purchase adequate supplies of Tyvek-Registered Trademark-.
Any material interruption in the Company's supply of Tyvek-Registered Trademark-
could have a material adverse effect on the results of operations and financial
condition of the Company.
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<PAGE>
Use of Recycled Fiber. The Company believes that materials with recycled
content continue to grow in consumer acceptance. The Company has made
significant capital investments in recycling equipment and systems. The use of
the Company's cylinder paper machines in the manufacturing process for
pressboard products allows the use of recycled fiber in the product interior,
while virgin pulp is used on the product exterior providing greater strength as
well as the product appearance desire by customers. In addition to using
recycled fiber, the end-use products manufactured from the Company's pressboard
materials are themselves recyclable.
The Company's office products are manufactured with 25% to 100% recycled
fiber, of which up to 50% may be post-consumer waste. Post-consumer waste refers
to paper waste from end-users of paper products, and is generally considered the
standard by which government agencies and environmentally conscious consumers
evaluate recycled content. In particular, government agencies have established
and are continuing to update standards for recycled content (both pre- and
post-consumer waste) in the procurement of office supplies. The Company
anticipates that demand for office product materials with recycled content will
continue to grow.
Research and Development. The Company's expenditures on research and
development were $2.0 million, $2.3 million, and $1.7 million in 1995, 1994 and
1993, respectively. The Company has a research and development staff with
expertise in chemistry, papermaking and materials science. This staff works
closely with the Company's customers to develop, test and produce new product
formulations designed to meet customer specifications.
EMPLOYEES
As of October 31, 1996, the Company employed a total of 1,012 employees, of
which 302 were salaried and 710 were hourly. Of the salaried employees, 136 were
in manufacturing, 49 in sales and marketing, 15 in research and development and
102 in professional or administrative support.
The hourly employees at the Oceanside and Quakertown locations are all
non-union. The remaining hourly employees are either members of the United
Paperworkers International Union, the International Brotherhood of Boilermakers,
Iron Shipworkers, Blacksmiths, Forgers and Helpers or the International
Brotherhood of Electrical Workers. The table below sets out the expiration dates
of the Company's labor contracts by facility:
<TABLE>
<CAPTION>
EXPIRATION
FACILITY DATE
- -------------------------------------------------------------------------- ------------------
<S> <C>
Owensboro, KY............................................................. April 1, 1996
Fitchburg, MA............................................................. April 30, 1998
Warren Glen, NJ........................................................... May 23, 1999
Hughesville, NJ........................................................... May 23, 1999
Rochester, MI............................................................. June 26, 1999
Richmond, VA.............................................................. April 28, 2000
Beaver Falls, NY (Latex Mill)............................................. June 30, 2000
Brattleboro, VT........................................................... August 31, 2002
</TABLE>
The Company believes that, in general, it has good relations with its
employees and their unions. The labor contract governing the 30 employees in the
bargaining unit at the Company's Owensboro mill expired on April 1, 1996 and the
employees have continued to work under the terms of the expired contract. The
employees at this mill are represented by the International Brotherhood of
Boilermakers, Iron Shipworkers, Blacksmiths, Forgers and Helpers. The Company
has made a final offer which includes substantial revisions to the work rules at
the Owensboro mill which are intended to bring such work rules
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<PAGE>
more into line with labor agreements in place throughout the paper industry. The
union's representatives have not accepted this final offer. The employees in the
bargaining unit have voted not to strike. In the event of a work stoppage,
management believes that the Company could continue to operate the Owensboro
mill. In any event, the Company believes that it has sufficient production
capacity throughout its various mill facilities to adequately meet its
production requirements.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
ENVIRONMENTAL REGULATION AND COMPLIANCE
Like similar companies, the Company's operations and properties are subject
to a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees, (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to
environmental protection and health and safety matters and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims.
The Company and its predecessors have made substantial investments in
pollution control facilities to comply with existing Environmental Laws. The
Company made expenditures for environmental purposes of $3.5 million, $2.2
million, and $2.0 million in 1995, 1994 and 1993, respectively. While the
Company believes that it has made sufficient capital expenditures to maintain
compliance with existing Environmental Laws, any failure by the Company to
comply with present and future Environmental Laws could subject it to future
liability or require the suspension of operations. In addition, such
Environmental Laws could restrict the Company's ability to expand its facilities
or could require the Company to acquire costly equipment or to incur significant
expenses to comply with environmental regulations.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") and similar state laws provide for responses to, and
liability for, releases of certain hazardous substances from a facility into the
environment. These obligations are imposed on the current owner or operator of a
facility from which there has been a release, the owner or operator of a
facility at the time of the disposal of hazardous substances at the facility, on
any person who arranged for the treatment or disposal of hazardous substances at
the facility, and any person who accepted hazardous substances for transport to
a facility selected by such person. Liability under CERCLA can be strict, joint
and several. Pursuant to the Environmental Laws, there are currently pending
investigations at certain of the Company's plants relating to the release of
hazardous substances, materials and/or wastes. In addition, various predecessors
of the Company have been named as potentially responsible parties ("PRPs") by
the United States Environmental Protection Agency ("EPA") for costs incurred and
to be incurred in responding to the investigation and clean-up of various
third-party sites. The Company has not received any notification or inquiry from
EPA or any other agency concerning these sites. Management believes that the
Company will have no liability in connection with the clean-up of these sites.
However, no assurance can be given that such predecessors will perform their
responsibilities in connection with such sites and, in the event of such
nonperformance, the Company may incur material liabilities in connection with
such sites, and no assurance can be given that the Company will not receive PRP
notices in connection with these or other sites in the future.
In connection with the CPG Acquisition, the former owners of CPG have agreed
to indemnify (subject to certain limitations) the Company for certain identified
and potential environmental liabilities arising from the historical use of the
property acquired pursuant to the CPG Merger Agreement or from CPG's conduct
prior to the CPG Acquisition. Management believes that the amount of the escrow
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<PAGE>
established as security for these and other indemnity obligations of the former
CPG owners under the CPG Merger Agreement will be sufficient to cover
environmental liabilities expected to be incurred in connection with the CPG
Acquisition. However, no assurance can be given that the limited indemnity
provided by the former owners of CPG will be sufficient to cover all material
environmental liabilities associated with the CPG Acquisition.
Based upon its experience to date, the management of the Company believes
that the future cost of compliance with existing Environmental Laws, and
liability for known environmental claims pursuant to such laws, will not have a
material adverse effect on the Company's financial condition and results of
operation. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory authorities, may give rise to additional expenditures or
liabilities that could be material to the Company's financial condition and
results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
SPI's Directors and Executive Officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
K. Peter Norrie...................................... 57 Chairman of the Board of Directors
Alex Kwader.......................................... 54 President, Chief Executive Officer and Director
Brian C. Kerester.................................... 37 Director
George E. McCown..................................... 61 Director
Glenn S. McKenzie.................................... 44 Director
Jon H. Miller........................................ 58 Director
Wayne T. Stephens.................................... 46 Director
Fred P. Thompson, Jr. ............................... 68 Director
John D. Weil......................................... 49 Director
Bruce P. Moore....................................... 48 Vice President and Chief Financial Officer
Stephen A. Steidle................................... 51 Vice President and General Sales Manager
</TABLE>
K. PETER NORRIE, age 57, has served as Chairman of the Board of Directors of
SPI since June 1989 and as Chief Executive Officer from SPI's inception in June
1989 to November 1990. He is also a member of the Compensation Committee of the
Board of Directors. From 1976 until June 1989, Mr. Norrie was Senior Vice
President and General Manager of Boise Cascade Corporation's Paper Group. From
1964 to 1976, he was employed by Boise Cascade Corporation ("BCC") in various
management positions, including Vice President and General Sales Manager of the
White Paper Division of the Paper Group. Mr. Norrie received a B.S. in Civil
Engineering from Gonzaga University and an M.B.A. from Harvard University. Mr.
Norrie serves as a director of Tree-Free Fiber Company, LLC, a private pulp and
paper concern and also serves as a member of the Advisory Board of Compensation
Resource Group, Inc. a management compensation advisory concern.
ALEX KWADER, age 54, has been the President and Chief Executive Officer of
SPI since August 1991 and a Director since November 1991. Since 1970, Mr. Kwader
has been employed by SPI and BCC in various management positions. He served as
Senior Vice President of SPI from March 1990 to August 1991 and as Vice
President from SPI's inception in June 1989 until March 1990. Mr. Kwader was
also General Manager of the Pressboard Division from June 1989 until August
1991, serving in the same capacity for the BCC Pressboard Division from 1986
until June 1989. From 1980 to 1985, he served as General Manager of the BCC
Latex Fiber Products Division. Mr. Kwader holds a B.S. in Mechanical Engineering
from the University of Massachusetts and a M.S. from Carnegie Mellon University
and attended the Harvard Business School Executive Program.
BRIAN C. KERESTER, age 37, has been a director of SPI since May 1996. Mr.
Kerester joined McCown De Leeuw & Co. in 1988 and currently serves as an
operating affiliate. He previously held positions with the Venture Capital Group
of First Boston Corporation and the World Corporate Department of Bankers Trust
Company. He received a B.S. in Economics from the University of Pennsylvania and
an M.B.A. from Columbia University. Mr. Kerester currently serves as a director
of three McCown De Leeuw & Co. portfolio companies: Century Fasteners, Inc.,
Thrifty Foods, Inc., and Victoria Mortgage Corp.
GEORGE E. MCCOWN, age 61, has been a director of SPI since its inception in
June 1989. He is also a member of the Compensation Committee of the Board of
Directors. Mr. McCown was co-founder and has been a Managing Partner of MDC
Management Company, the general partner of McCown De Leeuw & Co., since 1984.
Mr. McCown received a B.S. in Mechanical Engineering from Stanford University
and an M.B.A. from Harvard University. He currently serves as a director of
three publicly held companies: BMC West Corporation, a building materials
retailer, Nimbus CD International, Inc., a CD audio and CD ROM
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<PAGE>
manufacturer, and Vans, Inc., a casual shoe manufacturer. Mr. McCown also serves
as a director of several other McCown De Leeuw & Co. portfolio companies.
GLENN S. MCKENZIE, age 44, has been a director of SPI since January 1994.
Since October 1991, Mr. McKenzie has been President of Alpha Investments, Inc.,
a management consulting firm. Alpha Investments provides consulting services to
McCown De Leeuw & Co., with which Messrs. McCown, Kerester, and Weil are
affiliated. He holds a B.A. in Economics and an M.B.A. from the University of
North Carolina. Mr. McKenzie currently serves as a director of Nimbus CD
International, Inc and DEC International, Inc.
JON H. MILLER, age 58, has been a director of SPI since its inception in
June 1989. He is also a member of the Compensation Committee of the Board of
Directors. Mr. Miller was President and Chief Operating Officer of BCC from 1978
until his retirement in 1990. In addition to serving on the Board of SPI, he is
a director of Idaho Power Company. Mr. Miller received a B.A. in Economics and
an M.B.A. from Stanford University.
WAYNE T. STEPHENS, age 46, has been a director of SPI since February 1991
and served as acting President of SPI from January 1991 to August 1991. He is
also a member of the Audit Committee of the Board of Directors. From April 1989
to November 1992, Mr. Stephens served as a principal with the Finley Group, a
management consulting firm. Since November 1992, he has been the President and
Chief Executive Officer of The Barcalounger Company, a North Carolina furniture
manufacturer. From January 1972 to April 1989, he was a partner at Deloitte &
Touche, a public accounting firm. Mr. Stephens holds a B.S. in Business from the
University of South Carolina.
FRED P. THOMPSON, JR., age 68, has been a director of SPI since April 1994.
He also serves as a member of the Audit Committee of the Board of Directors. Mr.
Thompson is currently and has served as President and Chief Executive Officer of
Peregrine Industries, Inc., a cabinet manufacturer, and Executive Management,
Inc., a management services firm, since 1972 and 1985, respectively. He is also
currently and has been Chairman and Chief Executive Officer of Nelson-Ball Paper
Products, Inc., a paper products manufacturer, and Powder River, Inc., a fence
manufacturer, since 1984 and 1990, respectively. Mr. Thompson received a B.S.
from the University of Oregon and attended the Harvard Business School Advanced
Management Program.
JOHN D. WEIL, age 49, has been a director of SPI since May 1996. Mr. Weil
has over 25 years of experience in national manufacturing and service
organizations. From 1982 to 1994, he served as President and Chief Executive
Officer and as a director of American Envelope Company. In 1995, Mr. Weil joined
the venture banking firm of McCown De Leeuw & Co. as an operating affiliate to
assist in portfolio management. He currently serves as Chairman of the Board of
Directors of DEC International, Inc., a manufacturer of custom paper products
and a McCown De Leeuw & Co. portfolio company, and as a director of Tiara
Motorcoach Corporation and International Data Response Corporation, both McCown
De Leeuw & Co. portfolio companies, and Sage Enterprises, Inc., a food service
distributor. Mr. Weil received a B.S. in Economics from the University of
Illinois and an M.B.A. from Northwestern University.
BRUCE P. MOORE, age 48, has served as Vice President of SPI since its
inception in June 1989 and as Chief Financial Officer since December 1990. From
1980 to 1989, Mr. Moore was employed by BCC in various management positions,
including Controller and General Manager of the Latex Fiber Products Division.
Mr. Moore holds a B.A. in Business Administration from Siena College and
attended the Stanford University Executive Program.
STEPHEN A. STEIDLE, age 51, has served as Vice President and General Sales
Manager for the office products and book cover markets since February 1994. He
has held sales management positions with SPI and BCC for more than 10 years and
has a total of 25 years of service with SPI and BCC. Mr. Steidle began
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his career as Safety Director of the Personnel Department at BCC's St. Helens
mill in Oregon. Mr. Steidle received a B.A. in Psychology from the University of
Maine and an M.B.A. from the University of Maine.
------------------------
There are no family relationships among any of the directors or executive
officers of SPI.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF DIRECTORS
SPI has a policy of paying the Chairman of the Board of Directors and
directors who are not full-time employees of SPI a quarterly fee of $2,500 for
services to the Board, together with a fee of $1,500 for each meeting of the
Board of Directors they attend. In the event a director attends a Board meeting
telephonically, such director receives a fee of $750 rather than $1,500. In
addition, directors are paid a fee of $1,500 for each committee meeting of the
Board of Directors they attend ($750 if the committee meeting is held in
conjunction with a Board meeting). In 1995, Mr. Norrie received an aggregate of
$68,448 in fees for his services as Chairman of the Board and for health
benefits as an employee of the Company. In the fiscal year ended December 31,
1995, the total compensation paid to non-employee directors (excluding the
$68,488 in fees paid to Mr. Norrie) was $78,500. All of the non-employee
directors are reimbursed for their travel expenses for each Board and committee
meeting attended.
Directors of SPI who are not full-time employees of SPI ("Non-Employee
Directors") are also eligible to receive stock options under the 1994 Directors
Stock Option Plan (the "Directors Plan"). Pursuant to the Directors Plan,
automatic stock option grants were made to seven directors of the Company on May
16, 1994. The options granted were for 5,000 shares of common stock for each
Non-Employee Director at the then current market value of $8.50 per share. Each
person who is, after May 16, 1994, elected for the first time to be a
Non-Employee Director shall, upon the date of their initial election, be granted
options to purchase 5,000 shares of common stock. Twenty percent (20%) of the
options vest immediately and 20% vest on each one-year anniversary of the grant
date thereafter, provided that the person is still serving as a director of SPI.
No options were granted in 1995. On May 9, 1996, the Directors Plan was amended.
Pursuant to such amendment, each Non-Employee Director was granted additional
options (the "New Options") to purchase 10,000 shares of common stock at the
then fair market price of $14.12. Fifty percent (50%) of the New Options vest
and become exercisable when the fair market value of the common stock reaches a
closing price of at least $18.00 per share for 20 consecutive trading days or is
valued in a merger at such price. Twenty-five percent (25%) of the New Options
vest and become exercisable when the fair market value of the common stock
reaches a closing price of at least at $22.00 per share for 20 consecutive
trading days or is valued in a merger at such price. The remaining 25% of the
New Options vest and become exercisable when the fair market value of the common
stock reaches a closing price of at least $26.00 per share for 20 consecutive
trading days or is valued in a merger at such price. In the event that a holder
of a New Option ceases to be a director, the New Options shall expire one year
after the date of termination of service, except in the case of death, where New
Options shall expire 18 months after the date of death. All options granted
under the Directors Plan are exercisable for a period of 10 years from the grant
date. As of September 30, 1996, no options under the Directors Plan had been
exercised.
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SUMMARY OF COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1993,
1994, and 1995, compensation awarded or paid to, or earned by SPI's Chief
Executive Officer and its other executive officers who earned over $100,000 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
-------------------- ------------- ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) # ($)(3)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Alex Kwader,......................................... 1995 270,008 149,314 12,000(2) 9,603
President and Chief Executive Officer 1994 243,756 126,454 9,500(2) 7,934
1993 216,251 37,249 0 10,466
Bruce P. Moore,...................................... 1995 135,012 74,660 6,000(2) 7,498
Vice President and Chief Financial Officer 1994 119,679 63,227 4,500(2) 6,117
1993 102,009 17,168 0 6,148
Stephen A. Steidle,(4)............................... 1995 107,132 59,605 3,500(2) 6,984
Vice President and General Sales Manager 1994 100,737 51,270 3,000(2) 5,142
</TABLE>
- ------------------------
(1) Includes amounts earned but deferred at the election of the executive
officer. As permitted by rules promulgated by the Commission, no amounts are
shown with respect to certain "perquisites" where such amounts do not exceed
the larger of 10% of the sum of the amount in the salary and bonus columns,
or $50,000.
(2) The awards consist of stock options granted under the 1994 Stock Option
Plan. The options vest in installments of 20% upon the one-year anniversary
of the grant date and 1.66% at the end of each month thereafter, unless
accelerated by the Compensation Committee of the Board of Directors.
(3) Consists of SPI's matching and discretionary payments under its Savings and
Supplemental Retirement Plan ("401(k) Plan"). The matching payments under
its 401(k) Plan to Messrs. Kwader, Moore, and Steidle in 1995 were $4,500
each. Discretionary SPI payments under the 401(k) Plan to Messrs. Kwader,
Moore and Steidle in 1995 were $5,103, $2,998, and $2,484, respectively.
(4) In February 1994, Mr. Steidle was elected as Vice President and General
Sales Manager. His annual salary and bonus in 1994 is reported in the table.
BONUS PLAN, STOCK OPTION PLAN AND OTHER BENEFIT PLANS AND ARRANGEMENTS
BONUS COMPENSATION. To provide incentive to the executive officers to
achieve certain performance goals, the Committee administers a bonus program. In
1994, the Compensation Committee of the Board of Directors (the "Committee")
adopted the Executive Bonus Plan, which provides for bonus payments of a
percentage of base salary based upon achievement by SPI of certain levels of
earnings per share. The Executive Bonus Plan utilizes a sliding scale so that
the percentage of base salary paid as bonus compensation increases as the
earnings per share of SPI increase. The Executive Bonus Plan is designed to
directly align the interests of the executive officers and the stockholders.
Although the Executive Bonus Plan is subject to annual review by the Committee,
the Committee expects it to remain in place for a five-year term.
STOCK OPTIONS. The Committee uses stock option grants to executive officers
and other key employees to provide such individuals with incentives to remain in
the employ of SPI and to work to maximize the
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value of SPI's stock. Stock option grants are viewed by the Committee as
long-term compensation intended to directly align the executive's interest with
the interests of the stockholders. Since stock options are also used by other
competitors, the Committee believes that the granting of stock options is
necessary to make the Company's compensation package competitive. The Committee
grants options with vesting over a five (5) year period to encourage executives
to remain in the employ of the Company.
In February 1994, the Board of Directors adopted the 1994 Stock Option Plan
(the "1994 Plan"), which was approved at the annual meeting of the stockholders.
Under the 1994 Plan, an aggregate of 200,000 shares is reserved for issuance to
key employees and executive officers of SPI. The amount of shares reserved under
the 1994 Plan (together with shares granted under the 1992 Plan) was established
based on a review by the Committee of industry averages with respect to the
percentage of outstanding shares reserved for stock option plans for executive
officers and other persons.
On August 17, 1995, the Committee granted options to purchase an aggregate
of 44,100 shares to executive officers and key managers. The options vest in
installments of 20% after the first year and 1.66% monthly thereafter. The
Committee's decision to grant options for 44,100 shares was based on a review of
levels of executive stock ownership in the paper industry and in consideration
of the need to minimize dilution of the stockholder's interest. The vesting
schedule was intended to provide individuals with incentive to remain in the
employ of SPI. The Committee's distribution of the options was based on the
relative level of responsibility and salary of the executive officer or key
manager, as well as such individual's previous stock ownership in SPI. SPI
expects to periodically grant options to purchase the remaining shares reserved
under the 1994 Plan, based on its evaluation of the factors discussed above.
OTHER BENEFIT PROGRAMS. The executive officers also participate in other
employee benefit programs including health insurance, group life insurance, and
a savings and supplemental retirement plan (the "401(k) Plan") on the same basis
as other employees of SPI.
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
During 1995, the Board of Directors granted incentive stock options under
the 1994 Plan. SPI has reserved 200,000 shares of its Common Stock for issuance
upon exercise of options granted to selected executive officers and key
employees of the company under the 1994 Plan. As of September 30, 1996, options
to purchase 120,850 shares had been issued, and a balance of 79,150 shares
remained to be granted under the 1994 Plan. The 1994 Plan is administered by the
Committee. The Committee has the authority to determine to whom options shall be
granted, the number of shares subject to each option, whether the options will
be incentive or nonstatutory, when the options may be exercised, and the
exercise price. The 1994 Plan expires on February 27, 2004. The following table
contains information concerning the stock options granted to the Named Executive
Officers under the 1994 Plan during the last fiscal year.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL VALUE AT ASSUMED
GRANTS ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM (4)
UNDERLYING EMPLOYEES IN EXERCISE ----------------------
OPTIONS GRANTED FISCAL PRICE EXPIRATION POTENTIAL REALIZABLE
(#)(1) YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
--------------- ------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alex Kwader................................... 12,000 27.21 11.75 8/17/05 229,680 365,760
Bruce P. Moore................................ 6,000 13.60 11.75 8/17/05 114,840 182,880
Stephen A. Steidle............................ 3,500 7.90 11.75 8/17/05 66,990 106,680
</TABLE>
- ------------------------
(1) Options vest in installments of 20% upon the one-year anniversary of the
grant date and 1.66% at the end of each month thereafter, unless accelerated
by the Committee. In the event of a merger or change of control, as defined
in the 1994 Plan, if the surviving company shall refuse to assume the
options or substitute similar options for those outstanding options under
the 1994 Plan, the options shall become immediately exercisable and shall
terminate if not exercised prior to such event. Options expire 90 days after
an optionee's employment with SPI is terminated for any reason, unless the
termination is by reason of the optionee's death, disability, or retirement.
The options expire 10 years from the grant date. As of December 31, 1995,
none of the options granted to the Named Executive Officers in the last
fiscal year had vested.
(2) Of the SPI's employees, 14 were granted incentive options under the 1994
Plan. During the 1995 fiscal year, a total of 44,100 shares were granted to
executive officers and key employees.
(3) Represents the closing market price of the SPI's Common Stock on the day
immediately preceding the grant date.
(4) The potential realizable value is based on the term of the option at its
time of grant (10 years). It is calculated by assuming that the stock price
on the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option, and that the option is exercised
and sold on the last day of its term for the appreciated stock price. No
gain to the optionee is possible unless the stock price increased over the
option term, which will benefit all stockholders. For example, a stockholder
who purchased one share of stock on December 31, 1995, at $11.75, and held
the stock for 10 years and sold it on December 31, 2005, while the stock
appreciated at 5% and 10% would have profits of $7.39 and $18.73,
respectively, on his $11.75 investment.
AGGREGATED STOCK OPTIONS
The following table shows, as of December 31, 1995, information regarding
unexercised stock options held by the Named Executive Officers. No stock options
were exercised by the Named Executive Officers during the year.
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<PAGE>
AGGREGATE OPTIONS IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1995(1) DECEMBER 31, 1995(1)(2)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
Alex Kwader............................................... 47,704 30,061 $ 311,990 $ 106,306
Bruce P. Moore............................................ 23,871 14,852 166,675 52,664
Stephen Steidle........................................... 16,918 9,669 118,751 36,801
</TABLE>
- ------------------------
(1) The table includes options granted under the 1992 Amended and Restated
Stock Option Plan and the 1994 Stock Option Plan as of December 31, 1995,
and valued at the closing market price of the stock on December 29, 1995.
(2) Value in this table is the aggregate amount by which the market price per
share of $12.25 at December 29, 1995, exceeded the following exercise prices
of $5.00, $9.50, and $11.75.
SEVERANCE AGREEMENTS
The Board has approved severance agreements with certain executive officers,
pursuant to which such persons will receive their base salary for a specified
period in the event of termination by the Company without cause. Pursuant to
such arrangements and based on current annual salaries, Messrs. Kwader and Moore
would be entitled to severance payments of approximately $201,923 and $86,538,
respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Committee consists of Messrs. Miller, Norrie and McCown.
Mr. Norrie served as Chief Executive Officer of SPI from June 1989 to November
1990. Mr. Norrie, in his role as Chairman of the Board of Directors, is
compensated as an employee of the Company. In 1995, Mr. Norrie received an
aggregate of $68,448 for his services as Chairman of the Board and for health
benefits as an employee of SPI. Mr. McCown is a general partner of MDC
Management Company. MDC Management Company, the general partner of McCown De
Leeuw & Co., provides management, consulting, and financial services to SPI for
an annual fee. Services rendered by MDC Management Company, include, but are not
necessarily limited to, advice and assistance concerning the operation,
planning, and financing of SPI, including assistance in identifying and
implementing acquisitions. The management fee is paid pursuant to an agreement.
Such fee was $250,000 in 1995. Under the terms of the agreement, the principals
of MDC Management Company (including Mr. McCown) are not obligated to devote
more than 25% of their time in any given month to the affairs of SPI.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of SPI's Common Stock as of December 1, 1996, by: (i) each director; (ii) each
of the executive officers named in the Summary Compensation Table employed by
SPI in that capacity on September 30, 1996; (iii) all executive officers and
directors of SPI as a group; and (iv) all those known by SPI to be beneficial
owners of more than 5% of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(2)
- --------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
McCown De Leeuw & Co.(3)............................................................... 704,670 17.5%
3000 Sand Hill Road, Bldg. 3, Ste. 290
Menlo Park, CA 94025
Kirkpatrick, Pettis, Smith, Polian, Inc................................................ 636,225 15.8
10250 Regency Circle
Omaha, NE 68114
Heartland Advisors, Inc................................................................ 411,800 10.2
790 North Milwaukee Street
Milwaukee, WI 53202
Dalton, Greiner, Hartman Maher & Co.................................................... 304,100 7.5
630 Fifth Avenue, Ste. 3425
New York, NY 10111
Alex Kwader, President, CEO and Director(4)............................................ 68,761 1.7
K. Peter Norrie, Chairman of the Board of Directors(4)................................. 24,358 *
George E. McCown, Director(3)(4)....................................................... 704,670 17.5
Brian C. Kerester, Director(4)(5)...................................................... 8,960 *
Glenn S. McKenzie, Director(4)......................................................... 11,000 *
Jon H. Miller, Director(4)............................................................. 8,000 *
Wayne T. Stephens, Director(4)......................................................... 11,000 *
Fred P. Thompson, Jr., Director(4)..................................................... 8,500 *
John D. Weil, Director(4).............................................................. 7,000 *
Bruce P. Moore, Vice President and CFO(4).............................................. 60,800 1.5
Stephen A. Steidle, Vice President and General Sales Manager(4)........................ 30,787 *
All executive officers and directors as a group (11 persons)(6)........................ 943,566 23.4
</TABLE>
- ------------------------
* Represents holdings of less than 1%.
(1) This table is based upon information supplied by executive officers,
directors, and principal stockholders and Schedules 13D and 13G, if any,
filed with the Commission. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, each of
the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned.
(2) Applicable percentages of ownership are based on 4,039,092 outstanding
shares of the Company's Common Stock on December 1, 1996, as adjusted as
required by rules promulgated by the Commission.
(3) Includes 605,304 shares held by McCown De Leeuw & Co. and 91,366 shares
held by MDC/JAFCO Ventures, an investment partnership affiliated with McCown
De Leeuw & Co. Also includes 8,000 shares which Mr. McCown has the right to
acquire within 60 days after the date of this table pursuant
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<PAGE>
to the exercise of outstanding options. Mr. McCown, a director of SPI, may
be deemed to own beneficially all of the shares held by McCown De Leeuw &
Co. and MDC/JAFCO Ventures because of his position as General Partner of MDC
Management Company, the general partner of McCown De Leeuw & Co. and
MDC/JAFCO Ventures. Mr. McCown has no direct ownership of any Common Stock
of SPI and disclaims beneficial ownership as to all of such shares, except
to the extent of his proportional partnership interests and those option
shares granted to him under the 1994 Director Stock Option Plan for his
services on the Board of Directors.
(4) Assumes the vesting of 5,000 options granted to each non-employee director
on May 9, 1996, pursuant to the Directors Plan and includes shares which
certain executive officers and directors of SPI have the rights to acquire
within 60 days after the date of this table pursuant to the exercise of
outstanding options as follows: Alex Kwader, 64,615; Bruce P. Moore, 32,183;
Stephen Steidle, 22,645; Brian C. Kerester, 6,000; George E. McCown, 8,000;
K. Peter Norrie, 8,000; Glenn S. McKenzie, 8,000; Jon E. Miller, 8,000;
Wayne T. Stephens, 8,000; Fred P. Thompson, Jr., 8,000; John D. Weil, 6,000;
and all executives and directors as a group, 179,443.
(5) Mr. Kerester holds sole investment and voting power over 1,000 shares and
shares investment and voting power over 1,960 shares.
(6) Includes shares described in notes 3 and 4.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the CPG Acquisition, certain members of CPG's management
received payments for equity interests in CPG. Such payments were in the
aggregate approximately $21 million, less an allocable portion of the
outstanding indebtedness of CPG at closing, plus or minus an amount equal to
certain post-closing adjustments. A portion of such payments were placed into an
escrow account. See "The Acquisitions."
In connection with the Arcon Acquisition, certain members of Arcon's
management received payments for their respective equity interests in Arcon.
Such payments were in the aggregate approximately $2.5 million, less an
allocable portion of the outstanding indebtedness of Arcon at closing. A portion
of such payments was placed into an escrow account. See "The Acquisitions."
ADVISORY SERVICES
SPI paid a fee of $250,000, $250,000 and $264,000 for the years ended
December 31, 1995, 1994 and 1993, respectively, to an affiliate, MDC Management
Company ("MDC") for certain consulting, financial and managerial services. The
payment of fees related to these services was approved by the members of the
Board of Directors of SPI who do not have a direct financial interest in MDC.
SPI believes that the fees received for the professional services rendered are
at least as favorable to SPI as those which could be negotiated with a third
party. In addition to the annual fee paid to MDC, SPI will pay a fee to MDC or
certain of its affiliates in connection with advisory services rendered and
expenses incurred by MDC and certain of its affiliates in connection with the
Transactions.
CERTAIN CUSTOMERS
Four of the Company's customers are owned by persons who are stockholders of
CPG and, in one case, a director of CPG. Net sales to these customers aggregated
$0.9 million, $5.0 million and $4.9 million in 1993, 1994 and 1995,
respectively. Accounts receivable from these customers aggregated $0.7 million
at December 31, 1994 and $0.6 million at December 31, 1995.
CERTAIN OTHER MATTERS
SPI has engaged Compensation Resource Group, Inc. ("CRG"), a management
compensation advisory concern to review SPI's compensation practices. Mr. Peter
Norrie, the Chairman of the Board of Directors of SPI, serves as a member of the
Advisory Board of CRG. To date, Mr. Norrie has received no compensation as a
result of this relationship, however, it is anticipated that Mr. Norrie will
receive an as of yet undetermined referral fee from CRG in accordance with CRG's
standard practice of paying such fees to Advisory Board members who successfully
refer clients to CRG.
DESCRIPTION OF FINANCING ARRANGEMENTS
THE CREDIT FACILITY
SPI has entered into an amended and restated Financing Agreement dated June
30, 1994 (the "Credit Facility") with The CIT Group/Business Credit Corp. (the
"Lender"). Pursuant to the terms of the Credit Facility, the Lender agreed to
provide SPI with revolving credit loans, subject to the terms and conditions of
the Credit Facility.
The Credit Facility enables SPI to obtain revolving credit loans from time
to time for general corporate purposes in an aggregate amount not to exceed the
lesser of (x) $15.0 million or (y) the sum of (a) 85% of eligible accounts
receivable of SPI plus (b) the lesser of (i) 50% of eligible inventory of SPI,
and
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<PAGE>
(ii) $10.0 million. The revolving credit loans bear interest at a rate based on
the Lender's prime rate or LIBOR. As of September 30, 1996, there were no
amounts outstanding under the revolving credit facility. During the term of the
Credit Facility, SPI has agreed to pay the Lender an annual fee based upon the
amount of the average unused revolving loan commitments and an annual collateral
management fee.
The Lender may terminate the Credit Facility upon the seventh or any
subsequent anniversary date by giving SPI at least 60 days prior notice of
termination or sooner upon an Event of Default (as defined therein), and all
outstanding loans will be payable on such termination date.
The Credit Facility ranks PARI PASSU with the Notes and is secured by liens
on substantially all of the Company's accounts receivable, inventory, equipment,
general intangibles, contract rights, documents, licenses and real estate and
the proceeds thereof (collectively, the "Collateral"). The Credit Facility
contains various restrictive covenants and events of default (including, but not
limited to, an event of default under the Sale/Leaseback Agreement) customary
for a transaction of its type. See "-- Sale/ Leaseback Transaction."
SPI is in the final stages of negotiating a second amended and restated
Credit Facility (the "Amended Credit Facility") with the Lender.
The Amended Credit Facility will provide for a revolving credit facility
which will enable SPI to obtain revolving credit loans from time to time for
general corporate purposes in an aggregate amount not to exceed the lesser of
(x) $20.0 million or (y) an amount equal to the sum of (a) 85% of eligible
accounts receivable plus (b) 50% of the aggregate value of eligible inventory.
The Amended Credit Facility will contain provisions relating to interest and
fees similar to those found in the Credit Facility.
The Lender will be able to terminate the Amended Credit Facility in April of
the year 2000 or any anniversary of the closing date subsequent to April of the
year 2000 by giving SPI at least 60 days notice of termination or sooner upon
the occurrence of an Event of Default (as defined).
The Amended Credit Facility will rank PARI PASSU with the Notes and will be
secured by liens on substantially all of the Company's accounts receivable,
inventory, instruments, documents, general intangibles, contract rights and
chattel paper and certain of SPI's equipment and real estate. In addition, SPI's
obligations under the Amended Credit Facility will be guaranteed by SPI's
domestic subsidiaries. The guarantees will be secured by a lien on substantially
all of the domestic subsidiaries' accounts receivable, inventory, instruments,
documents, general intangibles, contract rights and chattel paper.
The Amended Credit Facility will contain various restrictive covenants and
events of default customary for a transaction of its type.
SALE/LEASEBACK TRANSACTION
On April 29, 1994, SPI sold to and leased from The CIT Group/Equipment
Financing, Inc. ("Lessor") substantially all of the equipment at its Brattleboro
mill. Pursuant to the Sale/Leaseback Agreement, SPI is obligated to make
quarterly rental payments equal to approximately $1.2 million through April,
1999 and approximately $1.0 million thereafter through April, 2004. The
Sale/Leaseback Agreement contains various restrictive covenants and events of
default (including, but not limited to, an event of default under the Credit
Facility) customary for transactions of this type.
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DESCRIPTION OF THE NOTES
The New Notes will be issued, and the Old Notes were issued under an
Indenture dated as of October 15, 1996 (the "Indenture") among the Company, the
Guarantors and Wilmington Trust Company, as trustee (the "Trustee"). For
purposes of the following summary, the Old Notes and the New Notes shall be
collectively referred to as the "Notes." The terms and conditions of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 as in effect on the date of the
Indenture. The following statements are summaries of the provisions of the Notes
and the Indenture and do not purport to be complete. Such summaries make use of
certain terms defined in the Indenture and are qualified in their entirety by
express reference to the Indenture. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions." A copy of the Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Notes will be senior obligations of the Company, ranking PARI PASSU in
right of payment with all other senior obligations of the Company. Each
Guarantee will be a senior obligation of the applicable Guarantor ranking PARI
PASSU in right of payment with all senior obligations of such Guarantor.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as paying agent and registrar for the Notes. The Notes may be presented
for registration of transfer and exchange at the offices of the registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any paying agent and registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered addresses of the Holders. Any Old Notes that remain
outstanding after the completion of the Exchange Offer, together with the New
Notes issued in connection with the Exchange Offer, will be treated as a single
class of securities under the Indenture. See "The Exchange Offer" and "Old Notes
Registration Rights."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100,000,000 and will
mature on October 15, 2006. Interest on the Notes will accrue at the rate of
9 3/8% per annum and will be payable semiannually in cash on each April 15 and
October 15, commencing on April 15, 1997, to the persons who are registered
Holders at the close of business on the April 1, and October 1, immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after October 15,
2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on October 15, of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................. 104.688%
2002............................................................................. 103.125%
2003............................................................................. 101.562%
2004 and thereafter.............................................................. 100.000%
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to October 15, 1999, the Company may, at its option, use
the net cash proceeds of one or more Public Equity
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Offerings (as defined below) to redeem the Notes at a redemption price equal to
109.375% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 120 days after the consummation of any such Public Equity
Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior basis, jointly and
severally, to each Holder and the Trustee, the full and prompt performance of
the Company's obligations under the Indenture and the Notes, including the
payment of principal of and interest on the Notes. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "--Certain Covenants--Merger, Consolidation and Sale
of Assets." In the event all of the Capital Stock (or all or substantially all
of the assets) of a Guarantor is sold by the Company and the sale complies with
the provisions set forth in "--Certain Covenants--Limitation on Asset Sales,"
the Guarantor's Guarantee will be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
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CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness
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(including, without limitation, Acquired Indebtedness) and any Restricted
Subsidiary may incur Acquired Indebtedness, in each case if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof,
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00
to 1.00.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of the Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, or (c) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in clauses
(a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the covenant described under
"--Limitation on Incurrence of Additional Indebtedness" or (iii) the aggregate
amount of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company; plus (y) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the
extent used to redeem the Notes); plus (z) an amount equal to the consolidated
net Investments on the date of Revocation made by the Company or any of the
Restricted Subsidiaries in any Subsidiary of the Company that has been
designated an Unrestricted Subsidiary after the Issue Date upon its
redesignation as a Restricted Subsidiary in accordance with the covenant
described under "--Limitation on Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or
redemption payment within 60 days after the date of declaration of such dividend
if the dividend or redemption payment, as the case may be, would have been
permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Notes or such Guarantor's Guarantee, as the case may be,
either (i) solely in exchange for shares of Qualified Capital Stock of the
Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of (A)
shares of Qualified Capital Stock of the Company or (B) Refinancing
Indebtedness; and (4) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases by the Company of Common Stock of the
Company or options to purchase Common Stock of the Company, stock appreciation
rights or any similar equity interest in the Company from directors and
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not to exceed $750,000 in any calendar year
and (5) if no Default or Event of Default shall have occurred and be continuing,
the making of other Restricted Payments not to exceed $3.0 million in the
aggregate. In determining the aggregate amount of Restricted Payments made
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subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2), (4) and (5)
shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Indebtedness ranking at least PARI PASSU with the Notes
and, in the case of any such Indebtedness under any revolving credit facility,
effect a permanent reduction in the availability under such revolving credit
facility, (B) to make an investment in properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in properties
and assets that will be used in the business of the Company and the Restricted
Subsidiaries as existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets"), or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the
366th day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a PRO RATA basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; PROVIDED, HOWEVER, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5,000,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset
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Sale is for fair market value; PROVIDED that any consideration not constituting
Replacement Assets received by the Company or any of the Restricted Subsidiaries
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Cash Proceeds subject to the provisions of the
two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a PRO RATA basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) the
Indenture; (3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary; (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person or the properties or assets of the Person so acquired (including, but
not limited to, such Person's direct and indirect Subsidiaries); (5) agreements
existing on the Issue Date to the extent and in the manner such agreements are
in effect on the Issue Date; or (6) an agreement governing Indebtedness incurred
to Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4) or (5) above; PROVIDED, HOWEVER, that
the provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5).
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of the Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit
any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to
own any Preferred Stock of any Restricted Subsidiary.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of the Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (b) Liens securing
Indebtedness under the Credit Agreement; (c) Liens securing the Notes and the
Guarantees; (d) Liens of the Company
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or a Guarantor on assets of any Restricted Subsidiary of the Company; (e) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
PROVIDED, HOWEVER, that such Liens (A) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (B) do not extend to
or cover any property or assets of the Company or any of the Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (f) Permitted
Liens.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; (iii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of the Indenture described
under "--Limitation on Asset Sales") will not, and the Company will
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not cause or permit any Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Guarantor unless: (i) the entity
formed by or surviving any such consolidation or merger (if other than the
Guarantor) or to which such sale, lease, conveyance or other disposition shall
have been made is a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (ii) such entity
assumes by supplemental indenture all of the obligations of the Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a PRO FORMA basis, the Company could satisfy the provisions of
clause (ii) of the first paragraph of this covenant. Any merger or consolidation
of a Guarantor with and into the Company (with the Company being the surviving
entity) or another Guarantor need only comply with clause (iv) of the first
paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $5,000,000, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain an opinion stating that such
transaction or series of related transactions are fair to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of the Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by the Indenture; (iii)
Restricted Payments permitted by the Indenture; and (iv) advisory fees to MDC
Entities not to exceed $500,000 in any fiscal year.
ADDITIONAL GUARANTEES. If the Company or any of the Restricted Subsidiaries
transfers or causes to be transferred, in one transaction or a series of related
transactions, any property to any domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of the Restricted Subsidiaries shall
organize, acquire or otherwise invest in or hold an investment in another
domestic Restricted Subsidiary having total consolidated assets with a book
value in excess of $1,000,000, then such transferee or acquired or other
Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Notes and the Indenture on the terms set forth
in the Indenture and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Guarantor for all purposes of the Indenture.
REPORTS TO HOLDERS. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents
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and other reports, if any, which the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture
further provides that, notwithstanding that the Company may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company will file with the Commission, to the extent permitted, and provide the
Trustee and Holders with such annual reports and such information, documents and
other reports specified in Sections 13 and 15(d) of the Exchange Act. The
Company will also comply with the other provisions of TIA Section 314(a).
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of (i)
fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"--Limitation on Restricted Payments."
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
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(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the covenant described
under "--Certain Covenants--Merger, Consolidation and Sale of Assets," which
will constitute an Event of Default with such notice requirement but without
such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary, or the
acceleration of the final stated maturity of any such Indebtedness if the
aggregate principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, aggregates
$5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
shall have been rendered against the Company or any of the Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary is declared to
be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any of the Guarantors which is a
Significant Subsidiary denies its liability under its Guarantee (other than
by reason of release of a Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal of
and accrued interest on all the Notes to be due and payable by notice in writing
to the Company and the Trustee specifying the respective Event of Default, and
the same shall become immediately due and payable. If an Event of Default
specified in clause (vi) above occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall IPSO FACTO become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
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Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the
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Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee
an officers' certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; (vii) the Company shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; (vi) amend, change or modify in
any material respect the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate a Net Proceeds Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect thereto;
(vii) modify or change any provision of the Indenture or the related definitions
affecting the subordination or ranking of the Notes or any Guarantee in a manner
which adversely affects the Holders; or (viii) release any Guarantor from any of
its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
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GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or a
Guarantor, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustee will be permitted to engage in other
transactions; PROVIDED that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"AFFILIATE TRANSACTION" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Affiliates."
"ASSET ACQUISITION" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction or any
disposition of assets of the Company or CPG or any of their respective
Subsidiaries made to obtain
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termination of the waiting period related to the Acquisition (whether
consummated before or after the consummation of such Acquisition) of CPG by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended) to any Person other than the Company or a Restricted Subsidiary of (a)
any Capital Stock of any Restricted Subsidiary; or (b) any other property or
assets of the Company or any Restricted Subsidiary other than in the ordinary
course of business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or the
Restricted Subsidiaries receive aggregate consideration of less than $1,000,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "--Certain
Covenants--Merger, Consolidation and Sale of Assets," (iii) disposals or
replacements of obsolete equipment in the ordinary course of business and (iv)
the sale, lease, conveyance, disposition or other transfer by the Company or any
Restricted Subsidiary of assets or property to the Company or one or more
Restricted Subsidiaries.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not
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otherwise in compliance with the provisions of the Indenture); (iii) any Person
or Group shall become the owner, directly or indirectly, beneficially or of
record, of shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital Stock of the Company; or
(iv) the replacement of a majority of the Board of Directors of the Company over
a two-year period from the directors who constituted the Board of Directors of
the Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "--Change of
Control."
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "--Change
of Control."
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"COMPANY" means Specialty Paperboard, Inc.
"CONSOLIDATED EBITDA" means, for any period, the sum (without duplication)
of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income
has been reduced thereby, (A) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges LESS any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for the Company and the
Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means the ratio of Consolidated
EBITDA during the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of the transaction giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a PRO FORMA (including any PRO FORMA expense and cost
reductions calculated on a basis consistent with Regulation S-X under the
Securities Act) basis for the period of such calculation to (i) the incurrence
or repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the
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Company or any of the Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if the Company or any such
Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to the Company for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses, (c)
the net income (or loss) of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary, (d) the
net income (but not loss) of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary, except to the
extent of cash dividends or distributions paid to the Company or to a Restricted
Subsidiary by such Person, (f) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued) and (g)
in the case of a successor to the Company by consolidation or merger or as a
transferee of the Company's assets, any net income of the successor corporation
prior to such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person; PROVIDED that the Consolidated Net Worth of any
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Person shall exclude the effect of any non-cash charges relating to the
acceleration of stock options or similar securities of such Person or another
Person with which such Person is merged or consolidated.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"COVENANT DEFEASANCE" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"CREDIT AGREEMENT" means the Amended and Restated Financing Agreement and
Guaranty dated as of June 30, 1994, between the Company, the lenders party
thereto in their capacities as lenders thereunder and The CIT Group/Business
Credit, Inc., as agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (PROVIDED that such increase in borrowings is permitted by the
covenant described under "--Certain Covenants-- Limitation on Incurrence of
Additional Indebtedness") or adding Subsidiaries as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements
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by such other entity as may be approved by a significant segment of the
accounting profession of the United States, which are in effect as of the Issue
Date.
"GUARANTOR" means (i) each of the Company's domestic Subsidiaries as of the
Issue Date and (ii) each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of the Indenture as a Guarantor; PROVIDED that any Person constituting
a Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Indenture.
"INCUR" has the meaning set forth under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness."
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 160 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the Company.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INITIAL PURCHASER" means BT Securities Corporation.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other
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securities or evidences of Indebtedness issued by, any Person. "Investment"
shall exclude extensions of trade credit by the Company and the Restricted
Subsidiaries on commercially reasonable terms in accordance with normal trade
practices of the Company or such Restricted Subsidiary, as the case may be. If
the Company or any Restricted Subsidiary sells or otherwise disposes of any
Common Stock of any direct or indirect Restricted Subsidiary such that, after
giving effect to any such sale or disposition, it ceases to be a Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"MDC ENTITIES" means, collectively, McCown De Leeuw & Co., MDC Management
Company and MDC/JAFCO Ventures and any of their respective Affiliates.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of the Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the greater
of (x) $20.0 million and (y) the sum of (A) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries and (B)
50% of the net book value of the inventory of the Company and the Restricted
Subsidiaries, less any required permanent repayments under all revolving
credit facilities (which are accompanied by a corresponding permanent
commitment reduction) thereunder;
(iii) other Indebtedness (including Capitalized Lease Obligations) of the
Company and the Restricted Subsidiaries outstanding on the Issue Date
reduced by the amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions thereon;
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(iv) Interest Swap Obligations of the Company or a Guarantor covering
Indebtedness of the Company or any of the Restricted Subsidiaries and
Interest Swap Obligations of any Restricted Subsidiary covering Indebtedness
of such Restricted Subsidiary; PROVIDED, HOWEVER, that such Interest Swap
Obligations are entered into to protect the Company and the Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred in
accordance with the Indenture to the extent the notional principal amount of
such Interest Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and the Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; PROVIDED that if
as of any date any Person other than the Company or a Restricted Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary for so long
as such Indebtedness is held by a Restricted Subsidiary, in each case
subject to no Lien; PROVIDED that (a) any Indebtedness of the Company to any
Restricted Subsidiary that is not a Guarantor is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and (b) if as of any date any Person other than a
Restricted Subsidiary owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Indebtedness of the Company or any of the Restricted Subsidiaries
incurred to finance the acquisition by SPI of all of the outstanding Capital
Stock of Arcon Holdings Corp. not to exceed $33,000,000 at any one time
outstanding; PROVIDED that such Indebtedness shall not constitute Permitted
Indebtedness after the consummation of the Acquisitions; and
(xii) additional Indebtedness of the Company and the Guarantors in an
aggregate principal amount not to exceed $12,500,000 at any one time
outstanding (which Indebtedness may, but need not be, incurred under the
Credit Agreement).
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary, (ii) Investments in the Company by any
Restricted Subsidiary; PROVIDED that any Indebtedness evidencing such Investment
by any Restricted
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Subsidiary other than a Guarantor is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Notes and the
Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and
advances to employees and officers of the Company and the Restricted
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $1,500,000 at any one time outstanding; (v) Currency Agreements
and Interest Swap Obligations entered into in the ordinary course of the
Company's or a Restricted Subsidiary's businesses and otherwise in compliance
with the Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed
$2,000,000 at any one time outstanding; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) Investments made by the Company or the Restricted Subsidiaries
as a result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "--Certain Covenants--Limitation on
Asset Sales"; and (ix) the Acquisitions.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary acquired after the Issue Date; PROVIDED,
HOWEVER, that (A) the related purchase money Indebtedness shall not exceed
the cost of such property or assets and shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired and (B) the Lien securing such Indebtedness
shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
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(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements; and
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness"; PROVIDED that (A) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and (B) such
Liens do not extend to or cover any property or assets of the Company or of
any of the Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary and are no
more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary; and
(xiv) Liens securing Indebtedness permitted to be outstanding under
clause (xi) of the definition of Permitted Indebtedness contained in the
Indenture.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PUBLIC EQUITY OFFERING" has the meaning set forth under
"--Redemption--Optional Redemption Upon Public Equity Offerings."
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFERENCE DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii),
(viii), (ix) or (xi) of the definition of Permitted Indebtedness), in each case
that does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company or any Restricted Subsidiary in connection with such Refinancing)
or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is
less than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; PROVIDED that (x) if such Indebtedness being
Refinanced is Indebtedness of the Company or a Guarantor, then such Refinancing
Indebtedness shall be Indebtedness solely of the Company and/or a Guarantor and
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(y) if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Guarantors and the Initial
Purchaser.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants-- Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.
"REVOCATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(v)
of Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"SURVIVING ENTITY" has the meaning set forth under "--Certain
Covenants--Merger, Consolidation and Sale of Assets."
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
which all the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or another Wholly Owned Restricted Subsidiary.
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OLD NOTES REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, SPI and the Guarantors have
agreed to file with the Commission the Exchange Offer Registration Statement on
an appropriate form under the Securities Act with respect to an offer to
exchange the Old Notes for the New Notes. Upon the effectiveness of the Exchange
Offer Registration Statement, SPI will offer to the holders of Old Notes who are
able to make certain representations the opportunity to exchange their Old Notes
for New Notes. If (a) SPI is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (b) any holder
of Old Notes notifies SPI on or prior to the 30th day following the Issue Date
that (i) due to a change in applicable law or policy it is not entitled to
participate in the Exchange Offer, (ii) due to a change in applicable law or
policy it may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such holder or (iii) it owns Old Notes acquired directly from SPI or
an affiliate of SPI, SPI and the Guarantors will file with the Commission the
Shelf Registration Statement to cover resales of each Transfer Restricted Note
(as defined) by the holder thereof. SPI and the Guarantors will use their best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing, a
"Transfer Restricted Note" means each Old Note until (a) the date on which such
Old Note has been exchanged by a person other than a broker-dealer for a New
Note in the Exchange Offer, (b) following the exchange by a broker-dealer in the
Exchange Offer of an Old Note for a New Note, the date on which such New Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (c) the date on which such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (d) the day on which such Old Note is eligible for sale
to the public without volume or manner of sale restrictions under Rule 144(k)
under the Securities Act or (e) such Old Note ceases to be outstanding.
Under existing Commission interpretations, the New Notes would, in general,
be freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act will be delivered upon resale by such broker-dealer in
connection with resales of the New Notes. SPI and the Guarantors have agreed,
for a period of 180 days after consummation of the Exchange Offer, to make
available a prospectus meeting the requirements of the Securities Act to any
such broker-dealer for use in connection with any resale of any New Notes
acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of Old Notes who wishes to exchange such Old Notes for New Notes
in the Exchange Offer will be required to make certain representations,
including representations that (a) any New Notes to be received by it will be
acquired in the ordinary course of its business, (b) it has no arrangement with
any person to participate in the distribution of the New Notes and (c) it is not
an "affiliate," as defined in Rule 405 of the Securities Act, of SPI, or, if it
is an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
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The Registration Rights Agreement provides that: (a) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, SPI and the
Guarantors will file the Exchange Offer Registration Statement with the
Commission on or prior to the later of (i) the 60th day after the Issue Date and
(ii) 30 days after the Exchange Offer Filing Date, (b) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, SPI and the
Guarantors will use their best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to the later of (i)
the 150th day after the Issue Date and (ii) 90 days after the Exchange Offer
Filing Date, (c) unless the Exchange Offer would not be permitted by applicable
law or Commission policy, SPI will commence the Exchange Offer and use its best
efforts to issue, on or prior to 20 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
New Notes in exchange for all Old Notes tendered prior thereto in the Exchange
Offer and (d) if obligated to file the Shelf Registration Statement, SPI and the
Guarantors will file the Shelf Registration Statement prior to the later of (i)
60 days after the Issue Date and (ii) 60 days after such filing obligation
arises and use their best efforts to cause the Shelf Registration Statement to
be declared effective by the Commission on or prior to 90 days after the filing
thereof; PROVIDED that if SPI has not commenced the Exchange Offer within the
later of (i) 150 days of the Issue Date and (ii) 90 days after the Exchange
Offer Filing Date, SPI and the Guarantors will file the Shelf Registration with
the Commission on or prior to the later of (i) the 151st day after the Issue
Date and (ii) the 91st day after the Exchange Offer Filing Date. SPI and the
Guarantors shall use their best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended until the third
anniversary of the Issue Date or such shorter period that will terminate when
all the Transfer Restricted Notes covered by the Shelf Registration Statement
have been sold pursuant thereto.
If (a) SPI fails to file any of the registration statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such registration statements are not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) SPI fails to consummate the Exchange Offer
within 20 business days of the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement or (d) the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective but thereafter,
subject to certain exceptions, ceases to be effective or usable in connection
with the Exchange Offer or resales of Transfer Restricted Notes, as the case may
be, during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
then the interest rate on Transfer Restricted Notes will increase ("Additional
Interest"), with respect to the first 90-day period immediately following the
occurrence of such Registration Default by 0.5% PER ANNUM and will increase by
an additional 0.5% PER ANNUM with respect to each subsequent 90-day period until
such Registration Default has been cured, up to a maximum amount of 1.0% PER
ANNUM. Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease and the interest rate will revert to the original
rate.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the issuance of New Notes and the Exchange Offer is based upon
the provisions of the Internal Revenue Code of 1986, as amended, the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. The following
summary is based on an opinion of White & Case, special counsel to SPI, which is
not binding on the Internal Revenue Service ("IRS") and there can be no
assurance that the IRS will take a similar view with respect to the tax
consequences described below. No ruling has been or will be requested by SPI
from the IRS on any tax matters relating to the New Notes or the Exchange Offer.
This discussion does not purport to address all of the possible federal income
tax consequences or any state, local or foreign tax consequences of the
acquisition, ownership and disposition of the Old Notes, the New Notes or the
Exchange Offer. It is limited to investors who will hold the Old Notes and the
New Notes as capital assets and does not address the federal income tax
consequences that
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may be relevant to particular investors in light of their unique circumstances
or to certain types of investors (such as dealers in securities, insurance
companies, financial institutions, foreign corporations, partnerships, trusts,
nonresident individuals, and tax-exempt entities) who may be subject to special
treatment under federal income tax laws.
INDEBTEDNESS
The Old Notes and the New Notes should be treated as indebtedness of SPI. In
the unlikely event the Old Notes or the New Notes were treated as equity, the
amount treated as a distribution on any such Old Note or New Note would first be
taxable to the holder as dividend income to the extent of SPI's current and
accumulated earnings and profits, and would next be treated as a return of
capital to the extent of the holder's tax basis in the Old Notes or New Notes,
with any remaining amount treated as a gain from the sale of an Old Note or a
New Note. In addition, in the event of equity treatment, amounts received in
retirement of an Old Note or a New Note might in certain circumstances be
treated as a dividend, and SPI could not deduct amounts paid as interest on such
Old Notes or New Notes. The remainder of this discussion assumes that the Old
Notes and the New Notes will constitute indebtedness.
EXCHANGE OFFER
The exchange of the Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" because the New Notes should not be
considered to differ materially in kind or extent from the Old Notes. Rather,
the New Notes received by a holder of the Old Notes should be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
should be no federal income tax consequences to holders exchanging the Old Notes
for the New Notes pursuant to the Exchange Offer, and the holding period of New
Notes in the hands of a holder should include the holding period of the Old
Notes exchanged into such New Notes.
INTEREST
A holder of an Old Note or a New Note will be required to report stated
interest on the Old Note and the New Note as interest income in accordance with
the holder's method of accounting for tax purposes. Because the Old Notes were
issued at par there is no original issue discount pursuant to the de minimis
exception to the "original issue discount" rules.
TAX BASIS IN OLD NOTES AND NEW NOTES
A holder's tax basis in an Old Note will generally be the holder's purchase
price for the Old Note. If a holder of an Old Note exchanges the Old Note for a
New Note pursuant to the Exchange Offer, the tax basis of the New Note
immediately after such exchange should equal the holder's tax basis in the Old
Note immediately prior to the exchange.
DISPOSITION OF OLD NOTES OR NEW NOTES
The sale, exchange, redemption or other disposition of an Old Note or a New
Note, except in the case of an exchange pursuant to the Exchange Offer (see the
above discussion), generally will be a taxable event. A holder generally will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of any property received upon such sale, exchange,
redemption or other taxable disposition of the Old Note or the New Note (except
to the extent attributable to accrued interest) and (ii) the holder's adjusted
tax basis in such debt instrument. Such gain or loss will be capital gain or
loss, and will be long term if the Old Notes or the New Notes have been held for
more than one year at the time of the sale or other disposition.
PURCHASERS OF OLD NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Old Notes other than at par, including those
provisions of the Internal Revenue Code relating to
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the treatment of "market discount," and "amortizable bond premium." Any such
purchaser should consult its tax advisor as to the consequences to him of the
acquisition, ownership, and disposition of Old Notes.
BACKUP WITHHOLDING
Unless a holder provides its correct taxpayer identification number
(employer identification number or social security number) to SPI and certifies
that such number is correct, generally under the federal income tax backup
withholding rules, 31% of (1) the interest paid on the Old Notes and the New
Notes, and (2) proceeds of sale of the Old Notes and the New Notes, must be
withheld and remitted to the United States Treasury. Therefore, each holder
should complete and sign the Substitute Form W-9 included so as to provide the
information and certification necessary to avoid backup withholding. However,
certain holders (including, among others, certain foreign individuals) are not
subject to these backup withholding and reporting requirements. For a foreign
individual holder to qualify as an exempt foreign recipient, that holder must
submit a statement, signed under penalties of perjury, attesting to that
individual's exempt foreign status. Such statements can be obtained from SPI.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if the Old Notes are held in more than one name), contact SPI's Chief
Financial Officer, Brudies Road, Battleboro, Vermont 05302 or telephone number
(802) 257-0365.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
PLAN OF DISTRIBUTION
Based on interpretations by the Commission set forth in no-action letters
issued to third parties, SPI believes that New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any holder which is (i)
an "affiliate" of SPI within the meaning of Rule 405 under the Securities Act,
(ii) a broker-dealer who acquired Notes directly from SPI or (iii)
broker-dealers who acquired Notes as a result of market-making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business, and such holders are not engaged
in, and do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a distribution of such New Notes; provided
that broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such New Notes. To date, the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Old Notes to the Initial Purchasers) with
the Prospectus, contained in the Exchange Offer Registration Statement. Pursuant
to the Registration Rights Agreement, SPI has agreed to permit Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use this Prospectus in connection with the resale of such New
Notes. SPI and the Guarantors have agreed that, for a period of 180 days after
the Expiration Date, they will make this Prospectus, and any amendment or
supplement to this Prospectus, available to any broker-dealer that requests such
documents in the Letter of Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
SPI as set forth in "The Exchange Offer -- Purpose and Effect of the Exchange
Offer." In addition, each holder who is a broker-dealer and who receives New
Notes for its own account in exchange for Old Notes that were acquired by it as
a result of market-making activities or other trading activities, will be
required to acknowledge that it will deliver a prospectus in connection with any
resale by it of such New Notes.
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SPI will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
SPI has agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes initially will be represented by a single, permanent global
certificate in definitive, fully registered form (the "Global Note"). The Global
Note will be deposited on the Closing Date with, or on behalf of, DTC and
registered in the name of a nominee of DTC.
THE GLOBAL NOTES. SPI expects that pursuant to procedures established by
DTC (a) upon the issuance of the Global Notes, DTC or its custodian will credit,
on its internal system, the principal amount of Notes of the individual
beneficial interests represented by the Global Notes to the respective accounts
of persons who have accounts with DTC and (b) ownership of beneficial interests
in the Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of Participants (as defined herein)) and the records of Participants
(with respect to interests of persons other than Participants). Such accounts
initially will be designated by or on behalf of the Initial Purchaser and
ownership of beneficial interests in the Global Notes will be limited to persons
who have accounts with DTC ("Participants") or persons who hold interests
through Participants. Interests in the Global Notes may be held directly through
DTC, by Participants, or indirectly through organizations which are
Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in any Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of SPI, the Trustee or
any paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
SPI expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Notes, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Notes as shown on the records of DTC or its nominee. SPI
also expects that payments by
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Participants to owners of beneficial interests in the Global Notes held through
such Participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such Participants.
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Notes to persons in states which require physical delivery of
the Notes, or to pledge such securities, such holder must transfer its interest
in a Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised SPI that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more Participants to whose account the
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such Participant
or Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Notes in whole for
Certificated Notes, which it will distribute to the Participants.
DTC has advised SPI as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither SPI nor the Trustee will have any responsibility for the
performance by DTC or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Notes and a successor depositary is not appointed
by SPI within 90 days, Certificated Notes will be issued in exchange for the
Global Notes.
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EXPERTS
The SPI balance sheets as of December 31, 1994 and 1995 and the statements
of operations, stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1995 included in this Prospectus have been
audited by Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent
accountants, as stated in their report herein and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
On March 28, 1996, the Audit Committee of the Board of Directors of SPI (the
"Board of Directors") accepted the resignation of Coopers & Lybrand as SPI's
independent auditors and approved the appointment of KPMG Peat Marwick ("KPMG")
to audit SPI's financial statements for the fiscal year ending December 31,
1996, in place of Coopers & Lybrand. These decisions were authorized by the
Board of Directors. The independent auditor's report of Coopers & Lybrand on the
consolidated financial statements of SPI for the three years ended December 31,
1995, dated January 26, 1996, included in the Form 10-K filed with the
Commission on March 27, 1996, contained no adverse opinion or disclaimer of
opinion and was not qualified as to audit scope or accounting principles.
In connection with SPI's audits for the fiscal years ended December 31, 1994
and 1995, and in the subsequent interim period prior to Coopers & Lybrand's
resignation on March 28, 1996, there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused Coopers & Lybrand to
make reference to the subject matter of the disagreement in connection with
their report.
The CPG consolidated balance sheet as of December 31, 1994 and 1995, and the
consolidated statements of income and retained earnings, and cash flows for the
period from November 1, 1993 (commencement of operations) to December 31, 1993
and for the years ended December 31, 1994 and 1995, included in this Prospectus,
have been included herein in reliance on the report, which includes an
explanatory paragraph regarding a change by CPG in its method of accounting for
inventories in 1994, of Coopers & Lybrand, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The Arcon consolidated balance sheets and the related consolidated
statements of income and retained earnings (deficit), equity and cash flow for
the year ended October 31, 1995 and the period from April 14, 1994 (inception)
through October 31, 1994 included in this Prospectus have been audited by Price
Waterhouse LLP, independent public accountants, as indicated in their report
thereon. The Arcon Coating Mills, Inc. statements of income and accumulated
deficit and cash flows for the period from November 1, 1993 to April 14, 1994
have been audited by Price Waterhouse LLP, independent public accountants, as
indicated in their report thereon and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Arcon Coating Mills, Inc. as of October 31, 1993
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
LEGAL MATTERS
The validity of the issuance of securities offered hereby and certain tax
matters will be passed upon for SPI and the Guarantors by White & Case, New
York, New York.
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INDEX TO FINANCIAL STATEMENTS
SPECIALTY PAPERBOARD, INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1994 and September 30, 1996 (unaudited)............... F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 and the nine months
ended September 30, 1996 and 1995 (unaudited)............................................................. F-4
Consolidated Statement of Stockholders Equity for the years ended December 31, 1995, 1994 and 1993 and the
nine months ended September 30, 1996 (unaudited).......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 and the nine
months ended September 30, 1996 and 1995 (unaudited)...................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
CPG INVESTORS INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-19
Financial Statements:
Consolidated Balance Sheet as of December 31, 1994 and 1995
and September 30, 1996 (Unaudited)............................................... F-20
Consolidated Statement of Income and Retained Earnings for the period November 1,
1993 (commencement of operations) to December 26, 1993 and for the years ended
December 31, 1994 and 1995, and for the nine months ended September 30, 1995 and
1996 (Unaudited)................................................................. F-21
Consolidated Statement of Cash Flows for the period November 1, 1993 (commencement
of operations) to December 26, 1993 and for the years ended December 31, 1994 and
1995, and for the nine months ended September 30, 1995 and 1996 (Unaudited)...... F-22
Notes to Consolidated Financial Statements (Information as of September 30, 1996
and for the nine months ended September 30, 1995 and 1996 is Unaudited).......... F-23
</TABLE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-34
Consolidated Balance Sheet at October 31, 1995 and 1994 and September 30, 1996
(unaudited)......................................................................... F-35
Consolidated Statement of Income and Retained Earnings (Deficit) for the year ended
October 31, 1995, the period from April 14, 1994 (Inception) through October 31,
1994 and the eleven month periods ended September 30, 1996 and 1995 (unaudited)..... F-36
Consolidated Statement of Cash Flows for the year ended October 31, 1995, the period
from April 14, 1994 (Inception) through October 31, 1994 and the eleven month
periods ended September 30, 1996 and 1995........................................... F-37
Notes to Consolidated Financial Statements........................................... F-38
</TABLE>
ARCON COATING MILLS, INC.
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-45
Statement of Income and Accumulated Deficit for the period from November 1, 1993 to
April 14, 1994...................................................................... F-46
Statement of Cash Flows for the period from November 1, 1993 to April 14, 1994....... F-47
Notes to Financial Statements........................................................ F-48
</TABLE>
ARCON COATING MILLS, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-51
Balance Sheet at October 31, 1993.................................................... F-52
Statement of Operations for the year ended October 31, 1993.......................... F-53
Statement of Stockholder's Equity for the year ended October 31, 1993................ F-54
Statement of Cash Flows for the year ended October 31, 1993.......................... F-55
Notes to Financial Statements........................................................ F-56
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Specialty Paperboard, Inc.:
We have audited the consolidated balance sheets of Specialty Paperboard,
Inc. (the "Company") as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Specialty Paperboard, Inc. at December 31, 1995 and 1994 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
F-2
<PAGE>
SPECIALTY PAPERBOARD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
1995 1994 SEPTEMBER 30, 1996
--------- ---------- ------------------
<S> <C> <C> <C>
ASSETS (Note 5)
Current:
Cash................................................................. $ 1,518 $ 1,367 $ 3,174
Accounts receivable (net of allowances of $253 and $258)............. 9,406 11,227 11,278
Cogen receivable..................................................... 1,680 -- 1,512
Inventories (Note 3)................................................. 16,856 16,555 16,402
Other................................................................ 2,948 3,181 1,016
Deferred income taxes................................................ 162 -- 162
--------- ---------- -------
Total current assets............................................. 32,570 32,330 33,544
Long term Cogen receivable............................................. 1,832 --
Property, plant and equipment, net (Note 4)............................ 33,551 52,050 36,030
Organizational and financing costs (net of accumulated amortization of
$2,742 and $2,193) (Note 2).......................................... 2,199 3,033 1,988
Other long term assets................................................. 500 -- 487
Deferred income taxes (Note 13)........................................ 3,966 404 3,966
--------- ---------- -------
Total assets..................................................... $ 74,618 $ 87,817 $ 76,015
--------- ---------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable..................................................... 7,702 10,964 7,155
Accrued compensation and benefits.................................... 2,604 3,273 8,175
Other accrued liabilities............................................ 2,942 1,997 --
Current portion of long-term debt (Note 5)........................... 1,688 1,800 --
--------- ---------- -------
Total current liabilities........................................ 14,936 18,034 15,330
Long-term debt, less current portion (Note 5).......................... 4,625 21,081 1,845
Deferred gain (Note 6)................................................. 14,322 16,040 13,033
--------- ---------- -------
Total long-term liabilities...................................... 18,947 37,121 14,878
Commitments and Contingencies (Note 15)
Stockholders' equity (Notes 7, 8 and 16):
Preferred stock, par value $.001 per share; 2,000,000 shares
authorized and none issued (Note 8)................................ -- -- --
Common stock, par value $.001 per share; 20,000,000 shares
authorized; and 4,033,432 shares issued and outstanding............ 4 4 4
Additional paid-in capital........................................... 44,713 44,713 44,733
Unearned compensation................................................ (121) (241) (26)
Accumulated deficit.................................................. (3,861) (11,814) 1,096
--------- ---------- -------
Total stockholders' equity....................................... 40,735 32,662 45,807
--------- ---------- -------
Total liabilities and stockholders' equity..................... $ 74,618 $ 87,817 $ 76,015
--------- ---------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
SPECIALTY PAPERBOARD, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------- --------------------
1995 1994 1993 1996 1995
---------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................................... $ 117,516 $ 105,416 $ 79,982 $ 77,734 $ 91,557
Cost of sales........................................... 100,106 88,138 66,360 64,105 78,601
---------- ---------- --------- --------- ---------
Gross profit............................................ 17,410 17,278 13,622 13,629 12,956
General and administrative expenses..................... 8,397 8,584 7,881 6,316 6,189
---------- ---------- --------- --------- ---------
Income from operations.................................. 9,013 8,694 5,741 7,313 6,767
Other (income) expenses, net............................ (1,198) (658) 374 (991) (782)
Loss on sale of assets (Note 10)........................ 8,302 -- -- -- (6,512)
Cogeneration income (Note 14)........................... (6,512) -- (4,404) -- 8,159
Interest expense........................................ 892 1,356 3,137 310 811
---------- ---------- --------- --------- ---------
Income before income taxes and extraordinary items...... 7,529 7,996 6,634 7,994 5,091
Income tax (benefit) expense............................ (424) 2,768 1,921 3,037 (1,364)
---------- ---------- --------- --------- ---------
Income before extraordinary items....................... 7,953 5,228 4,713 4,957 6,455
Extraordinary items:
Loss on early extinguishment of debt (net of income
tax benefit of $99 and $1,415) (Note 5)............. -- (149) (2,103) -- --
---------- ---------- --------- --------- ---------
Net income.............................................. $ 7,953 $ 5,079 $ 2,610 $ 4,957 $ 6,455
---------- ---------- --------- --------- ---------
Net income applicable to common shares.................. $ 7,953 $ 5,079 $ 2,251 $ 4,957 $ 6,455
---------- ---------- --------- --------- ---------
Earnings per common share:
Income before extraordinary items..................... 1.97 1.30 1.31 1.23 1.60
Extraordinary items................................... -- (0.04) (0.63) -- --
---------- ---------- --------- --------- ---------
Net income............................................ $ 1.97 $ 1.26 $ 0.68 $ 1.23 $ 1.60
---------- ---------- --------- --------- ---------
Weighted average number of common shares outstanding.... 4,033 4,021 3,323 4,035 4,033
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
SPECIALITY PAPERBOARD, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL ACCUMULATED STOCKHOLDERS'
COMMON STOCK PAID-IN UNEARNED EARNINGS EQUITY
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) (DEFICIT)
------------ ----------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............... 213,696 $ 1 $ 860 $ (482) $ (19,144) $ (18,765)
Issuance of common stock................... 2,500,000 2 28,438 28,440
Conversion of Class A, B, C and D
preferred stock into
common shares............................ 1,180,150 1 15,343 15,344
Exercise of warrants....................... 125,118
Amortization of unearned compensation...... 120 120
Increase in preferred stock redemption
value.................................... (359) (359)
Net income................................. 2,610 2,610
------------ --- ----------- ----- ------------ ------------
Balance at December 31, 1993............... 4,018,964 4 44,641 (362) (16,893) 27,390
Exercise of Stock Options.................. 14,468 72 72
Amortization of unearned compensation...... 121 121
Net income................................. 5,079 5,079
------------ --- ----------- ----- ------------ ------------
Balance at December 31, 1994............... 4,033,432 4 44,713 (241) (11,814) 32,662
Amortization of unearned compensation...... 120 120
Net income................................. 7,953 7,953
------------ --- ----------- ----- ------------ ------------
Balance at December 31, 1995............... 4,033,432 4 44,713 (121) (3,861) 40,735
Exercise of Stock Options.................. 2,445 20 20
Amortization of unearned compensation...... 95 95
Net income................................. 4,957 4,957
------------ --- ----------- ----- ------------ ------------
Balance at September 30, 1996.............. 4,035,877 $ 4 $ 44,733 $ (26) $ 1,096 $ 45,807
------------ --- ----------- ----- ------------ ------------
------------ --- ----------- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
SPECIALTY PAPERBOARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- ----------------------
1995 1994 1993 1996 1995
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 7,953 $ 5,079 $ 2,610 $ 4,957 $ 6,455
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 3,342 4,006 3,681 2,389 2,680
Amortization of deferred gain............................... (1,718) (1,146) -- (1,289) (1,287)
Write off deferred debt costs and other deferred charges.... 27 248 943 -- --
Amortization of unearned compensation....................... 120 121 120 80 90
Loss on sale of assets...................................... 8,302 -- -- 12 8,159
Gain on sale of property, plant and equipment............... (8) -- -- -- --
Increase in payment-in-kind notes........................... -- -- 848 -- --
Write-off of original issue discount........................ -- -- 1,276 -- --
Collar fee termination payment.............................. -- -- 1,299 -- --
Cogeneration income......................................... (6,512) -- (4,404) -- (6,512)
Changes in operating assets and liabilities:
Accounts receivable......................................... 1,821 (1,833) 1,615 (1,872) 1,683
Inventories................................................. (301) (3,192) 1,294 454 (1,744)
Other....................................................... 1,983 (2,812) 524 1,932 (2,065)
Accounts payable............................................ (3,262) 3,907 (2,657) (547) (3,474)
Accrued compensation and benefits and other liabilities..... 96 651 (103) 2,629 (235)
Deferred taxes.............................................. (3,724) (862) 458 -- (3,000)
--------- --------- --------- ---------- ----------
Net cash provided by operating activities............... 8,119 4,167 7,504 8,745 750
Cash flows used for investing activities:
Cogeneration receipt............................................ 3,000 -- 4,404 2,000 3,000
Cogeneration expense paid....................................... -- (27) -- -- --
Additions to property, plant, and equipment..................... (4,865) (1,603) (900) (4,298) (2,303)
Kobayashi payments.............................................. (5,000) -- -- -- --
Additions to organization and financing costs................... (741) -- -- -- --
Net proceeds from sale of property, plant and equipment......... 17 -- 11 -- 12,933
Acquisition of Endura Products Division......................... -- (27,400) -- -- --
Net proceeds from sale of assets (Note 10)...................... 12,933 -- -- -- --
Expenses paid in connection with sale of assets................. (1,744) -- -- -- (1,546)
--------- --------- --------- ---------- ----------
Net cash provided by (used in) investing activities..... 3,600 (29,030) 3,515 (2,298) 12,084
Cash flows from financing activities:
Proceeds from initial public offering........................... -- -- 30,225 -- --
Stock offering expenses paid.................................... -- -- (1,107) -- --
Proceeds from sale-leaseback agreement.......................... 5,000 25,000 -- -- --
Repayment of senior subordinated debt........................... -- -- (23,000) -- --
Redemption of preferred E stock................................. -- -- (500) -- --
Preferred dividends paid........................................ -- -- (53) -- --
Exercise of stock options....................................... -- 72 -- 35 --
Collar fee termination payment.................................. -- -- (1,299) -- --
Increase in revolving credit line............................... 133,466 97,861 85,900 64,092 104,385
Payments on revolving credit line............................... (140,759) (97,522) (88,763) (63,530) (108,539)
Repayment of senior subordinated note........................... -- -- (4,940) --
Repayment of senior term debt................................... (9,275) (15,038) (7,312) (5,030) (8,900)
Borrowing of senior term debt................................... -- 17,000 -- --
Refinancing expenses paid....................................... -- (1,581) (50) (358) --
--------- --------- --------- ---------- ----------
Net cash (used in) provided by financing activities..... (11,568) 25,792 (10,899) (4,791) (13,054)
Net increase in cash.............................................. 151 929 120 1,656 (220)
Cash at beginning of period....................................... 1,367 438 318 1,518 1,367
--------- --------- --------- ---------- ----------
Cash at end of period............................................. $ 1,518 $ 1,367 $ 438 $ 3,174 $ 1,147
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
The Company operates in a single segment, which is specialty paper products.
The Company produces a wide variety of paper and latex-reinforced materials,
which are then sold directly to converters who manufacture end-use products such
as office products, specialty tape and book covers.
Approximately 47%, 47%, and 56% of the Company's total 1995, 1994 and 1993
sales, respectively, were concentrated in five customers. In 1995, 1994 and 1993
revenue from a single customer was $18,933,000 (16% of total sales), $18,905,000
(18% of total sales), and $15,811,000 (20% of total sales), respectively. Sales
to a second customer accounted for 10%, 11%, and 11% of total sales in 1995,
1994 and 1993, respectively.
Approximately 13%, 11%, and 7% of the Company's products were sold to
foreign customers (excluding Canada) in 1995, 1994 and 1993, respectively. The
principal international markets served by the Company include Asia/Pacific Rim,
Latin America, Mexico and Europe.
2. SIGNIFICANT ACCOUNTING POLICES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Specialty
Paperboard, Inc. and its wholly owned subsidiary, the Endura Products Division,
beginning July 1994. All significant intercompany transactions and accounts have
been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market determined on an
average cost basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation for
financial reporting purposes is provided using the straight line method based
upon the useful lives of the assets, generally estimated as 3-30 years. When
assets are sold or retired, the cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in income. Improvements are
capitalized and included in property, plant and equipment while expenditures for
maintenance and repairs are charged to expense.
AMORTIZATION OF ORGANIZATION AND FINANCING COSTS
The organization and financing costs are being amortized on a straight-line
basis over 60-120 months. Goodwill is being amortized on a straight-line basis
over 30 years.
DEFERRED GAIN
The deferred gain incurred in connection with the sale leaseback transaction
is being amortized on a straight-line basis over 120 months.
F-7
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICES: (CONTINUED)
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs as incurred. The costs
amounted to $1.0 million, $1.1 million, and $0.6 million for the years ended
December 31, 1995, 1994 and 1993.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. As permitted under
SFAS No. 109, prior year financial statements have not been restated. The
adoption of SFAS No. 109 had no effect on the Company's financial position or
statement of income.
Prior to 1993, the provision for income taxes was based on income and
expenses included in the accompanying statements of income. Differences between
taxes so computed and taxes payable under applicable statutes and regulations
were classified as deferred taxes arising from timing differences.
NET EARNINGS PER SHARE
The net earnings per share is computed by dividing earnings available for
common shares by the weighted average number of common shares outstanding during
each year. Earnings available for common shares includes accretion of preferred
stock dividends. Common stock equivalent shares are not included in the per
share calculations where the effect of their inclusion would be antidilutive.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), will require the Company to either
elect expense recognition or the disclosure-only alternative for stock-based
compensation. SFAS 123 must be adopted in the Company's 1996 financial
statements with comparable disclosures for the prior year. The company has not
yet determined whether it will elect the expense recognition or disclosure-only
alternative permitted under SFAS 123 and therefore has not yet determined the
impact of such adoption on the consolidated results of operations.
F-8
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES:
Inventories consist of the following at December 31, ($000):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 7,269 $ 7,710
Work in process......................................................... 4,650 2,792
Finished goods.......................................................... 4,937 6,053
--------- ---------
$ 16,856 $ 16,555
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
($000):
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Land and improvements.................................................. $ 1,694 $ 1,692
Buildings and improvements............................................. 9,245 11,095
Machinery and equipment................................................ 28,208 50,522
Construction in progress............................................... 2,620 969
--------- ----------
41,767 64,278
Less accumulated depreciation.......................................... (8,216) (12,228)
--------- ----------
$ 33,551 $ 52,050
--------- ----------
--------- ----------
</TABLE>
Depreciation expense was $2,766,000, $3,294,000, and $3,179,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
5. DEBT
The Company's long-term debt is summarized as follows at December 31,
($000):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Senior term debt from the CIT Group, Inc. ("CIT")
(prime plus 1.25% or LIBOR plus 3.0%) interest at 9.0% at December 31,
1995, due from 1996-2000............................................. $ 6,313 $ 16,150
Revolving credit line, CIT
$15,000 maximum available (prime plus 1.25% or LIBOR plus 3.0%) due
June 30, 2001........................................................ -- 6,731
--------- ---------
6,313 22,881
Less current portion..................................................... 1,688 1,800
--------- ---------
$ 4,625 $ 21,081
--------- ---------
--------- ---------
</TABLE>
The borrowings of the Company are collateralized by all tangible and
intangible assets of the Company.
F-9
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
The following is the five-year schedule of debt maturity ($000):
<TABLE>
<CAPTION>
SENIOR TERM DEBT
-----------------
<S> <C>
1996........................................................................ $ 1,688
1997........................................................................ 1,218
1998........................................................................ 1,467
1999........................................................................ 1,940
2000........................................................................ --
</TABLE>
The Senior Term Debt contains various covenants including limitations on
payment of cash dividends, reacquisition of shares, borrowings and investments
and requires maintenance of profitability levels and liquidity ratios.
In 1995, the Company incurred interest expense of $892,000, net of interest
capitalized of $262,000.
Approximately $1,362,000, $1,060,000 and $7,017,0000 of interest was paid
during the years ended December 31, 1995, 1994 and 1993, respectively.
The Revolving Credit Line is subject to a commitment fee payable at the rate
of 1/2 of 1% per annum on the daily average unused portion of this line. This
fee is payable on a quarterly basis. In addition, the Company is required to pay
an annual Collateral Management Fee of $35,000 in connection with periodic
examinations, analyzing and evaluating the collateral.
In April 1994, the Company expensed $248,000 of deferred debt financing
costs, upon early retirement of the Senior Term Debt. This amount has been
treated as an extraordinary item in the consolidated statement of income for the
year ended December 31, 1994.
The Company entered into a collar agreement from December 19, 1989 through
June 30, 1994 with Wells Fargo Bank (the "Bank") in order to reduce the impact
of changes in interest rates on its debt. The collar agreement required the
Company to make payments to the Bank in the event that interest at 90-day LIBOR
was less than interest at the floor rate of 7.75%. Conversely, the Bank agreed
to make payments to the Company in the event that 90-day LIBOR exceeded the cap
rate of 10.50%. During 1993, the Company paid $0 related to the collar
agreement. No amounts were remitted to the Company from the Bank during 1993.
This agreement was terminated in March 1993 for a fee amounting to $1,299,000.
In March 1993, upon early repayment of the Company's subordinated debt, the
Company expensed $943,000 of deferred debt financing costs and $1,276,000 of
unamortized original issue discount. These amounts, in addition to the interest
rate collar termination payment, have been treated as an extraordinary item in
the consolidated statement of income for the year ended December 31, 1993.
6. DEFERRED GAIN AND SALE-LEASEBACK:
In April 1994, the Company entered into a sale-leaseback transaction with
The CIT Group, Inc. ("CIT"). The Company sold CIT $7,813,000 in net fixed assets
for a purchase price of $25,000,000. Accordingly, the Company recorded a
deferred gain of $17,187,000 which will be amortized on a straight-line basis
over the life of the ten-year lease. In 1995 and 1994, the Company amortized
$1,718,000 and $1,146,000, respectively, of the deferred gain into income. At
December 31, 1995, accumulated amortization of the deferred gain totaled
$2,864,000.
F-10
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEFERRED GAIN AND SALE-LEASEBACK: (CONTINUED)
In connection with the sale-leaseback transaction, CIT leased back the fixed
assets mentioned above to the Company utilizing a ten-year operating lease. The
lease requires quarterly payments of $843,000 for the first five-years of the
lease and quarterly payments of $693,000 for the remaining five years of the
lease.
Rental expense was $3,066,585 and $2,044,390 for the year ended December 31,
1995 and 1994, respectively.
In December 1995, the Company amended the above sale-leaseback transaction
whereby the Company sold their newly constructed wet end machine ("Kobayashi")
for $10.0 million. No gain or loss was recorded with this transaction. The
Company received $5.0 million of the purchase price from CIT in December 1995.
The remaining $5.0 million was placed in escrow and will be paid to the general
contractor when all specifications have been met.
CIT leased back the Kobayashi machine to the Company utilizing the remaining
8.5 years of the operating lease discussed above. The amended lease requires
additional quarterly payments of $339,901 for the next 33 quarters.
7. INITIAL PUBLIC OFFERING ("IPO"):
On March 17, 1993, 2,500,000 shares of the Company's common stock were sold
in an IPO at $13.00 per share, resulting in proceeds net of underwriting
commissions of $30,225,000. The Company also incurred $1,784,000 of offering
expenses in connection with the IPO. In addition, upon the closing of the IPO,
all outstanding shares of Class A, B, C and D redeemable preferred stock were
automatically converted into 1,180,150 shares of common stock; all outstanding
shares of Class E preferred stock were redeemed for a cash payment of $500,000.
159,696 shares of common stock Class A and 54,000 shares of common stock Class B
were converted into an equal number of shares of common stock and 125,129 shares
of common stock were issued upon the net exercise of warrants outstanding. The
proceeds from the IPO were used to repay all of the Company's outstanding
subordinated debt, the redemption of the Company's Class E preferred stock as
discussed above, and a payment of $1,299,000 in connection with the early
termination of the Company's interest rate collar agreement.
8. PREFERRED STOCK:
At December 31, 1995 and 1994, the Company had 2,000,000 shares of preferred
stock authorized with none issued. The Company, without stockholder approval,
can issue preferred stock with voting conversion, and other rights.
9. ACQUISITION:
On June 30, 1994, the Company acquired through its wholly owned
subsidiaries, substantially all of the assets and liabilities of the Endura
Products Division of W.R. Grace ("Endura"). Endura is engaged in the
manufacture, conversion, saturation and coating of specialty papers at
facilities located in Quakertown, Pennsylvania and Owensboro, Kentucky. The
results of operations for Endura have been included in the consolidated results
of operation since the acquisition date. Under the terms of the purchase
agreement, the total purchase price was approximately $26,400,000, plus
$1,000,000 of acquisition expenses paid. A portion of the purchase price was
financed by CIT pursuant to a $17,000,000 term loan. The balance of the purchase
price was paid using $3,000,000 provided by CIT to the Company under a revolving
line of credit and using cash reserves of the Company. Approximately $1,750,000
of the purchase price was placed in
F-11
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITION: (CONTINUED)
escrow, which funds shall be released to the Company if it makes certain capital
expenditures related to acquired facilities, or released to W.R. Grace & Co. if
such expenditures are not made. In December 1995, the Company recorded
$1,750,000 as a receivable, and correspondingly reduced fixed assets, as the
required capital expenditures have been made. Receipt of the escrow funds are
expected by the first quarter of 1996. The acquisition was accounted for using
the purchase method. Accordingly, the purchase price was allocated to the net
assets acquired based on the fair values resulting in goodwill of approximately
$526,000 which will be amortized over 30 years.
The following summarized unaudited pro forma results of operations for the
years ended December 31, 1994 and 1993, assume the acquisition occurred as of
the beginning of the respective periods (dollars in thousands except per share
amounts):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
(UNAUDITED)
Net sales............................................................. $ 124,656 $ 113,874
Net income............................................................ 5,510 4,964
Net income per common share........................................... 1.37 1.49
</TABLE>
The unaudited pro forma results are not necessarily indicative of actual
results of operations that would have occurred had the acquisition been
consummated as of the above dates, nor are they necessarily indicative of future
operating results.
10. SALE OF ASSETS:
On March 22, 1995, the Company sold the assets of its Lewis mill and the
Company's gasket business to Armstrong World Industries Inc. ("Armstrong") for
$12,933,000 (the "Sale"). As part of the sale, inventory in the amount of
$1,080,000 was sold at book value to Armstrong. The net book value of the assets
sold was $19,311,000 and total expenses relating to the sale are estimated at
$1,924,000. At December 31, 1995, $1,744,000 of these expenses had been paid;
the remaining expenses were accrued. This transaction has resulted in a loss of
$8,302,000 before taxes. Approximately $160,000 of the purchase price was held
by Armstrong pending the receipt of a New York State tax clearance certificate.
This payment was received by the Company in May 1995. The Lewis mill was part of
a two-mill division located at the Company's Latex Fiber Products Division in
Beaver Falls, New York.
11. RELATED PARTY TRANSACTIONS:
Pursuant to an agreement with Boise Cascade Corporation ("BCC"), the Company
paid $409,000 and $500,000 for the years ended December 31, 1993 and 1992,
respectively, for the operation of a hydroelectric plant. Such amounts were paid
in a combination of cash and promissory notes. On September 9, 1993, BCC sold
this hydroelectric plant, at which time this agreement was terminated.
The Company paid a management fee of $250,000, $250,000, and $264,000 for
the years ended December 31, 1995, 1994 and 1993, respectively, to an equity
owner, MDC Management Company ("MDC"). The Company has a management agreement
with MDC which calls for an annual fee of $250,000 through 1995.
F-12
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RETIREMENT PLANS:
The Company has a defined contribution plan (salaried and hourly) and a
defined benefit (hourly) retirement plan.
DEFINED CONTRIBUTION PLAN
The defined contribution plan is a 401(k) ERISA and IRS-qualified plan
covering substantially all employees that permits employee salary deferrals up
to 16% of salary with the Company matching 50% of the first 6%. Defined
contribution expense for the Company was $193,000, $163,000, and $134,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
DEFINED BENEFIT PLAN
The defined benefit plan is an ERISA and IRS-qualified plan based upon the
negotiated benefit and years of service in the collective bargaining agreement
between the Unions and the Company. Plan assets are invested in an insurance
company general account. The Company annually contributes at least the minimum
amount as required by ERISA.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1994
--------- ---------
<CAPTION>
($000)
<S> <C> <C>
Actuarial present value of accumulated and projected benefit obligations:
Vested................................................................... $ (1,127) $ (714)
Nonvested................................................................ (219) (95)
--------- ---------
(1,346) (809)
Plan assets at fair value.................................................. 869 755
--------- ---------
Projected benefit obligation in excess of plan assets...................... (477) (54)
Unrecognized net loss...................................................... 49 88
Unrecognized transition obligation......................................... 24 27
Unrecognized prior service costs........................................... 96 18
Adjustment required to recognize minimum liability......................... (169) (133)
--------- ---------
Accrued pension cost....................................................... $ (477) $ (54)
--------- ---------
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1994
--------- ---------
<CAPTION>
($000)
<S> <C> <C>
Total pension expense includes the following components:
Service cost - benefits earned during the period......................... $ 111 $ 123
Interest cost on projected benefit obligation............................ 86 53
Actual return on plan assets............................................. (103) 8
Net amortization and deferral............................................ 40 (68)
--------- ---------
Net periodic pension expense............................................... $ 134 $ 116
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RETIREMENT PLANS: (CONTINUED)
Pension expense was approximately $122,000 for the year ended December 31,
1993. The benefit obligations as of December 31, 1995 and 1994 were calculated
using an average discount rate of 7.0% and 8.0%, respectively. A long-term rate
of return of 9% was used to calculate the 1995 and 1994 net periodic pension
expense.
13. INCOME TAXES:
The components of the provision for income taxes for the year ended December
31, 1995, 1994 and 1993 are as follows ($000):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current income taxes
Federal.................................................... $ 2,557 $ 2,742 $ 785
State...................................................... 743 890 215
--------- --------- ---------
3,300 3,632 1,000
Deferred income taxes
Federal.................................................... (3,165) (734) 775
State...................................................... (559) (130) 146
--------- --------- ---------
(3,724) (864) 921
$ (424) $ 2,768 $ 1,921
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary book and tax
differences which include the deferred gain on the sale-leaseback transaction,
depreciation and timing of Cogeneration income.
The components of the deferred tax assets and liabilities at December 31,
1995 are as follows ($000):
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------- -------------
<S> <C> <C>
Inventory....................................................... $ 214 --
Depreciation.................................................... -- $ 1,180
Vacation accrual................................................ 306 --
Reserves........................................................ 234 --
Organization costs.............................................. -- 185
Miscellaneous................................................... 80 --
Net operating loss carryforwards................................ 335 --
Deferred gain................................................... 5,729 --
Cogeneration income............................................. -- 1,405
------ ------
$ 6,898 $ 2,770
------ ------
------ ------
</TABLE>
F-14
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES: (CONTINUED)
The components of the deferred tax assets and liabilities at December 31,
1994 are as follows ($000):
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------- -------------
<S> <C> <C>
Inventory......................................................... $ 160 --
Depreciation...................................................... -- $ 4,793
Vacation accrual.................................................. 402 --
Reserves.......................................................... 156 --
Organization costs................................................ -- 164
Miscellaneous..................................................... 44 --
Net operating loss carryforwards.................................. 2,192 --
Deferred gain..................................................... 6,417 --
------ ------
9,371 4,957
Valuation allowance............................................... 4,010 --
------ ------
$ 5,361 $ 4,957
------ ------
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. For the year ended
December 31, 1995, the Company reduced the valuation allowance to $0. The
Company believes a valuation allowance is not required due to the tax benefit of
the deferred gain and the net operating losses being ultimately realized.
A reconciliation of income taxes from continuing operations at the United
States statutory rate to the effective rate for the years ended December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
U.S. federal rate................................... 34.0% 34.0% 34.0%
<S> <C> <C> <C>
Decrease in valuation allowance..................... (49.9%) (7.2%) (9.3%)
State taxes net of federal benefit.................. 5.9% 6.9% 4.3%
Other............................................... 4.4% 0.9% --
--------- --------- ---------
Effective tax rate.................................. (5.6%) 34.6% 29.0%
--------- --------- ---------
</TABLE>
As of December 31, 1995, the Company has net operating loss carryforwards of
approximately $880,000, for federal tax purposes, expiring at various times
through the end of 2007.
Income taxes paid during 1995, 1994 and 1993 were $3,130,000, $1,728,000,
and $103,000, respectively.
14. COGENERATION PROJECT:
The Company has entered into agreements with Kamine/Besicorp Beaver Falls
L.P. ("Kamine") pursuant to which the Company's Latex Fiber Products Division
will be the host for a gas-fired, 79-megawatt combined-cycle cogeneration
facility developed by Kamine in Beaver Falls, New York. Construction of the
facility has been completed. The Company received $4.4 million in cash in 1993.
The Company has a firm contract with the Kamine to receive a series of cash
payments totaling $7.0 million between May 1995 and May 1997. The present value
of these cash payments, in the amount of $6.5, was recorded as income in the
first quarter 1995. A cash payment of $3.0 million was received in May 1995.
F-15
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES:
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
requirements, particularly relating to air and water quality. The Company and
its predecessors have spent substantial sums for pollution control facilities to
comply with existing regulations. While the Company believes it has made
sufficient capital expenditures to maintain compliance with existing laws and
regulations, any failure by the Company to comply with present and future
regulations could subject it to future liability or require the suspension of
operations.
OTHER MATTERS
The Company is involved in various legal proceedings in the ordinary course
of business. Management believes that the outcome of these proceedings will not
have a material adverse effect on the Company's financial condition.
16. STOCK OPTION AND BONUS PLANS:
The Company has reserved 200,948 shares of common stock pursuant to its 1992
Amended and Restated Stock Option Plan ("1992 Option Plan"), for issuance upon
exercise of options granted to officers, employees and directors of the Company.
Shares granted under the 1992 Option Plan shall typically become exercisable at
a rate of 20% per year. Options granted under the 1992 Option Plan are
exercisable for a period of ten years from the date of grant.
The Company has reserved 200,000 shares of common stock pursuant to its 1994
Stock Option Plan ("1994 Option Plan"), for issuance upon exercise of options
granted to selected officers and employees of the Company. Shares granted under
the 1994 Option Plan to date shall become exercisable at a rate of 20% per year
commencing on the one year anniversary of the grant date, and 1.66% at the end
of each month thereafter. Options granted under the 1994 Option Plan are
exercisable for a period of ten years from the date of grant.
The Company has also reserved 50,000 shares of common stock pursuant to its
1994 Director Stock Option Plan ("Directors Option Plan"), for issuance upon
exercise of options granted to directors who are not otherwise full-time
employees of the Company. Twenty percent of the shares granted under the
Directors Option Plan shall become exercisable immediately. The remaining 80% of
the shares granted become exercisable in installments over a period of four
years from the date of grant at a rate of 20% per year. Options granted under
the Directors Option Plan are exercisable for a period of ten years from the
date of grant.
F-16
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. STOCK OPTION AND BONUS PLANS: (CONTINUED)
The following table sets forth the stock option transactions for the three
years ended December 31, 1995:
<TABLE>
<CAPTION>
OPTION PRICE OPTION PRICE OPTION PRICE
1992 PLAN PER SHARE 1994 PLAN PER SHARE DIRECTORS PLAN PER SHARE
----------- --------------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31,
1992........................... 200,948 $ 5.00
Granted, exercised or canceled... --
-----------
Outstanding at December 31,
1993........................... 200,948 $ 5.00
Granted.......................... 40,000 $ 9.50 35,000 $ 8.50
Exercised........................ (14,468) $ 5.00 -- --
----------- ----------- ------
Outstanding at December 31,
1994........................... 186,480 $ 5.00 40,000 $ 9.50 35,000 $ 8.50
Granted.......................... 44,100 $11.75 -- --
Forfeited........................ (24,918) $ 5.00 (5,400) $ 9.50 -- --
----------- ----------- ------------
Outstanding at December 31,
1995........................... 161,562 $ 5.00 78,700 $9.50-$11.75 35,000 $ 8.50
----------- ----- ----------- ------------ ------ -----
</TABLE>
Options to purchase 153,197 shares of common stock were exercisable at
December 31, 1995.
Compensation for the options granted at $5.00 per share was measured as of
the grant date based upon a fair market value of $8.00 per share as determined
by the Board of Directors and is being recognized as expense over the vesting
period. All other options were granted at fair market value at the date of
grant.
Effective January 1, 1994, the Compensation Committee adopted the Executive
Bonus Plan, which provides for bonus payments of a percentage of base salary
based upon achievement by the Company of certain levels of earnings per share.
The Executive Bonus Plan utilizes a sliding scale so that the percentage of base
salary paid as bonus compensation increases as the earnings per share of the
Company increase. The Executive Bonus Plan is designed to directly align the
interests of the executive officers and the stockholders. Although the Executive
Bonus Plan is subject to annual review by the Committee, the Committee expects
it to remain in place for a five-year term.
F-17
<PAGE>
SPECIALTY PAPERBOARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. UNAUDITED QUARTERLY SUMMARY INFORMATION:
The following is a summary of unaudited quarterly summary information for
the years ended December 31, 1995 and 1994 ($000 except per share data).
<TABLE>
<CAPTION>
NET EARNINGS
GROSS ----------------------
1995 QUARTERS NET SALES PROFIT INCOME PER SHARE
- ------------------------------------------------------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
First(1)........................................................... $ 35,198 $ 4,837 $ 465 $ 0.12
Second............................................................. 31,879 4,369 1,572 0.39
Third(2)........................................................... 24,480 3,750 4,418 1.10
Fourth............................................................. 25,959 4,454 1,498 0.36
---------- ----------- --------- -----
Total.............................................................. $ 117,516 $ 17,410 $ 7,953 $ 1.97
---------- ----------- --------- -----
<CAPTION>
NET EARNINGS
GROSS ----------------------
1994 QUARTERS NET SALES PROFIT INCOME PER SHARE
- ------------------------------------------------------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
First.............................................................. $ 21,967 $ 4,139 $ 1,131 $ 0.28
Second(3).......................................................... 21,797 3,919 1,280 0.32
Third(4)........................................................... 29,978 4,289 1,106 0.28
Fourth(4).......................................................... 31,674 4,931 1,562 0.38
---------- ----------- --------- -----
Total.............................................................. $ 105,416 $ 17,278 $ 5,079 $ 1.26
---------- ----------- --------- -----
</TABLE>
- ------------------------
(1) The first quarter of 1995 includes the present value of the Cogeneration
receivable of $6,512,000 booked as other income and a net book loss of
$8,159,000 resulting from the sale of the Lewis mill. An additional loss of
$143,000 was booked in the fourth quarter of 1995.
(2) In the third quarter of 1995, the Company recognized a tax benefit related
to the release of tax valuation allowances.
(3) The second quarter of 1994 includes a $149,000 extraordinary loss related to
the early extinguishment of debt.
(4) The third and fourth quarters of 1994 include the results of operations of
the Endura Products Division.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Officers and Directors of
CPG Investors Inc.:
We have audited the accompanying consolidated balance sheet of CPG Investors
Inc. and Subsidiaries (the "Company") as of December 31, 1994 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for the eight-week period from November 1, 1993 (commencement of operations) to
December 26, 1993, and for the years ended December 31, 1994 and 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CPG Investors
Inc. and Subsidiaries as of December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for the eight-week period ended
December 26, 1993, and for the years ended December 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for inventories in 1994.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
February 29, 1996,
except as to Note 13,
as to which the date is
August 28, 1996
F-19
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- SEPTEMBER 30,
1996
-----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 3 $ 580 $ 3
Accounts receivable, less allowances of $492, $378 and $461............ 11,153 9,191 11,030
Inventories............................................................ 8,603 8,233 8,317
Prepaid expenses....................................................... 347 403 307
Deferred income taxes.................................................. 737 716 716
--------- --------- -------
Total current assets................................................. 20,843 19,123 20,373
--------- --------- -------
Property, plant and equipment, net....................................... 14,101 17,283 19,444
--------- --------- -------
Other assets............................................................. 708 626 1,279
Deferred income taxes.................................................... 502 191 135
--------- --------- -------
$ 36,154 $ 37,223 $ 41,231
--------- --------- -------
--------- --------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 4,520 $ 5,498 $ 4,520
Current portion of long-term debt...................................... 1,000 1,000 1,750
Accrued liabilities.................................................... 5,645 5,002 5,396
--------- --------- -------
Total current liabilities............................................ 11,165 11,500 11,666
--------- --------- -------
Long-term debt........................................................... 13,000 10,895 10,540
--------- --------- -------
Other liabilities........................................................ 3,832 3,948 4,380
--------- --------- -------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $.01 par value:
Class A, nonvoting, 462,814 shares, authorized, 405,671
outstanding........................................................ 4 4 4
Class B, voting, 10,101 shares authorized and outstanding............ -- -- --
Class C, nonvoting, 104,286 shares authorized and outstanding........ 1 1 1
Additional paid-in capital............................................. 4,565 4,565 4,565
Retained earnings...................................................... 3,587 6,466 10,140
Minimum pension liability adjustment................................... -- (156) (65)
--------- --------- -------
8,157 10,880 14,645
--------- --------- -------
$ 36,154 $ 37,223 $ 41,231
--------- --------- -------
--------- --------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
EIGHT FOR THE YEARS ENDED FOR THE NINE MONTHS
WEEKS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 26, -------------------- --------------------
1993 1994 1995 1995 1996
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
UNAUDITED
Net sales.............................................. $ 13,323 $ 95,952 $ 95,795 $ 72,395 $ 69,719
Costs and expenses:
Cost of goods sold................................... 12,396 82,079 84,419 63,674 58,469
Selling and administrative expenses.................. 1,153 6,169 5,310 4,064 4,330
------------ --------- --------- --------- ---------
13,549 88,248 89,729 67,738 62,799
------------ --------- --------- --------- ---------
Income (loss) from operations...................... (226) 7,704 6,066 4,657 6,920
Interest expense....................................... (230) (1,440) (1,345) 1,037 797
------------ --------- --------- --------- ---------
Income (loss) before income taxes.................. (456) 6,264 4,721 3,620 6,123
Income tax benefit (expense)........................... 167 (2,388) (1,842) (1,376) (2,449)
------------ --------- --------- --------- ---------
Net income (loss).................................. (289) 3,876 2,879 $ 2,244 $ 3,674
Retained earnings (deficit), beginning of period....... -- (289) 3,587 3,587 6,466
------------ --------- --------- --------- ---------
Retained earnings (deficit), end of period....... $ (289) $ 3,587 $ 6,466 $ 5,831 $ 10,140
------------ --------- --------- --------- ---------
------------ --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
EIGHT WEEKS FOR THE NINE MONTHS
ENDED ENDED SEPTEMBER 30,
DECEMBER 26, --------------------
1993 1994 1995 1995 1996
------------ --------- --------- --------- ---------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)..................................... $ (289) $ 3,876 $ 2,879 $ 2,244 $ 3,674
Items not affecting cash:
Depreciation........................................ 144 949 1,184 984 1,303
Amortization........................................ 31 194 225 169 169
Deferred income taxes............................... (1,240) -- 428 -- --
Loss on shutdown of paper machine................... -- 701 -- -- --
Postretirement benefits............................. -- 210 181 -- --
Changes in operating assets and liabilities:
Accounts receivable................................. (575) (123) 1,962 936 (1,838)
Inventories......................................... 917 2,844 370 (89) (84)
Prepaid expenses.................................... (125) (45) (56) 76 96
Accounts payable.................................... 2,025 (847) 978 715 (978)
Accrued liabilities................................. 1,461 (317) (644) (1,210) 394
Other, net............................................ 74 71 (459) 263 (244)
------------ --------- --------- --------- ---------
Cash provided by operating activities............. 2,423 7,513 7,048 4,088 2,492
------------ --------- --------- --------- ---------
Cash used in investing activities:
Cash paid for certain assets of Custom Papers Group
Inc., net of liabilities assumed.................. (24,271) -- -- -- --
Expenditures for property, plant and equipment...... (431) (2,888) (4,366) (2,868) (3,464)
------------ --------- --------- --------- ---------
Cash used in investing activities..................... (24,702) (2,888) (4,366) (2,868) (3,464)
------------ --------- --------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds from sale of common stock.................. 4,000 570 -- -- --
Proceeds from issuance of long-term debt, net....... 19,358 0 -- -- --
Net reduction in revolving debt..................... (1,063) (4,208) (1,105) (250) 1,145
Payments on term debt............................... (1,000) (1,000) (750) (750)
------------ --------- --------- --------- ---------
Cash used in financing activities................. 22,295 (4,638) (2,105) (1,000) 395
------------ --------- --------- --------- ---------
Increase (decrease) in cash....................... 16 (13) 577 220 (577)
Cash and cash equivalents, beginning of period.......... -- 16 3 3 580
------------ --------- --------- --------- ---------
Cash and cash equivalents, end of period............ $ 16 $ 3 $ 580 $ 223 $ 3
------------ --------- --------- --------- ---------
------------ --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITION:
On November 5, 1993, CPG Investors Inc. ("CPG"), through its wholly-owned
subsidiary, CPG Holdings Inc. ("Holdings"), acquired selected net operating
assets of Custom Papers Group Inc. and its subsidiaries from Rexam Inc.
("Rexam"), a wholly owned subsidiary of Rexam plc (the "Acquisition").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of CPG and its wholly owned subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated.
ACCOUNTING PERIOD: In 1994, the Company changed its financial reporting
year from a fiscal year ending on the last Sunday in December to a calendar
year. The year ended December 31, 1994 consisted of 53 weeks.
CASH AND CASH EQUIVALENTS: Excess cash is temporarily invested in funds
with original maturities not exceeding three months as part of the Company's
management of day-to-day operating cash receipts and disbursements.
INVENTORIES: Inventory values include all costs directly associated with
making products: materials, labor and manufacturing overhead including certain
general and administrative costs at mill locations. Inventory values are
presented at the lower of cost or market, with the cost of substantially all
inventories determined by the last-in, first-out ("LIFO") cost flow assumption.
(See Note 3.)
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost, less accumulated depreciation. Plant and equipment are depreciated over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
Maintenance and repair costs are charged to expense as incurred, and
expenditures that increase the capacity, efficiency or useful lives of existing
assets are capitalized. When assets are sold or retired, their cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.
INTEREST EXPENSE: The Company capitalizes interest expense as part of the
cost of constructing certain facilities and equipment. No interest expense was
capitalized in 1993, 1994 or 1995. Interest paid during 1993, 1994 and 1995
totaled $87,911, $1,262,590 and $1,163,774, respectively.
INCOME TAXES: Income tax expense is based on reported earnings before
income taxes. Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses, which
are expensed as incurred, were $94,070, $1,175,311 and $1,041,129 in 1993, 1994
and 1995, respectively.
DEFERRED FINANCING COSTS: The Company capitalized the costs associated with
obtaining the necessary financing for the Acquisition. These costs, which
amounted to $539,009, net of $222,060 of accumulated amortization at December
31, 1994, and $351,767, net of $409,302 of accumulated amortization at December
31, 1995, are included in other assets on the consolidated balance sheet and are
being amortized on a straight-line basis over the terms of the loan commitments
provided in the credit agreement.
F-23
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
BUSINESS SEGMENT INFORMATION: The Company's operations involve a single
industry segment--the manufacture and sale of specialty paper products. All
operations are located within the United States. Export sales are not
significant. Sales to one customer amounted to $10,224,409 (10.7% of net sales)
in 1994 and $11,560,950 (12.1% of net sales) in 1995. No other individual
customer accounted for more than 10% of the Company's net sales in 1993, 1994 or
1995.
RISKS AND UNCERTAINTIES: The Company operates five paper mills--four in the
eastern United States and one in the midwest--producing a diversity of specialty
paper products. The Company is not dependent on any single customer, group of
customers, market, geographic area or supplier of materials, labor or services.
The financial statements include, where necessary, amounts based on judgments of
management. These estimates include allowances for doubtful accounts and
customer returns, accruals for self-insured medical benefits and workers'
compensation insurance, environmental compliance costs, income taxes and
determinations of discount and other rate assumptions for pensions and
postretirement benefits expenses.
3. INVENTORIES:
In 1994, the Company adopted the LIFO method of determining the cost of
substantially all of its inventories. Under the LIFO method the most recent
additions to inventory are assumed to be the first items of inventory used in
production or sold to customers. The Company uses the LIFO method in order to
more properly match current costs against current revenues. If inventories were
valued at current costs, the inventory amounts would have been $1,210,642 higher
than those reported at December 31, 1994, and $2,482,885 higher than those
reported at December 31, 1995. If the FIFO method of inventory valuation had
been utilized, reported net income would have been $750,598 higher in 1994 and
$788,790 higher in 1995.
Inventories by major category were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
-------------------- ------------------
<S> <C> <C> <C>
1994 1995 (UNAUDITED)
--------- --------- ------------------
Raw materials....................................... $ 3,312 $ 4,518 $ 3,253
Work-in-process..................................... 1,678 2,057 1,328
Finished goods...................................... 4,098 3,570 4,550
Operating supplies.................................. 726 571 601
--------- --------- -------
9,814 10,716 9,732
Subtraction to state inventories at LIFO cost....... (1,211) (2,483) (1,415)
--------- --------- -------
$ 8,603 $ 8,233 $ 8,317
--------- --------- -------
--------- --------- -------
</TABLE>
F-24
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Revolving loans......................................................... $ 4,000 $ 2,895
Term loans.............................................................. 10,000 9,000
--------- ---------
14,000 11,895
Less current portion.................................................... (1,000) (1,000)
--------- ---------
$ 13,000 $ 10,895
</TABLE>
F-25
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
Scheduled maturities for the term loans in the four years after 1996 are as
follows: 1997--$2,000,000, 1998--$2,000,000; 1999--$2,000,000; and
2000--$2,000,000.
Holdings has a credit agreement with two banks which provides for borrowings
of up to $13,000,000 under a revolving loan commitment and $9,000,000 under a
term loan commitment. Substantially all of the Company's assets are pledged as
collateral for borrowings under the credit agreement. The terms of the credit
agreement include various covenants which require, among other things, the
maintenance of certain financial ratios and a certain minimum net worth, as
defined in the agreement. Holdings is not permitted to pay dividends to CPG
until its debt to total capital, as defined in the agreement, is reduced to 50%
and maintained after any dividend is declared.
The maximum outstanding borrowings during 1993, 1994 and 1995 were
$20,975,000, $19,491,000 and $15,075,000, respectively. The weighted average
outstanding borrowings were $19,758,000 in 1993 $15,158,000 in 1994 and
$13,455,000 in 1995 and the weighted average interest rate, excluding commitment
fees, was 6.28% in 1993, 7.23% in 1994 and 7.56% in 1995. Borrowings bear
interest which is payable monthly at a defined base rate or LIBOR, plus 1%, at
the Company's option. At December 26, 1993, the weighted average interest rate
was 6.35% , at December 31, 1994 and 1995, the weighted average interest rate
was 8.29% and 7.06%, respectively. There are annual commitment fees of 3/16% on
the aggregate loan commitment. The revolving loan commitment is available
through November 5, 1998. The term loan commitment requires quarterly principal
payments of $250,000 through December 31, 1996 and quarterly principal payments
of $500,000 commencing March 31, 1997, with the final payment due December 31,
2000.
The recorded value of the Company's long-term debt at December 31, 1995
approximates its fair value.
In 1994, in order to reduce its exposure to fluctuations in interest rates,
the Company purchased an interest rate collar contract. The collar contract
covered $12,000,000 of the Company's bank debt in 1995. The amount of bank debt
covered by the collar contract is reduced to $10,000,000 in 1996, $8,000,000 in
1997 and $6,000,000 in 1998. During 1995, pursuant to the agreement, the Company
received quarterly payments equal to the amount of debt covered times the amount
by which LIBOR exceeded 6.0%. The Company will receive similar payments in 1996
should LIBOR exceed 6% and in 1997 and 1998 if LIBOR exceeds 6.5%. Should LIBOR
be less than 4.0% in 1996 or 4.5% in 1997 and 1998, the Company is obligated to
make quarterly payments equal to the amount of debt covered times the amount
that LIBOR is less than the specified rate. The cost of this financial
instrument, which is included in other assets, was $152,000 and, beginning in
1995, is being amortized over a four-year period. The estimated fair value of
the collar contract at December 31, 1995 was $42,347. The Company believes that
the risk of loss due to nonperformance by the counterparty to this contract is
not significant.
F-26
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUPPLEMENTAL BALANCE SHEET INFORMATION:
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
-------------------- ------------------
<S> <C> <C> <C>
1994 1995 (UNAUDITED)
--------- --------- ------------------
Land................................................ $ 1,963 $ 2,000 $ 2,038
Buildings........................................... 1,814 2,272 2,393
Machinery and equipment............................. 11,113 14,265 15,106
Construction-in-process............................. 277 996 3,460
--------- --------- -------
15,167 19,533 22,997
Less accumulated depreciation....................... 1,066 2,250 3,553
--------- --------- -------
$ 14,101 $ 17,283 $ 19,444
--------- --------- -------
--------- --------- -------
</TABLE>
Accrued liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Compensation............................................................... $ 2,990 $ 2,224
Employee benefits.......................................................... 873 1,084
Utilities.................................................................. 767 770
Customer volume discounts.................................................. 628 537
Interest payable........................................................... 115 94
Other...................................................................... 272 293
--------- ---------
$ 5,645 $ 5,002
--------- ---------
--------- ---------
</TABLE>
6. INCOME TAXES:
The components of the provision for income taxes were (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE EIGHT
WEEKS ENDED DECEMBER 31,
DECEMBER 26, --------------------
1993 1994 1995
------------- --------- ---------
<S> <C> <C> <C>
Current income tax provision:
Federal................................................... $ 906 $ 2,042 $ 1,108
State..................................................... 167 346 306
------ --------- ---------
1,073 2,388 1,414
Deferred income tax (benefit) provision..................... (1,240) -- 428
------ --------- ---------
$ (167) $ 2,388 $ 1,842
------ --------- ---------
------ --------- ---------
</TABLE>
F-27
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that gave rise to the deferred tax
assets and liabilities are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Deferred tax assets:
Postretirement benefits.................................................. $ 718 $ 782
Pension benefits......................................................... 507 556
Other employee benefits.................................................. 704 742
Other.................................................................... 425 497
--------- ---------
2,354 2,577
--------- ---------
Deferred tax liabilities:
Property, plant and equipment............................................ 1,115 1,670
--------- ---------
Net deferred tax assets................................................ $ 1,239 $ 907
--------- ---------
--------- ---------
</TABLE>
The net current and noncurrent current components of the deferred income
taxes recognized in the balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Net current assets........................................................... $ 737 $ 716
Net noncurrent assets........................................................ 502 191
--------- ---------
$ 1,239 $ 907
--------- ---------
</TABLE>
The Company has determined, based on the predecessor company's operating
earnings, CPG's operating earnings in 1994 and 1995 and CPG's expectations for
the future, that operating income of the Company will likely be sufficient to
recognize fully these net deferred tax assets. Accordingly, the Company has not
recorded a valuation allowance for the net deferred tax assets.
The Company made income tax payments of none in 1993, $3,699,838 in 1994 and
$1,410,073 in 1995.
A reconciliation of income tax expense using the statutory federal income
tax rate of 34% compared to the Company's actual income tax expense follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE EIGHT FOR THE YEARS ENDED
WEEKS ENDED DECEMBER 31,
DECEMBER 26, --------------------
1993 1994 1995
----------------- --------- ---------
<S> <C> <C> <C>
Income tax expense (benefit) at federal statutory rate..................... $ (155) $ 2,130 $ 1,605
Increase resulting from:
State.................................................................... (18) 228 229
Other, net............................................................... 6 30 8
----- --------- ---------
Income tax expense (benefit)............................................. $ (167) $ 2,388 $ 1,842
----- --------- ---------
----- --------- ---------
</TABLE>
F-28
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT PLANS:
The Company has a noncontributory defined benefit pension plan for hourly
employees covered by collective bargaining agreements. Benefits are based on
stated amounts for each year of credited service. The Company's funding policy
is consistent with the funding requirements of ERISA. The plan's assets consist
principally of equity securities, government and corporate debt securities and
other fixed income obligations.
Net periodic pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE EIGHT
WEEKS ENDED DECEMBER 31,
DECEMBER 26, --------------------
1993 1994 1995
----------------- --------- ---------
<S> <C> <C> <C>
Service cost.............................................. $ 44 $ 259 $ 231
Interest cost on projected benefit obligation............. 65 352 407
Actual return on plan assets.............................. (12) 88 (701)
Net amortization and deferral............................. (52) (435) 320
--- --------- ---------
Net periodic pension cost............................. $ 45 $ 264 $ 257
--- --------- ---------
--- --------- ---------
</TABLE>
The assumptions used in accounting for pension cost and the funded status of
the plan were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate............................................................ 7.0% 8.0% 7.4%
Expected long-term return on plan assets................................. 9.0% 9.0% 9.0%
</TABLE>
Pension expense is determined using assumptions as of the beginning of each
year. The funded status of the pension plan is determined using assumptions as
of the end of each year. The projected benefit obligation increased by $709,911
as a result of the reduction of the discount rate assumption in 1995.
The following table presents the funded status of the Company's pension plan
and the net pension liability included in the accompanying consolidated balance
sheet (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Actuarial present value of benefit obligations:
Vested benefits........................................................ $ (4,287) $ (5,649)
Nonvested benefits..................................................... (572) (759)
Projected benefit obligation......................................... (4,859) (6,408)
Fair value of plan assets................................................ 3,784 4,808
--------- ---------
Funded status........................................................ (1,075) (1,600)
Unrecognized net loss (gain)............................................. (312) 252
Unrecognized prior service cost.......................................... 52 139
Additional minimum liability............................................. -- (391)
--------- ---------
Net pension liability................................................ $ (1,335) $ (1,600)
--------- ---------
--------- ---------
</TABLE>
F-29
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT PLANS: (CONTINUED)
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions," the Company recorded in other
liabilities an additional minimum pension liability adjustment of $390,771 as of
December 31, 1995, representing the amount by which the projected benefit
obligation exceeded the fair value of plan assets plus accrued amounts
previously recorded. The additional liability has been offset by an intangible
asset to the extent of previously unrecognized prior service cost. The amount in
excess of previously unrecognized prior service cost is recorded as a reduction
of stockholders' equity in the amount of $156,203, representing the after-tax
impact.
The Company also sponsors qualified defined contribution plans for its
salaried and hourly employees. Participation in these plans is voluntary;
however, the Company encourages participation by matching 50% of a portion of
each employee's voluntary contribution. The Company's expense in 1993, 1994 and
1995 totaled $47,674, $271,647 and $276,638, respectively.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company has plans which provide certain health care and life insurance
benefits to eligible employees when they retire. Salaried employees generally
become eligible for retiree medical benefits after reaching age 62 with 15 years
of service or after reaching age 65. The medical plan for salaried employees
provides for an allowance, which must be used toward the purchase of a Medicare
supplemental insurance policy, based on a retiree's length of service. The
allowance may be adjusted to reflect annual changes in the Consumer Price Index
("CPI"); however, once the initial allowance has doubled, there will be no
further increases. Salaried employees hired after January 1, 1993 are not
eligible to participate in this retiree medical plan. Upon satisfying certain
eligibility requirements, approximately 45% of the hourly employees are eligible
upon retirement to receive a medical benefit, which is an allowance to be used
toward the purchase of a Medicare supplemental insurance policy and cannot
exceed a specified annual amount. The postretirement benefit obligations related
to employees who retired prior to the Acquisition were not assumed by the
Company and remain the responsibility of Rexam.
Postretirement benefits expense included the following components (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE EIGHT
WEEKS ENDED DECEMBER 31,
DECEMBER 26, --------------------
1993 1994 1995
----------------- --------- ---------
<S> <C> <C> <C>
Service cost............................................... $ 10 $ 92 $ 75
Interest cost on accumulated postretirement benefit
obligation............................................... 20 118 124
Net amortizations and deferral............................. -- -- (18)
Postretirement benefits expense.......................... $ 30 $ 210 $ 181
--- --------- ---------
--- --------- ---------
</TABLE>
F-30
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: (CONTINUED)
The following table sets forth the accumulated postretirement benefit
obligation included in other liabilities in the Company's consolidated balance
sheet (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
Accumulated postretirement benefit obligation:
Fully eligible participants............................................ $ (131) $ (224)
Retirees............................................................... -- (152)
Other active plan participants......................................... (1,305) (1,533)
--------- ---------
Accumulated postretirement benefit obligation............................ (1,436) (1,909)
Unrecognized net gain................................................ (453) (148)
--------- ---------
Accrued postretirement benefit liability........................... $ (1,889) $ (2,057)
--------- ---------
--------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring future benefit
costs was 9%, gradually declining to 6% by 1999 and remaining at that level
thereafter. A 1% increase in this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1995 by $119,000
and the 1995 postretirement benefits expense by less than $19,000. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% in 1993, 8% in 1994 and 7.4% in 1995. The assumed annual
increase in the CPI was 3%.
9. COMMON STOCK:
In connection with its organization and the acquisition of its business in
1993, the Company issued 400,000 shares of its Class A common stock for an
aggregate consideration of $4,000,000 and 10,000 shares of its Class B common
stock for an aggregate consideration of $1,000. In addition, the Company issued
104,286 shares of its Class C common stock to two founders for nominal
consideration. In 1994, the Company sold 5,671 shares of Class A common stock
and 101 shares of Class B common stock to two customers for an aggregate
consideration of $577,190.
The Class A stockholders have preference over the Class B and Class C
stockholders for dividends and other distributions until the Class A
stockholders have received distributions aggregating $10 per share. Thereafter,
Class B and Class C stockholders are entitled to such distributions until each
Class B and Class C stockholder has received $10 per share and thereafter all
classes of common stock receive dividends and other distributions at the same
rate per share.
10. STOCK OPTION PLAN:
Certain employees have been granted options to purchase shares of Class A
common stock under a nonqualified stock option plan adopted in December 1993.
The exercise price of options granted to employees is the fair value of the
Company's Class A common stock at the dates of grant. Options become partially
exercisable on the date of the grant and vest ratably over the three years
thereafter and expire if not exercised in ten years.
F-31
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN: (CONTINUED)
The following table is a summary of the option plan:
<TABLE>
<CAPTION>
EXERCISE PRICE
PER
NUMBER OF OPTIONS OPTION
------------------- ----------------
<S> <C> <C>
Outstanding on November 1, 1993........................ --
Granted.............................................. 57,000 $ 10.00
------
Outstanding on December 26, 1993....................... 57,000
Granted.............................................. 1,000 15.00
Exercised............................................ --
Canceled............................................. (1,000) 10.00
------
Outstanding on December 31, 1994....................... 57,000
Granted.............................................. 1,500 17.50
Exercised............................................ --
Canceled............................................. (4,000) 10.00-15.00
------
Outstanding on December 31, 1995....................... 54,500
------
------
</TABLE>
At December 31, 1995, options for 40,000 shares were exercisable and options
for 2,643 shares were available for future awards.
11. RELATED-PARTY TRANSACTIONS:
Two of CPG's directors are the principal stockholders of SCI Investors Inc.,
a privately held corporation which provides management consulting and financial
services to the Company. Payments and expenses for such services during 1993,
1994 and 1995 totaled $16,000, $102,859 and $141,397, respectively. In addition,
the Company paid fees of $350,000 to SCI Investors Inc. for its services in
negotiating the acquisition of its business and arranging the financing for the
acquisition. This fee was allocated to the purchase price of the acquisition and
to deferred financing costs.
Four of the Company's customers are owned by persons who are stockholders of
CPG and, in one case, a director of CPG. Sales to these customers aggregated
$869,989, $5,006,607 and $4,894,577 in 1993, 1994 and 1995, respectively.
Accounts receivable from these customers aggregated $729,633 at December 31,
1994 and $645,372 at December 31, 1995.
12. COMMITMENTS AND OTHER MATTERS:
LEASES: The Company has commitments under operating leases for certain
machinery, equipment and facilities used in various operations. Rental expense
was $146,000 in 1993, $870,377 in 1994 and $922,298 in
F-32
<PAGE>
CPG INVESTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND OTHER MATTERS: (CONTINUED)
1995. As of December 31, 1995, obligations to make future minimum lease payments
were as follows (in thousands):
<TABLE>
<CAPTION>
PAYMENTS TO BE MADE IN:
- ----------------------------------------------
<S> <C>
1996........................................ $ 937
1997........................................ 906
1998........................................ 754
1999........................................ 720
2000........................................ 308
Thereafter.................................. 1,294
------
$ 4,919
------
------
</TABLE>
UNUSUAL ITEM: In September 1994, the Company idled one of its paper
machines and recorded a provision of $714,869 to adjust the carrying values of
the paper machine and related equipment to net realizable values and to
recognize the outstanding commitments associated with a lease of certain process
control equipment.
LETTER OF CREDIT: At December 31, 1995, the Company had outstanding letters
of credit of $1,108,000 as collateral for one of its insurance policies.
CONTINGENCIES: In the ordinary course of conducting business, the Company
becomes involved in various environmental issues, investigations and
administrative proceedings. While any such investigation or proceeding has an
element of uncertainty, the Company believes that the outcome of any pending or
threatened claim will not have a material adverse effect on its business or
financial condition.
13. SUBSEQUENT EVENTS:
On August 28, 1996, CPG entered into a merger agreement with Specialty
Paperboard, Inc. ("SPI") pursuant to which SPI, through a subsidiary, would
purchase all of the issued and outstanding common stock of CPG. In connection
with this proposed merger, SPI has performed environmental reviews of each of
the Company's operations and, as a result, the Company and SPI are evaluating
certain matters of concern to SPI. The Company does not believe the results of
these evaluations will have a material adverse effect on its business or
financial condition.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Arcon Holdings Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings (deficit) and of cash
flows present fairly, in all material respects, the financial position of Arcon
Holdings Corp. and its subsidiary (the "Company") at October 31, 1995 and 1994,
and the results of its operations and its cash flows for the year ended October
31, 1995 and for the period April 14, 1994 (Inception) through October 31, 1994
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Jericho, New York
November 28, 1995 except for Note 14, which is as of August 28, 1996
F-34
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------- SEPTEMBER 30,
1995 1994 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash.............................................................. $ 296,733 $ 255,232 $ 1,825,096
Accounts receivable, net of allowance for doubtful accounts of
$78,915 and $56,202 at October 31, 1995 and 1994, respectively,
and $52,311 at September 30, 1996............................... 1,935,541 2,015,029 1,964,232
Inventories....................................................... 2,721,548 1,907,504 2,694,534
Prepaid expenses and other........................................ 74,405 58,954 180,117
Income tax receivable............................................. 90,800 --
Deferred income taxes............................................. 94,948 67,651 114,000
------------- ------------- -------------
Total current assets.......................................... 5,213,975 4,304,370 6,777,979
Property, plant and equipment, net.................................. 1,338,666 1,404,554 1,209,190
Deferred financing costs, net of accumulated amortization of
$266,612 and $92,185 at October 31, 1995 and 1994, respectively,
and $428,400 at September 30, 1996................................ 563,105 739,987 401,317
Goodwill, net of accumulated amortization of $1,270,078 and $448,078
at October 31, 1995 and 1994, respectively, and $2,018,079 at
September 30, 1996................................................ 10,969,906 11,791,906 10,221,905
Deferred income taxes............................................... 15,429 18,091 15,429
------------- ------------- -------------
Total assets.................................................. $ 18,101,081 $ 18,258,908 18,625,820
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses............................. $ 1,702,670 $ 1,572,188 $ 1,699,573
Accrued interest.................................................. 99,443 108,621 145,000
Current portion of long-term debt................................. 1,425,000 1,650,000 1,550,000
Income taxes payable.............................................. 177,587 635,538
------------- ------------- -------------
Total current liabilities..................................... 3,227,113 3,508,396 4,030,111
Long-term debt...................................................... 8,639,423 9,950,632 6,477,027
Warrants............................................................ 641,500 379,710 1,752,000
Deferred compensation............................................... 207,433 56,831 284,156
------------- ------------- -------------
Total liabilities............................................. 12,715,469 13,895,569 12,543,294
Stockholders' equity
Series A Preferred Stock, $.01 par value, 32,000 shares
authorized, 31,945 shares issued and outstanding................ 3,927,700 3,194,475 5,173,560
Series B Preferred Stock, $.01 par value, 6,500 shares authorized,
6,255 shares issued and outstanding............................. 769,101 625,525 1,013,058
Common stock, $.01 par value, 1,600,000 shares authorized, 41,175
shares issued and outstanding................................... 412 412 412
Paid in capital................................................... 179,588 179,588 179,588
Retained earnings (deficit)....................................... 508,811 363,339 (284,092)
------------- ------------- -------------
Total stockholders' equity.................................... 5,385,612 4,363,339 6,082,526
------------- ------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity.................... $ 18,101,081 $ 18,258,908 $ 18,625,820
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM APRIL 14,
1994
(INCEPTION) 11 MONTH 11 MONTH
YEAR ENDED THROUGH PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1996 1995
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales.......................................... $ 25,788,864 $ 12,172,916 $ 25,984,254 $ 23,532,386
Cost of goods sold................................. 18,652,559 9,029,333 18,590,000 17,096,783
------------- --------------- ------------- -------------
Gross profit................................... 7,136,305 3,143,583 7,394,254 6,435,603
Selling, general and administrative expenses....... 2,313,310 1,114,145 1,874,548 2,124,061
Interest expense................................... 1,314,618 732,187 1,077,649 1,230,677
Accretion of warrants to fair market value......... 261,790 -- 1,110,208 262,000
Amortization of intangible assets.................. 996,600 531,550 891,000 894,762
Depreciation and amortization of property, plant
and equipment.................................... 240,232 121,891 234,934 220,000
Management fees.................................... 100,000 54,165 90,000 91,667
------------- --------------- ------------- -------------
Total other expenses........................... 5,226,550 2,553,938 5,278,339 4,823,167
------------- --------------- ------------- -------------
Income before provision for income taxes....... 1,909,755 589,645 2,115,915 1,612,436
Provision for income taxes......................... 887,482 226,306 1,419,000 831,000
------------- --------------- ------------- -------------
Net income..................................... 1,022,273 363,339 696,915 781,436
Retained earning, beginning of period.............. 363,339 -- 508,811 363,339
Accretion of excess of redemption value of
preferred stock over fair value at issuance
date............................................. (876,801) -- (1,489,818) (876,801)
------------- --------------- ------------- -------------
Retained earnings (deficit), end of period......... $ 508,811 $ 363,339 $ (284,092) $ 267,974
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM APRIL 14,
1994 11 MONTH 11 MONTH
YEAR ENDED (INCEPTION) PERIOD ENDED PERIOD ENDED
OCTOBER 31, THROUGH OCTOBER SEPTEMBER 30, SEPTEMBER 30,
1995 31, 1994 1996 1995
----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities
Net income.......................................... $1,022,273 $ 363,339 $ 696,915 $ 781,436
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................. 1,236,832 661,420 1,146,996 1,013,052
Loss on sale of property, plant and
equipment................................... 14,780 -- -- --
Increase in warrant value..................... 261,790 -- 1,110,500 262,000
Deferred compensation......................... 150,602 56,831 76,723 150,602
Allowance for doubtful accounts............... 22,713 20,336 (26,604) 54,459
Deferred income taxes......................... (24,635) (85,742) (19,052) --
Changes in operating assets and liabilities
Accounts receivable........................... 56,775 (7,699) (2,087) (111,459)
Inventories................................... (814,044) 216,176 27,014 (685,391)
Prepaid expenses and other.................... (15,451) 25,858 (105,712) 23,000
Accounts payable.............................. 130,482 292,248 3,097 (540,000)
Accrued interest.............................. (9,178) 108,621 45,557 402,000
Income taxes payable.......................... (268,387) -- 626,807 41,336
----------- --------------- ------------- -------------
Net cash provided by operating
activities.............................. 1,764,522 1,651,388 3,580,154 1,391,035
----------- --------------- ------------- -------------
Cash flows from investing activities
Capital expenditures.............................. (186,842) (24,996) (103,524) (147,000)
Cash paid for acquisition, net of cash acquired... (17,252,596) -- --
----------- --------------- ------------- -------------
Net cash used in investing activities..... (186,842) (17,277,592) (103,524) (147,000)
----------- --------------- ------------- -------------
Cash flows from financing activities
Repayment of long-term debt....................... (3,720,628) (3,559,446) (1,948,267) (1,746,000)
Proceeds from borrowing........................... 2,184,419 2,152,786 -- --
Proceeds from acquisition debt financing.......... 13,349,596 -- --
Proceeds from sale of preferred and common
stock.......................................... 4,000,000 -- --
Purchase of interest rate cap..................... (61,500) -- --
----------- --------------- ------------- -------------
Net cash (used in) provided by financing
activities.............................. (1,536,209) 15,881,436 (1,948,267) (1,746,000)
----------- --------------- ------------- -------------
Net increase (decrease) in cash................... 41,501 255,232 1,528,363 (501,965)
Cash at beginning of period....................... 255,232 0 296,733 255,232
----------- --------------- ------------- -------------
Cash at end of period............................. $ 296,733 $ 255,232 $ 1,825,096 $ (246,733)
----------- --------------- ------------- -------------
----------- --------------- ------------- -------------
Supplemental disclosure of cash flow information:
Interest paid..................................... $1,476,076 $ 602,786 $ 1,077,649 $ 1,230,677
----------- --------------- ------------- -------------
----------- --------------- ------------- -------------
Income taxes paid................................. $1,179,270 $ 134,461 $ 794,806 $ 1,826,213
----------- --------------- ------------- -------------
----------- --------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Arcon Holdings Corp. and its wholly-owned subsidiary, Arcon Coating Mills,
Inc. ("Arcon Coating Mills" or the "Subsidiary"), (collectively the "Company")
is a leading producer of tapes and edge covering materials which are used to
bind, reinforce, protect and decorate office and school supply products as well
as checkbooks and hard and soft cover books. The Company maintains operating
facilities in Oceanside, New York, and Springfield, Ohio.
The Company was incorporated on March 17, 1994 for the purpose of acquiring
Arcon Coating Mills, Inc. As discussed in Note 2, Arcon Coating Mills, Inc. was
acquired by Arcon Acquisition Corp. (a wholly-owned subsidiary of the Company)
on April 14, 1994 and, accordingly, the results of operations and cash flows of
the Subsidiary for the period ended October 31, 1994 are presented from the date
of acquisition. Concurrent with the acquisition, Arcon Acquisition Corp. was
merged into Arcon Coating Mills, Inc.
USE OF ESTIMATES
The accompanying financial statements were prepared in conformity with
generally accepted accounting principles which require 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 financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES
Inventories are reported at the lower of cost or market value, with cost
determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over estimated useful lives of assets as follows:
automobiles - 5 years; furniture and fixtures - 7 years; machinery and equipment
- -7 years; and buildings - 15 years. Leasehold improvements are amortized over
the shorter of the life of the improvement or the lease term.
INTANGIBLE ASSETS
Deferred financing costs arising from the acquisition debt are charged to
operations as additional interest expense, using the straight-line method, over
the life of the underlying indebtedness. Goodwill arising from the acquisition
described in Note 2 is being amortized over 15 years on a straight-line basis.
F-38
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes have been provided for in conformity with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This statement requires recognition of deferred income taxes utilizing a
liability based approach.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is believed
to approximate their carrying amounts.
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated balance sheet at September 30, 1996, the consolidated
statement of income and retained earnings (deficit) and the consolidated
statement of the cash flows for the eleven-month interim periods ended September
30, 1996 and September 30, 1995 have been prepared by the Company without audit.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the interim financial
information, have been made. The results of operations of interim periods are
not necessarily indicative of the operating results of a full year or of future
years.
2. ACQUISITION
On April 14, 1994 (the "acquisition date"), 100% of Arcon Coating Mill's
common stock was purchased by Arcon Acquisition Corp. a wholly-owned subsidiary
of the Company, for a purchase price of $17,349,000. The purchase price,
including acquisition costs, was allocated to the net assets of the Company in
accordance with Opinion No. 16 of the Accounting Principles Board. The purchase
price exceeded the fair value of the net assets acquired of $4,340,799 by
$13,008,201 (as adjusted) and, accordingly, goodwill and certain intangible
assets were recorded as of the acquisition date.
The acquisition was accounted for as a purchase and, therefore, the results
of operations of Arcon Coating Mills are included in the consolidated financial
statements for periods subsequent to the date of acquisition.
3. INVENTORIES
Net inventories consist of the following at:
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- SEPTEMBER 30,
1995 1994 1996
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials.......................................................... $ 1,477,689 $ 929,993 $ 1,308,145
Work-in-process........................................................ 1,108,664 910,936 1,231,711
Finished goods......................................................... 135,195 66,575 154,678
------------ ------------ -------------
2,721,548 1,907,504 2,694,534
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-39
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- SEPTEMBER 30,
1995 1994 1996
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Land and building...................................................... $ 115,932 $ 115,932 $ 117,433
Machinery and equipment................................................ 1,219,415 1,102,823 1,323,209
Leasehold improvements................................................. 158,690 157,790 163,348
Automobiles............................................................ 118,292 85,750 113,526
Furniture and fixtures................................................. 78,977 63,416 78,977
------------ ------------ -------------
$ 1,691,306 $ 1,525,711 $ 1,796,493
Less--Accumulated depreciation and amortization.................... 352,640 121,157 587,303
------------ ------------ -------------
$ 1,338,666 $ 1,404,554 $ 1,209,190
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
5. DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- SEPTEMBER 30,
1995 1994 1996
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Term loan A............................................................ $ 6,350,000 $ 7,500,000 $ 5,312,500
Term loan B............................................................ 2,680,527 2,641,155 2,714,527
Revolving line of credit............................................... 1,033,896 1,459,477 2,245
------------ ------------ -------------
10,064,423 11,600,632 8,029,272
Less--Current portion.............................................. 1,425,000 1,650,000 1,550,000
------------ ------------ -------------
$ 8,639,423 $ 9,950,632 $ 6,479,272
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
TERM LOAN A
The term loan A principal is due and payable on the last day in January,
April, July and October of each year through January 31, 2000. The quarterly
payments are $387,500 through October 31, 1999 with a final payment of $275,000
on January 31, 2000. The note bears interest at the higher of the prime rate or
the Federal funds effective rate, plus 2%. Such rate was 10.75% and 10.25% at
October 31, 1995 and September 30, 1996, respectively. Interest is payable on
the first day of each month.
TERM LOAN B
The term loan B principal is due and payable in the amount of $750,000 on
July 31, 2000, October 31, 2000, January 31, 2001 and April 30, 2001,
respectively. Interest accrues at a fixed rate of 11.5% and is payable on the
first day of each month. During the fiscal year ended October 31, 1995 and the
period ended September 30, 1996, the note has been recorded net of unamortized
discount of $319,473 and $286,473, respectively, which is being amortized over
the life of the indebtedness.
F-40
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
REVOLVING LINE OF CREDIT
Concurrent with the acquisition, the Company entered into a revolving credit
agreement which expires on April 30, 2001. Based upon management's intention to
continually refinance outstanding borrowings under this long-term agreement, the
outstanding amount has been classified as a non-current liability. The maximum
amount that can be borrowed under this agreement is the lesser of $3,000,000 or
85% of eligible accounts receivable plus 50% of eligible inventory. Such
eligible amounts were greater than $3,000,000 at October 31, 1995. The line
bears interest at the higher of the prime rate or the Federal funds effective
rate, plus 2%, payable on the first day of each month. In addition, the Company
pays commitment fees of .5% on the average daily unused balance. The unused
balance under the revolving credit agreement was approximately $2.0 million and
$3.0 million at October 31, 1995 and September 30, 1996, respectively.
Borrowings under the revolving credit agreement are collateralized by
accounts receivable and inventory. The term notes are collateralized by
substantially all assets of the Company.
The loan agreements contain certain affirmative and negative covenants which
include requirements that the Company maintain certain financial ratios and that
excess cash flows from operating and other activities, as defined in the
agreements, be remitted to the lender. The term loan A balances at October 31,
1995 reflect the acceleration of $500,000 of debt payments made during the year
related to such excess cash flows.
The Company has reduced its exposure to changes in the cost of its variable
rate borrowings through the use of a base rate cap agreement. This instrument
provides, for a three year period beginning in July 1994, a 10% ceiling on the
base interest rate used to calculate interest payments on the first $4.5 million
of the Company's term loan A. At October 31, 1995, $32,464, net of accumulated
amortization of $29,036, was recorded in deferred financing costs. At September
30, 1996, $13,676, net of accumulated amortization of $47,824, was recorded in
deferred financing costs.
The following is a schedule of aggregate annual principal payments for each
of the fiscal years ending October 31:
<TABLE>
<S> <C>
1996........................................................ $1,425,000
1997........................................................ 1,550,000
1998........................................................ 1,550,000
1999........................................................ 1,550,000
2000........................................................ 1,775,000
2001 and thereafter......................................... 2,533,896
----------
10,383,896
Less--Unamortized discount.................................. (319,473)
----------
$10,064,423
----------
----------
</TABLE>
6. INCOME TAXES
The Company accounts for income taxes under the requirements of SFAS 109.
SFAS 109 utilizes an asset and liability approach to measuring income tax
expense. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future consequences of temporary
F-41
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
differences between the financial statement carrying amounts and the tax basis
of certain assets and liabilities.
Deferred tax assets (liabilities) are comprised of the following at October
31:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Deferred tax assets
Inventory reserves....................................................................... $ 38,154 $ 27,808
Accounts receivable allowances........................................................... 30,477 21,705
Inventory uniform capitalization adjustment.............................................. 24,755 10,427
Accruals and deferred compensation....................................................... 81,632 30,443
---------- ---------
Gross deferred tax asset............................................................... $ 175,018 $ 90,383
Deferred tax liabilities
Fixed asset book basis in excess of tax basis............................................ $ (64,641) $ (4,641)
---------- ---------
Net deferred tax asset................................................................. $ 110,377 $ 85,742
---------- ---------
---------- ---------
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE ELEVEN MONTH
FOR THE YEAR ENDED PERIOD ENDING SEPTEMBER
OCTOBER 31, 30,
---------------------- ------------------------
1995 1994 1996 1995
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current
Federal...................................................... $ 744,751 $ 255,488 $ 1,269,903 $ 694,730
State........................................................ 167,366 56,560 172,557 93,722
---------- ---------- ------------ ----------
912,117 312,048 1,442,460 788,452
---------- ---------- ------------ ----------
Deferred:
Federal...................................................... (21,669) (70,070) (21,142) 37,458
State........................................................ (2,936) (15,672) (2,318) 5,090
---------- ---------- ------------ ----------
(24,635) (85,742) (23,460) 42,548
---------- ---------- ------------ ----------
$ 887,482 $ 226,306 $ 1,419,000 $ 831,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory Federal income tax rate to pretax
income principally as a result of state income taxes and the increase in the
warrant value which is not deductible for income tax purposes.
7. STOCKHOLDERS' EQUITY
At the time of the formation of the Company and the acquisition of Arcon
Coating Mills, the Company sold 31,945, 6,255 and 41,175 shares of Series A
Preferred Stock, Series B Preferred Stock and Series A Common Stock,
respectively, for $3,194,475, $625,525 and $180,000, respectively.
Both the Series A Preferred Stock, which is non-voting, and the Series B
Preferred Stock, which has voting rights, are mandatorily redeemable on April
30, 2001. Such redemption may also occur at the option of the stockholders
beginning on October 31, 2000. The redemption price will be determined on the
F-42
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
redemption date based on a multiple of adjusted earnings during the Company's
preceding fiscal year, and as further adjusted based on the Company's cash and
debt balances as of the end of the preceding fiscal year.
The excess of the estimated redemption value over the carrying value of the
preferred stock is being accreted by periodic charges to retained earnings
through October 31, 2000. During the fiscal year ended October 31, 1995 and the
period ended September 30, 1996, the carrying value of the Series A and Series B
Preferred Stock was increased by $876,801 and $993,708, respectively.
Holders of both series of preferred stock receive preferential treatment in
the case of the dissolution of the Company, with stock to be purchased by the
Company at $100 per share. In addition, no dividends will be paid to the holders
of common stock without the affirmative vote of the holders of the Series B
Preferred Stock. No provision for mandatory dividends exists.
The Series B Preferred Stock is convertible into common stock, at the option
of the holder, at a rate of approximately 23 shares of common stock for each
share of preferred stock submitted for conversion. The holders of Series A
Preferred stock may convert their shares to common stock upon the occurrence of
a "conversion event" including the transfer or sale of substantially all of the
assets or shares of the Company to an unrelated party.
The Company adopted a stock option plan (the "Stock Option Plan") in 1994
which provides that the Company may grant, to certain key employees, Incentive
Stock Options or Non-qualified Stock Options at the discretion of the Board of
Directors. The Stock Option Plan provides that the aggregate number of shares of
common stock issuable pursuant to these options may not exceed 111,000 shares.
These options, which are exercisable during the period beginning one year from
the date at the grant and ending ten years from the grant date, are exercisable
at a price to be determined by the Board of Directors of the Company.
Pursuant to the Stock Option Plan, in April 1994, the Company granted
non-qualified stock options to two employees to purchase an aggregate of 72,223
shares of common stock at $.44 per share. Of this amount, 20% of the options
vest at the date of grant, 20% vest upon the subsequent three anniversaries of
the grant date and 20% vests on October 31, 1997. Deferred compensation expense
of $150,602, $56,831 and $76,723 was recorded for the year ended October 31,
1995 and the period ended October 31, 1994 and the period ended September 30,
1996, respectively, based upon the difference between the exercise price and the
fair market value of the common stock at the date of grant and the number of
options vested as of each balance sheet date.
The conversion rate, dissolution amounts and the number of shares reserved
for the Stock Option Plan are subject to change in the event of a stock split,
stock dividend or other such dilutive occurrence.
8. WARRANTS
Concurrent with the acquisition, the Company and Arcon Holdings Corp.,
entered into a warrant agreement with the Company's lender whereby the lender
could purchase up to 8 1/2% of the outstanding stock of Arcon Holdings Corp. for
$.01 per share (par value). The warrant expires on April 14, 2004. For a five
year period commencing on April 14, 1999 the lender may also require the Company
to purchase the warrant described above at its fair market value on the date of
the put. The estimated fair value of the warrant was $641,500 and $379,710 at
October 31, 1995 and 1994, respectively and $1,752,000 at September 30, 1996.
F-43
<PAGE>
ARCON HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company paid management fees of $100,000 and $54,165 for the year ended
October 31, 1995 and the period ended October 31, 1994, respectively, and
$90,000 for the period ended September 30, 1996 for services provided by a major
shareholder of Arcon Holdings Corp.
10. PROFIT SHARING PLAN
During 1995, the Company made contributions to the Arcon Profit Sharing
Benefit Plan. This plan, which is a defined contribution plan, covers all
employees, over the age of 20 1/2, who have completed at least six months of
service. The costs of the plan are funded currently. Total expenses charged to
operations were $254,150 and $110,908 at October 31, 1995 and 1994,
respectively, and $129,421 at September 30, 1996.
11. LEASE COMMITMENTS
The Company leases an office and manufacturing facility located in
Oceanside, New York. The lease expires in fiscal 1998 and is renewable
thereafter. Total rent expense under this lease was $243,664 and $131,316 for
the year ended October 31, 1995 and the period ended October 31, 1994,
respectively, and $228,051 for the period ended September 30, 1996.
Minimum annual rentals under all of the Company's operating leases for each
of the years ending October 31, are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 247,725
1997........................................................... 253,411
1998........................................................... 147,823
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company's principal raw material, Tyvek-Registered Trademark-, is
proprietary to a single vendor. Tyvek-Registered Trademark- purchases
represented approximately 53%, 50% and 60% of total raw material purchases of
the Company for the year ended October 31, 1995, the period ended October 31,
1994 and the period ended September 30, 1996, respectively.
13. MAJOR CUSTOMER
The Company had sales to one customer which represented approximately 20%
and 23% of total sales for the year ended October 31, 1995 and the period ended
September 30, 1996, respectively. At October 31, 1995 and September 30, 1996,
this customer represented 12% and 12%, respectively, of the total outstanding
accounts receivable.
14. SUBSEQUENT EVENT
Pursuant to a Stock Purchase Agreement dated as of August 28, 1996,
Specialty Paperboard, Inc. has agreed to purchase all of the issued and
outstanding capital stock of the Company.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Arcon Coating Mills, Inc.
In our opinion, the accompanying statements of income and accumulated
deficit and of cash flows presents fairly, in all material respects, the results
of operations of Arcon Coating Mills, Inc. (the "Company") and its cash flows
for the period November 1, 1993 to April 14, 1994 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Jericho, New York
August 28, 1996
F-45
<PAGE>
ARCON COATING MILLS, INC.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NOVEMBER 1, 1993
TO APRIL 14,
1994
----------------
<S> <C>
Net sales....................................................................................... $ 9,112,477
Cost of goods sold.............................................................................. 6,943,801
----------------
Gross profit............................................................................ 2,168,676
Selling, and administrative expenses............................................................ 904,768
----------------
1,263,908
Other expenses (income)
Interest expense.............................................................................. 585,726
Interest income............................................................................... (6,568)
Amortization expense.......................................................................... 87,456
----------------
Total other expenses.................................................................... 666,614
----------------
Income before provision for income taxes................................................ 597,294
Provision for income taxes...................................................................... (270,226)
----------------
Net income.............................................................................. $ 327,068
Accumulated deficit, beginning of period........................................................ (360,070)
----------------
Accumulated deficit, end of period.............................................................. $ (33,002)
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
ARCON COATING MILLS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NOVEMBER 1, 1993
TO APRIL 14,
1994
----------------
<S> <C>
Cash flows from operating activities
Net income.................................................................................... $ 327,068
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................... 173,992
Amortization of prepaid interest............................................................ 64,568
(Increase) decrease in assets
Accounts receivable......................................................................... 226,338
Due from FSE Holdings, Inc.................................................................. 365,361
Inventories................................................................................. (438,994)
Prepaid expenses and other.................................................................. (10,633)
Increase (decrease) in liabilities
Accounts payable............................................................................ 641,264
Accrued expenses............................................................................ (276,119)
----------------
Net cash provided by operating activities............................................... 1,072,845
----------------
Cash flows from investing activities
Capital expenditures.......................................................................... (155,876)
----------------
Net cash used in investing activities................................................... (155,876)
----------------
Cash flows from financing activities
Due from FSE Holdings, Inc.................................................................... 727,031
Repayments of long-term debt.................................................................. (3,130,457)
Proceeds from long-term debt.................................................................. 1,408,059
----------------
Net cash used in financing activities................................................... (995,367)
----------------
Net decrease in cash and cash equivalents....................................................... (78,398)
----------------
Cash and cash equivalents at beginning of period................................................ 1,486,457
----------------
Cash and cash equivalents at end of period...................................................... $ 1,408,059
----------------
----------------
Supplemental disclosure of cash flow information:
Interest paid................................................................................. $ 728,460
----------------
----------------
Income taxes paid............................................................................. $ 22,557
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND AND BASIS OF PRESENTATION
Arcon Coating Mills, Inc. (the "Company") is a leading producer of tapes and
edge covering materials which are used to bind, reinforce, protect and decorate
office and school supply products as well as checkbooks and hard and soft cover
books. Prior to the close of business on April 14, 1994, the Company was a
wholly-owned subsidiary of FSE Holdings, Inc. ("FSE"). At the close of business
on April 14, 1994 (the "Acquisition Date"), FSE assumed the Company's
intercompany balance (including those related to income taxes) and long-term
debt, net of cash on hand, and sold the outstanding stock of the Company to
Arcon Holdings Corp. The accompanying consolidated financial statements do not
reflect adjustments which resulted from the subsequent purchase transaction.
INVENTORIES
Approximately 31% of the Company's inventories are priced at the lower of
cost, determined by the last-in, first-out (LIFO) method, or market. The
remaining inventories are priced at the lower of cost determined by first-in,
first-out (FIFO) method, or market.
INCOME TAXES
Prior to the Acquisition Date, the Company filed a consolidated Federal
income tax return with FSE. Its liability or benefit related to Federal income
taxes has been computed on a separate company basis and is payable to or
receivable from FSE, subject to limitations based on the consolidated Federal
return.
Income taxes have been provided for in conformity with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes"
(SFAS 109). This statement requires recognition of deferred income taxes
utilizing a liability based approach.
PROPERTY AND DEPRECIATION
Depreciation is provided over the estimated useful lives of the applicable
assets using the straight-line method. The depreciable lives used are:
<TABLE>
<S> <C>
Machinery and equipment.......................................... 5 years
Leasehold improvements........................................... 10 years
Furniture and fixtures........................................... 5 years
Automobiles...................................................... 3 years
31.5
Building......................................................... years
</TABLE>
Property and equipment includes the cost of additions and those improvements
which increase the capacity or lengthen the useful lives of the assets. Repair
and maintenance costs are expensed as incurred.
OTHER ASSETS
Amortization of goodwill is being charged to operations on a straight-line
basis over 40 years. Amortization of deferred financing costs is being charged
to operations over the term of the related debt.
F-48
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
In October 1993, FSE contributed additional intercompany notes due from an
affiliate in the amount of $1,258,706 to the Company. The total intercompany
notes receivable at November 1, 1993 were $1,629,300. In December 1993,
approximately $1,550,000 of these notes were repaid.
In December 1993, the Company borrowed $414,341 from FSE under a $1,000,000
revolving credit agreement. The principal amount was due to be repaid in
November 1995 with interest payable annually at 3.83%. The proceeds were used to
repay long-term debt.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current:
Federal......................................................... $ 90,623
State........................................................... 29,474
---------
130,800
---------
---------
Deferred:
Federal......................................................... $ 118,920
State........................................................... 31,479
---------
139,426
---------
$ 270,226
---------
---------
</TABLE>
The tax provision recorded on the Company's net income is higher than
Federal and State statutory rates due primarily to $79,965 of non-deductible
amortization of goodwill. The main components of deferred tax expense relate to
the reversal of temporary differences related to a non-compete covenant and
bonus and other compensation accruals.
4. EMPLOYEE BENEFIT PLANS
Effective November 1, 1993, the Company's eligible employees participated in
the Arcon Profit Sharing Plan and Trust which covers all employees with at least
six months of service and having attained the age of 20 1/2 years. The costs of
the plan are funded currently. Total costs charged to operations for the period
were approximately $21,983.
F-49
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. LEASE COMMITMENTS
The Company leases an office and manufacturing facility located in
Oceanside, New York, from a partnership owned by the estate of a stockholder of
FSE. The lease expires in fiscal 1998 and is renewable thereafter. Rent expense
under this lease was $104,749 during the period.
Minimum annual rentals under all of the Company's operating leases are as
follows:
<TABLE>
<S> <C>
April 14 to October 31, 1994...................................... $ 118,307
Fiscal year ended October 31, 1995................................ 223,056
Fiscal year ended October 31, 1996................................ 223,056
Fiscal year ended October 31, 1997................................ 223,056
Fiscal year ended October 31, 1998................................ 130,116
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company's principal raw material, Tyvek-Registered Trademark-, is
proprietary to a single vendor. For the period November 1, 1993 to April 14,
1994, Tyvek-Registered Trademark- purchases represented approximately 50% of
total raw material purchases. Another vendor accounted for 12% of total raw
material purchases for the same period.
7. SUBSEQUENT EVENTS
At the close of business on April 14, 1994, 100% of the Company's common
stock was purchased by Arcon Holding Corp. for a purchase price of $17,349,000.
Pursuant to a Stock Purchase Agreement dated as of August 28, 1996,
Specialty Paperboard, Inc. has agreed to purchase all of the issued and
outstanding capital stock of Arcon Holdings Corp.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Arcon Coating Mills, Inc.:
We have audited the accompanying balance sheet of Arcon Coating Mills, Inc. (a
Delaware corporation and subsidiary of FSE Holdings, Inc.) as of October 31,
1993, and the related statements of operations, stockholder's equity and cash
flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arcon Coating Mills, Inc. as of
October 31, 1993, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
December 30, 1993
F-51
<PAGE>
ARCON COATING MILLS, INC.
BALANCE SHEET -- OCTOBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $1,486,457
Due from affiliate........................................................... 1,629,306
Accounts receivable, net of allowance for doubtful accounts of $31,374 2,064,179
Inventories.................................................................. 1,610,504
Prepaid expenses and other................................................... 74,179
Income tax refund receivable due from Parent................................. 156,038
Deferred income taxes........................................................ 167,004
----------
Total current assets....................................................... 7,187,667
----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
$1,787,163................................................................... 576,393
----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $86,974........... 62,447
GOODWILL, net of accumulated amortization of $921,099.......................... 5,817,640
OTHER ASSETS................................................................... 1,470
----------
5,881,557
----------
$13,645,617
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $3,042,000
Accounts payable............................................................. 695,981
Accrued expenses............................................................. 270,368
Accrued interest............................................................. 227,163
Due to parent................................................................ 60,903
Accrued salaries, wages and related taxes.................................... 38,832
----------
Total current liabilities.................................................. 4,335,247
----------
LONG-TERM DEBT................................................................. 6,597,154
----------
DUE TO PARENT.................................................................. 902,275
----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDER'S EQUITY:
Common stocks - authorized 1,000 shares of $0.01 par value; issued and
outstanding 1,000 shares................................................... 10
Contributions in excess of par value......................................... 2,171,001
Accumulated deficit.......................................................... (360,070)
----------
1,810,941
----------
$13,645,617
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-52
<PAGE>
ARCON COATING MILLS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1993
<TABLE>
<CAPTION>
NET SALES...................................................................... $19,052,395
<S> <C>
COST OF GOODS SOLD............................................................. 14,422,713
----------
Gross profit............................................................... 4,629,682
SELLING AND ADMINISTRATIVE EXPENSES............................................ 1,932,011
----------
Operating income before other (income) and deductions...................... 2,697,671
----------
OTHER (INCOME) DEDUCTIONS:
Interest expense............................................................. 1,632,916
Interest income.............................................................. (70,710)
Amortization expense......................................................... 190,587
Write-off non-compete agreement.............................................. 528,000
Miscellaneous................................................................ 45,648
----------
2,326,441
----------
Income before income taxes................................................. 371,230
INCOME TAX EXPENSE............................................................. 214,293
----------
NET INCOME..................................................................... $ 156,937
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-53
<PAGE>
ARCON COATING MILLS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1993
<TABLE>
<CAPTION>
COMMON STOCK CONTRIBUTIONS TOTAL
---------------------- IN EXCESS OF ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT PAR VALUE (DEFICIT) EQUITY
--------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1992.......................... 1,000 $ 10 $ 1,327,567 $ (517,007) $ 810,570
Contribution of notes receivable by Parent....... -- -- 1,258,706 -- 1,258,706
Reduction in note receivable from related party
net of tax effect of $214,128.................. -- -- (415,272) -- (415,272)
Net income....................................... -- -- -- 156,937 156,937
--------- --- ------------- ------------ ------------
BALANCE, OCTOBER 31, 1993.......................... 1,000 $ 10 $ 2,171,001 $ (360,070) $1,810,941
--------- --- ------------- ------------ ------------
--------- --- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-54
<PAGE>
ARCON COATING MILLS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 156,937
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization............................................... 498,682
Write-off non-compete agreement............................................. 528,000
Amortization of prepaid interest............................................ 133,154
Deferred income taxes....................................................... (37,517)
(Increase) decrease in assets-
Accounts receivable......................................................... (748,179)
Due from parent and affiliate............................................... 5,287
Inventories................................................................. 821,496
Prepaid expenses and other.................................................. 73,351
Increase (decrease) in liabilities-
Accounts payable............................................................ 184,981
Accrued expenses............................................................ (206,476)
Due to parent............................................................... (267,097)
---------
Net cash provided by operating activities................................. 1,142,619
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net..................................................... (130,162)
---------
Net cash used in investing activities..................................... (130,162)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt.................................................. (1,000,000)
---------
Net cash used in financing activities..................................... (1,000,000)
---------
Net increase in cash and cash equivalents................................. 12,457
---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................. 1,474,000
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................................ $1,486,457
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BACKGROUND
Arcon Coating Mills, Inc. (the Company) is engaged in the manufacture and
sale of reinforcing tape and end sheets made primarily with
Tyvek-Registered Trademark-. The Company and IEC of Delaware (formerly
International Envelope Company (International)), and affiliate, are wholly owned
subsidiaries of FSE Holdings, Inc. (the Parent).
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
operating division, Thomas Tape Company. All significant intercompany accounts
and transactions have been eliminated.
INVENTORIES
Approximately 31% of the Company's inventories are priced at the lower of
cost, determined by the last-in, first-out (LIFO) method, or market. If the
first-in, first-out method had been used, inventories would have been $74,183
higher at October 31, 1993. The remaining inventories are priced at the lower of
cost, determined by first-in, first-out (FIFO) method, or market.
INCOME TAXES
The Company files a consolidated Federal income tax return with its Parent.
Its liability or benefit related to federal income taxes is computed on a
separate company basis and is payable to or receivable from the Parent, subject
to limitations based on the consolidated Federal return.
The Financial Accounting Standards Board has issued its Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." The Company will be required to adopt SFAS 109 in fiscal 1994. The
Company believes that the impact of adopting this method of accounting for
income taxes will not be material to its financial statements.
PROPERTY AND DEPRECIATION
Depreciation for financial reporting purposes is provided over the estimated
useful lives of the applicable assets using the straight-line method. The
depreciable lives used are:
<TABLE>
<S> <C>
Machinery and equipment.......................................... 5 years
Leasehold improvements........................................... 10 years
Furniture and fixtures........................................... 5 years
Automobiles...................................................... 3 years
31.5
Building......................................................... years
</TABLE>
Property and equipment includes the cost of additions and those improvements
which increase the capacity or lengthen the useful lives of the assets. Repair
and maintenance costs are expensed as incurred. Amounts related to property
retired or sold are removed from the asset and accumulated depreciation
accounts, and the resulting gain or loss is reflected in the miscellaneous
income or expense.
F-56
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER ASSETS
Amortization of goodwill is being charged to operations on a straight-line
basis over 40 years. The non-compete agreement was written-off during fiscal
1993 due to the death of the former owner. Amortization of deferred financing
costs is being charged to operations over the term of the related debt.
CASH FLOWS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
<TABLE>
<CAPTION>
FISCAL
1993
------------
<S> <C>
Cash paid during the year for:
Interest.......................................................................... $ 1,221,032
Income taxes...................................................................... 70,500
</TABLE>
2. INVENTORIES:
Inventories consist of the following at October 31, 1993:
<TABLE>
<S> <C>
LIFO Inventory:
Raw materials.................................................... $ 275,398
Work-in-process.................................................. 267,738
Finished goods................................................... 27,235
---------
570,371
LIFO reserve....................................................... (74,183)
---------
496,188
---------
FIFO Inventory:
Raw materials.................................................... 657,225
Work-in-process.................................................. 343,180
Finished goods................................................... 113,911
---------
1,114,316
---------
Total inventory.................................................. $1,610,504
---------
---------
</TABLE>
The FIFO inventories represent all of the Company's
non-Tyvek-Registered Trademark- inventory.
F-57
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1993
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at October 31, 1993:
<TABLE>
<S> <C>
Machinery and equipment............................................ $1,808,688
Building and land.................................................. 97,767
Leasehold improvements............................................. 230,649
Furniture and fixtures............................................. 73,667
Automobiles........................................................ 152,785
---------
2,363,556
Less Accumulated depreciation and amortization..................... (1,787,163)
---------
$ 576,393
---------
---------
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consists of the following at October 31, 1993:
<TABLE>
<S> <C>
Arcon senior note, SLA, net of original issue discount of
$35,704..................................................... $1,506,296
Arcon subordinated notes, MLA II and MLA III, net of original
issue discount of $325,142.................................. 8,132,858
---------
9,639,154
Less-current portion......................................... (3,042,000)
---------
$6,597,154
---------
---------
</TABLE>
The senior note bears interest at 10.5% which is payable on a quarterly
basis. In fiscal 1993, the Company prepaid $1,000,000 on its senior note.
Remaining principal payment was due on May 31, 1996, however, this note was
prepaid in full on November 30, 1993.
At October 31, 1993, the subordinated borrowings consist of two notes of
$6,458,000 and $2,000,000 which require principal payments of $4,229,000 on May
31, 1997 and 1998. Prior to December 31, 1993 the Company prepaid $1,145,306 and
$354,694, respectively, on these two notes. Interest on both notes is payable
quarterly at annual rates of 9.5% through May 31, 1991, and 14% thereafter. The
effective interest rate is approximately 15.6% over the lives of the notes.
The funds used to voluntarily prepay this debt came from cash on hand,
repayment of intercompany receivables and additional intercompany borrowings
(see Note 6 ).
All of the notes are issued to Senior Lending Associates I, L.P. (SLA) or to
Mezzanine Lending Associates II or III L.P. (MLA II or MLA III) who are all
stockholders of the Parent. The Company's and the Parent's debts are issued
under the terms of the 1989 Acquisition Financing Agreement which is discussed
below.
The loan covenants for these notes restrict the disposal, pledging and
collateralization of assets without the prior written approval of SLA, MLA II
and MLA III. The Company may elect to prepay the principal on the senior and
subordinated borrowings subject to certain conditions and/or penalties. The
notes' original issue discount is being amortized using the effective interest
method which results in a constant effective interest rate over the life of the
notes.
F-58
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1993
4. LONG-TERM DEBT: (CONTINUED)
The Company, International and the Parent were required to comply with
certain covenants under the October 31, 1989 Acquisition Financing Agreement, as
amended. These covenants restrict capital expenditures, investments, loans,
dividends, stock transactions, sales and leases as well as require maintenance
of certain financial ratios. During fiscal 1993, the Parent and the Company were
in violation of several loan covenants. These violations were cured through the
issuance of debt waivers.
As of October 31, 1993, the Acquisition Financing Agreement was amended to
revise the Company's debt covenants. In addition, all cross default provisions
between the Company and its Parent have been eliminated except for bankruptcy of
the Parent or International or the inability of the Parent to make required
principal or interest payments. Management of the Company believe that they will
be in compliance with all debt covenants in 1994.
The Company's and its Parent's indebtedness are held by the same lenders,
SLA and MLA. The Parent has limited funds and the Parent's primary source of
funds to repay their indebtedness is from the Company, and accordingly, the
Company will be required to transfer funds to the Parent to meet future cash
flows needs. Should the Parent have additional funding requirements, it could
take actions which would affect the Company's financial condition.
The following is a schedule of aggregate annual principal payments for each
of the fiscal years ending October 31:
<TABLE>
<S> <C>
1994......................................................... $3,042,000
1995......................................................... --
1996......................................................... --
1997......................................................... 4,229,000
1998......................................................... 2,729,000
---------
10,000,000
Less-Unamortized original issue discount..................... (360,846)
Current portion............................................ (3,042,000)
---------
$6,597,154
---------
---------
</TABLE>
In fiscal 1993, the Company paid an affiliate of MLA approximately $30,000
in management fees which is recorded as selling and administrative expense.
F-59
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1993
5. INCOME TAXES:
The (benefit) provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current:
Federal..................................................... $ 189,805
State....................................................... 62,005
---------
251,810
---------
Deferred:
Federal..................................................... (28,315)
State....................................................... (9,202)
---------
(37,517)
---------
$ 214,293
---------
---------
</TABLE>
The tax provision recorded on the Company's net income is higher than
Federal and State statutory rates due primarily to $167,000 of non deductible
amortization of goodwill.
In addition, the tax effect of the intercompany note write-down, which is
discussed in Note 6, has been recorded in contributions in excess of par value.
This tax effect was lower than Federal and State statutory rates due to
limitations of the income tax benefits which have been recorded on a
consolidated basis in accordance with the tax sharing agreement with the Parent.
As a result of this limitation $100,000 of tax loss carryforward remains as of
October 31, 1993.
6. RELATED PARTY TRANSACTIONS:
On October 30, 1992 the Company loaned International $1,000,000 at an
interest rate of 3.85%. In October 1993 the Company determined that a write-down
of $629,400 was necessary for this loan due to the sale of substantially all of
the assets of International. This write-down, net of the tax effect of $214,128,
has been recorded in contributions in excess of par value in the accompanying
balance sheet. The Company has a claim against International to receive the full
amount of the notes. Any recovery of the write-down would be reflected as a
capital transaction. Interest income on this loan for the year ended October 31,
1993 was $38,500.
In October 1993, the Parent contributed intercompany notes due from
International in the amount of $1,258,706 to the Company. The contribution of
these notes from the Parent has been recorded in contributions in excess of par
value in the accompanying balance sheet.
Prior to December 31, 1993, approximately $1,550,000 of these notes was
repaid from the proceeds remaining from the sale of International's assets and
the remaining balances are scheduled to be repaid by mid-fiscal 1994.
On September 15, 1992, the Parent completed a restructuring plan. In
connection with the restructuring, $902,275 of accrued interest due MLA II and
III (see Note 4) was transferred to the Parent through the intercompany account
with its Parent. This accrued interest was then converted into common stock of
the Parent by the holders of the debt. This $902,275 bears interest at 6% and is
due December 31, 1997. Interest expense for this obligation was $54,137 in 1993.
F-60
<PAGE>
ARCON COATING MILLS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1993
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
On December 30, 1993, the Company borrowed $414,341 from its Parent under a
$1,000,000 revolving credit agreement. The principal amount is due on November
16, 1995 and interest of 3.83% is payable annually on October 31. The proceeds
were used to repay long-term debt.
The Company paid International a management fee for services rendered of
$96,000 which is recorded as selling and administrative expense.
7. EMPLOYEE BENEFIT PLANS:
During most of fiscal 1993 the Company participated in the International
401(k) and profit sharing benefit plan covering all employees with at least six
months of service and having attained the age of 20 1/2 years. The costs of the
plan are funded currently. Total costs charged to operations for 1993 was
approximately $82,720. Effective November 1, 1993, the Company's eligible
employees participated in the Arcon Profit Sharing Plan and Trust.
8. LEASE COMMITMENTS:
The Company leases an office and manufacturing facility located in
Oceanside, New York, from a partnership owned by the estate of a stockholder of
the Parent. The lease expires in fiscal 1998 and is renewable thereafter. Rent
expense under this lease was $223,056 in 1993.
Minimum annual rentals under all of the Company's operating leases are as
follows:
<TABLE>
<S> <C>
1994......................................... $ 223,056
1995......................................... 223,056
1996......................................... 223,056
1997......................................... 223,056
1998......................................... 130,116
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
The Company's principal raw material, Tyvek-Registered Trademark-, is
proprietary to a single vendor. In 1993, Tyvek-Registered Trademark- purchases
represented approximately 41% of total raw material purchases. Another vendor
accounted for 12% of total raw material purchases for 1993.
F-61
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY SPI. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SPI SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information......................... ii
Prospectus Summary............................ 1
Risk Factors.................................. 9
The Acquisitions.............................. 13
Use of Proceeds of the New Notes.............. 13
The Exchange Offer............................ 14
Capitalization................................ 23
Unaudited Pro Forma Consolidated Financial
Data........................................ 24
Selected Historical Consolidated Financial
Data--Specialty Paperboard, Inc............. 34
Selected Historical Consolidated Financial
Data--CPG Investors Inc..................... 36
Selected Historical Consolidated Financial
Data--Arcon Holdings Corp................... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 40
Business...................................... 48
Management.................................... 63
Executive Compensation and Other
Information................................. 65
Security Ownership of Certain Beneficial
Owners and Management....................... 70
Certain Relationships and Related
Transactions................................ 72
Description of Financing Arrangements......... 72
Description of the Notes...................... 74
Old Notes Registration Rights................. 97
Certain U.S. Federal Income Tax
Consequences................................ 98
Plan of Distribution.......................... 100
Book-Entry; Delivery and Form................. 101
Experts....................................... 103
Legal Matters................................. 103
Index to Financial Statements................. F-1
</TABLE>
--------------------------
PROSPECTUS
------------------
SPECIALTY PAPERBOARD, INC.
OFFER TO EXCHANGE
9 3/8% SENIOR NOTES DUE 2006,
SERIES B FOR ALL OUTSTANDING
9 3/8% SENIOR NOTES DUE 2006, SERIES A
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of SPI provides that directors of SPI
shall, to the full extent not prohibited by the General Corporation Law of the
State of Delaware (the "DGCL"), not be liable to SPI or its stockholders for
monetary damages for breach of such director's fiduciary duty as a director.
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation, a "derivative action") if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlememt of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1. Note Purchase Agreement dated as of October 4, 1996 among SPI, Specialty Paperboard/ Endura, Inc.
("Endura"), CPG Acquisition Co. ("Acquisition") and BT Securities Corporation ("BT Securities").
2.1 Merger Agreement dated as of August 28, 1996 by and among SPI, Acquisition and CPG Investors Inc.
("Investors").
2.2 Stock Purchase Agreement dated as of August 28, 1996 by and among SPI, Arcon Coating Mills, Inc.
("Arcon Mills"), Arcon Holdings Corp. ("Holdings"), the Stockholders of Holdings and various other
parties.
2.3 Certificate of Merger merging Acquisition with and into Investors filed with the Secretary of State
of Delaware on October 31, 1996
3.1(1) Restated Certificate of Incorporation of SPI, as amended to date, filed with the Secretary of State
of Delaware on March 19, 1993.
3.2(1) Restated By-laws of SPI.
4.1(1) Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen stock certificate.
4.3 Indenture dated as of October 15, 1996 (the "Indenture") among SPI, Acquisition, Endura and
Wilmington Trust Company.
4.4 Specimen Certificate of 9 3/8% Series A Senior Note due 2006 (included in Exhibit 4.3 hereof).
4.5 Specimen Certificate of 9 3/8% Series B Senior Note due 2006 (included in Exhibit 4.3 hereof).
</TABLE>
- ------------------------
* To be filed by amendment
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
4.6 Form of Guarantee of Senior Notes issued pursuant to the Indenture (included in Exhibit 4.3
hereof).
<C> <S>
4.7 Registration Rights Agreement dated as of October 16, 1996 among SPI, Endura, Acquisition and BT
Securities.
5.1 Opinion of White & Case re legality of the New Notes.
8.1 Opinion of White & Case re tax matters.
10.1(5) Lease Agreement dated April 29, 1994, between CIT Group/Equipment Financing Inc. ("CIT/Financing")
and SPI.
10.2(5) Security Agreement dated April 29, 1994, between CIT/Financing and SPI.
10.3(5) Grant of Security Interest in Patents, Trademarks and Leases dated April 29, 1994, between SPI and
CIT/Financing.
10.4(5) Bill of Sale dated April 29, 1994, to CIT/Financing.
*10.5 Amended and Restated Financing Agreement dated December , 1996, between The CIT Group/Business
Credit, Inc. ("CIT/Credit") and SPI.
10.6(6) Endura Sale Agreement, by and among W.R. Grace & Co.-Conn., W.R. Grace (Hong Kong) Limited, Grace
Japan Kabushiki Kaisha (collectively, the "Sellers"), the Company, Spatulate Paperboard (Hong Kong
Limited) and Specialty Paperboard Japan Kabushiki Kaisha (collectively the "Buyers"), dated May
10, 1994.
10.7(6) Amendment No. 1 to the Endura Sale Agreement, by and among the Buyers, Endura and the Sellers,
dated June 30, 1994.
10.8(1)(3) Form of Indemnity Agreement entered into between SPI and its directors and executive officers.
10.9(1)(3) SPI's 1992 Amended and Restated Stock Option Plan and related form of Option Agreement.
10.10(1) Paper Procurement Agreement, between SPI and Acco-U.S.A.
10.11(8) Paper Procurement Agreement, between SPI and Pajco/Holliston, dated February 23, 1995.
10.12(1) Energy Service Agreement (Lewis mill), dated as of November 19, 1992, between Kamine/Besicorp
Beaver Falls L.P. ("Kamine") and SPI.
10.13(1) Energy Service Agreement (Latex mill), dated as of November 19, 1992, between Kamine and SPI.
10.14(1) Restated Ground Lease, dated as of November 19, 1992, between Kamine and SPI.
10.15(1) Beaver Falls Cogeneration Buyout Agreement, dated as of November 20, 1992, between Kamine, Kamine
Beaver Falls Cogen. Co., Inc. and SPI.
10.16(2) Amendment No. 1 to the Energy Service Agreement (Lewis mill), dated as of May 7, 1993, between
Kamine and SPI.
10.17(2) Amendment No. 1 to the Energy Service Agreement (Latex mill), dated as of May 7, 1993, between
Kamine and SPI.
10.18(2) Consent and Agreement (Energy Services Agreement), dated as of May 7, 1993, by SPI.
10.19(2) First Amendment of Restated Ground Lease, dated as of May 7, 1993, between Kamine and SPI.
10.20(2) Memorandum of Lease, dated as of May 7, 1993, between Kamine and SPI.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
10.21(2) Lessor Consent and Estoppel Certificate, dated as of May 7, 1993, between SPI and Deutsche Bank AG,
New York Branch, Ansaldo Industria of America, Inc. and SV Beavers Falls, Inc.
<C> <S>
10.22(3)(7) SPI's 1994 Stock Option Plan and related forms of Option Agreements.
10.23(3)(7) SPI's 1994 Directors Stock Option Plan and related form of Option Agreement.
10.24 Amendment to SPI's 1994 Directors Stock Option Plan.
10.25(3)(4) SPI's Executive Bonus Plan.
10.26 Deed of Lease between James River Paper Company, Inc. and CPG-Virginia Inc. dated as of October 31,
1993.
10.27 Amended and Restated Agreement of Lease between Arnold Barsky doing business as A&C Realty and
Arcon Coating Mills, Inc. dated June 1, 1988.
10.28 Lease Agreement dated November 15, 1995 between IFA Incorporated and Custom Papers Group Inc.
10.29 Master Lease Agreement dated January 1, 1994 between Meridian Leasing Corp. and Custom Papers Group
Inc.
10.30 Master Equipment Lease Agreement dated February 3, 1995 between Siemens Credit Corp. and CPG
Holdings Inc.
12.1 Statement re computation of ratios.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Price Waterhouse LLP.
23.5 Consent of Arthur Andersen LLP.
23.6 Consent of White & Case (contained in the opinion filed as Exhibit 5.1 hereto).
23.7 Consent of White & Case (contained in the opinion filed as Exhibit 8.1 hereto).
24.1 Power of Attorney (see pages II-5 -- II-12).
25.1 Statement of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal for New Notes.
*99.2 Form of Notice of Guaranteed Delivery for New Notes.
*99.3 Letter to Brokers.
*99.4 Letter to Clients.
*99.5 Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner.
*99.6 Guidelines for Certificate of Taxpayer Identification Number on substitute Form W-9.
</TABLE>
- ------------------------
(1) Incorporated by reference to exhibits filed with SPI's Registration
Statement on Form S-1 (No. 33-47954), as amended, which became effective
March 10, 1993.
(2) Incorporated by reference to exhibits filed with SPI's report on Form 10-Q
for the quarter ended June 30, 1993, filed August 13, 1993.
(3) Indicates management contracts or compensatory arrangements filed pursuant
to Item 601(b)(10) of Regulation S-K.
II-3
<PAGE>
(4) Incorporated by reference to exhibits filed with SPI's report on Form 10K
for the year ended December 31, 1993 (No. 0-20231).
(5) Incorporated by reference to exhibits filed with SPI's report on Form 10-Q
for the quarter ended March 31, 1994, filed May 14, 1994.
(6) Incorporated by reference to exhibits filed with SPI's report on Form 8- K,
filed July 14, 1994.
(7) Incorporated by reference to exhibits filed with SPI's Registration
Statement on Form S-8 filed July 18, 1994.
(8) Incorporated by reference to exhibits filed with SPI's report on Form 10-K
for the year ended December 13, 1994 (No. 0-20231).
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act") may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by its is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
SPECIALTY PAPERBOARD, INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director, President and Chief Executive Officer
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/S/ K. PETER NORRIE
--------------------------------------------
K. Peter Norrie Director
/S/ BRIAN C. KERESTER
--------------------------------------------
Brian C. Kerester Director
/S/ GEORGE E. MCCOWN
--------------------------------------------
George E. McCown Director
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
/S/ JON H. MILLER
--------------------------------------------
Jon H. Miller Director
/S/ WAYNE T. STEPHENS
--------------------------------------------
Wayne T. Stephens Director
/S/ FRED P. THOMPSON, JR.
--------------------------------------------
Fred P. Thompson, Jr. Director
/S/ JOHN D. WEIL
--------------------------------------------
John D. Weil Director
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
SPECIALTY PAPERBOARD/ENDURA, INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
CPG INVESTORS INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
CPG HOLDINGS INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
CPG-WARREN GLEN INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
CUSTOM PAPERS GROUP INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
ARCON HOLDINGS CORP.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Brattleboro, State of
Vermont, on December 9, 1996.
ARCON COATING MILLS, INC.
By: /s/ ALEX KWADER
------------------------------------
Alex Kwader
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Alex Kwader and Bruce P. Moore, and each of them, as
attorney-in-fact, to sign on such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
/S/ ALEX KWADER
--------------------------------------------
Alex Kwader Director and President
(Principal Executive Officer)
/S/ BRUCE P. MOORE
--------------------------------------------
Bruce P. Moore Director, Vice President and Chief
Financial Offficer
(Principal Financial and Accounting Officer)
/S/ GLENN S. MCKENZIE
--------------------------------------------
Glenn S. McKenzie Director
</TABLE>
II-12
<PAGE>
EX-1
SPECIALTY PAPERBOARD, INC.
$100,000,000
9 3/8% Senior Notes due 2006
PURCHASE AGREEMENT
October 4, 1996
BT SECURITIES CORPORATION
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Specialty Paperboard, Inc., a Delaware corporation (the "Company"),
Specialty Paperboard/Endura, Inc., a Delaware corporation and CPG Acquisition
Company, a Delaware corporation (collectively, the "Guarantors" and, together
with the Company, the "Issuers") hereby confirm their agreement with you (the
"Initial Purchaser") as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchaser
$100,000,000 aggregate principal amount of its 9 3/8% Senior Notes due 2006 (the
"Notes"). The Notes will be guaranteed (collectively, the "Guarantees") on a
senior basis by each of the Guarantors. The Notes and the Guarantees are
collectively referred to herein as the "Securities". The Notes are to be issued
under an indenture (the "Indenture") to be dated as of October 15, 1996 by and
among the Company, the Guarantors and Wilmington Trust Company, as Trustee (the
"Trustee").
The Company and CPG Acquisition Company ("Merger Sub"), have entered
into a Merger Agreement (the "Merger Agreement") dated as of August 28, 1996,
pursuant to which Merger Sub will be merged (the "Merger") with and into CPG
Investors Inc., a Delaware corporation ("CPG").
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of August 28, 1996, pursuant to which the Company
has agreed to purchase all
<PAGE>
-2-
of the outstanding capital stock of Arcon Holdings Corp., a Delaware corporation
("Arcon").
The acquisition of the outstanding capital stock of Arcon and the
Merger are referred to herein together as the "Acquisitions." The Merger
Agreement and the Stock Purchase Agreement are referred to herein together as
the "Acquisition Agreements."
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Issuers have
prepared a preliminary offering memorandum dated September 19, 1996 (the
"Preliminary Memorandum"), a preliminary offering memorandum supplement dated
October 2, 1996 (the "Supplement") and a final offering memorandum dated October
4, 1996 (the "Final Memorandum"; the Preliminary Memorandum, the Supplement and
the Final Memorandum each herein being referred to as a "Memorandum") setting
forth or including a description of the terms of the Securities, the terms of
the offering of the Securities, a description of the Company, CPG, Arcon and
their respective subsidiaries and any material developments relating to the
Company, CPG, Arcon and their respective subsidiaries occurring after the date
of the most recent historical financial statements included therein.
The Initial Purchaser and its direct and indirect transferees of the
Securities will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Issuers have agreed,
among other things, to file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering the Securities or the Exchange Notes (as defined in the Registration
Rights Agreement) and related guarantees under the Act.
2. Representations and Warranties. The Issuers, jointly and
severally, represent and warrant to and agree with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor
the Final Memorandum nor any amendment or supplement thereto as of the date
thereof and at all times
<PAGE>
-3-
subsequent thereto up to the Closing Date (as defined in Section 3 below)
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this Section 2(a) do not
apply to statements or omissions made in reliance upon and in conformity with
information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary
Memorandum, the Final Memorandum or any amendment or supplement thereto.
(b) As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth in the Final Memorandum; as of
the date hereof, all of the subsidiaries of (i) the Company are listed in
Schedule 1 attached hereto (the "Subsidiaries"), (ii) CPG are listed in Schedule
2 attached hereto (the "CPG Subsidiaries") and (iii) of Arcon are listed in
Schedule 3 attached hereto (the "Arcon Subsidiaries"); all of the outstanding
shares of capital stock of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries have been, and as of the Closing
Date will be, duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights; all of the outstanding shares of capital stock of the Company, the
Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon Subsidiaries will
be free and clear of all liens, encumbrances, equities and claims or
restrictions on transferability (other than those imposed by the Act and the
securities or "Blue Sky" laws of certain jurisdictions) or voting; except as set
forth in the Final Memorandum, there are no (i) options, warrants or other
rights to purchase (except for such options, warrants and other rights to
purchase the capital stock of CPG and Arcon as set forth in the Merger Agreement
and the Stock Purchase Agreement and will be, cancelled or otherwise terminated
upon consumation of the Acquisitions), (ii) agreements or other obligations to
issue or (iii) other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of or ownership interests in the
Company, the Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon
Subsidiaries outstanding. Except for the Subsidiaries, the CPG Subsidiaries and
the Arcon Subsidiaries or as disclosed in the Final Memorandum, neither the
Company nor the Subsidiaries, CPG, any CPG Subsidiary, Arcon or any Arcon
Subsidiary owns, directly or indirectly, a material number of shares of capital
stock or any other equity
<PAGE>
-4-
or long-term debt securities or have any equity interest in any firm,
partnership, joint venture or other entity.
(c) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries is duly incorporated, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power and authority to own its
properties and conduct its business as now conducted and as described in the
Final Memorandum; each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or otherwise) or results of operations of the
Company, the Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon
Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Notes, the
Exchange Notes and the Private Exchange Notes (as defined in the Registration
Rights Agreement). The Notes, when issued, will be in the form contemplated by
the Indenture. The Notes, the Exchange Notes and the Private Exchange Notes have
each been duly and validly authorized by the Company and, when executed by the
Company and authenticated by the Trustee in accordance with the provisions of
the Indenture and, in the case of the Notes, when delivered to and paid for by
the Initial Purchaser in accordance with the terms of this Agreement, will
constitute valid and legally binding obligations of the Company, entitled to the
benefits of the Indenture, and enforceable against the Company in accordance
with their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(e) Each Guarantor has all requisite corporate power and authority
to execute, deliver and perform each of its obligations under its Guarantee, its
guarantee of the Exchange Notes (each, an "Exchange Notes Guarantee") and its
guarantee
<PAGE>
-5-
of the Private Exchange Notes (each, "Private Exchange Notes Guarantee"). The
Guarantees, when issued, will be in the form contemplated by the Indenture. The
Guarantees, the Exchange Notes Guarantees and the Private Exchange Notes
Guarantees have each been duly and validly authorized by the Guarantors and, in
the case of the Guarantees, when delivered to and paid for by the Initial
Purchaser in accordance with the terms of this Agreement, will constitute valid
and legally binding obligations of the Guarantors, entitled to the benefits of
the Indenture, and enforceable against the Guarantors in accordance with their
terms, except that enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor may
be brought.
(f) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Indenture.
The Indenture meets the requirements for qualification under the Trust Indenture
Act of 1939, as amended (the "TIA"). The Indenture has been duly and validly
authorized by the Issuers and, when executed and delivered by the Issuers
(assuming the due authorization, execution and delivery by the Trustee), will
constitute a valid and legally binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms, except
that the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought.
(g) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under the Registration
Rights Agreement. The Registration Rights Agreement has been duly and validly
authorized by each of the Issuers and, when executed and delivered by the
Issuers, will constitute a valid and legally binding agreement of each of the
Issuers, enforceable against each of the Issuers in accordance with its terms,
except that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor may
be brought and (B) any rights
<PAGE>
-6-
to indemnity or contribution thereunder may be limited by federal and state
securities laws and public policy considerations.
(h) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. This Agreement and the
consummation by the Issuers of the transactions contemplated hereby have been
duly and validly authorized by the Issuers. This Agreement has been duly
executed and delivered by the Issuers.
(i) Except disclosed in the Final Memorandum, no consent, approval,
authorization or order of any court or governmental agency or body, or third
party is required for (i) the issuance and sale by the Company of the Notes to
the Initial Purchaser or the consummation by the Company of the other
transactions contemplated hereby, (ii) the issuance and sale by the Guarantors
of the Guarantees or the consummation by the Guarantors of the other
transactions contemplated hereby, (iii) the consummation by the Company and
Merger Sub, of the transactions contemplated by the Merger Agreement and (iv)
the consummation by the Company of the transactions contemplated by the Stock
Purchase Agreement, except such as have been or, prior to the Closing Date in
the case of clauses (i) and (ii) or the consumation of the applicable
Acquisition in the case of clauses (iii) and (iv), will be obtained and such as
may be required under state securities or "Blue Sky" laws in connection with the
purchase and resale of the Securities by the Initial Purchasers. None of the
Company, the Subsidiaries, CPG, the CPG Subsidiaries, Arcon or the Arcon
Subsidiaries is (i) in violation of its certificate of incorporation or bylaws
(or similar organizational document), (ii) in breach or violation of any
statute, judgment, decree, order, rule or regulation applicable to any of them
or any of their respective properties or assets, except for any such breach or
violation which would not, individually or in the aggregate, have a Material
Adverse Effect, or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of them or their
respective properties or assets is subject (collectively, "Contracts"), except
for any such breach,
<PAGE>
-7-
default, violation or event which would not, individually or in the aggregate,
have a Material Adverse Effect.
(j) The execution, delivery and performance by the Issuers of this
Agreement, the Indenture and the Registration Rights Agreement (to the extent a
party thereto) and the consummation by the Issuers of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
sale of the Securities to the Initial Purchaser) and the execution, delivery and
performance by the Company and Merger Sub of the Acquisition Agreements (to the
extent a party thereto) and the consummation of the Merger will not conflict
with or constitute or result in a breach of or a default under (or an event
which with notice or passage of time or both would constitute a default under)
or violation of any of (A) the terms or provisions of any Contract, except for
any such conflict, breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse Effect, (B) the
certificate of incorporation or bylaws (or similar organizational document) of
the Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or
any of the Arcon Subsidiaries, or (C) (assuming compliance with all applicable
state securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchasers in Section 8 hereof)
any statute, judgment, decree, order, rule or regulation applicable to the
Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any
of the Arcon Subsidiaries or any of their respective properties or assets,
except for any such conflict, breach or violation which would not, individually
or in the aggregate, have a Material Adverse Effect.
(k) Coopers & Lybrand LLP, who are reporting on the audited
financial statements of the Company included in the Final Memorandum, are
independent public accountants within the meaning of the Act. Coopers & Lybrand
LLP, who are reporting on the audited consolidated financial statements of CPG
included in the Final Memorandum, are independent public accountants within the
meaning of the Act. Price Waterhouse LLP and Arthur Andersen LLP, who are
reporting on the consolidated financial statements of Arcon included in the
Final Memorandum, are independent public accountants within the meaning of the
Act. The consolidated financial statements of the Company and related notes
thereto included in the Final Memorandum present fairly in all material respects
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates indicated and the results of their operations
<PAGE>
-8-
and the changes in their consolidated cash flow for the periods specified. The
consolidated financial statements of CPG included in the Final Memorandum
present fairly in all material respects the consolidated financial position of
CPG and its consolidated subsidiaries as of the dates indicated and the results
of their operations and the changes in their consolidated cash flows for the
periods specified. The consolidated financial statements of Arcon included in
the Final Memorandum present fairly in all material respects the consolidated
financial position of Arcon and its consolidated subsidiaries as of the dates
indicated and the results of their operations and the changes in their
consolidated cash flow for the periods specified.
(l) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final Memorandum
(i) comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) have been prepared in all material respects
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, and (iii) have been correctly computed on the bases
described therein; the assumptions used in the preparation of the pro forma
financial data and other pro forma financial information included in the Final
Memorandum are reasonable and the adjustments used therein fairly and
accurately, in all material respects, give effect to the transactions or
circumstances referred to therein. The supplemental combined adjusted historical
data included in the Final Memorandum have been correctly computed on the basis
described therein; the assumptions used in the preparation of the supplemental
combined adjusted historical data included in the Final Memorandum are
reasonable and the adjustments used give effect to the transactions or
circumstances referred to therein.
(m) Other than as described in the Final Memorandum, there is not
pending or, to the knowledge of the Issuers, threatened any action, suit,
proceeding, inquiry or investigation to which the Company, any of the
Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries is a party, or to which the property or assets of the Company, any
of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries is subject, before or brought by any court, arbitrator or
governmental agency or body which, if determined adversely to the Company, any
of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
<PAGE>
-9-
Subsidiaries, would, individually or in the aggregate, have a Material Adverse
Effect or which seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the consummation of the other transactions described in the Final Memorandum.
(n) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries possesses all licenses, permits,
certificates, consents, orders, approvals and other authorizations from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, presently required or necessary to own or lease, as the case
may be, and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Final
Memorandum ("Permits"), except where the failure to obtain such Permits would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries has fulfilled and performed all
of its obligations with respect to such Permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any other material impairment of the rights of the holder
of any such Permit; and none of the Company, any of the Subsidiaries, CPG, any
of the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries has received any
written or, to the knowledge of the Issuers, oral notice of any proceeding
relating to revocation or modification of any such Permit, except as described
in the Final Memorandum and except where such revocation or modification would
not, individually or in the aggregate, have a Material Adverse Effect.
(o) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein, (i) none of the Company,
any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the
Arcon Subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into or agreed to enter into any transactions or
contracts (written or oral) not in the ordinary course of business (other than
with respect to bridge financing for the Acquisition of Arcon), which
liabilities, obligations, transactions or contracts would, individually or in
the aggregate, be material to the business, condition (financial or otherwise),
prospects or results of operations of
<PAGE>
-10-
the Company, the Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon
Subsidiaries, taken as a whole, (ii) except as contemplated and permitted by the
Merger Agreement or the Stock Purchase Agreement, none of the Company, any of
the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries has purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock (other than with respect to any of such Subsidiaries, CPG Subsidiaries or
Arcon Subsidiaries, the purchase of, or dividend or distribution on, capital
stock owned by the Company, a Subsidiary, CPG, a CPG Subsidiary, Arcon or an
Arcon Subsidiary) and (iii) there shall not have been any material change in the
capital stock or long-term indebtedness of the Company, any of the Subsidiaries,
CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries.
(p) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries has filed all necessary federal,
state and foreign income and franchise tax returns, except where the failure to
so file such returns would not, individually or in the aggregate, have a
Material Adverse Effect, and has paid all taxes shown as due thereon; and other
than tax deficiencies which the Company, any of the Subsidiaries, CPG, any of
the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries is contesting in
good faith and for which it has provided reserves in accordance with generally
accepted accounting principles, there is no tax deficiency that has been
asserted against the Company, any of the Subsidiaries, CPG, any of the CPG
Subsidiaries, Arcon or any of the Arcon Subsidiaries that would have,
individually or in the aggregate, a Material Adverse Effect.
(q) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Issuers believe to be
reliable and accurate.
(r) None of the Company, any of the Subsidiaries, CPG, any of the
CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries or any agent acting on
their behalf has taken or will take any action that might cause this Agreement
or the sale of the Securities to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or as the
same may hereafter be in effect, on the Closing Date.
<PAGE>
-11-
(s) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries has good and marketable title to
all real property and good title to all personal property described in the Final
Memorandum as being owned by it and good and marketable title to a leasehold
estate in the real and personal property described in the Final Memorandum as
being leased by it free and clear of all liens, charges, encumbrances or
restrictions, except as described in the Final Memorandum or to the extent the
failure to have such title or the existence of such liens, charges, encumbrances
or restrictions would not, individually or in the aggregate, have a Material
Adverse Effect. All leases, contracts and agreements to which the Company, any
of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries is a party or by which any of them is bound are valid and
enforceable against the Company, such Subsidiary, CPG, such CPG Subsidiary,
Arcon or such Arcon Subsidiary, as the case may be, and are valid and
enforceable against the other party or parties thereto and are in full force and
effect with only such exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect and except as enforcement thereof may be subject
to (i) applicable bankruptcy, insolvency, reorganization or other similar laws
now or hereafter in effect relating to creditor's rights generally and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought. The Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries own or possess adequate licenses
or other rights to use all patents, trademarks, service marks, trade names,
copyrights and know-how necessary to conduct the businesses now or proposed to
be operated by them as described in the Final Memorandum, and none of the
Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any
of the Arcon Subsidiaries has received any written or, to the knowledge of the
Issuers, oral notice of infringement of or conflict with (or knows of any such
infringement of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how which,
if such assertion of infringement or conflict were sustained, would have a
Material Adverse Effect.
(t) There are no legal or governmental proceedings involving or
affecting the Company, any of the Subsidiaries, CPG, any of the CPG
Subsidiaries, Arcon or any of the Arcon Subsidiaries or any of their respective
properties or assets which would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum,
<PAGE>
-12-
nor are there any material contracts or other documents which would be required
to be described in a prospectus pursuant to the Act that are not described in
the Final Memorandum.
(u) Except as described in the Final Memorandum or as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect (A) each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries is in compliance with and not
subject to liability under applicable Environmental Laws (as defined below), (B)
each of the Company, the Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the
Arcon Subsidiaries has made all filings and provided all notices required under
any applicable Environmental Law, and has, and is in compliance with, all
Permits required under any applicable Environmental Laws and each of them is in
full force and effect, (C) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the knowledge
of the Issuers, threatened against the Company, any of the Subsidiaries, CPG,
any of the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries under any
Environmental Law, (D) no lien, charge, encumbrance or restriction has been
recorded under any Environmental Law with respect to any assets, facility or
property owned, operated, leased or controlled by the Company, any of the
Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries, (E) none of the Company, any of the Subsidiaries, CPG, any of the
CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries has received notice
that it has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), or any comparable state law, (F) no property or facility of
the Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or
any of the Arcon Subsidiaries is (i) listed or proposed for listing on the
National Priorities List under CERCLA or is (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without
<PAGE>
-13-
limitation, laws relating to (i) emissions, discharges, releases or threatened
releases of hazardous materials into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), (ii) the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling of hazardous materials, and
(iii) underground and above ground storage tanks and related piping, and
emissions, discharges, releases or threatened releases therefrom.
(v) Except as described in the Final Memorandum, there is no strike,
labor dispute, slowdown or work stoppage with the employees of the Company, any
of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries which is pending or, to the knowledge of the Issuers, threatened.
(w) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries carries insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties.
(x) None of the Company, any of the Subsidiaries, CPG, any of the
CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries has incurred any
liability for any prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which the Company, any of the Subsidiaries, CPG,
any of the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries makes or
ever has made a contribution and in which any employee of the Company, any of
the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries is or has ever been a participant, which in the aggregate could
have a Material Adverse Effect. With respect to such plans, the Company, the
Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon Subsidiaries are in
compliance in all respects with all applicable provisions of ERISA, except where
the failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect.
(y) Each of the Company, the Subsidiaries, CPG, the CPG
Subsidiaries, Arcon and the Arcon Subsidiaries (i) makes and keeps accurate
books and records and (ii) maintains internal accounting controls which provide
reasonable assurance that
<PAGE>
-14-
(A) transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
assets is permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing assets at
reasonable intervals.
(z) None of the Company, any of the Subsidiaries, CPG, any of the
CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries is an "investment
company" or "promoter" or "principal underwriter" for an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder.
(aa) The Notes, the Guarantees, the Indenture, the Registration
Rights Agreement and the Acquisition Agreements will conform in all material
respects to the descriptions thereof in the Final Memorandum.
(ab) No holder of securities of the Company or any of the
Subsidiaries will be entitled to have such securities registered under the
registration statements required to be filed by the Issuers pursuant to the
Registration Rights Agreement, other than as expressly permitted thereby.
(ac) Immediately after the consummation of the transactions
contemplated by the Acquisition Agreements, this Agreement and the Indenture,
the fair value and present fair saleable value of the assets of each of the
Issuers will exceed the sum of its stated liabilities and identified contingent
liabilities; none of the Issuers is, nor will any of the Issuers be, after
giving effect to the execution, delivery and performance of the Acquisition
Agreements, this Agreement and the Indenture, and the consummation of the
transactions contemplated hereby and thereby, (a) left with unreasonably small
capital with which to carry on its business as it is proposed to be conducted,
(b) unable to pay its debts (contingent or otherwise) as they mature or (c)
otherwise insolvent.
(ad) None of the Issuers or any of their respective Affiliates (as
defined in Rule 501(b) of Regulation D under the Act) has directly, or through
any agent, (i) sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any "security" (as defined in the Act) which is or
could be integrated with the sale of the Securities in a manner that would
require the registration under the Act of the
<PAGE>
-15-
Securities or (ii) engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) in
connection with the offering of the Securities or in any manner involving a
public offering within the meaning of Section 4(2) of the Act. Assuming the
accuracy of the representations and warranties of the Initial Purchaser in
Section 8 hereof, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchaser in the manner contemplated
by this Agreement to register any of the Securities under the Act or to qualify
the Indenture under the TIA.
(ae) No securities of any of the Issuers are of the same class
(within the meaning of Rule 144A under the Act) as any of the Securities and
listed on a national securities exchange registered under Section 6 of the
Exchange Act, or quoted in a U.S. automated inter-dealer quotation system.
(af) None of the Issuers has taken, nor will any of them take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the price of
the Securities.
(ag) None of the Issuers, any of their respective Affiliates or any
person acting on any of their behalf (other than the Initial Purchaser) has
engaged in any directed selling efforts (as that term is defined in Regulation S
under the Act ("Regulation S")) with respect to the Securities; the Issuers and
their respective Affiliates and any person acting on any of their behalf (other
than the Initial Purchaser) have complied with the offering restrictions
requirement of Regulation S.
Any certificate signed by any officer of any Issuer and delivered to
the Initial Purchaser or to counsel for the Initial Purchaser shall be deemed a
joint and several representation and warranty by the Issuers to the Initial
Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Issuers agree to issue
and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase
the Notes at 97% of their principal amount. One or more certificates in
definitive form for the Notes and Guarantees that the Initial Purchaser has
agreed to purchase hereunder, and in such denomination or denominations and
registered in
<PAGE>
-16-
such name or names as the Initial Purchaser requests upon notice to the Company
at least 36 hours prior to the Closing Date, shall be delivered by or on behalf
of the Issuers to the Initial Purchaser, against payment by or on behalf of the
Initial Purchaser of the purchase price therefor by wire transfer (same day
funds) to such account or accounts as the Company shall specify prior to the
Closing Date, or by such means as the parties hereto shall agree prior to the
Closing Date. Such delivery of and payment for the Securities shall be made at
the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at
10:00 A.M., New York time, on October 16, 1996, or at such other place, time or
date as the Initial Purchaser, on the one hand, and the Company, on the other
hand, may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date." The Company will make such certificate
or certificates for the Securities available for checking and packaging by the
Initial Purchaser at the offices of BT Securities Corporation in New York, New
York, or at such other place as BT Securities Corporation may designate, at
least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes
to make an offering of the Securities at the price and upon the terms set forth
in the Final Memorandum, as soon as practicable after this Agreement is entered
into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Issuers. The Issuers covenant and agree with the
Initial Purchaser that:
(a) The Issuers will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchaser shall not
previously have been advised and furnished a copy for a reasonable period of
time prior to the proposed amendment or supplement and as to which the Initial
Purchaser shall not have given its consent. The Issuers will promptly, upon the
reasonable request of the Initial Purchaser or counsel for the Initial
Purchaser, make any amendments or supplements to the Preliminary Memorandum or
the Final Memorandum that may be necessary or advisable in connection with the
resale of the Securities by the Initial Purchaser.
(b) The Issuers will cooperate with the Initial Purchaser in
arranging for the qualification of the Securities for offering and sale under
the securities or "Blue Sky" laws of which jurisdictions as the Initial
Purchaser may designate and
<PAGE>
-17-
will continue such qualifications in effect for as long as may be necessary to
complete the resale of the Securities; provided, however, that in connection
therewith, none of the Issuers shall be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation in excess of a nominal dollar amount
in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchaser of the Securities or the Private Exchange Notes and
Private Exchange Notes Guarantees, any event occurs or information becomes known
as a result of which the Final Memorandum as then amended or supplemented would
include any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Final Memorandum to comply with
applicable law, the Issuers will promptly notify the Initial Purchaser thereof
and will prepare, at the expense of the Issuers, an amendment or supplement to
the Final Memorandum that corrects such statement or omission or effects such
compliance.
(d) The Issuers will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or supplement
thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Final Memorandum.
(f) For so long as any of the Securities remain outstanding, the
Company will furnish to the Initial Purchaser copies of all reports and other
communications (financial or otherwise) furnished by the Company to the Trustee
or to the holders of the Notes and, as soon as available, copies of any reports
or financial statements furnished to or filed by the Company with the Commission
or any national securities exchange on which any class of securities of the
Company may be listed.
(g) Prior to the Closing Date, the Company will furnish to the
Initial Purchaser, as soon as they have been prepared, a copy of any available
unaudited interim consolidated
<PAGE>
-18-
financial statements of the Company, any unaudited interim consolidated
financial statements of CPG and any available unaudited interim consolidated
financial statements of Arcon for any period subsequent to the period covered by
the most recent consolidated financial statements of the Company, consolidated
financial statements of CPG or the most recent consolidated financial statements
of Arcon appearing in the Final Memorandum.
(h) None of the Issuers or any of their Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Act) which could be integrated with the sale of
the Securities in a manner which would require the registration under the Act of
the Securities.
(i) The Issuers will not engage in any form of general solicitation
or general advertising (as those terms are used in Regulation D under the Act)
in connection with the offering of the Securities or in any manner involving a
public offering within the meaning of Section 4(2) of the Act.
(j) For so long as any of the Securities remain outstanding, the
Company will make available at its expense, upon request, to any holder of such
Securities and any prospective purchasers thereof the information specified in
Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13
or 15(d) of the Exchange Act.
(k) The Company will use its best efforts to (i) permit the
Securities to be designated PORTAL securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the Private Offerings,
Resales and Trading through Automated Linkages market (the "Portal Market") and
(ii) permit the Securities to be eligible for clearance and settlement through
The Depository Trust Company.
(l) In connection with Securities offered and sold in an off-shore
transaction (as defined in Regulation S) the Company will not register any
transfer of such Notes not made in accordance with the provisions of Regulation
S and will not, except in accordance with the provisions of Regulation S, if
applicable, issue any such Notes in the form of definitive securities.
6. Expenses. The Issuers jointly and severally agree to pay all
costs and expenses incident to the performance
<PAGE>
-19-
of their respective obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing, word processing or other production of documents with respect to
the transactions contemplated hereby, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the
delivery to the Initial Purchaser of copies of the foregoing documents, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Issuers, (iv) preparation (including printing),
issuance and delivery to the Initial Purchaser of the Securities, (v) the
qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and fees and disbursements of counsel for the Initial
Purchaser relating thereto, (vi) expenses in connection with any meetings with
prospective investors in the Securities, (vii) fees and expenses of the Trustee
including fees and expenses of its counsel, (viii) all expenses and listing fees
incurred in connection with the application for quotation of the Securities on
the PORTAL Market and (ix) any fees charged by investment rating agencies for
the rating of the Securities. If the sale of the Securities provided for herein
is not consummated because any condition to the obligations of the Initial
Purchaser set forth in Section 7 hereof is not satisfied, because this Agreement
is terminated or because of any failure, refusal or inability on the part of the
Issuers to perform all obligations and satisfy all conditions on their part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Initial Purchaser of its obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith), the Issuers jointly and
severally agree to promptly reimburse the Initial Purchaser upon demand for all
out-of-pocket expenses (including reasonable fees, disbursements and charges of
Cahill Gordon & Reindel, counsel for the Initial Purchaser) that shall have been
incurred by the Initial Purchaser in connection with the proposed purchase and
sale of the Securities.
7. Conditions of the Initial Purchaser's Obligations. The obligation
of the Initial Purchaser to purchase and pay for the Notes shall, in its sole
discretion, be subject to the satisfaction or waiver of the following conditions
on or prior to the Closing Date:
<PAGE>
-20-
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of White & Case, counsel for the Issuers, in form and substance
satisfactory to counsel for the Initial Purchaser, to the effect that:
(i) Each of the Issuers is duly incorporated, validly existing and
in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power and authority to own
its properties and to conduct its business as described in the Final
Memorandum. Each of the Issuers is duly qualified to do business as a
foreign corporation in good standing in the jurisdictions listed on a
schedule to such opinion (which the Company shall have certified are the
only jurisdictions where the failure to be so qualified could,
individually or in the aggregate, have a Material Adverse Effect).
(ii) The Company has the authorized, issued and outstanding
capitalization set forth in the Final Memorandum; all of the outstanding
shares of capital stock of the Issuers have been duly authorized and
validly issued and are fully paid and nonassessable; after consummation of
the Acquisitions, all of the outstanding shares of capital stock of the
Subsidiaries, CPG, the CPG Subsidiaries, Arcon and the Arcon Subsidiaries
will be owned, directly or indirectly, by the Company, free and clear of
all perfected security interests and, to the knowledge of such counsel,
free and clear of all other liens, encumbrances, equities and claims or
restrictions on transferability (other than those imposed by the Act and
the securities or "Blue Sky" laws of certain jurisdictions) or voting.
(iii) To the knowledge of such counsel, except as set forth in the
Final Memorandum (A) no options, warrants or other rights to purchase from
the Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries,
Arcon or any of the Arcon Subsidiaries shares of capital stock or
ownership interests in the Company, any of the Subsidiaries, CPG, any of
the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries are
outstanding (except for such options, warrants and other rights to
purchase the capital stock of CPG and Arcon as are set forth in the Merger
Agreement and the Stock Purchase Agreement and will be cancelled or
otherwise terminated upon the consummation of the Acquisitions), (B) no
agreements or other obligations
<PAGE>
-21-
to issue, or other rights to convert, any obligation into, or exchange any
securities for, shares of capital stock or ownership interests in the
Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon
or any of the Arcon Subsidiaries are outstanding and (C) no holder of
securities of the Company or any of the Subsidiaries is entitled to have
such securities registered under a registration statement filed pursuant
to the Registration Rights Agreement.
(iv) The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Indenture,
the Notes, the Exchange Notes and the Private Exchange Notes; each
Guarantor has all requisite corporate power and authority to execute,
deliver and perform each of its obligations under the Indenture, its
Guarantees, its Exchange Notes Guarantees and its Private Exchange Notes
Guarantees; the Indenture meets the requirements for qualification under
the TIA; the Indenture has been duly and validly authorized by each of the
Issuers and, when duly executed and delivered by each of the Issuers
(assuming the due authorization, execution and delivery thereof by the
Trustee), will constitute the valid and legally binding agreement of each
of the Issuers, enforceable against each of the Issuers in accordance with
its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(v) The Notes have each been duly and validly authorized by the
Company and, when duly executed and delivered by the Company and paid for
by the Initial Purchaser in accordance with the terms of this Agreement
(assuming the due authorization, execution and delivery of the Indenture
by the Trustee and due authentication and delivery of the Notes by the
Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company, entitled to the benefits of
the Indenture, and enforceable against the Company in accordance with
their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of
<PAGE>
-22-
equity and the discretion of the court before which any proceeding
therefor may be brought.
(vi) The Guarantees have each been duly and validly authorized by
the Guarantors and, when duly executed and delivered by the Guarantors in
accordance with terms of this Agreement (assuming the due authorization,
execution and delivery of the Indenture by the Trustee), will constitute
the valid and legally binding obligations of the Guarantors, enforceable
against the Guarantors in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, or other similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be
brought.
(vii) The Exchange Notes and the Private Exchange Notes have been
duly and validly authorized by the Company, and when the Exchange Notes
and the Private Exchange Notes have been duly executed and delivered by
the Company in accordance with the terms of the Registration Rights
Agreement and the Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and due authentication and
delivery of the Exchange Notes and the Private Exchange Notes by the
Trustee in accordance with the Indenture), will constitute the valid and
legally binding obligations of the Company, entitled to the benefits of
the Indenture, and enforceable against the Company in accordance with
their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(viii) The Exchange Notes Guarantees and the Private Exchange Notes
Guarantees have been duly and validly authorized by the Guarantors, and
when the Exchange Notes Guarantees and the Private Exchange Notes
Guarantees have been duly executed and delivered by the Guarantors in
accordance with the terms of the Registration Rights Agreement and the
Indenture (assuming due authorization, execution and delivery of the
Indenture by the Trustee), will constitute the valid and legally binding
obligations
<PAGE>
-23-
of the Guarantors, and enforceable against the Guarantors in accordance
with their terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought.
(ix) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement; the Registration Rights Agreement has been
duly and validly authorized by each of the Issuers and, when duly executed
and delivered by each of the Issuers (assuming due authorization,
execution and delivery thereof by the Initial Purchaser), will constitute
the valid and legally binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms,
except that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought and (B) any rights to indemnity or contribution
thereunder may be limited by federal and state securities laws and public
policy considerations.
(x) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; this
Agreement and the consummation by each of the Issuers of the transactions
contemplated hereby have been duly and validly authorized by each of the
Issuers. This Agreement has been duly executed and delivered by each of
the Issuers.
(xi) The Indenture, the Notes, the Guarantees, the Registration
Rights Agreement, the Acquisition Agreements conform in all material
respects to the descriptions thereof contained in the Final Memorandum.
(xii) To the knowledge of such counsel, no legal or governmental
proceedings are pending or threatened to which the Company or any of the
Subsidiaries is a party or to which any of their respective properties or
assets is subject which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale
<PAGE>
-24-
of the Securities to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum under the caption "Use of
Proceeds."
(xiii) The execution, delivery and performance of this Agreement,
the Indenture, the Registration Rights Agreement, the Acquisition
Agreements and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the issuance and sale of the
Securities to the Initial Purchaser) will not conflict with or constitute
or result in a breach or a default under (or an event which with notice or
passage of time or both would constitute a default under) or violation of
any of (i) the terms or provisions of any Contract known to such counsel,
except for any such conflict, breach, violation, default or event which
would not, individually or in the aggregate, have a Material Adverse
Effect, (ii) the certificate of incorporation or bylaws (or similar
organizational document) of the Company, any of the Subsidiaries, CPG, any
of the CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries, or (iii)
(assuming compliance with all applicable state securities or "Blue Sky"
laws and assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof) any statute, judgment, decree,
order, rule or regulation known to such counsel to be applicable to the
Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon
or any of the Arcon Subsidiaries or any of their respective properties or
assets, except for any such conflict, breach or violation which would not,
individually or in the aggregate, have a Material Adverse Effect.
(xiv) Except for (x) with respect to the transactions contemplated
by the Merger Agreement, the termination of the waiting period under the
HSR Act and (y) as are otherwise set forth in the schedules to the Merger
Agreement and the Stock Purchase Agreement, no consent, approval,
authorization or order of any governmental authority is required for (i)
the issuance and sale by the Company of the Notes to the Initial Purchaser
or the consummation by the Company of the other transactions contemplated
hereby and (ii) the execution and delivery by the Guarantors of the
Guarantees or the consummation by the Guarantors of the other transactions
contemplated hereby and (iii) the consummation by the Company and Merger
Sub (to the extent a party thereto) of the transactions contemplated by
the Acquisition Agreements and except such as may be required
<PAGE>
-25-
under Blue Sky laws, as to which such counsel need express no opinion, and
those which have previously been obtained.
(xv) To the knowledge of such counsel, there are no legal or
governmental proceedings involving or affecting the Company, any of the
Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the Arcon
Subsidiaries or any of their respective properties or assets which would
be required to be described in a prospectus pursuant to the Act that are
not described in the Final Memorandum, nor are there any material
contracts or other documents which would be required to be described in a
prospectus pursuant to the Act that are not described in the Final
Memorandum.
(xvi) None of the Company, any of the Subsidiaries, CPG, any of the
CPG Subsidiaries, Arcon or any of the Arcon Subsidiaries is, or
immediately after the sale of the Securities to be sold hereunder and the
application of the proceeds from such sale (as described in the Final
Memorandum under the caption "Use of Proceeds") will be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(xvii) No registration under the Act of the Securities is required
in connection with the sale of the Securities to the Initial Purchaser as
contemplated by this Agreement and the Final Memorandum or in connection
with the initial resale of the Securities by the Initial Purchaser in
accordance with Section 8 of this Agreement, and prior to the commencement
of the Exchange Offer (as defined in the Registration Rights Agreement) or
the effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the TIA, in each case assuming (i) (A) that the purchasers
who buy such Securities in the initial resale thereof are qualified
institutional buyers as defined in Rule 144A promulgated under the Act
("QIBs") or accredited investors as defined in Rule 501(a) (1), (2), (3)
or (7) promulgated under the Act ("Accredited Investors") or (B) that the
offer or sale of the Securities is made in an offshore transaction as
defined in Regulation S promulgated under the Act (ii) the accuracy of the
Initial Purchaser's representations in Section 8 hereof and those of the
Issuers contained in this Agreement regarding the absence of a general
solicitation in connection with the sale of such Securities to the Initial
<PAGE>
-26-
Purchaser and the initial resale thereof and (iii) the due performance by
the Initial Purchaser of the agreements set forth in Section 8 hereof.
(xviii) Neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the
Securities will violate Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
At the time the foregoing opinion is delivered, White & Case shall
additionally state that it has participated in conferences with officers and
other representatives of the Issuers, representatives of the independent public
accountants for the Issuers, representatives of the Initial Purchaser and
counsel for the Initial Purchaser, at which conferences the contents of the
Final Memorandum and related matters were discussed, and, although it has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the Final
Memorandum (except to the extent specified in subsection 7(a)(xi)), and that its
judgments as to materiality are, to the extent it deems proper, based in part
upon the views of appropriate officers and other representatives of the Company,
it does not believe that the Final Memorandum, on the date thereof or at the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading (it being understood that such firm need not express
any opinion with respect to the financial statements and related notes thereto
and the other financial, statistical and accounting data included in the Final
Memorandum).
In rendering the foregoing opinions, White & Case may (i) state that
their opinion is limited to matters governed by the federal laws of the United
States of America, the laws of the State of New York and the corporate laws of
the State of Delaware, and (ii) rely, to the extent such counsel deems proper,
upon the representations set forth herein and on certificates of public
officials and officers of the Company, with respect to the accuracy of factual
matters contained therein which were not independently established.
References to the Final Memorandum in this subsection (a) shall
include any amendment or supplement
<PAGE>
-27-
thereto prepared in accordance with the provisions of this Agreement at the
Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received
the opinion, in form and substance satisfactory to the Initial Purchaser, dated
as of the Closing Date and addressed to the Initial Purchaser, of Cahill Gordon
& Reindel, counsel for the Initial Purchaser, with respect to certain legal
matters relating to this Agreement and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, Cahill Gordon &
Reindel shall have received and may rely upon such certificates and other
documents and information as it may reasonably request to pass upon such
matters.
(c) The Initial Purchaser shall have received from each of KPMG Peat
Marwick LLP, Coopers & Lybrand LLP and Price Waterhouse LLP a comfort letter or
letters dated the date hereof and the Closing Date, in form and substance
satisfactory to counsel for the Initial Purchaser.
(d) The representations and warranties of the Issuers contained in
this Agreement shall be true and correct in all material respects on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date; the statements of the Issuers' officers made pursuant to any
certificate delivered in accordance with the provisions hereof shall be true and
correct in all material respects on and as of the date made and on and as of the
Closing Date; the Issuers shall have performed in all material respects all
covenants and agreements and satisfied in all material respects all conditions
on their part to be performed or satisfied hereunder at or prior to the Closing
Date; and, except as described in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), subsequent to the date
of the most recent financial statements in such Final Memorandum, there shall
have been no event or development, and no information shall have become known,
that, individually or in the aggregate, has or would be reasonably likely to
have a Material Adverse Effect.
(e) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(f) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto after
the date hereof), none of
<PAGE>
-28-
the Company, any of the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or
any of the Arcon Subsidiaries shall have sustained any loss or interference with
respect to its business or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any strike, labor
dispute, slow down or work stoppage or from any legal or governmental
proceeding, order or decree, which loss or interference, individually or in the
aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(g) The Initial Purchaser shall have received a certificate of each
of the Issuers, dated the Closing Date, signed on behalf of each of the Issuers
by its Chairman of the Board, President or any Senior Vice President and the
Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Issuers contained in
this Agreement are true and correct in all material respects on and as of
the date hereof and on and as of the Closing Date, and the Issuers have
performed in all material respects all covenants and agreements and
satisfied in all material respects all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), no event or
development has occurred, and no information has become known, that,
individually or in the aggregate, has or would be reasonably likely to
have a Material Adverse Effect; and
(iii) The sale of the Securities hereunder has not been enjoined
(temporarily or permanently).
(h) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by each of the Issuers and such
agreement shall be in full force and effect at all times from and after the
Closing Date.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company, the Subsidiaries, CPG,
<PAGE>
-29-
the CPG Subsidiaries, Arcon and the Arcon Subsidiaries as they shall have
heretofore reasonably requested.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates, letters, schedules and instruments in such quantities as
the Initial Purchaser shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. (a) The Initial
Purchaser represents and warrants that it is a QIB. The Initial Purchaser agrees
with the Issuers that (i) it has not and will not solicit offers for, or offer
or sell, the Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act; and (ii) it has and will solicit offers for the Securities only from, and
will offer the Securities only to (A) in the case of offers inside the United
States, (x) persons whom the Initial Purchaser reasonably believes to be QIBs
or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchaser that each such account is a QIB, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A or (y) a limited
number of other institutional investors reasonably believed by the Initial
Purchaser to be Accredited Investors that, prior to their purchase of the
Securities, deliver to the Initial Purchaser a letter containing the
representations and agreements set forth in Annex A to the Final Memorandum and
(B) in the case of offers outside the United States, to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)); provided,
however, that, in the case of this clause (B), in purchasing such Securities
such persons are deemed to have represented and agreed as provided under the
caption "Transfer Restrictions" contained in the Final Memorandum (or, if the
Final Memorandum is not in existence, in the most recent Memorandum).
<PAGE>
-30-
(b) The Initial Purchaser represents and warrants with respect to
offers and sales outside the United States that (i) it has and will comply with
all applicable laws and regulations in each jurisdiction in which it acquires,
offers, sells or delivers Securities or has in its possession or distributes any
Memorandum or any such other material, in all cases at its own expense; (ii) the
Securities have not been and will not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Act or pursuant to an exemption from the
registration requirements of the Act; (iii) it has offered the Securities and
will offer and sell the Securities (A) as part of its distribution at any time
and (B) otherwise until 40 days after the later of the commencement of the
offering and the Closing Date, only in accordance with Rule 903 of Regulation S
and, accordingly, neither it nor any persons acting on its behalf have engaged
or will engage in any directed selling efforts (within the meaning of Regulation
S) with respect to the Securities, and any such persons have complied and will
comply with the offering restrictions requirement of Regulation S; and (iv) it
agrees that, at or prior to confirmation of sales of the Securities, it will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the United
States Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of the distribution of the Securities
at any time or (ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date of the offering, except
in either case in accordance with Regulation S (or Rule 144A if available)
under the Securities Act. Terms used above have the meaning given to them
in Regulation S."
Terms used in this Section 8(b) and not defined in this Agreement have the
meanings given to them in Regulation S.
(c) The Initial Purchaser represents and warrants that the source of
funds being used by it to acquire the Securities does not include the assets of
any "employee benefit
<PAGE>
-31-
plan" (within the meaning of Section 3 of ERISA) or any "plan" (within the
meaning of Section 4975 of the Code).
9. Indemnification and Contribution. (a) The Issuers jointly and
severally agree to indemnify and hold harmless the Initial Purchaser, and each
person, if any, who controls the Initial Purchaser within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Initial Purchaser or such controlling person
may become subject under the Act, the Exchange Act or otherwise, insofar as any
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto or
any application or other document, or any amendment or supplement thereto,
executed by an Issuer or based upon written information furnished by or on
behalf of an Issuer filed in any jurisdiction in order to qualify the
Securities under the securities or "Blue Sky" laws thereof or filed with
any securities association or securities exchange (each an "Application");
or
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto or any Application, a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading,
and will reimburse, as incurred, the Initial Purchaser and each such controlling
person for any reasonable legal or other expenses incurred by the Initial
Purchaser or such controlling person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, the Issuers will not be
liable (i) in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to an Issuer by the Initial Purchaser specifically for use therein or (ii) with
respect to the Preliminary Memorandum, to the extent that any
<PAGE>
-32-
such loss, claim, damage or liability arises solely from the fact that the
Initial Purchaser sold Securities to a person to whom there was not sent or
given, on or prior to the written confirmation of such sale, a copy of the Final
Memorandum, as amended and supplemented, if the Company shall have previously
furnished copies thereof to the Initial Purchaser in accordance with this
Agreement and the Final Memorandum, as amended and supplemented, would have
corrected any such untrue statement or omission. This indemnity agreement will
be in addition to any liability that the Issuers may otherwise have to the
indemnified parties. The Issuers shall not be liable under this Section 9 for
any settlement of any claim or action effected without their prior written
consent, which shall not be unreasonably withheld. The Initial Purchaser shall
not, without the prior written consent of the Issuers, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Issuer is or could have been a party, or indemnity could have been sought
hereunder by any Issuer, unless such settlement (A) included an unconditional
written release of the Issuers, in form and substance reasonably satisfactory to
the Issuers, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of any Issuer.
(b) The Initial Purchaser agrees to indemnify and hold harmless the
Issuers, their respective directors, their respective officers and each person,
if any, who controls an Issuer within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which an Issuer or any such director, officer or controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any Memorandum or any amendment or
supplement thereto or any Application, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in any
Memorandum or any amendment or supplement thereto or any Application, or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information concerning the Initial Purchaser, furnished to an Issuer by
the Initial Purchaser specifically for use
<PAGE>
-33-
therein; and subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any reasonable legal or other expenses
incurred by an Issuer or any such director, officer or controlling person in
connection with investigating or defending against or appearing as a third party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof. This indemnity agreement will be in addition to any liability
that the Initial Purchaser may otherwise have to the indemnified parties. The
Initial Purchaser shall not be liable under this Section 9 for any settlement of
any claim or action effected without its consent, which shall not be
unreasonably withheld. The Issuers shall not, without the prior written consent
of the Initial Purchaser, effect any settlement or compromise of any pending or
threatened proceeding in respect of which the Initial Purchaser is or could have
been a party, or indemnity could have been sought hereunder by the Initial
Purchaser, unless such settlement (A) includes an unconditional written release
of the Initial Purchaser, in form and substance reasonably satisfactory to the
Initial Purchaser, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraphs (a) and (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest,
<PAGE>
-34-
(ii) the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it and/or
other indemnified parties that are different from or additional to those
available to the indemnifying party, or (iii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt by the
indemnifying party of notice of the institution of such action, then, in each
such case, the indemnifying party shall not have the right to direct the defense
of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate counsel to
defend such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 9 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same jurisdiction arising out of the same general allegations or circumstances,
designated by the Initial Purchaser in the case of paragraph (a) of this Section
9 or the Company in the case of paragraph (b) of this Section 9, representing
the indemnified parties under such paragraph (a) or paragraph (b), as the case
may be, who are parties to such action or actions) or (ii) the indemnifying
party has authorized in writing the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the prior written consent of the indemnifying
party (which consent shall not be unreasonably withheld), unless such
indemnified party waived in writing its rights under this Section 9, in which
case the indemnified party may effect such a settlement without such consent.
<PAGE>
-35-
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to, or insufficient
to hold harmless, an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Issuers on the one hand and the
Initial Purchaser on the other shall be deemed to be in the same proportion as
the total proceeds from the offering (before deducting expenses) received by the
Issuers bear to the total discounts and commissions received by the Initial
Purchaser. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers on the one hand, or the Initial
Purchaser on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission, and any other equitable considerations
appropriate in the circumstances. The Issuers and the Initial Purchaser agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in the first sentence of this paragraph (d). Notwithstanding any other
provision of this paragraph (d), the Initial Purchaser shall not be obligated to
make contributions hereunder that in the aggregate exceed the total discounts,
commissions and other compensation received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that the Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements or the omissions or alleged omissions to state a material fact, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent
<PAGE>
-36-
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of an Issuer, each officer of an Issuer and
each person, if any, who controls an Issuer within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Issuers.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Issuers, their
respective officers and the Initial Purchaser set forth in this Agreement or
made by or on behalf of them pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Issuers, any of their respective officers or directors, the Initial
Purchaser or any controlling person referred to in Section 9 hereof and (ii)
delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 15
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that any of the Issuers shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder at or prior thereto or, if at or prior to
the Closing Date:
(i) the Company, any of the Subsidiaries, CPG, any of the CPG
Subsidiaries, Arcon or any of the Arcon Subsidiaries shall have sustained
any loss or interference with respect to its businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any strike, labor dispute, slow down or work
stoppage or any legal or governmental proceeding, which loss or
interference, in the sole judgment of the Initial Purchaser, has had or
has a Material Adverse Effect, or there shall have been, in the sole
judgment of the Initial Purchaser, any event or development that,
individually or in the aggregate, has or could be reasonably likely to
have a Material Adverse Effect
<PAGE>
-37-
(including without limitation a change in control of the Company, any of
the Subsidiaries, CPG, any of the CPG Subsidiaries, Arcon or any of the
Arcon Subsidiaries), except in each case as described in the Final
Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the NASDAQ National Market shall have been
suspended or minimum or maximum prices shall have been established on any
such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial markets
of the United States which, in the case of (A), (B) or (C) above and in
the sole judgment of the Initial Purchaser, makes it impracticable or
inadvisable to proceed with the offering or the delivery of the Securities
as contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded or
placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements
set forth in the last paragraph on the front cover page and in the second and
third sentences of the third paragraph under the heading "Private Placement" in
the Final Memorandum (to the extent such statements relate to the Initial
Purchaser) constitute the only information furnished by the Initial Purchaser to
the Issuers for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and,
if sent to the Initial Purchaser, shall be
<PAGE>
-38-
mailed or delivered to (i) BT Securities Corporation, 130 Liberty Street, New
York, New York 10006, Attention: Corporate Finance Department; if sent to the
Issuers, shall be mailed or delivered to the Company at Brudies Road,
Brattleboro, Vermont 05302, Attention: Chief Financial Officer; with a copy to
White & Case, 1155 Avenue of the Americas, New York, New York 10036, Attention:
Frank L. Schiff.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Issuers and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Issuers contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Issuers, their respective
officers and any person or persons who control an Issuer within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Securities from the Initial Purchasers will be deemed a successor because of
such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-39-
17. CPG Subsidiaries, Arcon and Arcon Subsidiaries a Party.
Immediately upon (a) consummation of the Merger pursuant to the Merger
Agreement, the Company shall cause each of the CPG Subsidiaries to become a
party hereto as a Guarantor by executing and delivering to the Initial Purchaser
a counterpart hereof and (b) the acquisition of all of the outstanding capital
stock of Arcon pursuant to the Stock Purchase Agreement, the Company shall cause
each of Arcon and the Arcon Subsidiaries to become a party hereto as a Guarantor
by executing and delivering to the Initial Purchaser a counterpart hereof.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company,
the Guarantors set forth below and the Initial Purchaser.
Very truly yours,
SPECIALTY PAPERBOARD, INC.
By: /s/ Alex Kwader
--------------------------------
Name: Alex Kwader
Title: President
SPECIALTY PAPERBOARD/ENDURA, INC.
By: /s/ Alex Kwader
--------------------------------
Name: Alex Kwader
Title: President
CPG ACQUISITION COMPANY
By: /s/ Alex Kwader
--------------------------------
Name: Alex Kwader
Title: President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT SECURITIES CORPORATION
By: /s/ Thomas Prior
-------------------------------
Name: Thomas Prior
Title: Managing Director
<PAGE>
Each of the undersigned by its execution hereof agrees to become a
party to this Agreement as a Guarantor as of the date set forth opposite its
name:
Date: CPG INVESTORS INC.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
Date: CPG HOLDINGS INC.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
Date: CUSTOM PAPERS GROUP INC.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
Date: CPG-WARREN GLEN INC.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
Date: ARCON HOLDING CORP.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
Date: ARCON COATING MILLS, INC.
By: /s/ Bruce Moore
-------------------------------------
Name: Bruce Moore
Title: Vice President
<PAGE>
SCHEDULE 1
Subsidiaries
Jurisdiction of
Name Stockholder(s) Incorporation
- ---- -------------- ---------------
Specialty Paperboard/ SPI Delaware
Endura, Inc.
CPG Acquisition Company SPI Delaware
<PAGE>
SCHEDULE 2
CPG Subsidiaries
Jurisdiction of
Name Stockholder(s) Incorporation
- ---- -------------- ---------------
CPG Holdings Inc. CPG Delaware
Custom Papers Group, Inc. CPG Holdings Inc. Virginia
CPG-Warren Glen Inc. CPG Holdings Inc. Virginia
<PAGE>
SCHEDULE 3
Arcon Subsidiaries
Jurisdiction of
Name Stockholder(s) Incorporation
- ---- -------------- ---------------
Arcon Coating Mills, Arcon Delaware
Inc.
<PAGE>
EX-2.1
================================================================================
MERGER AGREEMENT
Dated as of August 28, 1996
By and Among
SPECIALTY PAPERBOARD, INC.,
CPG ACQUISITION COMPANY,
and
CPG INVESTORS INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS................................................................ 2
ARTICLE II
THE MERGER................................................................. 9
Section 2.1 The Merger.............................................. 9
Section 2.2 Consummation of the Merger.............................. 10
Section 2.3 Effects of the Merger................................... 10
Section 2.4 Certificate of Incorporation; By-laws................... 10
Section 2.5 Directors and Officers.................................. 10
Section 2.6 Conversion of Securities................................ 11
Section 2.7 Closing of Transfer Records............................. 13
Section 2.8 Payment of Merger Consideration......................... 13
Section 2.9 Determination of Adjustment to Each
Shareholder's Closing Payment......................... 15
Section 2.10 Adjustments to Closing Payments......................... 18
Section 2.11 Payment of Bank Debt.................................... 20
Section 2.12 DiSection nting Shares.................................. 20
Section 2.13 Closing................................................. 22
ARTICLE III
REPRESENTATIONS OF THE COMPANY............................................. 23
Section 3. Representations of the Company.......................... 23
Section 3.1 Existence and Good Standing............................. 23
Section 3.2 Capital Stock........................................... 23
Section 3.3 Authorization and Validity of this
Agreement............................................. 24
Section 3.4 Subsidiaries and Investments............................ 25
Section 3.5 Financial Statements; No Material Changes............... 26
Section 3.6 Books and Records....................................... 28
Section 3.7 Title to Properties; Encumbrances....................... 29
Section 3.8 Real Property........................................... 29
Section 3.9 Intellectual Property................................... 30
Section 3.10 Leases.................................................. 31
Section 3.11 Material Contracts...................................... 31
Section 3.12 Consents and Approvals; No Violations................... 33
Section 3.13 Litigation.............................................. 34
Section 3.14 Taxes................................................... 35
Section 3.15 Liabilities............................................. 38
Section 3.16 Insurance............................................... 39
(i)
<PAGE>
Page
----
Section 3.17 Compliance with Laws.................................... 40
Section 3.18 Employment Relations.................................... 40
Section 3.19 Employee Benefit Plans.................................. 41
Section 3.20 Interests in Customers, Suppliers, etc.................. 52
Section 3.21 Environmental Laws and Regulations...................... 53
Section 3.22 Bank Accounts, Powers of Attorney....................... 57
Section 3.23 Compensation of Employees............................... 58
Section 3.24 Conduct of BusineSection ............................... 58
Section 3.25 Customer Relations...................................... 59
Section 3.26 Condition of ASection ts................................ 59
Section 3.27 Broker's or Finder's Fees............................... 59
ARTICLE IV
[INTENTIONALLY OMITTED].................................................... 60
ARTICLE V
REPRESENTATIONS OF THE PARENT AND ACQUISITION.............................. 60
Section 5. Representations of the Parent and
Acquisition........................................... 60
Section 5.1 Existence and Good Standing; Power and
Authority............................................. 60
Section 5.2 Restrictive Documents................................... 61
Section 5.3 Broker's or Finder's Fees............................... 61
ARTICLE VI
TRANSACTIONS PRIOR TO THE CLOSING DATE..................................... 61
Section 6.1 Conduct of BusineSection of the Company................. 61
Section 6.2 Exclusive Dealing....................................... 64
Section 6.3 Review of the Company................................... 64
Section 6.4 Reasonable Efforts...................................... 66
Section 6.6 Environmental Audit; Escrow; Reporting.................. 67
ARTICLE VII
CONDITIONS TO THE PARENT'S AND ACQUISITION'S OBLIGATIONS................... 69
Section 7. Conditions to the Parent's and Acquisition's
Obligations........................................... 69
Section 7.1 Opinions of Counsel..................................... 70
Section 7.2 Good Standing and Other Certificates.................... 70
Section 7.3 No Material Adverse Change.............................. 71
Section 7.4 Truth of Representations and Warranties................. 71
Section 7.5 Performance of Agreements............................... 72
(ii)
<PAGE>
Page
Section 7.6 No Litigation Threatened................................ 72
Section 7.7 Third Party Consents; Governmental
Approvals............................................. 72
Section 7.8 Repayment of IndebtedneSection to Third Parties;
Termination of Security Interests..................... 73
Section 7.9 Financing............................................... 73
Section 7.10 Termination of Stock Option Plan; Other
Arrangements.......................................... 73
Section 7.11 FIRPTA.................................................. 73
Section 7.12 HSR Act................................................. 74
Section 7.13 Escrow Agreement........................................ 74
Section 7.14 Environmental Assessments; Rochester
Environmental Escrow Amount........................... 74
Section 7.15 Customer/Supplier and Tax Diligence..................... 74
Section 7.16 Adoption of Flexible Benefits Plan
Document.............................................. 75
Section 7.17 Correction of Noncompliance by Employee
Benefit Plans With Terms of Plan and/or
Law................................................... 75
Section 7.18 Tax Indemnification Agreement........................... 75
ARTICLE VIII
CONDITIONS TO THE COMPANY'S OBLIGATIONS.................................... 76
Section 8. Conditions to the Company's Obligations................. 76
Section 8.1 Opinions of Counsel..................................... 76
Section 8.2 Truth of Representations and Warranties................. 76
Section 8.3 Third Party Consents; Governmental
Approvals............................................. 77
Section 8.4 Performance of Agreements............................... 77
Section 8.5 No Litigation Threatened................................ 77
Section 8.6 HSR Act................................................. 77
Section 8.7 Shareholder Approval.................................... 78
Section 8.8 Environmental Matters................................... 78
ARTICLE IX
TAX MATTERS................................................................ 78
Section 9.1 Tax Returns............................................. 78
Section 9.2 Apportionment of Taxes.................................. 80
Section 9.3 Cooperation; Audits..................................... 81
Section 9.4 Controversies........................................... 81
Section 9.5 Transfer Taxes.......................................... 83
Section 9.6 Amended Returns......................................... 84
Section 9.7 Indemnification......................................... 84
(iii)
<PAGE>
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............................... 86
Section 10.1 Survival of Representations............................. 86
Section 10.2 Indemnification......................................... 87
Section 10.3 Indemnification Procedure............................... 94
ARTICLE XI
TERMINATION................................................................ 97
Section 11.1 Termination............................................. 97
Section 11.2 Effect of Termination................................... 99
Section 11.3 Effect of Waiver of Condition Precedent................. 99
ARTICLE XII
MISCELLANEOUS.............................................................. 100
Section 12.1 Knowledge of the Company................................ 100
Section 12.2 Expenses................................................ 100
Section 12.3 Governing Law........................................... 100
Section 12.4 Captions................................................ 100
Section 12.5 Publicity............................................... 101
Section 12.6 Notices................................................. 101
Section 12.7 Parties in Interest..................................... 102
Section 12.8 Counterparts............................................ 103
Section 12.9 Entire Agreement........................................ 103
Section 12.10 Amendments.............................................. 103
Section 12.11 Severability............................................ 103
Section 12.12 Third Party Beneficiaries............................... 103
EXHIBITS
Exhibit I Shareholders
Exhibit II Unaudited Statements
Exhibit III Form of Escrow Agreement
Exhibit IV Form of Tax Indemnification Agreement
SCHEDULES
Schedule 3.2 Equity Rights
Schedule 3.4 Subsidiaries
Schedule 3.5 Preparation of Unaudited Statements; Material
Adverse Changes
Schedule 3.7 Title to Properties
Schedule 3.8 Real Property
Schedule 3.9 Intellectual Property
(iv)
<PAGE>
Schedule 3.10 Leases
Schedule 3.11 Material Contracts
Schedule 3.12 Consents and Approvals; Violations
Schedule 3.13 Litigation
Schedule 3.14 Other Tax Matters
Schedule 3.15 Liabilities
Schedule 3.16 Insurance
Schedule 3.18 Employment Relations
Schedule 3.19 Employer Benefit Plans
Schedule 3.20 Interests in Customers and Suppliers
Schedule 3.21 Environmental Laws and Regulations
Schedule 3.22 Bank Accounts, Powers of Attorney
Schedule 3.23 Compensation of Employees
Schedule 3.24 Conduct of Business
Schedule 3.27 Broker's or Finder's Fees
Schedule 6.3 Contracts and other Arrangements Restricting
Disclosure
Schedule 7.8 Indebtedness; Security Interests
(v)
<PAGE>
MERGER AGREEMENT
MERGER AGREEMENT (this "Agreement") dated as of August 28, 1996 by and
among SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Parent"), CPG
ACQUISITION COMPANY, a Delaware corporation and a wholly-owned subsidiary of the
Parent ("Acquisition"), and CPG INVESTORS INC., a Delaware corporation (the
"Company").
W I T N E S S E T H :
WHEREAS, the persons named on Exhibit I attached hereto under Column A
(the "Shareholders") own an aggregate of 520,058 shares of common stock of the
Company as specified and described thereon (collectively the "Stock"), such
shares of the Shareholders being all of the outstanding shares of the capital
stock of the Company;
WHEREAS, the Company has granted options (the "Options") to purchase
54,500 shares of Class A Common Stock of the Company to certain of its employees
(the "Optionholders") pursuant to the CPG Investors Inc. Stock Option Plan, all
of which are outstanding;
WHEREAS, each of the Optionholders is the holder of Options to acquire the
number of shares of Class A Common Stock set forth opposite such Optionholder's
name in Exhibit
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I attached hereto under Column A, which Options constitute all of the issued and
outstanding options to purchase Common Stock or any other capital stock of the
Company;
WHEREAS, subject to the terms and conditions hereof, at or prior to the
Closing, the Optionholders will exercise all of their respective Options;
WHEREAS, the parties hereto desire Acquisition to be merged with and into
the Company pursuant to this Agreement with the Company as the surviving
corporation (the "Merger"); and
WHEREAS, it is the intention of the parties hereto that, upon consummation
of the Merger pursuant to this Agreement, the Parent shall own all of the
outstanding shares of capital stock of the Surviving Corporation.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms shall have the respective meanings
specified therefor below (such meanings to be equally applicable to both the
singular and plural forms of the terms defined).
"Acquisition" shall have the meaning specified in the preamble to this
Agreement.
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"Agreement" shall mean this Agreement, as amended, modified or
supplemented from time to time.
"Arbitrator" shall have the meaning specified in Section 2.9(b)(i).
"Audited Balance Sheets" shall have the meaning specified in Section 3.5.
"Audited Statements" shall have the meaning specified in Section 3.5.
"Balance Sheet" shall have the meaning specified in Section 3.5.
"Balance Sheet Date" shall have the meaning specified in Section 3.5.
"Base Net Worth" shall have the meaning specified in Section 2.10(a).
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks located in New York, New York shall be authorized or required by
law to close.
"Claim" shall have the meaning specified in Section 10.3.
"Closing" shall have the meaning specified in Section 2.13.
"Closing Balance Sheet" shall have the meaning specified in Section
2.9(a)(i).
"Closing Date" shall have the meaning specified in Section 2.13.
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"Closing Net Worth" shall have the meaning specified in Section 2.9(a).
"Code" shall have the meaning specified in Section 3.14.
"Common Stock" shall have the meaning specified in Section 3.2.
"Company" shall have the meaning specified in the preamble to this
Agreement.
"Company Property" shall have the meaning specified in Section 3.21.
"Confidentiality Agreement" shall have the meaning specified in Section
6.3.
"CPG Holdings" shall have the meaning specified in Section 3.5(a).
"Crestar" shall have the meaning specified in Section 2.6(a).
"Crestar Loan" shall have the meaning specified in Section 2.6(a).
"Damages" shall have the meaning specified in Section 10.2(a).
"DGCL" shall have the meaning specified in Section 2.1.
"Dissenting Shareholders" shall have the meaning specified in Section
12.12.
"Effective Time" shall have the meaning specified in Section 2.2.
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"Employee Benefit Plans" shall have the meaning specified in Section 3.19.
"Encumbrances" shall have the meaning specified in Section 3.7.
"ENSR" shall mean ENSR Corporation.
"Environment" shall have the meaning set forth in Section 3.21.
"Environmental Claim" shall have the meaning specified in Section 3.21.
"Environmental Law" shall have the meaning specified in Section 3.21.
"Equity Rights" shall have the meaning specified in Section 3.2.
"ERISA" shall have the meaning specified in Section 3.19.
"Escrow Account" shall have the meaning specified in Section 2.8(b).
"Escrow Agent" shall have the meaning specified in Section 2.8(b).
"Escrow Agreement" shall have the meaning specified in Section 7.13.
"GAAP" shall have the meaning specified in Section 3.5.
"Governmental Authority" shall have the meaning specified in Section 3.21.
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"Hazardous Materials" shall have the meaning specified in Section 3.21.
"HSR Act" shall have the meaning specified in Section 6.4.
"Indemnified Party" shall have the meaning specified in Section 10.3(a).
"Indemnifying Party" shall have the meaning specified in Section 10.3(a).
"ISRA" shall have the meaning set forth in Section 3.21.
"Intellectual Property" shall have the meaning specified in Section 3.9.
"Material Adverse Effect" shall have the meaning specified in Section 3.1.
"Merger" shall have the meaning specified in the preamble to this
Agreement.
"Merger Consideration" shall have the meaning specified in Section 2.6(a).
"Multiemployer Plan" shall have the meaning specified in Section 3.19.
"Notice of Objection" shall have the meaning specified in Section
2.9(a)(ii).
"Optionholders" shall have the meaning specified in the preamble to this
Agreement.
"Options" shall have the meaning specified in the preamble to this
Agreement.
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"Overlap Period" shall have the meaning specified in Section 9.4.
"Parent" shall have the meaning specified in preamble to this Agreement.
"Parent Indemnities" shall have the meaning specified in Section 10(b).
"PBGC" shall have the meaning specified in Section 3.19.
"Person" shall have the meaning specified in Section 3.11.
"Pre-Closing Period" shall have the meaning specified in Section 3.14.
"Real Property" shall have the meaning specified in Section 3.8.
"Release" shall have the meaning specified in Section 3.21.
"Remedial Work" shall have the meaning specified in Section 3.21.
"Returns" shall have the meaning specified in Section 3.14.
"Rochester Environmental Escrow Account" shall have the meaning specified
in Section 2.8(c).
"Rochester Environmental Escrow Amount" shall have the meaning specified
in Section 6.6(a).
"Shareholder's Closing Payment" shall have the meaning specified in
Section 2.8(a).
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"Shareholders" shall have the meaning specified in the preamble to this
Agreement.
"Shareholders' Payment Agent" shall have the meaning specified in Section
2.8(a).
"Shareholder's Percentage" shall have the meaning specified in Section
2.10(a).
"Shareholders' Representative" shall mean SCI Investors Inc. or a
replacement representative of the Shareholders appointed by vote of a majority
in interest of the Shareholders determined based on their holdings of Stock as
set forth in Exhibit I attached hereto.
"Single Employer Plan" shall have the meaning specified in Section 3.19.
"Stock" shall have the meaning specified in the preamble to this
Agreement.
"Subsidiary" shall have the meaning specified in Section 3.4.
"Surviving Corporation" shall have the meaning specified in Section 2.1.
"Tax Indemnification Agreement" shall have the meaning specified in
Section 7.18.
"Tax Matter" shall have the meaning specified in Section 9.4.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including,
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without limitation, all Federal, state, local, foreign and other income,
franchise, profits, capital gains, capital stock, transfer, sales, use,
occupation, property, excise, severance, windfall profits, stamp, license,
payroll, withholding and other taxes, assessments, charges, duties, fees, levies
or other governmental charges of any kind whatsoever (whether payable directly
or by withholding and whether or not requiring the filing of a Return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group or of a
contractual obligation to indemnify any person or other entity.
"Unaudited Statements" shall have the meaning specified in Section 3.5.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Subject to and in accordance with the terms and
conditions of this Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL") at the Effective Time, Acquisition shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Acquisition shall cease and the Company shall continue as the
surviving corporation (sometimes referred to
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herein as the "Surviving Corporation") and shall succeed to and assume all of
the rights and obligations of Acquisition in accordance with the DGCL.
Section 2.2 Consummation of the Merger. As soon as practicable on the
Closing Date, the parties hereto will cause the Merger to be consummated by
filing with the Delaware Secretary of State a certificate of merger, in form
reasonably satisfactory to the Company, Parent and Acquisition, executed in
accordance with the relevant provisions of the DGCL, and shall make all other
filings or recordings required under the DGCL. The "Effective Time" as that
term is used in this Agreement shall mean the date on which the certificate
of merger is filed in accordance with the DGCL.
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
Section 2.4 Certificate of Incorporation; By-laws. The Certificate of
Incorporation and By-laws of Acquisition, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation and By-laws of
the Surviving Corporation and thereafter shall continue to be its Certificate
of Incorporation and By-Laws until amended as provided therein and under the
DGCL.
Section 2.5 Directors and Officers. The directors of Acquisition
immediately prior to the Effective Time shall be
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the initial directors of the Surviving Corporation each to hold office in
accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation and until their respective successors are duly elected or appointed
and qualified. The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office until their respective successors are duly elected or appointed and
qualified.
Section 2.6 Conversion of Securities. Subject to the terms and
conditions of this Agreement, at the Effective Time, by virtue of the Merger
and without any action on the part of the Company, the Parent, Acquisition or
their respective shareholders (including without limitation, the
Shareholders):
(a) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time as set forth (and, with respect to the
Optionholders, as to be set forth on or prior to the Closing upon exercise of
their respective Options) on Exhibit I under Column B shall be converted into
the right to receive, in cash, subject to the sums to be held in the Escrow
Account and in the Rochester Environmental Escrow Account pursuant to Section
2.8, a per share amount equal to (i)(A) $53,000,000 less the amount to be repaid
on the Closing Date in accordance with Section 2.11
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by the Company to Crestar Bank ("Crestar") and certain other banks for which
Crestar acts as agent under the Credit Agreement, dated as of November 5, 1993
(the "Crestar Loan"), between the Company and Crestar divided by (B) the number
of issued and outstanding shares of Common Stock immediately prior to the
Effective Time (after taking into consideration the exercise of Options), plus
or minus (ii) the adjustment determined and payable pursuant to Sections 2.9 and
2.10. The aggregate consideration payable as described above for all of the
shares of Common Stock shall be referred to herein as the "Merger
Consideration."
(b) As of the Effective Time, all Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any shares of Common Stock
shall cease to have any rights with respect thereto, except the right to receive
such holder's appropriate portion of the Merger Consideration as set forth in
Section 2.6(a), upon surrender of such certificate in accordance with Section
2.6(d).
(c) Each share of Common Stock held in the treasury of the Company
immediately prior to the Effective Time shall be cancelled and extinguished at
the Effective Time without any conversion thereof and no payment shall be made
with respect thereto.
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(d) At the Effective Time, each holder of an outstanding certificate
that prior thereto represented Common Stock shall be entitled, upon surrender
thereof to the Parent, to receive in exchange therefor such holder's appropriate
portion of the Merger Consideration pursuant to Section 2.6(a).
(e) Each share of common stock, par value $.001 per share, of
Acquisition issued and outstanding immediately prior to the Effective Time
shall automatically without any action on the part of the holder thereof be
converted into one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
Section 2.7 Closing of Transfer Records. After the close of business on
the Closing Date, transfers of Common Stock outstanding prior to the
Effective Time shall not be made on the stock transfer books of the Surviving
Corporation.
Section 2.8 Payment of Merger Consideration. Subject to the adjustment
provided for in Sections 2.9 and 2.10, payment of the Merger Consideration
shall be made by the Parent by wire transfer in immediately available funds
as follows:
(a) to Crestar or such other bank as the Shareholders' Representative may
designate, as payment agent for the Shareholders (the "Shareholders' Payment
Agent"), the sum of $53,000,000, less (i) the amount to be repaid to Crestar
pursuant to Section 2.11 hereof with respect to the Crestar
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Loan, (ii) the sum of $3,000,000 to be placed in the Escrow Account pursuant to
Section 2.8(b) hereof, and (iii) such amount as the Parent and the Company agree
to place in the Rochester Environmental Escrow Account pursuant to Section
2.8(c) hereof, such sum to be divided among the Shareholders on a pro rata basis
according to the number of shares of Common Stock held by each such Shareholder,
as listed on Exhibit I attached hereto and, with respect to the Optionholders,
as to be set forth on Exhibit I on or before the Closing upon the exercise of
their Options (each such amount, the "Shareholder's Closing Payment") to the
account designated by the Shareholders' Payment Agent to the Parent at least two
Business Days prior to the Closing;
(b) to the escrow agent (the "Escrow Agent") to be held in an escrow
account (the "Escrow Account") pursuant to the provisions of the Escrow
Agreement as contemplated by Section 10.2 hereof, the sum of $3,000,000; and
(c) to the Escrow Agent to be held in an environmental escrow account (the
"Rochester Environmental Escrow Account") pursuant to the provisions of the
Escrow Agreement as contemplated by Section 10.2 hereof, such amount as is
mutually agreed upon by the Parent and the Company pursuant to Section 6.6
hereof to be held as the Rochester Environmental Escrow Amount.
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Each Shareholder's Closing Payment shall be subject to adjustment in
accordance with Section 2.9 below.
Section 2.9 Determination of Adjustment to Each Shareholder's Closing
Payment.
(a) Closing Balance Sheet. (i) As soon as practicable (and in no event
later than 45 days after the Closing) the Company shall prepare and deliver to
the Parent and the Shareholders' Representative a proposed actual closing
consolidated balance sheet of the Company and its subsidiaries as of the opening
of business on the Closing Date (the "Closing Balance Sheet"). The Closing
Balance Sheet will be prepared in accordance with GAAP on a basis consistent
with the Audited Balance Sheets. Simultaneously with the preparation and
delivery of the Closing Balance Sheet, the Company shall prepare and deliver to
the Parent and the Shareholders' Representative a statement of "Closing Net
Worth," defined herein as total assets, including cash, less total liabilities,
excluding the outstanding balance of the Crestar Loan, each as set forth in the
Closing Balance Sheet.
(ii) If neither the Parent nor the Shareholders' Representative
objects to the determination by the Company of the Closing Net Worth by written
notice of objection (the "Notice of Objection") delivered to the other party
within 20 days after the receipt of such statement, such Notice of
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Objection to describe in reasonable detail such party's proposed adjustments to
the Closing Net Worth, the proposed Closing Net Worth shall be deemed final and
binding.
(iii) If either party delivers a Notice of Objection in respect of
the Closing Net Worth, then any dispute shall be resolved in accordance with
paragraph (b) of this Section 2.9.
(iv) During the period that the Parent and the Shareholders'
Representative are conducting their review of the determination of the Closing
Net Worth, and subsequent to issuance of the Closing Balance Sheet, Parent and
the Shareholders' Representative and their respective representatives shall have
reasonable access during normal business hours to the workpapers, schedules,
memoranda, and all of the documents, including accounting records and other
information arising after the Closing Date, prepared or reviewed by the Company
and its employees related to or arising in connection with the preparation of
the Closing Balance Sheet and the determination of the Closing Net Worth.
(v) The Company will make the work papers prepared in connection
with its preparation of the Closing Balance Sheet available to each of the
Parent and the Shareholders' Representative and their respective representatives
at reasonable times and upon reasonable notice subsequent to the completion of
their review of the Closing Balance Sheet and
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at any time during the resolution of any objections raised by any party with
respect to the Closing Balance Sheet and the determination of the Closing Net
Worth.
(b) Resolution of Disputes. (i) If either Parent or the Shareholders'
Representative objects to the Closing Balance Sheet or the determination of the
Closing Net Worth as determined by the Company, then the Parent and the
Shareholders' Representative shall promptly endeavor to agree upon the Closing
Net Worth. In the event that a written agreement as to the Closing Net Worth has
not been reached within 20 days after the date of receipt by the Parent or the
Shareholders' Representative, as the case may be, of a Notice of Objection
thereto, then the determination of the Closing Net Worth shall be submitted to a
mutually agreed nationally recognized accounting firm (the "Arbitrator").
(ii) Within 45 days of the submission of any dispute concerning the
preparation of the Closing Balance Sheet or the determination of Closing Net
Worth to the Arbitrator, the Arbitrator shall render a decision in accordance
with this paragraph (b) hereof along with a statement of reasons therefor. The
decision of the Arbitrator shall be final and binding upon the parties hereto.
(iii) The fees and expenses of the Arbitrator for any determination
under this paragraph (b) shall be shared equally by the Parent and the
Shareholders' Representative.
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(iv) Nothing herein shall be construed to authorize or permit the
Arbitrator to determine (A) any question or matter whatever under or in
connection with this Agreement, except the determinations of what adjustments,
if any, must be made in one or more of the items reflected in the Closing
Balance Sheet delivered by the Company in order for the Closing Balance Sheet to
be prepared in accordance with the provisions of this Agreement. Nothing herein
shall be construed to require the Arbitrator to follow any rules or procedures
of any arbitration association.
Section 2.10 Adjustments to Closing Payments. (a) Upon the final
determination of the Closing Net Worth, the parties shall make the following
adjustments:
(i) If the Closing Net Worth is greater than $22,771,000 (the "Base
Net Worth"), then each Shareholder's Closing Payment shall be increased by the
amount of such difference multiplied by a fraction, the numerator of which is
the number of shares of Common Stock owned by such Shareholder as set forth
(and, with respect to the Optionholders, as to be set forth on or prior to the
Closing upon exercise of their respective Options) on Exhibit I attached hereto,
and the denominator of which is the total number of issued and outstanding
shares of Common Stock (after taking into account the exercise of Options) (the
"Shareholder's Percentage").
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(ii) If the Closing Net Worth is less than the Base Net Worth, then
each Shareholder's Closing Payment shall be decreased by the amount of such
difference multiplied by the Shareholder's Percentage.
(b) Any adjustment to any Shareholder's Closing Payment required
under this Section 2.10 shall bear interest from the Closing Date to the date of
payment thereof at a per annum rate equal to the "prime lending rate" as
published in The Wall Street Journal as of the Closing Date based upon the
actual number of days elapsed on a 365 day year. Any adjustment required
pursuant to Section 2.10(a)(i) shall be paid by the Parent to the Shareholders'
Payment Agent in cash in the manner set forth in Section 2.8(a). Any adjustment
required pursuant to Section 2.10(a)(ii) shall be paid by each Shareholder to
the Parent in cash by wire transfer in immediately available funds to an account
specified by the Parent at least two Business Days prior to the date on which
such payment is required to be made hereunder. Such adjustment shall be made on
such of the following dates as may be applicable: (A) if neither Parent nor the
Shareholders' Representative shall have objected to the preparation of the
Closing Balance Sheet, the earlier of (1) 25 days after delivery to the Parent
and the Shareholders' Representative of the Closing Balance Sheet or (2) 5 days
after each of the Parent and the Shareholders' Representative
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have each indicated that it has no objections to the Closing Balance Sheet or
(B) if the Parent or the Shareholders' Representative shall have objected to the
Closing Balance Sheet, within 5 days following final agreement or decision with
respect to the Closing Balance Sheet as provided above.
Section 2.11 Payment of Bank Debt. In addition to the payment of the
Merger Consideration pursuant to Article II hereof, at Closing, Parent shall,
by wire transfer, pay or cause the Company to repay the outstanding balance
of the Crestar Loan as of the opening of business on the Closing Date.
Section 2.12 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, but only to the extent required by the DGCL,
shares of Common Stock that are issued and outstanding immediately prior to
the Effective Time and are held by Shareholders who comply with all the
provisions of the DGCL concerning the right of Shareholders to dissent from
the Merger and require appraisal of their shares of Common Stock ("Dissenting
Shareholders") shall not be converted into the right to receive the Merger
Consideration but shall become the right to receive such consideration as may
be determined to be due such Dissenting Shareholder pursuant to the law of
the State of Delaware; provided, however, that (i) if any Dissenting
Shareholder shall subsequently deliver a written withdrawal of his or her
demand for appraisal (with the written approval of the Surviving
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Corporation, if such withdrawal is not tendered within 60 days after the
Effective Time), or (ii) if any Dissenting Shareholder fails to establish and
perfect his or her entitlement to appraisal rights as provided by applicable
law, or (iii) if within 120 days of the Effective Time neither any Dissenting
Shareholder nor the Surviving Corporation has filed a petition demanding a
determination of the value of all shares of Common Stock outstanding at the
Effective Time and held by Dissenting Shareholders in accordance with applicable
law, then such Dissenting Shareholder or Shareholders, as the case may be, shall
forfeit the right to appraisal of such shares and such shares shall thereupon be
deemed to have been converted into the right to receive, as of the Effective
Time, the Merger Consideration, without interest. The Company shall give the
Parent, Acquisition and the Shareholders' Representative prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other related instruments received by the Company, and shall give the
Shareholders' Representative, after consultation with the Parent, the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal. The Company will not voluntarily make any payment with respect to
any demands for appraisal and will not, except with the prior written consent of
the Parent and the Shareholders' Representative, settle or offer to settle any
demand for an
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amount in excess of the sum described in the next succeeding paragraph of this
Section 2.12.
If at the conclusion of the appraisal procedure set forth in Section
262 of the DGCL, the Surviving Corporation is ordered to make any payment in
respect of any of the shares of Common Stock of any Dissenting Shareholder in an
amount in excess of the product of (A) the number of any such shares of any such
Dissenting Stockholder and (B) the per share Merger Consideration, then, upon
the making of any such payment, the Surviving Corporation shall be entitled to
be repaid out of the Escrow Account the amount of such payment, together with
the fees, costs and expenses suffered or reasonably incurred by the Surviving
Corporation, including, without limitation, any costs taxed to it by the court
in such proceedings, relating to the demand for and the implementation and
conduct of such proceedings.
Section 2.13 Closing. The closing of the Merger referred to in Section
2.1 (the "Closing") shall take place at 10:00 A.M. at the offices of White &
Case, New York, New York on September 30, 1996, or at such other time and
date (not later than October 15, 1996) as the parties hereto shall designate
in writing. Such date is herein referred to as the "Closing Date".
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ARTICLE III
REPRESENTATIONS OF THE COMPANY
Section 3. Representations of the Company. The Company hereby
represents and warrants to the Parent as follows:
Section 3.1 Existence and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the character or location of the
properties owned, leased or operated by the Company or the nature of the
business conducted by the Company makes such qualification or license necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on the business, operations, financial condition or
results of operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect").
Section 3.2 Capital Stock. The Company has an authorized capitalization
consisting of 577,201 shares of common stock, par value $0.01 per share, of
which 462,814 are designated as Class A Common Stock, 10,101 are designated as
Class B Common Stock and 104,286 are designated as Class C Common Stock
(collectively, the "Common Stock"), of which 405,671 shares
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of Class A Common Stock, 10,101 shares of Class B Common Stock and 104,286
shares of Class C Common Stock are issued and outstanding on the date hereof
and 460,171 shares of Class A Common Stock, 10,101 shares of Class B Common
Stock and 104,286 shares of Class C Common Stock will be issued and
outstanding at Closing. All outstanding shares of capital stock of the
Company have been, or will be when issued, duly authorized and validly issued
and are fully paid and non-assessable. As of the date of this Agreement,
except as set forth on Schedule 3.2, there are no outstanding subscriptions,
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements (collectively "Equity Rights") of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of the Company. At closing, there will be no outstanding Equity
Rights.
Section 3.3 Authorization and Validity of this Agreement. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery
and performance of this Agreement by the Company and the performance of its
obligations hereunder have been duly authorized and approved by its Board of
Directors and by the holders of a requisite amount of the Stock and no other
corporate action on the part of the Company or action by the
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stockholders of the Company is necessary to authorize the execution, delivery
and performance of this Agreement by the Company. This Agreement has been duly
executed and delivered by the Company and, assuming due execution of this
Agreement by the Parent, is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Section 3.4 Subsidiaries and Investments. Set forth on Schedule 3.4 is
a list of each corporation, partnership and other business entity in which
the Company owns, directly or indirectly, any equity security or other equity
interest and which is controlled, directly or indirectly, by the Company (a
"subsidiary"). Except as set forth on Schedule 3.4 each subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation (as set forth on Section 3.4),
and has all requisite power to own its property and to carry on its business
as now being conducted. Set forth on Schedule 3.4 is a list of jurisdictions
in which each subsidiary is qualified as a foreign corporation. Such
jurisdictions are the only jurisdictions in which the character or location of
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the properties owned or leased by each subsidiary, or the nature of the
business conducted by each subsidiary, makes each qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect. All of the outstanding shares of capital stock and other equity
interests of each subsidiary have been duly authorized and validly issued,
are fully paid and nonassessable, and, except as set forth on Schedule 3.4,
are owned, of record and beneficially, by the Company or a subsidiary, free
and clear of all liens, encumbrances, restrictions and claims of every kind.
No shares of capital stock and other equity interests of any subsidiary are
reserved for issuance and there are no outstanding options, warrants, rights,
subscriptions, claims, agreements, obligations, convertible or exchangeable
securities or other commitments, contingent or otherwise, relating to the
capital stock of any subsidiary or pursuant to which any subsidiary is or may
become obligated to issue or exchange any shares of capital stock or other
equity interests. Neither the Company nor any subsidiary owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture
or other entity except as set forth on Schedule 3.4.
Section 3.5 Financial Statements; No Material Changes.
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(a) The Company has heretofore furnished the Parent with audited
consolidated balance sheets of its wholly-owned subsidiary, CPG Holdings Inc.
("CPG Holdings") and its subsidiaries as of December 31, 1994 and December 31,
1995 (the "Audited Balance Sheets"), together with related consolidated
statements of income and retained earnings and cash flows for the years then
ended, together with the report of Coopers & Lybrand L.L.P. (collectively with
the Audited Balance Sheets, the "Audited Statements"). The Audited Statements,
including the footnotes thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
indicated ("GAAP") and fairly present in all material respects the financial
position of CPG Holdings its subsidiaries at the respective dates thereof, and
the results of the operations and cash flows of CPG Holdings and its
subsidiaries for the respective periods indicated.
(b) The Company has also heretofore furnished the Parent with an unaudited
consolidated balance sheet of CPG Holdings and its subsidiaries as of June 2,
1996, together with related consolidated statements of income and retained
earnings and cash flows for the period then ended, a copy of which is attached
hereto as Exhibit II (collectively, the "Unaudited Statements"). Except as
described on Schedule 3.5, the Unaudited Statements have been prepared in
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accordance with GAAP and fairly present in all material respects the financial
position of CPG Holdings and its subsidiaries at the date thereof, and the
results of the operations and cash flows of CPG Holdings and its subsidiaries
for the period indicated. The unaudited balance sheet of CPG Holdings and its
subsidiaries dated June 2, 1996, is hereinafter referred to as the "Balance
Sheet" and June 2, 1996, is hereinafter referred to as the "Balance Sheet Date."
(c) Except as set forth on Schedule 3.5, since December 31, 1995, there
has been no (i) material adverse change in the business, operations, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole or (ii) material damage, destruction or loss to any asset or property,
tangible or intangible, of the Company or any of its subsidiaries which
materially affects the ability of the Company or any of its subsidiaries to
conduct its business.
(d) The Company has no assets (other than 100% of the issued and
outstanding capital stock of CPG Holdings) and has no liabilities.
Section 3.6 Books and Records. The minute books of the Company and each
of its subsidiaries, as previously made available to the Parent and its
representatives, contain materially accurate records of all meetings of, and
corporate actions taken by (including action taken by written consent),
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the respective shareholders and Board of Directors of the Company and each of
such subsidiaries. At Closing all of the books and records of the Company and
its subsidiaries will be in the possession of the Company.
Section 3.7 Title to Properties; Encumbrances. Except as set forth on
Schedule 3.7 attached hereto and except for such properties and assets which
have been sold or otherwise disposed of in the ordinary course of business,
the Company and each of its subsidiaries have good title to their material
properties and assets (real and personal, tangible and intangible),
including, without limitation, the material properties and assets reflected
in the Balance Sheet, subject to no encumbrance, lien, charge or other
restriction of any kind or character ("Encumbrances"), except for (i)
Encumbrances reflected in the Balance Sheet or the Audited Statements, (ii)
Encumbrances for current taxes, assessments or governmental charges or levies
on property not yet due and delinquent, (iii) Encumbrances arising by
operation of law and (iv) Encumbrances described on Schedule 3.7 attached
hereto.
Section 3.8 Real Property. Schedule 3.8 attached hereto contains an
accurate and complete list of all real property owned in whole or in part by
the Company or any of its subsidiaries (the "Real Property"). With respect to
all of the buildings, structures and appurtenances situated on the
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Real Property, the Company and its subsidiaries have adequate rights of ingress
and egress for operation of the business of the Company and its subsidiaries in
the ordinary course consistent with past practice. None of such buildings,
structures or appurtenances, or the operation or maintenance thereof, violates
any restrictive covenant or encroaches on any property owned by others, except
for such violations, encumbrances or encroachments which would not have a
Material Adverse Effect.
Section 3.9 Intellectual Property. Schedule 3.9 attached hereto sets
forth a list of all licenses, patents, trade names, trademarks and service
marks (collectively, the "Intellectual Property") owned by the Company and
its subsidiaries and/or used in the conduct of its business as presently
conducted. The Company knows of no license, patent, trade name, trademark or
service mark which is not included within the Intellectual Property and which
is necessary for the continued conduct of its business as presently
conducted. Except as described on Schedule 3.9, all such Intellectual
Property is in full force and effect and neither the Company nor any of its
subsidiaries has received written notice of any event, inquiry, investigation
or proceeding threatening the rights of the Company or any of its
subsidiaries in any such Intellectual Property.
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Section 3.10 Leases. Schedule 3.10 attached hereto contains a list of all
leases or sub-leases to which the Company or any of its subsidiaries is a party
requiring an annual aggregate payment of at least $50,000. Except as otherwise
set forth in Schedule 3.10 attached hereto, each lease or sub-lease set forth in
Schedule 3.10 is in full force and effect; all rents and additional rents due to
date from the Company or any of its subsidiaries on each such lease or sublease
have been paid; neither the Company nor any of its subsidiaries has received
written (or, to the Company's knowledge, oral) notice that it is in material
default under any such lease or sub-lease; and, to the knowledge of the Company,
there exists no event, occurrence, condition or act (including the consummation
of the transactions contemplated by this Agreement) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material default by the Company or any of its subsidiaries under
such lease or sub-lease.
Section 3.11 Material Contracts. Except as set forth on Schedule 3.10 and
Schedule 3.11 attached hereto, neither the Company nor any of its subsidiaries
has or is bound by (a) any agreement, contract or commitment that involves the
performance of services or the delivery of goods and/or materials by it of an
amount or value in excess of $50,000 other than open sales orders and purchase
orders entered into
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in the ordinary course of business, (b) any agreement, contract or commitment
not in the ordinary course of business, (c) any agreement, indenture or other
instrument which contains restrictions with respect to payment of dividends or
any other distribution in respect of its capital stock, (d) any agreement,
contract or commitment relating to capital expenditures in excess of $50,000,
(e) any agreement, indenture or instrument relating to indebtedness, liability
for borrowed money or the deferred purchase price of property (excluding trade
payables in the ordinary course of business), (f) any loan or advance to, or
investment in, any individual, partnership, joint venture, corporation, trust,
unincorporated organization, government or other entity (each a "Person"), any
agreement, contract or commitment relating to the making of any such loan,
advance or investment or any agreement, contract or commitment involving a
sharing of profits, (g) any guarantee or other contingent liability in respect
of any indebtedness or obligation of any Person (other than in the ordinary
course of business), (h) any management service, consulting or any other similar
type of contract, (i) any agreement, contract or commitment limiting the ability
of the Company or any of its subsidiaries to engage in any line of business or
to compete with any Person, (j) any warranty, guaranty or other similar
undertaking with respect to a contractual performance extended by the Company
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or any of its subsidiaries other than in the ordinary course of business, or (k)
any amendment, modification or supplement in respect of any of the foregoing.
Except as otherwise set forth on Schedule 3.11, each contract or agreement set
forth on Schedule 3.11 is in full force and effect and there exists no material
default or event of default by the Company or any of its subsidiaries thereunder
or, to the knowledge of the Company, event, occurrence, condition or act
(including the consummation of the transactions contemplated hereby) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a material default or event of default thereunder.
Section 3.12 Consents and Approvals; No Violations. Except as set forth in
Schedule 3.12 attached hereto, the execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby (a)
will not violate or contravene any provision of the Certificate of Incorporation
or By-laws of the Company or any of its subsidiaries, (b) will not violate or
contravene any statute, rule, regulation, order or decree of any public body or
authority by which the Company or any of its subsidiaries is bound or by which
any of their respective properties or assets are bound, (c) will not require any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority,
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or any other Person and (d) will not result in a violation or breach of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of the Company or any of its subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease, franchise agreement or any other
instrument or obligation to which the Company or any of its subsidiaries is a
party, or by which it or any of their respective properties or assets may be
bound, except, in the case of clauses (b), (c) and (d), for such filing, permit,
consent or approval, the absence of which, and violations, breaches, defaults,
conflicts and encumbrances which, in the aggregate would not have a Material
Adverse Effect.
Section 3.13 Litigation. Except as set forth on Schedule 3.13 attached
hereto, there is no action, suit, proceeding at law or in equity, arbitration
or administrative or other proceeding by or before (or to the knowledge of
the Company any investigation by) any governmental or other instrumentality
or agency, pending, or, to the knowledge of the Company, threatened, against
or affecting the Company or any of its subsidiaries or their respective
properties or rights
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which could materially and adversely affect the right or ability of the Company
or any of its subsidiaries to carry on their respective business as now
conducted, or which could have a Material Adverse Effect; and the Company knows
of no valid basis for any such action, proceeding or investigation. Neither the
Company nor any of its subsidiaries is subject to any judgment, order or decree
entered in any lawsuit or proceeding which could reasonably be likely to have a
Material Adverse Effect.
Section 3.14 Taxes. (a) Tax Returns. The Company and each of its
subsidiaries have timely filed or caused to be timely filed or will timely
file or cause to be timely filed with the appropriate taxing authorities all
returns, statements, forms and reports for Taxes ("Returns") that are
required to be filed by, or with respect to, the Company and its subsidiaries
on or prior to the Closing Date. The Returns have accurately reflected and
will accurately reflect all material liability for Taxes of the Company and
its subsidiaries for the periods covered thereby.
(b) Payment of Taxes. All material Taxes and Tax liabilities of the
Company and each of its subsidiaries for all taxable years or periods that end
as of or before the opening of business on the Closing Date and, with respect to
any taxable year or period beginning before and ending after the Closing Date,
the portion of such taxable year or period
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ending as of the opening of business on the Closing Date ("Pre-Closing Periods")
have been timely paid or accrued and adequately disclosed and fully provided for
on the books and records of the Company in accordance with GAAP.
(c) Other Tax Matters. (i) Schedule 3.14 attached hereto sets forth (A)
each taxable year or other taxable period of the Company and each of its
subsidiaries for which an audit or other examination of Taxes by the appropriate
tax authorities of any nation, state or locality is currently in progress (or
scheduled as of the Closing Date to be conducted) together with the names of the
respective tax authorities conducting (or scheduled to conduct) such audits or
examinations and a description of the subject matter of such audits or
examinations, (B) the most recent taxable year or other taxable period for which
an audit or other examination relating to Federal income taxes of the Company
has been finally completed and the disposition of such audits or examinations,
(C) the taxable years or other taxable periods of the Company and each of its
subsidiaries which will not be subject to the normally applicable statute of
limitations by reason of the existence of circumstances that would cause any
such statute of limitations for applicable Taxes to be extended, (D) the amount
of any proposed adjustments (and the principal reason therefor) relating to any
Returns for Tax liability of the Company and its subsidiaries which have been
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proposed or assessed by any taxing authority and (E) a list of all notices
received by the Company and its subsidiaries from any taxing authority relating
to any issue which could affect the Tax liability of the Company and its
subsidiaries, which issue has not been finally determined and which, if
determined adversely to the Company or such subsidiary, could result in a Tax
liability.
(ii) Except as set forth on Schedule 3.14, neither the Company nor
any of its subsidiaries has been included in any "consolidated," "unitary" or
"combined" Return provided for under the law of the United States, any foreign
jurisdiction or any state or locality with respect to Taxes for any taxable
period for which the statute of limitations has not expired.
(iii) All Taxes which the Company or any of its subsidiaries is (or
was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
(iv) Neither the Company nor any of its subsidiaries is a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code").
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(v) There are no tax sharing, allocation, indemnification or similar
agreements or arrangements in effect as between the Company or any predecessor
or affiliate thereof and any other party (including any of the Shareholders and
any predecessor or affiliate thereof) under which the Parent, the Company or any
of its subsidiaries could be liable for any Taxes or other claims of any party.
(vi) Neither the Company nor any of its subsidiaries has applied
for, been granted, or agreed to any accounting method change for which it will
be required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality.
(vii) No indebtedness of the Company or any of the subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code.
(viii) Neither the Company nor any of its subsidiaries is a party to
any agreement that would require it to make any payment that would constitute an
"excess parachute payment" for purposes of Sections 280G and 4999 of the Code.
Section 3.15 Liabilities. Neither the Company nor any of its
subsidiaries has any outstanding material claims, liabilities or
indebtedness, contingent or otherwise, which are required to be disclosed in
accordance with GAAP, except as set forth
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in the Balance Sheet or the Audited Statements or referred to in the footnotes
thereto, other than (a) liabilities incurred subsequent to the Balance Sheet
Date in the ordinary course of business or (b) as disclosed on Schedule 3.15
attached hereto.
Section 3.16 Insurance. Schedule 3.16 contains an accurate and complete
list of all policies of property, fire and casualty, product liability,
workers compensation and other forms of insurance owned or held by the
Company or any of its subsidiaries together with a summary description
thereof. Neither the Company nor any of its subsidiaries has received (i) any
written notice of cancellation of any policy described in such Schedule or
refusal of coverage thereunder, (ii) any written notice that any issuer of
such policy has filed for protection under applicable bankruptcy laws or is
otherwise in the process of liquidating or has been liquidated, or (iii) to
the knowledge of the Company, any other indication that such policies are no
longer in full force or effect or that the issuer of any such policy is no
longer willing or able to perform its obligations thereunder. To the
knowledge of the Company, since the last renewal date of any insurance
policy, there has not been any material adverse change in the relationship of
the Company or any its subsidiaries with its insurers or in the premiums
payable pursuant to such policies.
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Section 3.17 Compliance with Laws. The Company and each of its
subsidiaries is in compliance with all applicable laws, regulations, orders,
judgments and decrees, except where the failure to so comply would not have a
Material Adverse Effect. Notwithstanding the foregoing, this Section 3.17
shall not apply to Environmental Laws, which are covered exclusively by
Section 3.21 hereof, or to compliance with ERISA and the Code in connection
with Employee Benefit Plans, which are covered exclusively by Section 3.19
hereof.
Section 3.18 Employment Relations. (a) The Company and each of its
subsidiaries is in material compliance with all Federal, state or other
applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has
not, and is not, engaged in any unfair labor practice;
(b) no unfair labor practice complaint against the Company or any of its
subsidiaries is pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of the Company, threatened against or involving the
Company or any of its subsidiaries;
(d) except as set forth in Section 3.18, neither the Company nor any of
its subsidiaries is a party to any collective bargaining agreement and no
collective bargaining
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agreement is currently being negotiated by the Company or any of its
subsidiaries; and
(e) except as provided on Schedule 3.18, no claim in respect of the
employment of any employee has been asserted or, to the knowledge of the
Company, threatened, against the Company or any of its subsidiaries.
Section 3.19 Employee Benefit Plans. (a) List of Plans. Set forth in
Schedule 3.19 attached hereto is an accurate and complete list of all
domestic and foreign (i) "employee benefit plans," within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"); (ii) bonus,
stock option, stock purchase, restricted stock, incentive, profit-sharing,
pension, retirement, deferred compensation, medical, life, disability,
accident, accrued leave, vacation, sick pay, sick leave, supplemental
retirement and unemployment benefit plans, programs, arrangements,
commitments and/or practices; (whether or not insured); and (iii) employment,
consulting, termination, and severance contracts or agreements; for active,
retired or former employees or directors, whether or not any such plans,
programs, arrangements, commitments, contracts, agreements and/or practices
(referred to in (i), (ii) or (iii)) are in writing or are otherwise exempt
from the provisions of ERISA; that have been established, maintained or
contributed to (or
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with respect to which an obligation to contribute has been undertaken) or with
respect to which any potential liability is borne by the Company or any of its
subsidiaries (including, for this purpose and for the purpose of all of the
representations in this Section 3.19, any predecessors to the Company or to any
of its subsidiaries and all employers (whether or not incorporated) that are by
reason of common control treated together with the Company, any of its
subsidiaries and/or the Shareholders as a single employer (i) within the meaning
of Section 414 of the Code or (ii) as a result of the Company or any subsidiary
and/or any of the Shareholders being or having been a general partner of any
such employer), since September 2, 1974 ("Employee Benefit Plans").
(b) Status of Plans. Except as set forth on Schedule 3.19 or, except with
respect to an event or condition of noncompliance which would not result in a
Material Adverse Effect, each Employee Benefit Plan has at all times been
maintained and operated in compliance in all material respects with its terms
and the requirements of all applicable laws, including, without limitation,
ERISA and the Code. No complete or partial termination of any Employee Benefit
Plan has occurred or is expected to occur. Neither the Company nor any of its
subsidiaries has any commitment, intention or understanding to create, modify or
terminate any
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Employee Benefit Plan. Except as required by applicable law or the terms of a
current collective bargaining agreement, no condition or circumstance exists
that would prevent the amendment or termination of any Employee Benefit Plan.
Except for scheduled benefit increases under the Company's defined benefit
pension plan required by the current collective bargaining agreements listed in
Schedule 3.18, copies of which have been furnished to the Parent, no event has
occurred and no condition or circumstance has existed that could result in a
material increase in the benefits under or the expense of maintaining any
Employee Benefit Plan from the level of benefits or expense incurred for the
most recent fiscal year ended thereof.
(c) Liabilities. No Employee Benefit Plan subject to Section 412 or 418B
of the Code or Section 302 of ERISA has incurred any accumulated funding
deficiency within the meaning of Section 412 or 418B of the Code or Section 302
of ERISA, respectively, or has applied for or obtained a waiver from the
Internal Revenue Service of any minimum funding requirement under Section 412 of
the Code. Except for payments of premiums to the Pension Benefit Guaranty
Corporation ("PBGC"), neither the Company nor any of its subsidiaries has
incurred any liability (including, for this purpose and for the purpose of all
of the representations in this Section 3.19, any indirect, contingent, or
secondary
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liability) to the PBGC in connection with any Employee Benefit Plan covering any
active, retired or former employees or directors of the Company or any of its
subsidiaries, including, without limitation, any liability under Section 4069 or
4212(c) of ERISA or any penalty imposed under Section 4071 of ERISA, or ceased
operations at any facility or withdrawn from any such Plan in a manner which
could subject it to liability under Section 4062, 4063 or 4064 of ERISA, or
knows of any facts or circumstances that might give rise to any liability of the
Company or any of its subsidiaries to the PBGC under Title IV of ERISA that
could reasonably be anticipated to result in any claims being made against
Parent by the PBGC.
Neither the Company nor any of its subsidiaries has incurred any
withdrawal liability (including any contingent or secondary withdrawal
liability) within the meaning of Section 4201 or 4204 of ERISA to any Employee
Benefit Plan which is a "multiemployer plan" (as such term is defined in Section
4001(a)(3) of ERISA) ("Multiemployer Plan"), and no event has occurred and no
condition or circumstance has existed, that presents a material risk of the
occurrence of any withdrawal from or the partition, termination, reorganization
or insolvency of any such Multiemployer Plan which could result in any liability
of the Company or any of its subsidiaries to any such Multiemployer Plan.
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Neither the Company nor any of its subsidiaries maintains any Employee
Benefit Plan which is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code) that has not been administered and operated in all
material respects in compliance with the applicable requirements of Section 601
of ERISA and Section 4980B(f) of the Code and neither the Company nor any of its
subsidiaries is subject to any liability, including, without limitation,
additional contributions, fines, penalties or loss of tax deduction as a result
of such administration and operation. Except as set forth in Schedule 3.19,
neither the Company nor any of its subsidiaries maintains any Employee Benefit
Plan (whether qualified or nonqualified within the meaning of Section 401(a) of
the Code) providing for retiree health and/or life benefits and having unfunded
liabilities. Neither the Company nor any of its subsidiaries maintains any
Employee Benefit Plan which is an "employee welfare benefit plan" (as such term
is defined in Section 3(1) of ERISA) that has provided any "disqualified
benefit" (as such term is defined in Section 4976(b) of the Code) with respect
to which an excise tax could be imposed.
Except as set forth on Schedule 3.19, neither the Company nor any of its
subsidiaries has any unfunded liabilities pursuant to any Employee Benefit Plan
that is not intended to be qualified under Section 401(a) of the Code.
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Except as set forth on Schedule 3.19, neither the Company nor any of its
subsidiaries has incurred any liability for any tax or excise tax arising under
Section 4971, 4977, 4978, 4978B, 4979, 4980 or 4980B of the Code, and no event
has occurred and no condition or circumstance has existed that could give rise
to any such liability.
No asset of the Company or any of its subsidiaries is subject to any lien
arising under Section 302(f) of ERISA or Section 412(n) of the Code, and no
event has occurred and no condition or circumstance has existed that could give
rise to any such lien. Neither the Company nor any of its subsidiaries has been
required to provide any security under Section 307 of ERISA or Section
401(a)(29) or 412(f) of the Code, and no event has occurred and no condition or
circumstance has existed that could give rise to any such requirement to provide
any such security.
There are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened, anticipated or expected to be asserted against any Employee
Benefit Plan or the assets of any such plan (other than routine claims for
benefits and appeals of denied routine claims). No civil or criminal action
brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is
pending, threatened, anticipated, or expected to be asserted against the Company
or any of its subsidiaries or any fiduciary of any Employee
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Benefit Plan, in any case with respect to any Employee Benefit Plan. Except as
set forth on Schedule 3.19, no Employee Benefit Plan or any fiduciary thereof
has been the direct or indirect subject of an audit, investigation or
examination by any governmental or quasi-governmental agency.
(d) Contributions. Except as set forth on Schedule 3.19, full payment has
been made of all amounts which the Company or any of its subsidiaries is
required, under applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which the Company or any of
its subsidiaries is a party, to have paid as contributions thereto as of the
last day of the most recent fiscal year of such Employee Benefit Plan ended
prior to the date hereof. All such contributions have been fully deducted for
income tax purposes or will be deducted for the Company's taxable year on
account of which such contributions were made and no such deduction has been
challenged or disallowed by any governmental authority, and to the knowledge of
the Company, no event has occurred and no condition or circumstance has existed
that could give rise to any such challenge or disallowance. Except as set forth
on Schedule 3.19, the Company has made adequate provision for reserves to make
Employee Benefit Plan contributions that have accrued through the Closing Date,
but that have not been made because they are not yet due under the terms of any
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Employee Benefit Plan or related agreements. Benefits under all Employee Benefit
Plans are as represented and have not been increased subsequent to the date as
of which documents have been provided.
(e) Funded Status; Withdrawal Liability. Except as set forth on Schedule
3.19, as of the date of this Agreement, the current value of the accumulated
benefit obligations (based upon actuarial assumptions which are in the aggregate
reasonable in all respects and which have been furnished to and relied upon by
the Parent) under each Employee Benefit Plan which is covered by Title IV of
ERISA and which is a "Single Employer Plan" (as such term is defined in Section
4001(a)(15) of ERISA) ("Single Employer Plan") did not exceed the current fair
value of the assets of each such Single Employer Plan allocable to such accrued
benefits. Except as set forth on Schedule 3.19, since the Balance Sheet Date,
there has been (i) no material adverse change in the financial condition of any
Single Employer Plan, (ii) no change in the actuarial assumptions with respect
to any Single Employer Plan and (iii) no increase in benefits under any Single
Employer Plan as a result of plan amendments, written interpretations or
announcements (whether written or not), change in applicable law or otherwise,
which individually or in the aggregate, would result in the current value of any
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Single Employer Plan's accrued benefits exceeding the current value of all such
Single Employer Plan's assets.
As of the date of this Agreement, using actuarial assumptions and
computation methods consistent with Subpart 1 of Subtitle E of Title IV of
ERISA, the aggregate liabilities of the Company and its subsidiaries to all
Multi-employer Plans in the event of a complete withdrawal therefrom, as of the
close of the most recent fiscal year of each Multiemployer Plan ended prior to
the date hereof, would not exceed $50,000. To the knowledge of the Company,
there has been no material change in the financial condition of any
Multiemployer Plan, in any such actuarial assumption or computation method or in
the benefits under any Multiemployer Plan as a result of collective bargaining
or otherwise since the close of each such fiscal year which, individually or in
the aggregate, would materially increase such liability.
(f) Tax Qualification. Each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has been determined to be so qualified, as to
design, by the Internal Revenue Service, but solely as to plan provisions
required as of December 31, 1994. Each trust established in connection with any
Employee Benefit Plan which is intended to be exempt from Federal income
taxation under Section 501(a) of the Code has been determined to be so exempt by
the Internal Revenue Service. Since the date of each most recent
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determination referred to in this paragraph (f), to the knowledge of the
Company, no event has occurred and no condition or circumstance has existed that
resulted or is likely to result in the revocation of any such determination or
that could adversely affect the qualified status of any such Employee Benefit
Plan or the exempt status of any such trust.
(g) Transactions. No "reportable event" (as such term is defined in
Section 4043 of ERISA) for which the 30-day notice requirement has not been
waived by the PBGC has occurred or is expected to occur with respect to any
Employee Benefit Plan. Neither the Company nor any of its subsidiaries nor any
of their respective directors, officers, employees or, to the knowledge of the
Company, other persons who participate in the operation of any Employee Benefit
Plan or related trust or funding vehicle, has engaged in any transaction with
respect to any Employee Benefit Plan or breached any applicable fiduciary
responsibilities or obligations under Title I of ERISA that would subject any of
them to a tax, penalty or liability for prohibited transactions under ERISA or
the Code or would result in any claim being made under, by or on behalf of any
such Employee Benefit Plan by any party with standing to make such claim.
(h) Triggering Events. The execution of this Agreement and the
consummation of the transactions contemplated hereby,
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do not constitute a triggering event under any Employee Benefit Plan, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of the Company or any of its subsidiaries. Except as
set forth on Schedule 3.19, no Employee Benefit Plan provides for the payment of
severance benefits upon the termination of an employee's employment.
(i) Documents. The Company has delivered or caused to be delivered to the
Parent and its counsel true and complete copies of all material documents in
connection with each Employee Benefit Plan, including, without limitation (where
applicable): (i) all Employee Benefit Plans as in effect on the date hereof,
together with all amendments thereto, including, in the case of any Employee
Benefit Plan not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifications, and
material communications; (iii) all current trust agreements, declarations of
trust and other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent Internal Revenue Service determination letter
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obtained with respect to each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code or exempt under Section 501(a) of the Code; (v)
the annual report on Internal Revenue Service Form 5500-series for each of the
last three years for each Employee Benefit Plan required to file such form; (vi)
the most recently prepared actuarial valuation report for each Employee Benefit
Plan covered by Title IV of ERISA; (vii) the most recently prepared financial
statements; and (viii) all contracts relating to each Employee Benefit Plan,
including, without limitation, service provider agreements, insurance contracts,
annuity contracts, investment management agreements, subscription agreements,
participation agreements, and recordkeeping agreements.
Section 3.20 Interests in Customers, Suppliers, etc. Except as set
forth on Schedule 3.20 attached hereto, none of the Shareholders nor any
officer or director of the Company or any of its subsidiaries possesses,
directly or indirectly, any ownership interest in, or is a director, officer
or employee of, any Person which is a supplier, customer, lessor, lessee,
licensor, developer, competitor or potential competitor of the Company or any
of its subsidiaries. Ownership of securities of a company whose securities
are registered under the Securities Exchange Act of 1934 of 5% or less of any
class of such securities shall not be deemed to be a financial interest for
purposes of this Section 3.20.
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Section 3.21 Environmental Laws and Regulations. Except as set forth on
Schedule 3.21 and except for that which would not have a Material Adverse
Effect:
(a) To the knowledge of the Company, Hazardous Materials have not been
generated, used, treated, stored or Released on, or transported to or from, any
Company Property, except in compliance with Environmental Law.
(b) The Company and each of its subsidiaries is in compliance in all
material respects with Environmental Law (as hereinafter defined) and the
requirements of any permits issued under such Environmental Laws with respect to
any Company Property.
(c) There are no pending or, to the knowledge of the Company, threatened
Environmental Claims against the Company, its subsidiaries or any Company
Property.
(d) There are no facts, circumstances, conditions or occurrences regarding
the Company's past or present business or operations or any Company Property or
former Company Property, that could reasonably be anticipated (i) to form the
basis of an Environmental Claim against the Company, its subsidiaries or any
Company Property or (ii) to cause such Company Property to be subject to any
legal restrictions on its ownership, occupancy, use or transferability under any
Environmental Law. Notwithstanding anything herein to the contrary, the matters
covered in subparagraphs (a), (b), (c)
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and (e) of this Section 3.21 shall be excluded from the scope of this
subparagraph (d), it being the intent of the parties that the representations
made pursuant to such other subparagraphs shall be the exclusive representations
and warranties made in this Agreement with respect to the matters addressed
therein.
(e) To the knowledge of the Company, there are not now and never have been
any underground storage tanks located on any Company Property or on any property
adjoining or adjacent to any Company Property.
(f) For purposes of this Agreement, the following words and phrases shall
have the following meanings:
"Company Property" means any real property and improvements owned,
leased, used, operated or occupied by the Company or any of its subsidiaries.
"Hazardous Materials" means (i) any petroleum or petroleum products,
radioactive materials, friable asbestos and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls; and (ii) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any applicable Environmental Law.
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"Environment" means soil, sediment, surface waters, groundwater and
air.
"Environmental Claim" means (i) any (a) Remedial Work, to the extent
required by Environmental Law, or (b) a judicial or administrative proceeding
under any Environmental Law, commenced by a Governmental Authority, or by a
third party, seeking damages, injunctive relief, reimbursement of costs,
response costs or penalties, in the case of (a) or (b) arising from the Release
prior to Closing of Hazardous Materials on Company Property or from the
Company's conduct prior to Closing, (ii) a directive by a Governmental Authority
requiring that Remedial Work be undertaken pursuant to an Environmental Law to
address a Release of Hazardous Materials on Company Property, which Release
occurred prior to Closing, or (iii) a written notice from a Governmental
Authority that an investigation has commenced, will commence or must be
commenced concerning the Release or suspected Release of Hazardous Materials on
Company Property, which Release is ultimately determined to have occurred prior
to Closing. Notwithstanding the foregoing, "Environmental Claim" shall not
include any directive or judicial, administrative or regulatory proceeding, or
investigation, to the extent that it relates to (x) laws or regulations which
have as their primary mission the protection of employee health and safety and
which are administered or enforced by
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the Occupational Safety and Health Administration or other Governmental
Authority, (y) Remedial Work required pursuant to ISRA that relates to a
condition created on any Company property subsequent to Closing, or (z)
obligations (including, without limitation, closure obligations under RCRA) that
are incurred or arise because of the cessation of some or all of the operations
at any Company Property subsequent to the Closing Date (except obligations that
relate to the presence of Hazardous Materials on Company Property prior to
Closing in circumstances that could have given rise to an Environmental Claim
prior to Closing had such circumstances been known to the relevant Governmental
Authorities).
"Environmental Law" means any federal, state or local statute,
law, rule, regulation, ordinance, code, written and binding guideline or
policy, or rule of common law, in effect and, in each case as amended as of
the Closing Date, and any judicial or administrative interpretation thereof
as of the Closing Date, applicable to the Company or Company Property,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, health, safety or Hazardous Materials, including
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et seq.; the Resource Conservation
and Recovery Act ("RCRA"), as
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amended, 42 U.S.C. Section 6901 et seq.; the Federal Water Pollution Control
Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C.
Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f
et seq.; the Oil Pollution Act of 1990, 33 U.S.C Section 2701 et seq.; the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section
651 et seq.;and their state and local counterparts and equivalents, and the
New Jersey Industrial Site Recovery Act, N.J.S.A. Section 13.6:1k-6, et seq.
("ISRA").
"Governmental Authority" means any federal, state, or local agency,
department or political subdivision of government that has jurisdiction to
administer and enforce an Environmental Law.
"Release" means disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like, or otherwise entering, into the Environment.
"Remedial Work" means any investigation, monitoring, clean-up,
containment, restoration, remedial, removal or other work concerning or relating
to Hazardous Materials that is required by any Governmental Authority, judicial
order or decree, or by any Environmental Law.
Section 3.22 Bank Accounts, Powers of Attorney. Set forth on Schedule 3.22
attached hereto is an accurate and complete
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list showing (a) the name and address of each bank in which the Company or any
of its subsidiaries has a material account or safe deposit box, the number of
any such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto and (b) the names of all persons, if any,
holding powers of attorney from the Company or any of its subsidiaries.
Section 3.23 Compensation of Employees. Set forth on Schedule 3.23
attached hereto is an accurate and complete list for fiscal year 1995 showing
the names of all persons employed by the Company and/or any of its
subsidiaries who received more than $50,000 in 1995 cash compensation
(including, without limitation, salary, commission and bonus) and who are
expected to be employed by the Company and/or any of its subsidiaries on the
Closing Date. Such list sets forth the present salary or hourly wage, total
in 1995 and expected 1996 cash compensation (including, without limitation,
salary, commission and bonus), of each such person.
Section 3.24 Conduct of Business. Except as disclosed on Schedule 3.24
attached hereto and except as expressly contemplated by this Agreement, since
December 31, 1995, the Company has taken no action which, if taken subsequent
to the execution of this Agreement and on or prior to the Closing Date, would
constitute a breach of the Company's agreements set forth in Section 6.1
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Section 3.25 Customer Relations. To the knowledge of the Company, there
has not been any change in relations with customers of the Company and its
subsidiaries as a result of the transactions contemplated by this Agreement
which could have a Material Adverse Effect and the Company has no knowledge
of any plans by any of its customers to make any such change.
Section 3.26 Condition of Assets. The assets and properties utilized in
and material to the conduct of the Company's and its subsidiaries' business,
whether owned or leased, are, in the aggregate, in good operating condition
and repair (normal wear and tear excepted) and, in the opinion of the
Company, are suitable for the purposes for which they are presently being
used.
Section 3.27 Broker's or Finder's Fees. Except as described on Schedule
3.27 (whose fees and expenses will be paid by the Company prior to Closing or
by the Shareholders), no agent, broker, person or firm acting on behalf of
the Company or the Shareholders, is, or will be, entitled to any commission
or broker's or finder's fees from the Company or any of its subsidiaries in
connection with any of the transactions contemplated by this Agreement.
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ARTICLE IV
[INTENTIONALLY OMITTED]
ARTICLE V
REPRESENTATIONS OF THE PARENT AND ACQUISITION
Section 5. Representations of the Parent and Acquisition. Each of the
Parent and Acquisition represents and warrants to the Company and the
Shareholders as follows:
Section 5.1 Existence and Good Standing; Power and Authority. Each of
the Parent and Acquisition is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of the
Parent and the Acquisition has the requisite corporate power and authority to
enter into, execute and deliver this Agreement and perform its obligations
hereunder. This Agreement has been duly authorized and approved by each of
the Parent and Acquisition and, assuming the due execution of this Agreement
by the Company, is a valid and binding obligation of each of the Parent and
Acquisition enforceable against it in accordance with its terms, except to
the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
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Section 5.2 Restrictive Documents. Neither the Parent nor Acquisition
is subject to any mortgage, lien, lease, agreement, instrument, order, law,
rule, regulation, judgment or decree, or any other restriction of any kind or
character which would prevent consummation by it of the transactions
contemplated by this Agreement.
Section 5.3 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Parent or Acquisition is, or will be, entitled to any
commission or broker's or finder's fees from the Company or any of the
Shareholders in connection with any of the transactions contemplated by this
Agreement.
ARTICLE VI
TRANSACTIONS PRIOR TO THE CLOSING DATE
Section 6.1 Conduct of Business of the Company. During the period from
the date of this Agreement to the Closing Date, the Company and each of its
subsidiaries shall conduct its operations only according to its ordinary and
usual course of business; use its reasonable efforts to preserve intact its
business organizations, keep available the services of its officers and
employees and maintain its relationships and goodwill with licensors,
suppliers, distributors, customers, landlords, employees, agents and others
having business relationships with it; subject to applicable laws relating to
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the exchange of information, confer with the Parent concerning operational
matters of a material nature and report periodically to the Parent concerning
the business, operations and financial condition of the Company and its
subsidiaries. Notwithstanding the immediately preceding sentence, prior to the
Closing Date, except as may be first approved in writing by the Parent or as is
otherwise permitted or required by this Agreement, the Company shall, and shall
cause each of its subsidiaries to, (a) refrain from amending or modifying its
Certificate of Incorporation or ByLaws from its form on the date of this
Agreement, (b) refrain from paying or increasing any bonuses, salaries, or other
compensation to any director, officer, employee or stockholder or entering into
any employment, severance, or similar agreement with any director, officer, or
employee other than, in each case, in the ordinary course of business consistent
with past practice, (c) refrain from the adopting or increasing of any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any of its employees, (d) refrain
from entering into any material contract or commitment except material contracts
and commitments in the ordinary course of business consistent with past
practice, (e) refrain from increasing its indebtedness for borrowed money,
except current borrowings in the ordinary course of
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business, (f) refrain from cancelling or waiving any claim or right of
substantial value which, individually or in the aggregate, is material, (g)
refrain from declaring or paying any dividends in respect of its capital stock
or redeeming, purchasing or otherwise acquiring any of its capital stock, (h)
refrain from making any material change in accounting methods or practices,
except as required by law or generally accepted accounting principles, (i) other
than in connection with the exercise of Options, refrain from issuing or selling
any shares of capital stock or any other securities, or issuing any securities
convertible into, or options, warrants or rights to purchase or subscribe to, or
entering into any arrangement or contract with respect to the issue and sale of,
any shares of its capital stock or any other securities, or making any other
changes in its capital structure, (j) other than inventory sold in the ordinary
course of business, refrain from selling, leasing or otherwise disposing of any
asset or property having a value in excess of $100,000 in the aggregate, unless
pursuant to an existing contract or commitment to do so which has been listed on
Schedule 3.11 attached hereto, (k) refrain from entering into any commitment for
the making of a capital expenditure in excess of $100,000, (l) refrain from
writing off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business charged to applicable reserves,
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none of which individually or in the aggregate is material and (m) refrain from
agreeing in writing to do any of the foregoing.
Section 6.2 Exclusive Dealing. During the period from the date of this
Agreement to the Closing Date, neither the Company or any of its subsidiaries,
nor any officer or director of the Company or any of its subsidiaries nor the
Shareholders' Representative shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person, other than the Parent, concerning any purchase
of any capital stock of the Company or any of its subsidiaries or any merger,
sale of substantial assets or similar transaction involving the Company or its
subsidiaries.
Section 6.3 Review of the Company. Subject to applicable laws relating
to the exchange of information, the Parent may, prior to the Closing Date,
directly or through its representatives, review the properties, books and
records of the Company and its subsidiaries and their respective financial
and legal condition to the extent they deem necessary or advisable to
familiarize itself with such properties and other matters; such review shall
not, however, affect the representations and warranties made by the Company
in this Agreement or the remedies of the Parent for breaches
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of those representations and warranties. Subject to applicable laws relating to
the exchanges of information, upon reasonable notice, the Company shall permit
the Parent and its representatives to have, after the date of execution of this
Agreement, full access to the premises and to all the books and records of the
Company and its subsidiaries and to cause the officers of the Company to furnish
the Parent with such financial and operating data and other information with
respect to the business and properties of the Company as the Parent shall from
time to time reasonably request. The Company shall deliver or cause to be
delivered to the Parent such additional instruments, documents, certificates and
opinions as the Parent may reasonably request for the purpose of (a) verifying
the information set forth in this Agreement or on any Schedule attached hereto
and (b) consummating or evidencing the transactions contemplated by this
Agreement. Notwithstanding anything herein to the contrary, neither the Company
nor any of its subsidiaries shall be required to provide access to, or to
disclose, information where such access or disclosure would violate the rights
of any customer of the Company or any of its subsidiaries under a written
contract with the Company or any of its subsidiaries which is listed on Schedule
6.3, jeopardize the attorney-client privilege, or contravene any judgment,
decree or agreement which is binding on the Company entered into prior to the
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date of this Agreement and which is listed on Schedule 6.3. The Company and its
subsidiaries will endeavor to make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. The parties hereto acknowledge that the Parent and Custom Papers
Group Inc. have entered into a Confidentiality Agreement dated May 21, 1996 (the
"Confidentiality Agreement") and that information obtained during any such
review will be subject to the terms of the Confidentiality Agreement.
Section 6.4 Reasonable Efforts. Each of the Company, the Shareholders'
Representative and the Parent shall cooperate and use their respective
reasonable best efforts to take, or cause to be taken, all appropriate
actions, and to make, or cause to be made, all filings necessary, proper or
advisable under applicable laws and regulations (including, without
limitation, the filing of Notification and Report Forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") with the Federal Trade Commission and the Antitrust Division of the
Department of Justice) to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, their
respective reasonable best efforts to obtain, prior to the Closing Date, all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental
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authorities and parties to contracts with the Company or its subsidiaries as are
necessary for consummation of the transactions contemplated by the Agreement and
to fulfill the conditions to the sale contemplated hereby.
Section 6.5 ISRA Filings. Prior to Closing, the Company shall obtain,
or cause to be obtained, in connection with the transactions contemplated by
this Agreement, from the New Jersey Department of Environmental Protection
("NJDEP"), in accordance with the provisions of the New Jersey Industrial
Site Recovery Act, N.J.S.A. Section 13.6:1k-8 et seq., a "Negative
Declaration," "No Further Action Letter," a remedial action workplan, a
remediation agreement, or a determination that the transaction contemplated
by this Agreement may proceed without further approvals by NJDEP and without
further actions by the Company and/or the Shareholders with respect to the
Company Property located in Hughesville and Warren Glen, New Jersey.
Section 6.6 Environmental Audit; Escrow; Reporting. (a) Promptly after
execution of this Agreement, the Parent and the Company shall instruct ENSR
to perform a Phase II environmental assessment with respect to (i) the two
settling ponds located on the north side of the Company's Rochester, Michigan
facility and (ii) the earthen bermed tank storage area located in the
southeast corner of the Company's Rochester, Michigan facility; the scope of
which review shall
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be in accordance with the Phase II framework prepared by ENSR as set forth in a
memorandum dated, August 23, 1996 which has been agreed to by the Parent and the
Company on or prior to the date hereof. The costs and expenses of such
environmental assessment shall be borne equally by the Company and the Parent.
Upon completion of such environmental assessment, the Parent shall cause a copy
of all written reports and analytical results to be delivered to the Company and
the Parent and the Company shall engage in a good faith effort to mutually agree
in writing on an amount to be deposited into the Rochester Environmental Escrow
Account to provide the indemnification set forth in Section 10.2(b)(i)(B) (the
"Rochester Environmental Escrow Amount").
(b) The Company agrees to (i) report promptly to the appropriate
Governmental Authorities events relating to the release on or about February
1995 of approximately 3,000 gallons of polyvinyl acetate resin; and (ii)
complete all sampling, testing and other investigation of the two settling ponds
located on the north side of the Company's Rochester, Michigan facility as
required by applicable Environmental Laws or otherwise sufficient to determine
whether such ponds have been closed in full compliance with applicable
Environmental Laws, including whether notice to or involvement by Governmental
Authorities may be required under applicable Environmental Laws, and, in the
event notice or
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involvement is required, provide appropriate and timely notice or initiate such
involvement after consultation with the Parent. In the event the Company
believes, after conducting sufficient sampling, testing or other investigation
in connection with clause (ii) above, that the ponds have been closed in full
compliance with applicable Environmental Laws and that no notice to or
involvement by a Governmental Authority is required, the Company shall provide
to the Parent a legal opinion to that effect, in form and substance, and from
counsel, reasonably acceptable to the Parent.
Section 6.7 Schedule Supplements and Amendments. From time to time
prior to the Closing Date with the prior written consent of the Parent which
may be withheld in the Parent's sole discretion, the Company may supplement
or amend any of the Schedules attached hereto with respect to any matter
hereafter arising which, if existing or occurring at or prior to the date of
this Agreement would have been required to be set forth or described in any
such Schedule.
ARTICLE VII
CONDITIONS TO THE PARENT'S AND ACQUISITION'S OBLIGATIONS
Section 7. Conditions to the Parent's and Acquisition's Obligations.
The obligation of the Parent and Acquisition to consummate the Merger and
purchase the Stock contemplated by
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this Agreement are conditioned upon satisfaction, at or prior to the Closing, of
the following conditions:
Section 7.1 Opinions of Counsel. The Company shall have furnished the
Parent with an opinion, dated the Closing Date, of Williams, Mullen,
Christian & Dobbins, a Professional Corporation, in form and substance
reasonably satisfactory to Parent and its counsel.
Section 7.2 Good Standing and Other Certificates. The Parent shall have
received (a) copies of the charter, including all amendments thereto, in each
case certified by the Secretary of State or other appropriate official of the
jurisdiction of incorporation of the Company and each of its subsidiaries,
(b) a certificate from the Secretary of State or other appropriate official
of the jurisdiction of incorporation of the Company to the effect that the
Company and each of its subsidiaries is in good standing and listing all
charter documents of the Company and such subsidiaries on file, (c) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company or any of its subsidiaries is qualified to do
business to the effect that the Company or such subsidiary is so qualified in
such State, (d) if available and not otherwise covered in Section 7.2(b)
above, a certificate as to the tax status of the Company and/or each of its
subsidiaries from the appropriate official in its jurisdiction of
incorporation and
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each state in which the Company or such subsidiary is qualified to do business
and (e) a copy of the By-Laws of the Company and each of its subsidiaries
certified by the Secretary of the Company as being true and correct and in
effect on the Closing Date.
Section 7.3 No Material Adverse Change. Prior to the Closing there
shall have been no material adverse change in the business, operations,
financial condition or results of operations or of the Company and its
subsidiaries taken as a whole and the Company shall have delivered to the
Parent an officer's certificate, dated the Closing Date, to the foregoing
effect. Without limiting the foregoing, the loss of one or more of the top
ten customers of the Company and its subsidiaries taken as a whole (based on
the Company's consolidated 1995 revenues) or one or more of the top ten
suppliers of the Company and its subsidiaries taken as a whole (based on the
Company's consolidated 1995 direct cost of goods sold) of the Company or any
of its subsidiaries (or receipt of notification from a major customer or
supplier that the Company or any of its subsidiaries would lose such customer
or supplier) during such period shall be deemed a material adverse change in
the business of the Company and its subsidiaries taken as a whole.
Section 7.4 Truth of Representations and Warranties. The
representations and warranties of the Company and the
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representations and warranties of the Shareholders' Representative contained in
this Agreement shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date, and the Company and the Shareholders' Representative shall have
each delivered to the Parent a certificate, dated the Closing Date, to such
effect.
Section 7.5 Performance of Agreements. All of the agreements of the
Company and the Shareholders to be performed prior to the Closing pursuant to
the terms of this Agreement shall have been duly performed in all material
respects, or waived in writing by Parent, and the Company shall have each
delivered to the Parent a certificate, dated the Closing Date, to such effect.
Section 7.6 No Litigation Threatened. No action or proceedings shall
have been instituted or, to the knowledge of the Company, threatened before a
court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby.
Section 7.7 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, disclosed on any Schedule attached hereto or
required in connection with the consummation of the transactions contemplated
by this Agreement shall have been received. All of the consents, approvals,
authorizations, exemptions and waivers from
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governmental agencies that shall be required in order to enable the Parent to
consummate the transactions contemplated hereby shall have been obtained.
Section 7.8 Repayment of Indebtedness to Third Parties; Termination of
Security Interests. The Crestar Loan shall be repaid at Closing as provided
in Section 2.11 hereof. Documents and instruments necessary to release all
security interests, liens, mortgages, claims or other encumbrances of any
kind securing the Crestar Loan shall be delivered at Closing. Neither the
Company nor any of its subsidiaries has any outstanding indebtedness for
borrowed money except for the Crestar Loan.
Section 7.9 Financing. The Parent and Acquisition shall have received
financing on substantially the same terms and conditions as set forth in the
commitment letter of Bankers Trust Company, dated August 9, 1996, a copy of
which has been delivered to the Shareholders' Representative.
Section 7.10 Termination of Stock Option Plan; Other Arrangements. The
Company shall have terminated its stock option plan, its financial and
advisory service arrangements with SCI Investors Inc. and the contracts
listed on Schedule 3.11 attached hereto which are signified by an
asterisk("*").
Section 7.11 FIRPTA. The Company shall have furnished to the Parent, on
or within thirty (30) days prior to the Closing Date, an affidavit issued by
the Company pursuant to Treasury
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Regulation Section 1.897-2(h), certifying that the Company is not and has
not been at any time during the past 5 years a United States real property
holding corporation as required by Section 1445 of the Code.
Section 7.12 HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the transactions contemplated by this
Agreement shall have expired or terminated.
Section 7.13 Escrow Agreement. The Shareholders' Representative, the
Parent and the Escrow Agent shall have entered into an escrow agreement
substantially in the form of Exhibit III hereto (the "Escrow Agreement").
Section 7.14 Environmental Assessments; Rochester Environmental Escrow
Amount. The Parent's environmental consultants shall have completed to
Parent's reasonable satisfaction the Phase II environmental assessment
referred to in Section 6.6(a) and the Parent and the Company shall have
agreed upon the Rochester Environmental Escrow Amount.
Section 7.15 Customer/Supplier and Tax Diligence. The Parent shall have
completed, to Parent's reasonable satisfaction, its customer/supplier and tax
diligence; provided, however, that this condition precedent shall lapse and
be of no further effect to the extent Parent has not notified the
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Company of its objections, if any, in connection with such matters by September
15, 1996.
Section 7.16 Adoption of Flexible Benefits Plan Document. The Company
shall have prepared and adopted a plan document, in compliance with the
applicable provisions of the Code and ERISA, under which the Company's
Flexible Benefits Plan, including, among other features, its Health Care
Expense Reimbursement Account Plan and Dependent Care Expense Reimbursement
Account Plan, shall be set forth, and the Parent shall have received a copy
of such plan document.
Section 7.17 Correction of Noncompliance by Employee Benefit Plans With
Terms of Plan and/or Law. The Company shall have corrected, in a manner
reasonably satisfactory to the Parent, each instance disclosed in Schedule
3.19(b) attached hereto which is signified by an asterisk ("*") of the
failure of an Employee Benefit Plan, and/or the sponsor of an Employee
Benefit Plan, to comply with applicable law and/or the terms of such Employee
Benefit Plan.
Section 7.18 Tax Indemnification Agreement. Not less than ninety-eight
percent (98%) of the Shareholders shall have executed and delivered a tax
indemnity agreement in substantially the form of Exhibit IV attached hereto
(the "Tax Indemnfication Agreement") providing for indemnification after the
Survival Expiration Date (as defined in the Escrow Agreement) equivalent to
the indemnification described in
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Section 9.7; provided that the Shareholders' indemnification obligations under
the Tax Indemnification Agreement shall not exceed the aggregate amount
distributed to the Shareholders from the Escrow Account in accordance with the
Escrow Agreement on the Survival Expiration Date (as defined in the Escrow
Agreement).
ARTICLE VIII
CONDITIONS TO THE COMPANY'S OBLIGATIONS
Section 8. Conditions to the Company's Obligations. The obligations of
the Company to effect the transactions contemplated by this Agreement on the
Closing Date are conditioned upon satisfaction or waiver, at or prior to the
Closing, of the following conditions:
Section 8.1 Opinions of Counsel. The Parent shall have furnished the
Company and the Shareholders with an opinion, dated the Closing Date, of
White & Case, in form and substance reasonably satisfactory to the Company
and its counsel.
Section 8.2 Truth of Representations and Warranties. The
representations and warranties of the Parent and Acquisition contained in
this Agreement shall be true and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of such date, and the Parent and Acquisition shall have
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delivered to the Shareholders' Representative an officer's certificate, dated
the Closing Date, to such effect.
Section 8.3 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, required in connection with the consummation of
the transactions contemplated by this Agreement shall have been received. All
of the consents, approvals, authorizations, exemptions and waivers from
government agencies that shall be required in order to permit the
consummation of the transactions contemplated hereby shall have been obtained.
Section 8.4 Performance of Agreements. All of the agreements of the
Parent and Acquisition to be performed prior to the Closing pursuant to the
terms of this Agreement shall have been duly performed in all material
respects, and the Parent and Acquisition shall have delivered to the
Shareholders' Representative an officer's certificate, dated the Closing
Date, to such effect.
Section 8.5 No Litigation Threatened. No action or proceeding shall be
instituted or, to the knowledge of the Parent, threatened before a court or
other government body or any public authority to restrain or prohibit any of
the transactions contemplated hereby.
Section 8.6 HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the transactions
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contemplated by this Agreement shall have expired or terminated.
Section 8.7 Shareholder Approval. The transactions contemplated by this
Agreement shall have been approved by the Shareholders to the extent required
by law; provided, however, that this condition precedent shall lapse and be
of no further effect to the extent that such approval of the Shareholders has
not been obtained by September 6, 1996, and, on or prior to such date, the
Company shall not have notified Parent that the Shareholders have refused to
give such approval.
Section 8.8 Environmental Matters. The Company and the Parent shall
have agreed upon the Rochester Environmental Escrow Amount.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns. The Parent shall prepare and timely file, or
cause to be prepared and timely filed, all Returns of the Company and its
subsidiaries. Such authority shall include, but not be limited to, the
determination of the manner in which any items of income, gain, deduction,
loss or credit arising out of the income, properties and operations of the
Company and its subsidiaries shall be reported or disclosed on such Returns;
provided, however, with respect to
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Returns to be filed by the Parent pursuant to this Section 9.1 for taxable
periods beginning before the Closing Date, items set forth on such Returns shall
be treated in a manner consistent with the past practices with respect to such
items, unless otherwise required by law. The Parent shall provide to the
Sellers' Representative drafts of all Returns of the Company to be filed by the
Parent pursuant to this Section 9.1 with respect to taxable years or other
taxable periods beginning before the Closing Date and ending after the Closing
Date at least thirty (30) days prior to the due date for the filing of such
Returns. At least fifteen (15) days prior to the due date for the filing of such
Returns, the Sellers' Representative shall notify the Parent of the existence of
any objection (specifying in reasonable detail the nature and basis of such
objection) the Sellers' Representative may have to any items set forth on such
draft Returns. The Parent and the Sellers' Representative agree to consult and
to resolve in good faith any such objection within such 15 day period. The
Parent shall not file any such Return with respect to taxable years or other
taxable periods beginning before the Closing Date and ending after the Closing
Date without the prior consent of the Sellers' Representative, which consent
shall not be unreasonably withheld or delayed.
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Section 9.2 Apportionment of Taxes. All Taxes and Tax liabilities with
respect to the income, property or operations of the Company that relate to a
taxable year or other taxable period beginning before and ending after the
Closing Date shall be apportioned between the Pre-Closing Period and the
post-closing period as follows: (A) in the case of Taxes other than income
Taxes and sales and use Taxes, on a per diem basis, and (B) in the case of
income Taxes and sales and use Taxes, as determined from the books and
records of the Company, to the portion of such period ending on the Closing
Date as though the taxable year of the Company terminated at the opening of
business on the Closing Date, and based on accounting methods, elections and
conventions that do not have the effect of distorting income and expenses.
All Taxes of the Company which are attributable (as determined under this
Section 9.2) to any taxable year or other taxable period (or portion thereof)
ending on or prior to the Closing Date, reduced by liability accruals or
other applicable reserves or provisions set forth in the Closing Balance
Sheet shall, be payable out of the Escrow Account to the extent provided in
Section 9.7 hereof or by the Shareholders to the extent provided in the Tax
Indemnification Agreement, subject to the applicable limitations set forth in
Section 9.7 hereof. The Parent shall be liable for the payment of Taxes which
are
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attributable to taxable years and other taxable periods (or portions thereof)
beginning on the Closing Date, except as provided for in clause (iii) of Section
9.7.
Section 9.3 Cooperation; Audits. In connection with the preparation of
Returns, audit examinations and any administrative or judicial proceedings
relating to the Tax liabilities imposed on the Company for all Pre-Closing
Periods, the Parent and the Company on the one hand, and the Sellers'
Representative on the other hand, will cooperate fully with each other,
including, but not limited to, the furnishing or making available during
normal business hours of records, personnel (as reasonably required), books
of account, powers of attorney or other materials necessary or helpful for
the preparation of such Returns, the conduct of audit examinations or the
defense of claims by Tax authorities as to the imposition of Taxes.
Section 9.4 Controversies. The Parent shall promptly notify the
Shareholders' Representative in writing upon receipt by the Parent or any
affiliate of the Parent (including the Company and its subsidiaries after the
Closing Date) of written notice of any inquiries, claims, assessments, audits
or similar events with respect to Taxes relating to a taxable period ending
on or prior to the Closing Date for which the Parent or the Company may be
entitled to indemnification under Section 9.7 hereof or under the Tax
Indemnification
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Agreement (any such inquiry, claim, assessment, audit or similar event, a "Tax
Matter"). The Shareholders' Representative shall have the authority to represent
the interests of the Company and its subsidiaries with respect to any Tax Matter
before the Internal Revenue Service, any other taxing authority, any other
governmental agency or authority or any court and shall have the sole right to
control the defense, compromise or other resolution of any Tax Matter, including
responding to inquiries, filing Tax returns and settling audits; provided,
however, that the Shareholders' Representative shall not enter into any
settlement of or otherwise compromise any Tax Matter that affects or may affect
the Tax liability of the Parent, the Company, its subsidiaries, or any affiliate
of the foregoing for any period ending after the Closing Date, including the
portion of a period beginning before the Closing Date and ending after the
Closing Date (the "Overlap Period") that is after the Closing Date, without the
prior written consent of the Parent, which consent shall not be unreasonably
withheld. The Shareholders' Representative shall keep the Parent fully and
timely informed with respect to the commencement, status and nature of any Tax
Matter. The Shareholders' Representative shall, in good faith, allow the Parent
to make comments to the Shareholders' Representative regarding the conduct of or
positions taken in any such proceeding. During
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such period as the Escrow Account is being held, all reasonable expenses of the
Shareholders' Representative incurred in connection with any Tax Matter
hereunder shall be paid out of such Escrow Account.
Except as otherwise provided in this Section 9.4, the Parent shall have
the sole right to control any audit or examination by any taxing authority,
initiate any claim for refund or amend any Return, and contest, resolve and
defend against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to, the income, assets or operations
of the Company or any of its subsidiaries for all taxable periods; provided,
however, that the Parent shall not, and shall cause its affiliates (including
the Company and its subsidiaries) not to, enter into any settlement of any
contest or otherwise compromise any issue with respect to the portion of the
Overlap Period ending on or prior to the Closing Date without the prior written
consent of the Shareholders' Representative, which consent shall not be
unreasonably withheld.
Section 9.5 Transfer Taxes. All transfer, sales and use, registration,
stamp and similar Taxes imposed in connection with the sale of the Stock or
any other transaction that occurs pursuant to this Agreement shall be borne
equally by the Shareholders, on the one hand, and the Parent, on the other
hand.
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Section 9.6 Amended Returns. None of the Shareholders, the Company, nor
any of its subsidiaries shall file or cause to be filed any amended Return
relating to the Company or any of its subsidiaries without the prior written
consent of the Parent, which consent shall not be unreasonably withheld.
Section 9.7 Indemnification. The Parent, its affiliates (including the
Surviving Corporation and its subsidiaries) and the successors to the foregoing
(and their respective shareholders, officers, directors, employees and agents)
shall be indemnified out of the available proceeds held in the Escrow Account on
an after-tax basis against (i) all Taxes, losses, claims and expenses resulting
from, arising out of, or incurred with respect to, any claims that may be
asserted by any party based upon, attributable to, or resulting from the failure
of any representation or warranty made pursuant to Section 3.14 to be true and
correct as of the Closing Date; (ii) all Taxes imposed on or asserted against
the properties, income or operations of the Company or any of its subsidiaries
for all Pre-Closing Periods to the extent such Taxes have not been paid prior to
Closing or are not fully disclosed and reserved for, accrued, or otherwise
provided for in the Closing Balance Sheet; and (iii) all Taxes imposed on the
Company or any of its subsidiaries, or for which the Company or any of its
subsidiaries may be liable, as a result of any transaction contemplated by this
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Agreement; provided, however, that to the extent the Tax liability of the
Company with respect to a Pre-Closing Period is adjusted and such adjustment
gives rise to an obligation under this Section 9.7 to make an indemnification
payment, the amount of such indemnification payment shall be reduced by the
amount of Tax savings resulting from such adjustment (the "Tax Savings")
actually realized by the Parent or the Company on or prior to the date when such
indemnification payment is due, as determined by the Parent in its sole
discretion (it being understood that the Company and the Parent shall not be
obligated to disclose any information with respect to the income, results of
operations, or Taxes or Returns of the Company or the Parent with respect to any
period after the Closing Date, other than as expressly provided for in Section
9.1). If the Tax liability of the Company or Parent is adjusted after filing a
Return in which the Tax Savings are realized by the Company or the Parent and
such adjustment reduces the amount of such Tax Savings realized by the Company
and/or the Parent, the Company and/or the Parent shall be reimbursed out of the
Escrow Account or by the Shareholders pursuant to the Tax Indemnfication
Agreement, subject to the applicable limitations of this Section 9.7, for the
amount of such reduced Tax Savings, as determined by the Parent, within 10 days
after receipt by Sellers' Representative from the Parent of a certificate
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setting forth the amount of such reduced Tax Savings. The Parent shall promptly
give the Shareholders' Representative or his representative written notice of
all Taxes, losses, claims and expenses which the Parent has reasonably
determined may give rise to a right of indemnification under this Section 9.7,
including a computation of the amount of the required indemnification with
sufficient detail and particularity to enable the Shareholders to reasonably
determine the amount of such required indemnification. All claims for indemnity
under this Section 9.7 shall be subject to the provisions of Section 10.3 and to
Sections 10.1 and 10.2, in each case to the extent expressly provided therein.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 10.1 Survival of Representations. The respective representations,
warranties and indemnities of the Company, the Parent and Acquisition contained
in this Agreement shall survive the Closing for a period of eighteen (18)
months, except for the representations, warranties and indemnities of the
Company contained in Sections 3.14 and 9.7, which shall survive for the
applicable statute of limitations period; provided, however, that to the extent
that prior to the expiration of the applicable survival date described above, a
party asserts a claim for indemnification in accordance
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with this Agreement and, if applicable, the Escrow Agreement, then such party's
right to indemnification with respect to such claim shall not terminate as of
the expiration of the survival date, but shall continue for such period
thereafter (subject to Section 3(j) of the Escrow Agreement) as may be required
to finally resolve such claim.
Section 10.2 Indemnification. (a) To the extent of the proceeds held in
the Escrow Account, the Parent, its affiliates (including, without limitation,
the Surviving Corporation and its subsidiaries) and the successors to the
foregoing (and their respective shareholders, officers, directors, employees
and agents) shall be indemnified and held harmless from damages, losses, costs
or expenses (including, without limitation, reasonable attorneys' and
consultants' fees and expenses), in each case reduced by any amounts actually
recovered under insurance policies (net of related costs of collection) and,
with respect to any particular damage, loss, cost or exposure, by any
applicable reserves or allowances reflected on the Closing Balance Sheet with
respect to such particular damage, loss, cost or exposure, and determined on
an after-tax basis ("Damages") incurred or suffered as a result of or arising
out of (i) the failure of any representation or warranty made by the Company
in this Agreement (without regard to any "materiality" or any "material
adverse effect" exception contained therein) to be
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true and correct as of the Closing Date, (other than a breach of Section 3.14
with respect to Taxes which shall be governed by Section 9.7 and a breach of
Section 3.21 which shall be governed by paragraph (b) of this Section 10.2) or
(ii) the breach of any covenant or agreement made or to be performed by the
Company pursuant to this Agreement; provided, however, that the Parent, its
affiliates and successors, shall have no right to seek any indemnity under this
Section 10.2(a) unless the aggregate amount of Damages (together with Damages
under Section 10.2(b)(i)(A)) exceeds $300,000 and then only to the extent of
such excess; provided, further, however, that the maximum indemnity proceeds to
which the Parent, its affiliates and successors shall be eligible to receive
under Section 9.7, this Section 10.2(a) and Section 10.2(b)(i)(A) and Section
10.2(b)(i)(B), to the extent of any indemnity pursuant to such Section in excess
of the Rochester Environmental Escrow Account, shall not exceed $3,000,000 in
the aggregate.
(b) (i)(A) To the extent of the proceeds held in the Escrow Account, the
Parent, its affiliates (including, without limitation, the Surviving Corporation
and its subsidiaries) and the successors to the foregoing (and their respective
shareholders, officers, directors, employees and agents) and/or to the Parent's
or the Company's interest in the chain-of-title to Company Property
(collectively the
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"Parent Indemnitees"), shall be indemnified and held harmless from Damages
incurred or suffered as a result of or arising out of (x) the failure of any
representation or warranty made by the Company in Section 3.21 (without regard
to any "materially" or "material adverse effect" exception contained therein) or
(y) any Environmental Claim; provided, however, that the Parent Indemnitees
shall have no right to seek any indemnity under this Section 10.2(b)(i)(A)
unless the aggregate amount of Damages (together with Damages under Section
10.2(a)) exceeds $300,000 and then only to the extent of such excess; and
provided, further, however, that the maximum indemnity proceeds to which the
Parent Indemnitees shall be eligible to receive under Section 9.7, Section
10.2(a) and this Section 10.2(b)(i)(A) and Section 10.2(b)(i)(B), to the extent
of any indemnity pursuant to such Section in excess of the Rochester
Environmental Escrow Account, shall not exceed $3,000,000 in the aggregate.
(B) Notwithstanding clause (A) above, to the extent of the proceeds held
in the Rochester Environmental Escrow Account and, if not adequate therefor,
also to the extent of the proceeds in the Escrow Account, the Parent Indemnitees
shall be indemnified and held harmless from dollar one from Damages incurred or
suffered as a result of or arising out of any Environmental Claim relating to or
arising from (i) the areas associated with or affected by, or any events or acts
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or omissions of the Company relating to (a) the two settling ponds located on
the north side of the Company's Rochester, Michigan facility, or (b) the earthen
bermed tank storage area located in the southeast corner of the Company's
Rochester, Michigan facility; or (ii) any action by a Governmental Authority
arising from a notice or report filed by the Company in accordance with Section
6.6(b) (including, without limitation, any investigation or oversight by a
Governmental Authority resulting from such notice or report with respect to the
subject matter thereof); provided, however, that the maximum indemnity proceeds
to which the Parent Indemnitees shall be eligible to receive under this Section
10.2(b)(i)(B) shall not exceed, in the aggregate, (x) the Rochester
Environmental Escrow Amount, plus (y) the sum of $3,000,000, reduced by the
aggregate indemnity proceeds received prior to such time by the Parent
Indemnitees pursuant to Sections 9.7, 10.2(a), 10.2(b)(i)(A) and, other than
proceeds paid from the Rochester Environmental Escrow Account, this Section
10.2(b)(i)(B).
(ii) As to any Remedial Work for which indemnity is provided under this
section 10.2(b), Parent, in consultation with Shareholders' Representative,
shall have the right to plan, implement and control such Remedial Work. Parent
and Shareholders' Representative shall cooperate fully and in good faith with
each other in connection with such Remedial
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Work. Parent shall act in good faith, in planning, implementing and controlling
any such Remedial Work, and any disagreement between Parent and Shareholders'
Representative shall be resolved in good faith.
(iii) Any Remedial Work undertaken for which Parent Indemnitees seek
indemnity shall be limited solely to that which is necessary to achieve
compliance with Environmental Laws in effect at the Closing. In no event shall
Parent Indemnitees be entitled to indemnity for Remedial Work that (1) exceeds
applicable cleanup levels established by or under Environmental Laws or by the
applicable Governmental Authority or (2) arises from any change in Environmental
Laws after the Closing.
(iv) Upon any "transferring ownership or operations" or "closing
operations" (as such terms are defined in ISRA) of or at the Hughesville or
Warren Glen mills, or either of them, subsequent to the Closing Date, Parent and
the Company shall be solely responsible for any costs necessary to comply with
ISRA at the mill or mills so sold, transferred or closed other than such costs
which are imposed by ISRA as a result of the transactions contemplated by this
Agreement for which the Shareholders have agreed to provide indemnity and which
are payable out of the Escrow Account pursuant to subsection (b)(i)(A) above.
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(v) The Parent Indemnitees' right to indemnity pursuant to this Section
10.2(b) shall be reduced to the extent that the negligent acts or omissions of
any of the Parent Indemnitees after the Closing materially and adversely affect
a Release prior to Closing and the amount of Damages for which indemnity is
sought.
(vi) The provisions of this Section 10.2(b) set forth the sole right of
Parent Indemnitees against the Shareholders and/or the Escrow Account or the
Rochester Environmental Escrow Account with respect to indemnity for all matters
relating to the Environment, including, but not limited to, Environmental Claims
and the warranties and representations set forth in Section 3.21 above. Except
for the obligations expressly undertaken by Shareholders' Representative in this
Agreement and the rights of the Parent Indemnitees under this Agreement and the
Escrow Agreement, Parent, for itself, and its affiliates and successors
(including, without limitation the Surviving Corporation) and their respective
officers, directors, employees, agents, affiliates, subsidiaries, successors and
assigns hereby releases Shareholders from any claims, damages, costs, losses,
response costs or other liabilities concerning or relating to the Environment,
including, but not limited to, claims for contribution or other response costs
under the Comprehensive Environmental Response, Compensation and Liability Act.
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(c) The Parent hereby agrees to indemnify and hold the Shareholders
harmless from Damages incurred or suffered as a result of or arising out of (i)
the failure of any representation or warranty made by the Parent or Acquisition
in this Agreement to be true and correct as of the Closing Date or (ii) the
breach of any covenant or agreement made or to be performed by the Parent or
Acquisition pursuant to this Agreement; provided, however, that the Parent and
Acquisition shall not be liable under clause (i) of this Section unless the
aggregate amount of Damages exceeds $300,000 and then only to the extent of such
excess; provided, further, however, that the Parent's and Acquisition's
liability under Section 10.2(c) shall not exceed $3,000,000 in the aggregate.
(d) Except with respect to the Company's right to repayment under Section
2.12, after the Closing the foregoing indemnification provisions, and the
indemnification for Taxes provided in Section 9.7 and in the Tax Indemnification
Agreement, shall be the exclusive remedy for any breach of the covenants,
obligations, representations or warranties set forth in this Agreement;
provided, however, that the provisions of this Section 10.2(d) shall not prevent
the Shareholders or the Parent from seeking the remedies of specific performance
or injunctive relief in connection with a breach of a covenant or agreement of
any party contained herein. The Shareholders have no personal liability
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hereunder to Parent, its affiliates or successors, beyond such party's right to
obtain indemnity payments from the Escrow Account as provided herein, from the
Rochester Environmental Escrow Account and under the Tax Indemnification
Agreement to the extent set forth therein, and, absent fraud, Parent agrees that
the sole and exclusive recourse possessed by it and its affiliates and
successors is to seek indemnity from the proceeds of the Escrow Account, and
from the proceeds of the Rochester Environmental Escrow Account, and to the
extent set forth therein, from the Shareholders under the Tax Indemnification
Agreement.
(e) The Indemnified Party shall use all reasonable efforts to recover
amounts under its insurance policies, if any, in respect of Claims for Damages
for which indemnification is provided for under this Agreement.
Section 10.3 Indemnification Procedure. (a) Any party seeking
indemnification (the "Indemnified Party") from any other party (the
"Indemnifying Party") with respect to any claim, demand, action, proceeding or
other matter pursuant to this Agreement (the "Claim") shall promptly notify
the Indemnifying Party of the existence of the Claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto and the basis
for the Indemnified Party's right to indemnification, including, in the case of
Remedial Work required by Environmental Law, the particular provision or
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provisions of Environmental Law which form the basis of such Environmental
Claim. For the purposes of this Agreement any claim by Parent against the Escrow
Account shall be deemed to be the seeking of indemnification from the
Shareholders.
(b) If any third party shall notify any Indemnified Party with respect to
any matter which may give rise to a Claim for indemnification against the
Indemnifying Party under this Agreement, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof (which notice, in the case of a
Claim against the Shareholders, shall be given to the Shareholders'
Representative); provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any liability or obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is materially prejudiced by such failure
or delay to give notice. In the event that any Indemnifying Party notifies the
Indemnified Party within 30 days after the Indemnified Party has given notice of
the matter that the Indemnifying Party would be required to indemnify the
Indemnified Party in full against any such Claim and is assuming the defense
thereof:
(i) the Indemnifying Party may elect to defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party or,
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in the alternative, may elect to allow the Indemnified Party to conduct its own
defense;
(ii) if the Indemnifying Party elects to conduct the defense of a Claim,
the Indemnified Party may retain separate co-counsel at its sole cost and
expense (except that the Indemnifying Party will be responsible for the
reasonable fees and expenses of the separate co-counsel (a) to the extent the
Indemnified Party concludes reasonably based upon advice of counsel that a
conflict of interest exists between the Indemnified Party and Indemnifying Party
or (b) the named parties to any such action (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party and such
Indemnified Party shall have been advised by counsel that there may be one or
more legal defenses available to the Indemnified Party which are not available
to the Indemnifying Party, or available to the Indemnifying Party, but the
assertion of which would be adverse to the interest of the Indemnified Party);
(iii) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the matter without the written
consent of the Indemnifying Party (not to be withheld unreasonably); and
(iv) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement, without
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the written consent of the Indemnified Party (not to be withheld unreasonably).
(c) If no Indemnifying Party notifies the Indemnified Party within 30 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, then the Indemnified Party may defend
against, or enter into any settlement with respect to, the matter in any manner
it reasonably may deem appropriate, without prejudice to any of its rights
hereunder.
(d) The Indemnified Party shall be entitled to reimbursement of reasonable
expenses included in Damages with respect to any Claim (including, without
limitation, the cost of defense, preparation and investigation relating to such
Claim) as such expenses are incurred by the Indemnified Party.
(e) The reasonable costs and expenses of the Shareholders and/or
Shareholders Representative in connection with any indemnity Claim by Parent
shall be paid out of the Escrow Account in accordance with the provisions set
forth therein.
ARTICLE XI
TERMINATION
Section 11.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
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(a) by the mutual written consent of the Parent and the Company;
(b) by the Parent, if there has been a material violation or breach by the
Company of any covenant, representation or warranty contained in this Agreement
which has prevented the satisfaction of any condition to the obligations of the
Parent at the Closing and such violation or breach has not been waived by the
Parent or, in the case of a covenant breach, cured by the Company within the
earlier of ten days after written notice thereof from the Parent or the Closing
Date;
(c) by the Company, if there has been a material violation or breach by
the Parent of any covenant, representation or warranty contained in this
Agreement which has prevented the satisfaction of any condition to the
obligation of the Company at the Closing and such violation or breach has not
been waived by the Company or, with respect to a covenant breach, cured by the
Parent within the earlier of ten days after written notice thereof by the
Company or the Closing Date; or
(d) by either the Parent or the Company if the transactions contemplated
hereby have not been consummated by October 15, 1996; provided, however, that
(i) neither the Parent nor the Company shall be entitled to terminate this
Agreement pursuant to this Section 11.1(d) if such Person's
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breach of this Agreement has prevented the consummation of the transactions
contemplated hereby.
Section 11.2 Effect of Termination. In the event that this Agreement
shall be terminated pursuant to Section 11.1, all further obligations of the
parties hereto under this Agreement (other than pursuant to Sections 12.2 and
12.5, which shall continue in full force and effect) shall terminate without
further liability or obligation of either party to the other party hereunder;
provided, however, that no party shall be released from liability hereunder if
the Agreement is terminated and the transactions abandoned by reason of (i)
willful failure of such party to have performed its obligations hereunder or
(ii) any intentional and knowing misrepresentation made by such party of any
material matter set forth herein.
Section 11.3 Effect of Waiver of Condition Precedent. If any party
expressly waives in writing any condition to its obligation to consummate the
Merger in Article VII or Article VIII hereof and elects to proceed with the
Closing and the consummation of the Merger, then such party shall be deemed to
have waived any right to seek indemnification with respect to the condition so
waived (and with respect to any event, occurrence or circumstance which gave
rise to the failure of such condition).
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<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1 Knowledge of the Company. Where any representation or
warranty made by the Company contained in this Agreement is expressly
qualified by reference to its knowledge, such knowledge shall be deemed to
exist if the matter is within the actual knowledge of James E. Rogers, James
O. Eubanks, Robert F. Yousey, Jr. or William W. Huffman, Jr.
Section 12.2 Expenses. The parties hereto shall pay their own expenses
relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel and
financial advisers, it being understood that all expenses of the Company
incurred in connection with the transactions contemplated by this Agreement
shall be paid by the Company at or prior to the Closing or, otherwise shall
be paid by the Shareholders.
Section 12.3 Governing Law. THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT, AND ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED
SOLELY WITHIN SUCH STATE.
Section 12.4 Captions. The Article and Section captions used herein are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE>
Section 12.5 Publicity. Except as otherwise required by law, none of the
parties hereto shall issue, prior to the Closing, any press release or make any
other public statement, in each case relating to, connected with or arising out
of this Agreement or the matters contained herein, without obtaining the prior
approval of the Shareholders' Representative, on the one hand, and the Parent,
on the other hand, to the contents and the manner of presentation and
publication thereof. Except as otherwise required by law, after the Closing the
Shareholders shall not issue any press release or make any other public
statement, in each case relating to, connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior approval
of the Parent. Unless required by applicable law or regulation, Parent shall not
disclose the nature or amount of the consideration paid under this Agreement
without consultation with the Shareholders' Representative.
Section 12.6 Notices. Any notice or other communication required or
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy (if promptly confirmed by a copy thereof delivered
by mail or by courier as provided herein) or by registered or certified mail,
or by a nationally recognized overnight courier service, postage or fees
prepaid or billing therefor arranged to the sender, addressed as follows: if
to the Parent, to
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<PAGE>
Specialty Paperboard, Inc., Brudies Road, P.O. Box 498, Brattleboro, Vermont
05302 (Facsimile Number (802) 257-5900) Attention: Chief Financial Officer, with
a copy to its counsel, White & Case, 1155 Avenue of the Americas, New York, New
York 10036 (Facsimile Number (212) 354-8113), Attention: Frank L. Schiff, Esq.;
and if to the Company or the Shareholders, to SCI Investors, Inc., 101 Stockoe
Slip, Suite 0, Richmond, VA 23219, with copies to Harris Williams & Co., 1313
East Main Street, Suite 300, Richmond, VA 23219, Attention: Mr. Christopher H.
Williams, and to Williams, Mullen, Christian & Dobbins, 1021 E. Carty Street,
16th Floor, Richmond, VA 23219 (mailing address: P.O. Box 1320, Richmond, VA
23210) Attention: Randolph H. Lickey, Esq. or such other address or number as
shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given as of the date so delivered,
sent by facsimile or mailed.
Section 12.7 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
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<PAGE>
Section 12.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.9 Entire Agreement. This Agreement, including the other
documents referred to herein and therein which form a part hereof and thereof,
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
Section 12.10 Amendments. This Agreement may not be changed orally, but
only by an agreement in writing signed by the parties hereto.
Section 12.11 Severability. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
Section 12.12 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any Person other than the parties hereto, the Shareholders and the
Indemnified Parties.
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<PAGE>
IN WITNESS WHEREOF, each of the Parent, Acquisition and the Company has
caused this Agreement to be executed on its behalf by its respective officer
thereunto duly authorized, all as of the day and year first above written.
SPECIALTY PAPERBOARD, INC.
By /s/ Alex Kwader
------------------------------
Name: Alex Kwader
Title: President
CPG ACQUISITION COMPANY
By /s/ Alex Kwader
------------------------------
Name: Alex Kwader
Title: President
CPG INVESTORS INC.
By /s/ James B. Rogers
------------------------------
Name: James B. Rogers
Title: Chairman
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<PAGE>
EXHIBIT I
List of Shareholders
No. of
Name Shares
Class A Holders
- ---------------
Diliwyn P. Paiste, IV 22,500
William W. Huffman, Jr. 22,500
Peter R. Hoppe 17,500
J. J. Lacina 7,000
Stanley S. Luczycki 10,000
Lawrence E. McEnroe 15,000
Homan B. Kinsley, Jr. 7,500
Brenton S. Halsey 20,000
James E. Rogers 44,000
Ronald Shapiro 20,000
James O. Eubanks 42,500
AEA Investors Inc. 50,000
Winston Capital Fund I, LP 25,000
Robert F. Yousey 27,500
A. William Hamill 49,000
AWA Paper Mfg. Co., Ltd. 2,268
Miki Sangyo (USA) Inc. 3,403
The Tredegar Trust
Company Trustee u/a
dated 12/2/86 f/b/o Blake F.
Hamill (EIN 13-6880133) 10,000
The Tredegar Trust
Company Trustee u/a
dated 1 2/2/86 f/b/o Carter B.
Ham (EIN 13-6880134) 10,000
Class B Holders
- ---------------
James O. Eubank 492
Robert F. Yousey 410
Dillwyn P. Paiste, IV 328
William W. Huffman, Jr. 328
Peter R. Hoppe 164
Stanley S. Luczycki 164
Lawrence E. McEnroe 328
Homan B. Kinsley, Jr. 246
James E. Rogers 1,442
Ronald Shapiro 656
AEA Investors Inc. 1,639
Winston Capital Fund I, LP 820
<PAGE>
J. J. Lacina 66
Brenton S. Halsey 656
A. William Hamill 2,261
AWA Paper Mfg. Co., Ltd. 40
Miki Sangyo (USA) Inc. 61
Class C Holders
- ---------------
A. William Hamill 52,143
James E. Rogers 52,143
-------
Total Shares 520,058
Option Holders
- --------------
James O. Eubanks 17,000
Robert F. Yousey 8,500
Diltwyn P. Paiste 6,500
William W. Huffman, Jr. 5,000
Peter R. Hoppe 4,000
J. J. Lacina 3,500
Stanley S. Luczycki 3,500
Lawrence E. McEnroe 4,000
Robert C. Wardwell 1,500
Murray E. Spruce 1,000
-------
Total Options 54,500
<PAGE>
EXHIBIT II
Balance Sheet
Unaudited consolidated balance sheets of CPG Holdings Inc. and its subsidiaries
are attached hereto.
<PAGE>
Exhibit II
CPG HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 2,1996
(Unaudited)
ASSETS June 2,
1996,
June 2,1996 Adjustments Adjusted
----------- ----------- --------
Current assets:
Cash and cash equivalents $ 1,453 ($ 1,453) $ --
Accounts receivable, less allowances 8,494 8,494
Inventories 7,700 7,700
Prepaid expenses 439 439
Deferred income taxes 716 -- 716
-------- -------- --------
Total current assets 18,802 (1453) 17,349
-------- -------- --------
Property, plant and equipment, net 18,142 18,142
Other assets 1,063 1,063
Deferred income taxes 136 -- 136
-------- -------- --------
$ 38,143 $ (1453) $ 36,690
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,134 $ -- $ 4,134
Current portion of long-term debt 1,250 (1,250)
Accrued liabilities 5,322 -- 5,322
-------- -------- --------
Total current liabilities 10,706 (1,250) 9,456
-------- -------- --------
Long-term debt 10,000 (10,000)
Other liabilities 4,463 4,463
Stockholders' equity:
Common stock 4,570 9,797 14,367
Retained earnings 8,469 8,469
Minimum pension liability adjustment (65) -- (65)
-------- -------- --------
Total stockholders' equity 12,974 9,797 22,771
-------- -------- --------
$ 38,143 $ (1,453) $ 36,690
======== ======== ========
<PAGE>
Exhibit II, continued
CPG HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
for the period (22 weeks) ended June 2,1996
(Unaudited)
Net sales $39,827
Costs and expenses:
Cost of goods sold 33,549
Selling and administrative expenses 2,477
-------
Income from operations 3,801
Interest expense 462
-------
Income before income taxes 3,339
Income tax expense 1,336
-------
Net income 2,003
Retained earnings, beginning of period 6,466
-------
Retained earnings, end of period $ 8,469
=======
<PAGE>
Exhibit II, continued
CPG HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the period (22 weeks) ended June 2, 1996
(Unaudited)
Cash provided by (used for) operating activities:
Net income $ 2,003
Items not affecting cash:
Depreciation 735
Amortization 95
-------
2,833
Change in current assets and liabilities:
Accounts receivable 697
Inventory 533
Prepaid expenses (36)
Accounts payable (1,364)
Accrued expenses 320
Other, net 130
-------
280
-------
Cash provided by operating activities 3,113
Cash used for investing activities:
Expenditures for property, plant and equipment (1,595)
-------
Cash used for financing activities:
Reduction of long-term debt (645)
-------
Increase in cash 873
Cash and cash equivalents, beginning of period 580
-------
Cash and cash equivalents, end of period $ 1,453
=======
<PAGE>
EXHIBIT III
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of ________, 1996 (the "Escrow Agreement"),
is made and entered into by and among SPECIALTY PAPERBOARD, INC., a Delaware
corporation ("SPI"), CPG ACQUISITION COMPANY, a Delaware corporation and a
wholly-owned subsidiary of SPI ("Acquisition Company"), CPG INVESTORS INC., a
Delaware corporation ("CPG"), SCI INVESTORS INC., a Virginia corporation,
solely in its capacity as Shareholders' Representative and agent on behalf of
the shareholders of CPG (the "Shareholders' Representative"), and [CRESTAR BANK,
a national banking association], as escrow agent (the "Escrow Agent").
RECITALS
A. SPI, Acquisition Company and CPG have entered into a certain Merger
Agreement, dated as of August 28, 1996 (the "Merger Agreement"), whereby
Acquisition Company will merge (the "Merger") with and into CPG and CPG will
become a wholly-owned subsidiary of SPI (sometimes referred to herein as the
"Surviving Corporation") and the shareholders of CPG (other than those
exercising appraisal rights, if any) would collectively receive the Merger
Consideration as provided in the Merger Agreement.
B. Section 2.8(b) of the Merger Agreement provides that, at the Closing,
the sum of Three Million Dollars ($3,000,000.00) (the "Base Escrow Amount"),
shall be delivered to the Escrow Agent and Section 2.8(c) of the Merger
Agreement provides that, at the Closing, the Rochester Environmental Escrow
Amount (the amount of which shall be set forth on Exhibit B hereto) shall be
delivered to the Escrow Agent, in each case to be held and distributed pursuant
to the terms of the Merger Agreement and this Escrow Agreement in connection
with claims for indemnity made by an SPI Indemnitee.
C. The parties hereto desire to set forth the terms and conditions relating
to the holding and distribution of the Escrowed Cash (as hereinafter defined) by
the Escrow Agent.
TERMS OF AGREEMENT
In connection with the consummation of the transactions contemplated in the
Merger Agreement, the parties hereto, intending to be legally bound, agree as
follows:
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used herein and not otherwise
defined shall have the same meaning given to them in the Merger Agreement. The
following terms shall have the indicated meanings, unless the context requires
otherwise:
Acknowledgement shall mean a written statement of the Shareholders'
Representative acknowledging receipt of a Request or a Notice.
Acquisition shall mean the consummation of the transactions
contemplated in the Merger Agreement.
Base Escrow Amount shall have the meaning set forth in the Recitals to
this Escrow Agreement.
Claim shall mean any claim made by an SPI Indemnitee for recovery from
the Escrowed Cash pursuant to such SPI Indemnitee's rights to indemnification
under, and in accordance with the terms of, the Merger Agreement. Claims shall
include (i) Third Party Claims made against an SPI Indemnitee directly by a
Third Party Claimant for which the SPI Indemnitee may seek recovery from the
Escrowed Cash pursuant to the SPI Indemnitee's rights to indemnification under,
and in accordance with the terms of, the Merger Agreement, and (ii) any other
claim made by an SPI Indemnitee for recovery from the Escrowed Cash pursuant to
the SPI Indemnitee's rights under, and in accordance with the terms of, the
Merger Agreement, including claims with respect to Taxes pursuant to Section 9.7
of the Merger Agreement and claims for Damages pursuant to Sections 10.2(a) or
10.2(b) of the Merger Agreement.
Closing shall mean the closing of the transactions contemplated in the
Merger Agreement to take place on the Closing Date.
Closing Date shall mean the date on which the Closing shall occur
under the Merger Agreement.
Damages shall have the meaning set forth in Section 10.2(a) of the
Merger Agreement.
Days shall mean calendar days.
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<PAGE>
Escrowed Cash shall mean the portion of the Merger Consideration
delivered by wire transfer to the Escrow Agent on the Closing Date, to be held
and distributed by the Escrow Agent under the terms of this Escrow Agreement,
comprised of the Base Escrow Amount and the Rochester Environmental Escrow
Amount. Escrowed Cash shall also include any Retained Escrowed Cash held
pursuant to the terms of this Escrow Agreement after the Survival Expiration
Date.
Merger Agreement shall mean the Merger Agreement, dated as of August
28, 1996, by and between SPI, the Acquisition Company and CPG.
Merger Consideration shall mean the total cash consideration to be
paid and delivered by SPI to the Shareholders in connection with the Merger in
accordance with the Merger Agreement.
Notice shall have the meaning Set forth in Section 3.2(b) of this
Escrow Agreement.
Person shall mean an individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
Reply shall mean a written response by the Shareholders'
Representative to a Request or to a Notice in which the Shareholders'
Representative, on behalf of the Shareholders, either (i) agrees to and accepts
all of the Claim set forth in a Request, or (ii) objects to all or part of the
Claim set forth in a Request, and which, in the case of such objection, sets
forth (1) the amount in the Request to which the Shareholders' Representative
objects, (2) the amount in the Request, if any, which is not subject to
objection, and (3) the reasons for the objection. In the case of Third Party
Claims of which the Shareholders' Representative is notified in a Notice, the
Shareholders' Representative shall specify in its Reply whether or not the
Shareholders' Representative, on behalf of the Shareholders, elects to assume
the defense of the Third Party Claim as provided in Section 3.2(b) of this
Escrow Agreement. If the Reply is silent regarding the election by the
Shareholders' Representative to assume the defense of the Third Party Claim,
then the Shareholders Representative shall be deemed to have elected not to
assume such defense. If the Shareholders' Representative elects to assume the
defense of a Third Party Claim, the Shareholders' Representative shall specify
in the Reply the name and address of the counsel who shall be retained to
conduct such defense. A Reply shall be delivered by the Shareholders'
Representative to both SPI and the Escrow Agent.
Retained Escrowed Cash shall have the meaning set forth in Section
3.3(b) hereof.
-3-
<PAGE>
Request shall mean a written request of an SPI Indemnitee pursuant to
which the Escrow Agent is requested to transfer and deliver to such SPI
Indemnitee all or part of the Escrowed Cash as reimbursement or payment for a
Claim made under the Merger Agreement, and which sets forth (i) the dollar
amount claimed, (ii) the provisions of the Merger Agreement upon which SPI
Indemnitee bases its Claim, and (iii) a description of the facts and
circumstances which such SPI Indemnitee asserts give rise to its Claim
(including in the case of Remedial Work required by Environmental Law, the
particular provisions of Environmental Law which form the basis of the
Environmental Claim).
Shareholders shall mean the shareholders of CPG immediately prior to
the effective time of the Merger, as more particularly set forth on Exhibit A
attached hereto.
Shareholder's Percentage shall have the meaning given to that term in
Section 2.10 of the Merger Agreement.
SPI Indemnitees shall mean SPI, its affiliates (including, without
limitation, the Surviving Corporation and its subsidiaries) and the successors
to the foregoing, and their respective shareholders, employees, directors,
officers and agents.
Survival Expiration Date shall mean _________, 1998, the date that is
eighteen (18) months after the date of this Escrow Agreement.
Third Party Claim shall mean any claim, demand, action, lawsuit or
other legal proceeding filed, delivered or otherwise asserted against an SPI
Indemnitee by a Third Party Claimant seeking recovery for, or asserting rights
in connection with, any matter for which an SPI Indemnitee may seek
indemnification under the Merger Agreement.
Third Party Claimant shall mean any Person, other than SPI or its
Affiliates, who or which files, delivers or otherwise asserts a Third Party
Claim against an SPI Indemnitee.
ARTICLE 2
APPOINTMENT OF ESCROW AGENT
AND DEPOSIT OF ESCROWED CASH
Section 2.1 Appointment of Escrow Agent. SPI, CPG and the Shareholders'
Representative hereby appoint and direct the Escrow Agent to act as escrow agent
in accordance with the terms of this Escrow Agreement and the Merger Agreement,
and the Escrow Agent hereby accepts such appointment and agrees to hold,
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<PAGE>
safeguard and disburse the Escrowed Cash pursuant to the terms and conditions
hereof.
Section 2.2 Deposit of Escrowed Cash.
(a) SPI, CPG and the Shareholders' Representative hereby consent to
and acknowledge the deposit of the Escrowed Cash with the Escrow Agent and the
Escrow Agent acknowledges receipt thereof. The Escrowed Cash deposited with the
Escrow Agent shall be held and disposed of by the Escrow Agent in accordance
with the terms and provisions of this Escrow Agreement or as jointly directed in
writing by SPI and the Shareholders' Representative.
(b) SPI, CPG and the Shareholders' Representative hereby authorize and
direct the Escrow Agent to keep and preserve the Escrowed Cash in its
possession, free and clear of any and all claims, liens and encumbrances
whatsoever, pending the disbursement thereof in accordance with the terms of
this Escrow Agreement.
ARTICLE 3
PAYMENT OF CLAIMS AND
DISBURSEMENT OF ESCROWED CASH
Section 3.1 Distribution of Escrowed Cash.
(a) Subject to the limitations contained in the Merger Agreement and
Section 3.1(b) hereof, SPI Indemnitees may make Claims for recovery from the
Escrowed Cash pursuant to their rights under, and in accordance with the terms
and conditions of, the Merger Agreement and in accordance with the procedures
set forth in the Merger Agreement and this Escrow Agreement. The Escrow Agent
shall disburse such Escrowed Cash, or portions thereof, to satisfy Claims in
accordance with and only in accordance with: (i) the terms and provisions of
this Escrow Agreement, (ii) the mutual written direction of SPI and the
Shareholders' Representative, or (iii) the decision of a court of competent
jurisdiction as provided in this Article 3.
(b) Recovery of any amounts of the Escrowed Cash for the purpose of
indemnification with respect to any Claim shall be limited to the satisfaction
of Claims, the aggregate amount of which shall exceed Three Hundred Thousand
Dollars ($300,000.00) (the "Threshold Amount"), and then such recovery shall
only be allowable to the extent of the excess of the aggregate amount of such
Claims over the Threshold Amount; provided, however, that in the event the SPI
Indemnitees are entitled to indemnification pursuant to Section 9.7 of the
Merger Agreement or Section 10.2(b)(i)(B) of the Merger Agreement, such
Threshold Amount shall not
-5-
<PAGE>
apply. Notwithstanding anything herein to the contrary, as provided in Section
10.2 of the Merger Agreement, the maximum indemnity which the SPI Indemnitees
shall be entitled to receive shall not exceed Three Million Dollars
($3,000,000.00) in the aggregate; provided, however that with respect to
indemnity pursuant to Section 10.2(b)(i)(B) of the Merger Agreement the
foregoing limitation shall apply only after the Rochester Environmental Escrow
Amount has been fully disbursed in accordance with the terms of this Escrow
Agreement.
Section 3.2 Disbursement of Escrowed Cash to Satisfy Claims.
(a) Any SPI Indemnitee seeking indemnification with respect to any
Claim shall promptly notify the Shareholders' Representative and the Escrow
Agent of the existence of the Claim by delivery of a Request.
(b) If any third party shall notify any SPI Indemnitee with respect to
any matter which may give rise to a Third Party Claim, then the SPI Indemnitee
shall promptly notify the Shareholders' Representative and the Escrow Agent
thereof in writing , which notice shall set forth (i) the name and address of
the Third Party Claimant, (ii) the amount of such Third Party Claim, and (iii)
the provisions of the Merger Agreement upon which the SPI Indemnitee bases its
claim that indemnity may be sought with respect to such Third Party Claim, and
such notice shall also include a copy of the documents pursuant to which such
Third Party Claimant has asserted such Third Party Claim, and a copy of any
other documents possessed by the SPI Indemnitee which relate to such Third Party
Claim or to the subject matter thereof (a "Notice"); provided, however, that no
delay on the part of such SPI Indemnitee in delivering a Notice to the
Shareholders' Representative or the Escrow Agent shall relieve the Shareholders
from any liability or obligation under the Merger Agreement unless (and then
solely to the extent) the Shareholders (or the Shareholders' Representative
acting on their behalf) are materially prejudiced by such failure or delay to
give such Notice. In the event that the Shareholders' Representative notifies
the SPI Indemnitee in a Reply (delivered within 30 days after receipt by the
Shareholders' Representative of the Notice relating to such Third Party Claim)
that it is assuming the defense thereof:
(i) the Shareholders' Representative, on behalf of the Shareholders,
will defend the SPI Indemnitee against the Third Party Claim with counsel
of its choice reasonably satisfactory to such SPI Indemnitee;
(ii) the SPI Indemnitee may retain separate co-counsel at its sole
cost and expense (except that the Shareholders, to the extent of the
Escrowed Cash, will be responsible for the reasonable fees and expenses of
the separate co-counsel (a) to the extent such SPI Indemnitee concludes,
reasonably based upon advice of counsel, that a conflict of interest exists
between the SPI Indemnitee and the Shareholders or (b) the named parties to
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<PAGE>
any such action (including any impleaded parties) include both such SPI
Indemnitee and the Shareholders (or the Shareholders' Representative) and
such SPI Indemnitee shall have been advised by counsel that there may be
one or more legal defenses available to the SPI Indemnitee which are not
available to the Shareholders (or the Shareholders' Representative), or
available to the Shareholders (or the Shareholders' Representative), but
the assertion of which would be adverse to the interest of such SPI
Indemnitee; provided, however that the Shareholders shall not be
responsible for the fees and expenses of more than one co-counsel for all
SPI Indemnitees);
(iii) such SPI Indemnitee will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without
the written consent of the Shareholders' Representative (not to be withheld
unreasonably); and
(iv) the Shareholders' Representative will not consent to the entry of
any judgment or enter into any settlement, without the written consent of
such SPI Indemnitee (not to be withheld unreasonably).
(c) If the Shareholders' Representative does not notify such SPI
Indemnitee in a Reply (delivered within 30 days after receipt by the
Shareholders' Representative of the Notice relating to a Third Party Claim) that
the Shareholders' Representative is assuming the defense of a Third Party Claim
as provided in paragraph (b) of this Section 3.2, or if Shareholders'
Representative expressly stales in a Reply that it will not assume the defense
of any such Third Party Claim, then such SPI Indemnitee may defend against the
Third Party Claim in any manner it reasonably may deem appropriate, without
prejudice to any of its rights hereunder; provided that such SPI Indemnitee
shall not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Shareholders'
Representative (not to be withheld unreasonably).
(d) Any SPI Indemnitee shall be entitled to reimbursement of
reasonable expenses incurred in connection with the defense of any Third Party
Claim with respect to which such SPI Indemnitee is entitled to conduct under
paragraph (c) of this Section 3.2, as such expenses are incurred by such SPI
Indemnitee, unless the Shareholders' Representative has notified SPI of any
objection with respect to such Third Party Claim in a Reply delivered pursuant
to the provisions of this Escrow Agreement, in which case such costs and
expenses shall be paid only in accordance with paragraph (h) of this Section
3.2.
(e) The reasonable costs and expenses of the Shareholders'
Representative in connection with the defense or other handling of any Third
Party Claim shall be paid out of the Escrowed Cash as such costs and expenses
are incurred by it. The costs and expenses of the Shareholders' Representative
incurred in
-7-
<PAGE>
connection with investigating, defending against, or otherwise handling on
behalf of the Shareholders any other Claim asserted by an SPI Indemnitee shall
not be paid to the Shareholders' Representative out of the Escrowed Cash, but
may be paid out of any undistributed interest or other income earned on the
Escrowed Cash as provided in Section 5.2 below.
(f) If, within five (5) days after the date upon which the Escrow
Agent first receives a copy of a Request or a Notice, the Escrow Agent has not
received an Acknowledgement from the Shareholders' Representative with respect
to that Request or Notice, the Escrow Agent shall promptly deliver to the
Shareholders' Representative a copy of such Request or Notice. If within thirty
(30) days after the date upon which Escrow Agent receives a copy of a Request or
Notice, the Escrow Agent has not received a Reply from the Shareholders'
Representative with respect to such Request or Notice, Escrow Agent shall (i)
promptly notify SPI that no Reply was received from the Shareholders'
Representative within such thirty (30) day period, and (ii) thereafter, upon
written direction from SPI stating that it has also not received a Reply which
objects to its Request or Notice, Escrow Agent shall promptly (A) transfer and
deliver to the SPI Indemnitee such portion of the Escrowed Cash as is set forth
and claimed in the Request, or (B) pay any sums thereafter requested by such SPI
Indemnitee pursuant to paragraph (d) of this Section 3.2 in connection with the
defense of the Third Party Claim described in the Notice.
(g) If, within thirty (30) days after the date upon which the Escrow
Agent receives a copy of the Request or the Notice, the Escrow Agent receives a
Reply from the Shareholders' Representative, the Escrow Agent shall (i) promptly
notify SPI of its receipt of the Reply and provide SPI a copy thereof, and (ii)
transfer and deliver to SPI Indemnitee such portion of the Escrowed Cash as is
necessary to satisfy the amount, if any, claimed in the Request which is not
stated to be the subject of an objection or disagreement by Shareholders'
Representative in the Reply. The amount of any Request to be paid pursuant to
Section 3.2(f), or the amount of any Request not the subject of disagreement to
be paid pursuant to this Section 3.2(g), shall be promptly paid to SPI from the
Escrowed Cash held by the Escrow Agent, subject to the limitations referred to
in Section 3.1(b) of this Escrow Agreement.
(h) The Escrow Agent shall not transfer and deliver Escrowed Cash to
an SPI Indemnitee to satisfy the portion of any Claim or to defend any Third
Party Claim to which the Shareholders' Representative objects in a Reply until
the earlier to occur of (i) SPI and the Shareholders' Representative direct the
Escrow Agent, in a writing signed by both, to transfer and deliver the requisite
portion of the Escrowed Cash to SPI to satisfy the amount claimed, or (ii) the
Escrow Agent receives a certified copy of a final decision of a court of
competent jurisdiction with respect to the disposition of the Claim or the right
to indemnity with respect to the Third Party Claim, in either case holding in
favor of the SPI Indemnity, and the period for the filing
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<PAGE>
of any available appeals with respect thereto shall have expired. Upon receipt
of either a jointly signed direction or a certified copy of such a decision, the
Escrow Agent shall promptly take the action as set forth therein.
(i) The Escrow Agent shall confirm its disbursements from the Escrowed
Cash as soon as practicable by telephone and fax transmission to the
Shareholders' Representative and SPI and shall at the end of each calendar month
deliver a written account statement to each of the Shareholders' Representative
and SPI. The Shareholders' Representative or SPI shall advise the Escrow Agent
in writing of any discrepancies which it believes to exist in any such account
statement within thirty (30) days after receipt thereof. Failure to inform the
Escrow Agent in writing of any discrepancies in any such account statement
within such thirty-day period shall conclusively be deemed confirmation by the
party failing to so inform of the correctness of such account statement.
(j) With respect to any Request or Notice which has resulted in the
holding of any Retained Escrowed Cash pursuant to Section 3.3(b) hereof and with
respect to which the Shareholders' Representative has notified SPI in a Reply of
an objection with respect thereto, unless within one hundred twenty (120) days
following the delivery of the Reply setting forth such objection (i) SPI and the
Shareholders' Representative notify the Escrow Agent in writing that they have
resolved such objection and instruct the Escrow Agent as to the continued
holding and/or disbursement of such Retained Escrowed Cash, or (ii) the SPI
Indemnitee who delivered such Request or Notice files suit in a court of
competent jurisdiction seeking resolution of such objection and delivers a copy
of the pleadings filed in connection therewith to the Shareholders'
Representative and the Escrow Agent, the Escrow Agent shall promptly following
the expiration of such 120 day period, distribute such Retained Escrowed Cash to
the Shareholders in the manner provided in Section 3.3(a) and the SPI
Indemnitees shall have no further right with respect to such sums after the
expiration of such 120 day period. If any SPI Indemnitee shall file a suit
pursuant to this paragraph (j), which suit is thereafter dismissed or otherwise
terminated (which dismissal or termination is final and, if appealable, the
period for the filing of an appeal with respect thereto has expired) without
final determination on the merits by the court of the objection with respect to
which the suit was filed, then upon delivery by the Shareholders' Representative
to the Escrow Agent of a copy of the court order or other document evidencing
such dismissal or termination, the Escrow Agent shall disburse the Retained
Escrowed Cash to the Shareholders in accordance with Section 3.3(a), unless in
connection with such dismissal or termination SPI and the Shareholders'
Representative have agreed in writing to a different disposition or handling of
such sum, in which case the Escrow Agent shall comply with the terms of such
written agreement.
(k) Any sums held as Retained Escrowed Cash pursuant to Section 3.3(b)
hereof shall only be subject to the specific Claim or Claims with respect to
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<PAGE>
which it was retained and shall not be disbursed to any SPI Indemnitee in
connection with any other Claim.
Section 3.3 Final Distribution.
(a) Except as otherwise provided in subsection (b) hereof, on the
Survival Expiration Date the Escrow Agent shall pay and deliver to the
Shareholders all Escrowed Cash then held by it, in accordance with their
respective Shareholder's Percentages.
(b) If, prior to the Survival Expiration Date, the Escrow Agent
receives a Request or a Notice in accordance with Section 3.2 hereof and the
right to indemnity for the Claim or Third Party Claim to which such Request or
Notice relates has not been finally resolved in accordance with Section 3.2 by
the Survival Expiration Date, Escrow Agent shall, notwithstanding the expiration
of the Survival Expiration Date, retain custody of such portion of the Escrowed
Cash as is equal to the amount claimed in the Request and/or the amount claimed
in any Third Party Claim with respect to which the Notice relates (the "Retained
Escrowed Cash") and shall distribute the remaining portion of the Escrowed Cash
to the Shareholders pursuant to subsection (a) hereof. Escrow Agent shall
thereafter continue to hold the Retained Escrowed Cash pursuant to the terms and
conditions of this E6crow Agreement and shall only distribute the Retained
Escrowed Cash in accordance with Section 3.2 hereof.
(c) Upon the final distribution by the Escrow Agent of all Escrowed
Cash and all Retained Escrowed Cash as provided in this Escrow Agreement, the
Escrow Agent shall thereafter be discharged of any further duties or obligations
under this Escrow Agreement.
ARTICLE 4
TERMINATION OF ESCROW AGREEMENT
Section 4.1 Termination. This Escrow Agreement shall terminate upon the
final transfer and delivery by the Escrow Agent of all amounts of the Escrowed
Cash in accordance with either (i) the provisions of Article 3 hereof or (ii) a
joint written direction of the Shareholders' Representative and SPI directing
the disposition of the Escrowed Cash.
ARTICLE 5
INVESTMENT OF ESCROWED CASH
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<PAGE>
Section 5.1 Investment of Escrowed Cash. Except as SPI and the
Shareholders' Representative may from time to time direct in writing, the Escrow
Agent shall invest the Escrowed Cash, to the extent possible, in United States
Treasury Bills having a remaining maturity of 90 days or less and repurchase
obligations secured by such United States Treasury Bills, with the remainder
being deposited and maintained in a money market deposit account with Escrow
Agent until disbursement in accordance with this Escrow Agreement. The Escrow
Agent is authorized to liquidate in accordance with its customary procedures any
portion of the Escrowed Cash consisting of investments in order to provide for
payments required to be made in accordance with this Escrow Agreement.
Section 5.2 Interest on Escrowed Cash. All interest or other income
income") received or paid on or with respect to any of the Escrowed Cash shall
be the property of the Shareholders (who shall be considered the owners thereof
for the purpose of all local, state and federal taxes, on a pro rata basis based
on their respective Shareholder's Percentage) and shall not become a part of the
Escrowed Cash, but shall be held by the Escrow Agent free of any claims of any
SPI Indemnitee. Such income shall be distributed, from time to time, as follows:
(i) to the Shareholders' Representative, upon written request by it to the
Escrow Agent, such portion of any earned income then held by the Escrow Agent
which is necessary to reimburse the Shareholders' Representative for any costs
or expenses incurred by it in connection with any Claim asserted by any SPI
Indemnitee, which pursuant to Section 3.2(e) may be paid out of such income; and
(ii) to the Shareholders, on a pro rata basis based upon their respective
Shareholder's Percentage, on a quarterly basis, the amount of any income then
held by the Escrow Agent, less the amount of any sums then due to the
Shareholders' Representative pursuant to clause (i) of this Section 5.2 and less
such amount, if any, as the Shareholders' Representative may request in writing
to be held in reserve to provide for the payment of any future sums which may be
payable to it in accordance with such clause (i). As soon as practicable after
the end of each calendar year or part of a calendar year during which this
Escrow Agreement shall remain in effect, the Escrow Agent shall prepare and
deliver to each Shareholder a Form 1099 reflecting all interest and other income
earned or paid on the Escrowed Cash for the account of the Shareholders. The
Escrow Agent may condition any payment of interest or other income to any
Shareholder hereunder upon such Shareholder's execution and delivery of a
completed Form W-9 to the Escrow Agent.
ARTICLE 6
ESCROW AGENT
Section 6.1 Limitation of Duties. The Escrow Agent undertakes to perform
only such duties as are expressly set forth herein, and no implied covenants or
obligations shall be read into this Escrow Agreement against the Escrow Agent.
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<PAGE>
Section 6.2 Permissible Reliance.
(a) The Escrow Agent may rely and shall be protected in acting or
refraining from acting upon any written notice, instruction or request furnished
to it hereunder and reasonably believed by it to be genuine and to have been
signed or presented by the proper party or parties.
(b) The Escrow Agent shall be deemed to have properly delivered the
Escrowed Cash upon (i) placing the monies in the United States mail in a
suitable package or envelope with first class prepaid postage affixed, addressed
to the addressee at such addressee's address as set forth in this Escrow
Agreement or such other address as such Person shall have furnished to the
Escrow Agent in writing; (ii) delivery in person at the offices of the Escrow
Agent; or (iii) delivery in any other manner pursuant to written instructions of
SPI or the Shareholders' Representative, as applicable.
(c) Payment of monies hereunder shall be made by check or by wire
transfer of immediately available funds in accordance with instructions
contained in the applicable disbursement notice to the Escrow Agent.
Section 6.3 Liability of Escrow Agent. Absent gross negligence or willful
misconduct, the Escrow Agent shall not be liable to SPI, CPG, the Shareholders,
the Shareholders' Representative, the Surviving Corporation or any other Person
for any action taken by it in good faith and believed by it to be authorized or
within the rights and powers conferred upon it by this Escrow Agreement, and may
consult with counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel. The Escrow Agent
is authorized by each of SPI, CPG, and the Shareholders' Representative to rely
upon all representations, both actual and implied, of each of SPI and the
Shareholders' Representative and all other persons relating to this Escrow
Agreement and/or the Escrowed Cash including, without limitation,
representations as to authority to execute and deliver this Escrow Agreement,
notifications, receipts or instructions hereunder, and the Escrow Agent shall
not be liable to any person in any manner by reason of such reliance.
Section 6.4 Resignation of Escrow Agent. The Escrow Agent may resign at any
time upon 30 days prior written notice to SPI and to the Shareholders'
Representative. In such event, the Shareholders' Representative shall appoint a
successor escrow agent with the consent of SPI (not to be unreasonably withheld)
and shall give the Escrow Agent notice of the address of, a successor Escrow
Agent within such 30 day notice period. Upon the effective date of its
resignation, the Escrow Agent shall either (i) deliver the Escrowed Cash to such
successor escrow agent selected by the Shareholders' Representative with SPI's
consent as provided
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<PAGE>
above, or (ii) if it has not been notified of such a selected successor escrow
agent, deliver the Escrowed Cash, if any is still being held, to a successor
escrow agent appointed by a court of competent jurisdiction upon the petition of
the Escrow Agent.
Section 6.5 Fees and Expenses of Escrow Agent In consideration of its
services hereunder the Escrow Agent shall be paid an escrow fee of ___________.
($________) (the "Escrow Fee"). SPI and the Shareholders shall each pay fifty
percent (50.0%) of the Escrow Fee to the Escrow Agent and shall deliver their
respective portions of the Escrow Fee to Escrow Agent simultaneously with the
delivery of the Escrowed Cash.
Section 6.6 Reliance on Counsel. Escrow Agent may from time to time consult
with legal counsel of its own choosing in the event of any disagreement, or
controversy, or question or doubt as to the construction of any of the
provisions of this Escrow Agreement or its duties hereunder; provided, however,
that prior to consulting any such counsel Escrow Agent shall give prior written
notice to SPI and Shareholders' Representative of its intent to do so. Unless
SPI and Shareholders' Representative jointly notify Escrow Agent in writing
within thirty (30) days after the date of such notice from Escrow Agent of their
agreement with Escrow Agent as to the resolution of the disagreement,
controversy, or question or doubt as to the construction of the Escrow Agreement
or Escrow Agent's duties hereunder, Escrow Agent may proceed to consult its
legal counsel and shall be entitled to be reimbursed for the fees and expenses
of such counsel.
ARTICLE 7
SHAREHOLDERS' REPRESENTATIVE
Section 7.1 Representatives. The initial Shareholders' Representative shall
be SC Investors, Inc., a Virginia corporation. The Shareholders may appoint a
new Shareholders' Representative by the affirmative vote of Shareholders who
held a majority of the shares of stock in CPG.
Section 7.2 Actions by the Shareholders' Representative. The signature of
the president, secretary, or any other duly authorized officer of the
Shareholders' Representative shall be sufficient to constitute an act of the
Shareholders' Representative.
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 8.1 Notices. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given when delivered by hand or when
mailed
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<PAGE>
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Escrow Agent, to: _________________________
_________________________
_________________________
_________________________
If to the Shareholders'
Representative or CPG, to: SCI Investors, Inc.
101 Shockoe Slip, Suite O
Richmond, Virginia 23219
Attention: James E. Rogers
With a copy to: Williams, Mullen, Christian & Dobbins
P.O. Box 1320
Richmond1 Virginia 23210-1320
Attention: Randolph H. Lickey, Esq.
If to SPI, to: Specialty Paperboard, Inc.
Brudies Road
P.O. Box 498
Brattleboro, Vermont 05302
Attention: Chief Financial Officer
With a copy to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Frank L. Schiff, Esq.
or at such other address as any of the above may have furnished to the other
parties in writing in the manner described above.
Section 8.2 Integration. This Escrow Agreement and the Merger Agreement
shall constitute the entire agreement between the parties hereto with respect to
the escrow agent transactions contemplated hereby. With respect to the
obligations of the Escrow Agent hereunder, if any term of this Escrow Agreement
expressly conflicts with any term of the Merger Agreement, the term contained
within the Merger Agreement shall govern.
Section 8.3 Controlling Law. This Escrow Agreement shall be construed
under, and governed by, the laws of [Delaware].
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<PAGE>
Section 8.4 Binding Agreement1 Assignment This Escrow Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors,
and assigns; provided, however, that no assignment of this Escrow Agreement or
any of the rights or obligations hereof shall relieve any party of its
obligations under this Escrow Agreement.
Section 8.5 Amendment. This Escrow Agreement may be amended only by a
written agreement executed by all of the parties hereto.
Section 8.6 Warranty of Authority. Each party executing this Escrow
Agreement warrants his, her or its authority to execute this Escrow Agreement.
Section 8.7 Execution in Counterparts. This Escrow Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which constitute one and the same instrument.
Section 8.8 Exhibits. All Exhibits attached hereto are made a part hereof
by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the date and year first above written.
SPECIALTY PAPERBOARD, INC.
By:________________________________
Title:_____________________________
CPG ACQUISITION COMPANY
By:________________________________
Title:_____________________________
CPG INVESTORS INC.
By:________________________________
Title:_____________________________
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<PAGE>
SCI INVESTORS INC.
By:________________________________
Title:_____________________________
[CRESTAR BANK]
By:________________________________
Title:_____________________________
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<PAGE>
EXHIBIT A
SHAREHOLDERS
-17-
<PAGE>
EXHIBIT B
ROCHESTER ENVIRONMENTAL ESCROW AMOUNT
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<PAGE>
================================================================================
TAX INDEMNIFICATION AGREEMENT
Dated as of October 31, 1996
By and Among
SPECIALTY PAPERBOARD, INC.,
and
THE SHAREHOLDERS NAMED HEREIN
================================================================================
<PAGE>
INDEMNIFICATION AGREEMENT (this "Agreement") dated as of October 31,
1996 by and among Specialty Paperboard, Inc. (the "Parent"), and the former
stockholders of CPG Investors Inc. (the "Company") listed on the signature pages
hereof (each a "Shareholder" and collectively the "Shareholders"). Capitalized
terms herein which are not otherwise defined herein shall have the meanings
therefor set forth in the Merger Agreement described below.
W I T N E S S E T H :
WHEREAS, the Parent, CPG Acquisition Company ("Acquisition") and the
Company have entered into a certain Merger Agreement, dated as of August 28,
1996 (the "Merger Agreement") whereby Acquisition will merge (the "Merger") with
and into the Company the Company will become a wholly-owned subsidiary of the
Parent (sometimes referred to herein as the "Surviving Corporation") and the
shareholders of the Company (other than those exercising appraisal rights)
collectively receive the Merger Consideration as provided in the Merger
Agreement;
WHEREAS, this Agreement is entered into pursuant to Section 2.18 of
the Merger Agreement as a condition precedent to the obligations of the Parent
and Acquisition to consummate the Merger; and
WHEREAS, capitalized terms used but not defined herein shall have
the respective meanings ascribed to such terms in the Merger Agreement.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I.
INDEMNIFICATION
Section 1.1 Indemnification. The Shareholders hereby agree
severally, to indemnify and hold the Parent, its affiliates (including, without
limitation, the Surviving Corporation and its subsidiaries) and the successors
to the foregoing and their respective shareholders, officers, directors,
employees and agents, harmless on an after-tax basis from and against all Taxes,
losses, claims and expenses (including, without limitation, reasonable
attorneys' fees and expenses) to the extent of the indemnification provided in
Section 9.7 of the Merger Agreement; provided, however, that the limitations of
such indemnification to available proceeds held in the Escrow Account provided
in Section 9.7 of the Merger Agreement shall
<PAGE>
be disregarded for purposes of this Agreement; and provided, further, that in no
-------- -------
event shall the aggregate amount of each Shareholders' liability under this
Agreement exceed the product of (a) such Shareholder's Percentage and (b) the
aggregate amount distributed to the Shareholders pursuant to the Escrow
Agreement (excluding therefrom the distribution of any income earned on such
Escrow Account and excluding therefrom any amount distributed to the
Shareholders from the Rochester Environmental Escrow Amount).
Section 1.2 Indemnification Procedure. Procedures for notification,
cooperation and controversies shall be as set forth in Sections 9.3 and, 9.4 and
10.3 of the Merger Agreement; provided that in the event of a conflict between
Section 9.3 or 9.4 of the Merger Agreement, on the one hand, and Section 10.3 of
the Merger Agreement on the other hand, the provisions of Section 9.3 or 9.4 of
the Merger Agreement, as applicable, shall govern.
ARTICLE II
REPRESENTATIONS OF THE SHAREHOLDERS
Representations of the Shareholders. Each of Shareholders,
severally, as to such Shareholder, represents, warrants and agrees as follows:
Section 2.1 Authorization and Validity of Agreement. Such
Shareholders has the requisite power and authority to enter into this Agreement
and to perform such Shareholder's obligations hereunder. This Agreement has been
duly executed and delivered by such Shareholder and is a valid and binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms, except to the extent that enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and to
general equitable principles.
Section 2.2 No Conflicts. The execution, delivery and performance of
this Agreement by such Shareholder will not (a) result in a violation of any
law, rule, ordinance, regulation, order, judgement or decree by which such
Shareholder is bound or (b) conflict with or result in a material breach of or
default under any mortgage, lien, lease, license, permit, agreement, contract or
instrument to which such Shareholder is a party or by which such Shareholder is
bound.
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<PAGE>
ARTICLE III
TERMINATION
Section 3.1 Termination. This Agreement shall terminate upon the
expiration of all statutes of limitations applicable to the matters contained in
Section 3.14 of the Merger Agreement.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. The interpretation and construction of
this Agreement, and all matters relating hereto, shall be governed by the laws
of the State of Delaware applicable to agreements executed and to be performed
solely within such State.
Section 4.2 Captions. The Article and Section captions used herein
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 4.3 Notices. Any notice or other communication required or
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage prepaid,
addressed as follows: if to the Parent, to Specialty Paperboard, Inc., Brudies
Road, P.O. Box 498, Brattleboro, Vermont 05302 (Facsimile Number (802) 257-5900)
Attention: Chief Financial Officer, with a copy to its counsel, White & Case,
1155 Avenue of the Americas, New York, New York 10036 (Facsimile Number (212)
354-8113), Attention: Frank L. Schiff, Esq.; if to the Shareholders, to SCI
Investors, Inc., 101 Stockoe Slip, Suite 0, Richmond, Virginia 23219, with
copies to Harris Williams & Co., 1313 East Main Street, Suite 300, Richmond,
Virginia 23219, Attention: Mr. Christopher H. Williams, and to Williams, Mullen,
Christian & Dobbins, 1021 E. Carey Street, 16th Floor, Richmond, Virginia 23219
(mailing address: P.O. Box 1320, Richmond, Virginia 23210), Attention Randolph
H. Lickey, Esq., or such other address or number as shall be furnished in
writing by any such party, and such notice or communication shall be deemed to
have been given as of the date so delivered, sent by facsimile or mailed.
Section 4.4 Parties in Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
Section 4.5 Counterparts. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
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<PAGE>
Section 4.6 Entire Agreement. This Agreement, including the other
documents referred to herein and therein which form a part hereof and thereof,
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
Section 4.7 Amendments. This Agreement may not be changed orally,
but only by an agreement in writing signed by the Parent and the Shareholders.
Section 4.8 Severability. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
Section 4.9 Third Party Beneficiaries. Each party hereto intends
that this Agreement shall not benefit or create any right or cause of action in
or on behalf of any Person other than the parties hereto.
Section 4.10 Jurisdiction. Any judicial proceeding brought against
any of the parties to this Agreement or any dispute arising out of this
Agreement or any matter related hereto shall be brought in the courts of the
State of Delaware or in a United States District Court for a District of
Delaware, and, by execution and delivery of this Agreement, each of the parties
to this Agreement accepts the jurisdiction of such courts, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement. The foregoing consent to jurisdiction shall not be deemed to confer
rights on any Person other than the respective parties to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Parent and the Shareholders have signed this
Agreement and the Company has caused its corporate name to be hereunto
subscribed by its officers thereunto duly authorized, all as of the day and year
first above written.
THE SHAREHOLDERS:
By:____________________________
Dillwyn P. Paiste, IV
By:____________________________
William W. Huffman, Jr.
By:____________________________
Peter R. Hoppe
By:____________________________
J. J. Lacina
By:____________________________
Stanley S. Luczycki
By:____________________________
Lawrence e. McEnroe
By:____________________________
Homan B. Kinsley, Jr.
By:____________________________
Brenton S. Halsey
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<PAGE>
By:____________________________
James E. Rogers
By:____________________________
Ronald Shapiro
By:____________________________
James O. Eubanks
AEA Investors Inc.
By:_______________________________
Name:
Title:
Winston Captial Fund I, LP
By:_______________________________
Name:
Title:
By:____________________________
Robert F. Yousey
By:____________________________
A. William Hamill
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<PAGE>
AWA Paper Mfg. Co., Ltd.
By:_______________________________
Name:
Title:
Miki Sangyo (USA) Inc.
By:_______________________________
Name:
Title:
The Tredegar Trust Company
Trustee u/a dated 12/2/86
f/b/o Blake F. Hamill
(EIN 13-6880133)
By:_______________________________
Name:
Title:
The Tredegar Trust Company
Trustee u/a dated 12/2/86
f/b/o Carter B. Hamill
(EIN 13-6880134)
By:_______________________________
Name:
Title:
By:____________________________
Robert C. Wardwell
By:____________________________
Murray E. Spruce
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<PAGE>
THE PURCHASER:
SPECIALTY PAPERBOARD, INC.
By:_______________________________
Name:
Title:
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<PAGE>
SCHEDULE 3.2
Capital Stock
Name Number of Options Option Price
- ---- ----------------- ------------
James O. Eubanks 17,000 $10.00
Robert F. Yousey 8,500 $10.00
Diliwyn P. Paiste 6,500 $10.00
William W. Huffman 5,000 $10.00
Peter R. Hoppe 4,000 $10.00
J. J. Lacina 3,500 $10.00
Stanley S. Luczycki 3,500 $10.00
Lawrence E. McEnroe 3,500 $10.00
500 $17.50
Robert C. Wardwell 1,000 $10.00
500 $15.00
Murray E. Spruce 1,000 $17.50
2
<PAGE>
SCHEDULE 3.4
Subsidiaries and Investments
Jurisdiction Qualified as
Corporations Owned of Incorporation Foreign Corporation
- ------------------ ---------------- -------------------
CPG Holdings, Inc. Delaware Virginia
Custom Papers Group Inc. Virginia Pennsylvania
New Jersey
Massachusetts
Michigan
Indiana
CPG Warren Glen Inc. Virginia Pennsylvania
New Jersey
Illinois
Pledged Stock
- -------------
The stock of CPG Holdings Inc., CPG-Warren Glen Inc. and Custom Papers
Group Inc. (formerly CPG-Virginia Inc.) has been pledged to Crestar Bank
pursuant to the Pledge Agreements listed as items 9 and 10 on Schedule 3.7.
3
<PAGE>
SCHEDULE 3.5
Financial Statements; Material Changes
The Unaudited Statements were prepared in accordance with GAAP applied on a
basis consistent with the Company's Audited Statements, except as follows:
1. There are no notes to the Unaudited Statements.
2. The Unaudited Statements reflect an adjustment to reclassify cash and
long-term debt as part of stockholders' equity.
3. The Unaudited Statements reflect budgeted depreciation expense for the
period (22 weeks) ended June 2, 1996.
4. Income taxes have been provided in the Unaudited Statements using an
effective rate of 40%, and the deferred portion of the current year's
provision has not been determined.
5. The additional minimum pension liability recorded at December 31, 1995 was
updated in the Unaudited Statements to reflect the final actuarial
valuation as of January 1, 1 996 which includes, in addition to refinements
in actuarial estimations, an increase in the projected benefit obligation
resulting from a benefit increase not reflected in the 1995 Audited
Statements. The impact of recording the final actuarial valuation was (a)
an increase in other assets of $532M, (b) a decrease in deferred income
taxes of $55M, (c) an increase in other liabilities of $386M, and (d) a
decrease in the minimum pension liability adjustment in equity of $91M.
6. Liabilities related to the Company's pension plan and post retirement
benefits other than pensions are presented in the Unaudited Statements
based upon the previous year end balance, determined by an actuarial firm,
as adjusted for the 1 996 budgeted expense provisions and contributions and
payments made.
7. The Unaudited Statements reflect inventory stated at an estimated LIFO
value which was determined without applying the adopted LIFO methodology.
4
<PAGE>
SCHEDULE 3.7
Title to Properties; Encumbrances
1. Leasehold Deed of Trust dated November 5, 1993 by and among CPG-Virginia
Inc., Patrick J. Milmoe and William A. Walsh, Jr., Trustees, and Crestar Bank,
as agent. (Richmond Mill)
2 Mortgage, Security Agreement and Assignment dated November 5, 1993 by
CPG-Virginia Inc. to Crestar Bank, as agent. (Rochester Mill)
3. Mortgage dated November 5, 1993 between CPG-Warren Glen Inc. and Crestar
Bank, as agent. (Warren Glen Mill)
4. Mortgage dated November 5, 1993 between CPG-Virginia Inc. and Crestar, as
agent. (Hughesville)
5. Mortgage Deed dated November 5, 1993 between CPG-Virginia Inc. and Crestar
Bank, as agent. (Fitchburg Mill)
6. Security Agreement dated November 5, 1993 made by CPG Holdings Inc.,
CPG-Virginia Inc. and CPG-Warren Glen Inc. to Crestar Bank, as agent, granting a
security interest in all Contracts, Accounts and General Intangibles, Equipment,
Inventory and all other tangible and intangible personal property, together with
all Proceeds and Products, all as defined in such Agreement.
7. Conditional Assignment of Patents dated November 5, 1993 made by CPG
Holdings Inc., CPG-Virginia Inc. and CPG-Warren Glen Inc. to Crestar Bank, as
agent, granted pursuant to the Security Agreement described in item 6 above.
8. Conditional Assignment of Trademarks dated November 5, 1993 made by CPG
Holdings Inc., CPG-Virginia Inc. and CPG-Warren Glen Inc. to Crestar Bank, as
agent, granted pursuant to the Security Agreement described in item 6 above.
9. Pledge Agreement dated November 5, 1993 made by CPG Holdings Inc. to Crestar
Bank, as agent, pledging the stock of CPG-Virginia Inc. and CPG-Warren Glen Inc.
5
<PAGE>
10. Owner Pledge Agreement dated November 5, 1993 made by CPG Investors Inc. to
Crestar Bank, as agent, pledging the stock of CPG Holdings Inc.
11. Such liens and encumbrances as are reflected in the attached UCC search
reports for the following jurisdictions [Not attached. Will file
upon request]:
Delaware
Illinois
Indiana
Massachusetts
Michigan
New Jersey
Pennsylvania
Virginia
12. Such liens and encumbrances as are reflected in the attached exceptions
to title policy Nos. 113-00-934776, 9303183(l), 136-00-004741, 113-00-420868
and 113-00-420867. [Not attached. Will file upon request.]
13. The Warren Glen and Hughesville mills are subject to Administrative Consent
Orders ("ACOs") entered into by James River Paper Company, Inc. ("James River")
and the New Jersey Department of the Environment ("NJDEP") under ISRA/ECRA,
ECRA, for remediation of Hazardous Materials at these sites and an ACO entered
into by Custom Papers-Warren Glen Inc. and Custom Papers-Hughesville Inc. with
NJDEP guaranteeing the obligations of James River at the Warren Glen mill and
Hughesville mill, respectively. Pursuant to these ACOs, ISRA, ECRA, and an
Agreement between James River and CPG-Virginia Inc. dated October 31, 1993 as to
the Hughesville mill (the "Hughesville ISRA Agreement"), and an Agreement
between James River and CPG-Warren Glen Inc. dated October 31, 1993 as to the
Warren Glen mill (the "Warren Glen ISRA Agreement"), institutional and/or
engineering controls, including but not limited to a deed notice or deed
restrictions, may be imposed at these properties in connection with the
utilization of remediation standards other than residential remediation
standards. In addition, the Hughesville ISRA Agreement and the Warren Glen ISRA
Agreement grant James River, its consultants, contractors,
6
<PAGE>
subcontractors, employees, and agents a license to enter upon the property at
the Hughesville mill and the Warren Glen mill, respectively, for the purpose of
complying with requirements imposed upon James River by ISRA/ECRA.
7
<PAGE>
SCHEDULE 3.8
Real Property
1. Rochester, Michigan (County of Oakland), as more particularly described in
that certain Special Warranty Deed dated October 31, 1993 between James River
Paper Company, Inc. and CPG-Virginia Inc. attached hereto.
[Not attached. Will file upon request.]
2 Fitchburg, Massachusetts (Worcester County) as more particularly described
in that certain Deed between James River Paper Company, Inc. and
CPG-Virginia, Inc. attached hereto. [Not attached. Will file upon request.]
3. Warren Glen, New Jersey (Warren County and Hunterdon County), as more
particularly described in (i) that certain Deed dated October 31, 1993
between James River Paper Company, Inc. and CPG-Warren Glen Inc. attached
hereto (Tax Map Reference: Pohatcong Township, Warren County, Block No.1, Lot
No.105 and Block No.15, Lot No.118) and (ii) that certain Deed dated October
31, 1993 between James River Paper Company, Inc. and CPG-Warren Glen Inc.
attached hereto (Tax Map Reference: Holland Township, Hunterdon County, Block
No. 1, Lot No. 1.01 and Block No. 2, Lot No. 1.01).
[Not attached. Will file upon request.]
4. Hughesville, New Jersey (Hunterdon County and Warren County), as more
particularly described in (i) that certain Deed dated October 31, 1993
between James River Paper Company, Inc. and CPG-Virginia Inc. attached hereto
(Tax Map Reference: Pohatcong Township, Warren County, Block No.1, Lot No.
105 and Block No.15, Lot No. 118) and (ii) that certain Deed dated October
31, 1993 between James River Paper Company, Inc. and CPG-Virginia Inc.
attached hereto (Tax Map Reference: Holland Township, Hunterdon County, Block
No. 1, Lot No. 1.01 and Block No. 2, Lot No. 1.01).
[Not attached. Will file upon request.]
8
<PAGE>
SCHEDULE 3.9
Intellectual Property
<TABLE>
<CAPTION>
Registered Trademarks Country Registration/Serial Number Date Renewal
- --------------------- ------- -------------------------- ---- -------
<S> <C> <C> <C> <C>
1. Indian Weave US 528,942 8/15/90 8/15/2000
Embossed (stylized)
2. Jersey US 728,554 3/13/82 3/13/2002
3. Petals Everlasting US 1,891,041 4/25/2001
4. Reliance (& Design) US 77,115 3/8/90 3/8/2000
(stylized)
5. Tufwite (stylized) US 618,249 12/27/75 12/27/95
renewal application
in process
6. Verigood (stylized) US 534,182 12/5/70 12/5/2000
<CAPTION>
Trademark Applications Country Application/Serial Number Date
- ---------------------- ------- ------------------------- ----
<S> <C> <C> <C>
7. CUSTOMPAPERS.COM US 75/101608 5/9/96
<CAPTION>
Patent No. Country Title Issue Date
- ---------- ------- ----- ----------
<S> <C> <C> <C> <C>
8. 4,355,081 US Curing of Resin Impregnated 10/19/82 may not
Cellulosics with Continuously have been
Superheated Steam maintained
9. 4,421,794 US Solvent Removal via 10/20/83
Continuously Superheated Heat
Transfer Medium
10. 4,455,195 US Fibrous Filter Media and 6/19/84 may not
Process for Producing Same have been
maintained
11.
a. 4,445,237 US High Bulk Pulp Filter Media 6/19/84 may not
b. 81,131 Finland Utilizing Such Pulp, Related 9/10/90 have been
Processes maintained
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12. 4,557,800 US Process for Forming a Porous 12/10/85
Cellulosic Paper from a Thermal
Treated Cellulosic Non-Binding
Pulp
Patent No. Country Title Issue Date
- ---------- ------- ----- ----------
<S> <C> <C> <C>
13. 4,654,980 US Solvent Removal Using a 4/7/87 not
Condensable Heat Transfer maintained
Vapor
14.
a. 4,655,939 US Locomotive Oil Filter 4/7/87 not
b. 4,218 Peru 11/30/87 maintained
15. 4,809,744 US Uniform Fluid Distribution 3/7/89
System
16. 4,909,901 US EMI and RFI Shielding and 3/20/90
Antistatic Materials and
Process for Producing the Same
17. 4,917,714 US Filter Element Comprising 4/17/90
Glass Fibers
18. 4,923,646 US Method and Apparatus for 5/8/90
Manufacture of Fibrids
19. 4,948,463 US Magnetic Barrier Paper 8/14/90
20. 5,028,465 US Hydroentangled Composite 7/2/91
Filter Element
21. 5,223,095 US High Tear Strength, High 6/29/93
Tensile Strength Paper
22. 5,328,567 US A Process for Making a Paper- 7/12/94
based Product Containing
a Binder
23. 5,466,336 US A Process for Making a Paper- 11/14/95
based Product Employing
a Polymeric Latex Binder
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
24. 5,498,314 US A Process for Making a Paper- 3/12/96
based Product Containing
a Binder
<CAPTION>
Patent Applications Country Title Status
- ------------------- ------- ----- ------
<S> <C> <C> <C>
25. SN1611 Mexico Corresponds to 14 above Pending - not maintained
26. SN1688/86 Venezuela Corresponds to 14 above Allowed - not maintained
27. US93/10206 PCT Corresponds to 22 above Filed 2/10/93
Canada Corresponds to 22 above Pending
Germany Corresponds to 22 above Pending
EPO Corresponds to 22 above Pending
Japan Corresponds to 22 above Pending
UK Corresponds to 22 above Pending
23. Foreign Applications Mexico Corresponds to 23 above Pending
So. Africa Corresponds to 23 above Allowed 5/31/95
EPO Corresponds to 23 above Pending
29. Foreign Applications Mexico Corresponds to 24 above Pending
So. Africa Corresponds to 24 above Allowed 5/31/95
EPO Corresponds to 24 above Pending
30. 08/472,661 US Extension of 22 above Pending
31. 08/472,663 US Extension of 23 above Pending
</TABLE>
11
<PAGE>
SCHEDULE 3.10
Leases
Lease Agreement dated November 15, 1995 between IFA Incorporated and Custom
Papers Group Inc.; as amended by Letter Agreement dated August 14, 1996 between
IFA Incorporated and Custom Papers Group Inc.
Master Lease Agreement dated January 1, 1994 between Custom Papers Group Inc.
and Meridian Leasing Corporation.
Deed of Lease dated as of October31, 1993 between James River Paper Company,
Inc., Landlord, and CPG - Virginia Inc., Tenant.
Fleet Management Services Agreement dated as of March 11, 1994 between
Automotive Rentals, Inc. and Custom Papers Group Inc.
Lease Agreement dated December 1, 1993, by and between the Donald D. Foss
Living Trust, James D. Foss, Trustee, and Custom Papers Group Inc.
12
<PAGE>
SCHEDULE 3.11
Material Contracts
a) Any agreement, contract or commitment that involves the performance of
services or delivery of goods and/or materials by it of an amount or value
in excess of $50,000 other than open sales orders and purchase orders
entered into in the ordinary course of business:
(i) Natural Gas Sales Agreement (Agreement Number S-CUSO1S1) between
SEMCO Energy Services, Inc. and Custom Papers Group Inc. entered
September 1, 1995.
(ii) Purchase and Supply Agreement dated May 11, 1995 between Nielsen
and Bainbridge and Custom Papers Group Inc. for specified products.
(iii) Service Agreement Letter between Alexander and Alexander of
Virginia, Inc. and Custom Papers Group Inc. dated November 7, 1995
for insurance brokering and consulting services.
(iv) Purchase and Supply Agreement between SunShine Paper Company and
Custom Papers Group Inc. dated February 16, 1994 for specified
products.
(v) Letter extension dated March 11, 1993 of agreement between Custom
Papers Group Inc. and Permafiber Corporation dated January 25, 1973
for exclusive worldwide distribution of specified products.
(vi) Premium Printing Group Sales and Warehousing Agreement dated April
30, 1991 between James River Paper Company, Inc. and Specialty
Coatings Group Inc. (This contract is being terminated in part
and/or renegotiated as noted in the letter dated August 7, 1996
from Custom Papers Group Inc. to Crown Vantage as successor in
interest to James River Paper Company, Inc.)
b) Any agreement, contract or commitment not in the ordinary course of
business:
* (i) Letter Agreement between Custom Papers Group Inc. and Harris
Williams and Co. dated June 14, 1996
13
<PAGE>
(ii) Resolution of the Board of Directors authorizing the payment to SCI
Investors Inc. of certain fees in connection with its representation
of the Company and its subsidiaries in connection with the
contemplated transaction with Specialty Paperboard, Inc.
c) Any agreement, indenture or other instrument which contains restrictions
with respect to payment of dividends or any other distribution in respect
of its capital stock:
(i) Credit Agreement dated November 5, 1993 between CPG Holdings Inc.
and its subsidiaries, the Banks listed therein and Crestar Bank as
agent for the Banks.
(ii) Letter Agreement dated February 5, 1996 between Crestar Bank and CPG
Holdings Inc. restructuring the price and covenant portions of the
existing credit agreement.
(iii) Letter of Credit dated November 29, 1993.
(iv) Letter of Credit dated October 26, 1995.
(v) Letter Agreement dated November 30, 1993 confirming terms and
conditions of a Rate Collar Transaction between Crestar Bank and CPG
Holdings Inc.
d) Any agreement, contract or commitment relating to capital expenditures in
excess of $50,000:
(i) P.O. H6755 dated June 21, 1996 between Custom Papers Group Inc.
(Richmond Mill) and Electro Mechanical Handling, Inc. for
$130,747.00 (70% outstanding).
(ii) P.O. H6107 dated February 19, 1996 between Custom Papers Group Inc.
(Richmond Mill) and Spooner Industries, Inc. for $479,000.000 (40%
outstanding).
(iii) P.O. 952096-HJH dated December 8, 1995 between Custom Papers Group
Inc. (Hughesville Mill) and Beloit Corp. for $161,000 ($12,500
outstanding).
14
<PAGE>
e) Any agreement, indenture or instrument relating to indebtedness, liability
for borrowed money or the deferred purchase price of property (excluding
trade payables in the ordinary course of business):
See items listed in c above.
f) Any loan or advance to, or investment in, any individual, partnership,
joint venture, corporation, trust, unincorporated organization, government
or other entity (each a "Person"), any agreement, contract or commitment
involving a sharing of profits:
(i) Purchase and Sale Agreement between Custom Papers Group Inc. and G&G
Realty Trust dated November 13, 1995 that involves seller financing.
g) Any guarantee or other contingent liability in respect of any indebtedness
or obligation of any Person (other than in the ordinary course of
business):
None
h) Any management service, consulting or any other similar type of contract:
(i) Communications Services Agreement between James River Corporation
and CPG Holdings Inc. dated November 5, 1993 for voice
communications.
* (ii) Letter Agreement between Custom Papers Group Inc. and Harris
Williams and Co. dated June 14, 1996 regarding investment banking
services.
(iii) Agreement Between James A. Rogers and Custom Papers Group Inc. dated
September 1, 1995 for computer consulting services.
(iv) Letter Agreement between Custom Papers Group Inc. and Thompson
Siegel Walmsley dated October 12, 1994 regarding pension fund
investment management.
(v) Trust Agreement between Custom Papers Group Inc. and Crestar Bank
dated April 15, 1994 for pension trust services.
i) Any agreement, contract or commitment limiting the ability of the Company
or any of its subsidiaries to engage in any line of business or to compete
with any Person:
15
<PAGE>
(i) Intellectual Property and Asset Acquisition Agreement between Custom
Papers Group Inc. and SunShine Paper Company effective as of
February 16, 1994.
(ii) Purchase and Supply Agreement between SunShine Paper Company and
Custom Papers Group Inc. dated February 16, 1994 for specified
products.
(iii) Premium Printing Group Sales and Warehousing Agreement dated April
30, 1991, between James River Paper Company, Inc. and Specialty
Coatings Group Inc. (This contract is being terminated in part
and/or renegotiated as noted in the letter dated August 7, 1996 from
Custom Papers Group Inc. to Crown Vantage as successor in interest
to James River Paper Company, Inc.)
j) Any warranty, guaranty or other similar undertaking with respect to a
contractual performance extended by the Company or any of its subsidiaries
other than in the ordinary course of business:
None
k) Any amendment, modification or supplement in respect of any of the
foregoing:
None other than as indicated above.
16
<PAGE>
SCHEDULE 3.12
Consents and Approvals; No Violations
1. Articles 17 and 32 of the Deed of Lease between James River Paper Company,
Inc. and CPG - Virginia Inc., dated October 31, 1993, require the Company to
give notice to James River Paper Company, Inc. of the sale of its business and
to obtain consent of James River Paper Company to the assignment of the Deed of
Lease.
2. Section 6.03 of the $24,000,000 Credit Agreement dated as of November 5, 1993
among CPG Holdings Inc. and its subsidiaries, the banks listed therein and
Crestar Bank as agent for the banks provides that, unless otherwise agreed in
writing by the banks, the Company shall not sell, transfer or otherwise dispose
of any portion of its property or assets (other than in the ordinary course of
business) or merge with or into any other entity. Failure to obtain such consent
is an event of default under Section 8.01 of the Credit Agreement.
3. Section 7(a) of the Leasehold Deed of Trust dated November 5, 1993, by and
among CPG-Virginia Inc., Patrick J. Milmoe, William A. Walsh and Crestar Bank
(Richmond Mill) provides that an event of default under the Credit Agreement
described in paragraph 2 above is an event of default under the Leasehold Deed
of Trust.
4. Section 1 2(a) of the Mortgage, Security Agreement and Assignment of Rents
dated November 5, 1993, by CPG-Virginia Inc., to Crestar Bank (Rochester,
Michigan Mill) provides that an event of default under the Credit Agreement
described in paragraph 2 above is an event of default under the Mortgage,
Security Agreement and Assignment of Rents.
5. Section 2(a) of the Mortgage dated November 5, 1993, by and among CPGWarren
Glen Inc., and Crestar Bank (Warren Glen Mill) provides that an event of default
under the Credit Agreement described in paragraph 2 above is an event of default
under the Mortgage.
6. Section 2(a) of the Mortgage dated November 5, 1993, by and among
CPGVirginia Inc., and Crestar Bank (Hughesville Mill) provides that an event of
default under the Credit Agreement described in paragraph 2 above is an event of
default under the Mortgage.
7. Section 3(a) of the Mortgage Deed dated November 5, 1993, between
CPG-Virginia Inc., and Crestar Bank (Fitchburg Mill) provides that an event of
default
17
<PAGE>
under the Credit Agreement described in paragraph 2 above is an event of default
under the Mortgage Deed.
8. Section 1 (definitions) of the Security Agreement dated November 5, 1993 by
CPG-Holdings Inc., CPG-Virginia Inc., CPG-Warren Glen Inc., and Crestar Bank
provides that an event of default under the Credit Agreement described in
paragraph 2 above is an event of default under the Security Agreement.
9. Section 2 of the Conditional Assignment of Patents dated November 5, 1993
made by CPG-Virginia Inc. in favor of Crestar Bank provides that the Company may
continue to use the Patents assigned thereby until an event of default under the
Credit Agreement described in paragraph 2 above.
10. Section 2 of the Conditional Assignment of Trademarks dated November 5, 1993
made by CPG-Virginia Inc. in favor of Crestar Bank provides that the Company may
continue to use the Trademarks assigned thereby until an event of default under
the Credit Agreement described in paragraph 2 above.
11. Section 1 (definitions) of the Pledge Agreement dated November 5, 1993 made
by CPG Holdings Inc. to Crestar Bank provides that an event of default under the
Credit Agreement described in paragraph 2 above is an event of default under the
Pledge Agreement.
12. Section 1 (definitions) of the Owner Pledge Agreement dated November 5, 1993
made by CPG Investors Inc. to Crestar Bank provides that an event of default
under the Credit Agreement described in paragraph 2 above is an event of default
under the Pledge Agreement.
13. Section 6(b) of the Lease Agreement dated November 15, 1995 between IFA
Incorporated and Custom Papers Group, Inc., requires Custom Papers Group Inc. to
give IFA Incorporated written notice prior to merging with or into another
entity.
14. Section 11(a) of the Master Lease Agreement dated January 1, 1994 between
Meridian Leasing Corporation and Custom Papers Group Inc. provides that the
Company must give Meridian Leasing Corporation 45 days prior written notice
before it may merge with or into another entity.
15. Section 9 of the Master Equipment Lease Agreement (#620-0003660-000) between
Siemens Credit Corporation and CPG Holdings Inc. provides that the merger of the
Company with and into another entity constitutes an event of default unless the
Company obtains the prior written consent of Siemens.
18
<PAGE>
16. Section 5(a)(viii) of that certain Master Agreement dated November 23, 1993
between Crestar Bank and CPG Holdings Inc., as confirmed by that certain Letter
Agreement dated November 30, 1993 between Crestar Bank and CPG Holdings Inc.
(Rate Collar Transaction), provides that the merger of the Company with or into
another entity constitutes an event of default.
17. The Company must obtain, or cause to be obtained, in connection with the
transactions contemplated by the Merger Agreement from the New Jersey Department
of Environmental Protection ("NJDEP") in accordance with the provisions of the
New Jersey Industrial Site Recovery Act, N.J.S.A. Section 13.6:1K-6, et seq., a
"Negative Declaration," a "No Further Action Letter," a remedial action
workplan, a remediation agreement, or a determination that the transactions
contemplated by the Merger Agreement may proceed without further approvals by
NJDEP and/or without further actions by the Company and/or the Shareholders with
respect to the Company property located in Hughesville and Warren Glen, New
Jersey.
18. The Company and Specialty must await the termination of the waiting period
(or any accelerated waiting period) for the consummation of the proposed merger
pursuant to the requisite Notification and Report Form for Certain Mergers and
Acquisitions filed with the Federal Trade Commission and the Department of
Justice in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, with no action being taken by either the Federal Trade
Commission or the Department of Justice with respect thereto.
19
<PAGE>
SCHEDULE 3.13
Litigation
1. Richard J. Gonzales, as trustee of G&G Realty Trust, a Massachusetts nominee
trust, filed suit against Custom Papers Group, Inc. on June 14, 1996, in the
Superior Court Department of the Trial Court at Worcester, Massachusetts. The
plaintiff and Custom Papers had entered into a Purchase and Sale Agreement,
dated November 13, 1995 (the "Agreement"), for the sale of certain property
owned by Custom Papers and located in Fitchburg, Massachusetts. The plaintiff
alleges that, pursuant to the Agreement, Custom Papers is obligated to perform
additional environmental testing on such property, and that Custom Papers'
refusal to do so constitutes a breach of such Agreement and further constitutes
a violation of M.G.L. c. 93A. The plaintiff seeks an order awarding its actual
damages, compelling specific performance by Custom Papers of such additional
environmental testing, awarding double or triple damages pursuant to M.G.L. c.
93A. ss. ss. 2 and 11, and awarding interest, costs and reasonable attorneys'
fees. By agreement of plaintiff's counsel, the time within which Custom Papers
must file its response has been enlarged to August 31, 1996 to allow the parties
time to reach a settlement of such dispute.
2. On January 24, 1996 Custom Papers Group Inc. received a letter from Hardy,
Wolfe & Downing, P.A., a law firm in Lewiston, Maine which represents Marc
Labonte, an employee of Central Maine Rebuilders. Attached to such letter was a
Notice of Claim for Mr. Labonte pursuant to which Mr. Labonte alleges that he
suffered personal injuries in excess of $5,000 due to the negligence of the
Company. Mr. Labonte's allegedly was injured at the Company's Fitchburg,
Massachussetts Mill on June 14, 1995 after falling into a hole. The Company has
referred this Claim to its insurance carrier.
3. On July 27, 1 995, Gertrude Harrison, Administratix of the Estate of John
Harrison, filed a Complaint and Jury Demand (Docket No. L-8021-95) against
Custom Papers and other defendants listed under fictitious names as
coconspirators. The Complaint was filed in the Superior Court of New Jersey, Law
Division: Middlesex County and Custom Papers was named as a defendant for
discovery purposes only. The Plaintiff's Complaint alleges that Mr. Harrison was
employed by Custom Papers, Alpha, New Jersey from 1964-1993 and that during that
time he was exposed to asbestos. The plaintiff alleges that Mr. Harrison
contracted chronic asbesiosis and/or pulomonary disease and/or cancer and/or
cardiovascular disease and other various diverse complication and injuries which
eventually led to his death due to the defendants negligence, breach of
warranties and marketing of an ultrahazardous product. The plaintiff seeks
actual and punitive damages. On October 19, 1995 Custom Papers Group filed an
Answer to Complaint by Defendant (For Discovery Purposes Only).
20
<PAGE>
SCHEDULE 3.14
Taxes
None
21
<PAGE>
SCHEDULE 3.15
Liabilities
None
22
<PAGE>
SCHEDULE 3.16
Insurance
<TABLE>
<CAPTION>
CASUAL TV - AIG DEDUCTIBLE MAXIMUM COVERAGE
<S> <C> <C>
General Liability 10,000 deductible 1,000,000 per occurrence
per occurrence 2,000,000 aggregate
Auto Liability no deductible 1,000,000 per occurrence
no aggregate
Workers Comp 250,000 deductible statutory limits
per occurrence
Employers Liability no deductible 1,000,000 per occurrence
no aggregate
Umbrella Excess 10,000 retention 25,000,000 per occurence
plus defense costs
25,000,000 aggregate
PROPERTY - Protection Mutual
Fire & Extended Perils 100,000 deductible 183,000,000 (ppty)
+48,000,000 (BI)
Boiler & Machinery 100,000 deductible ex 183,000,000 (ppty) +
250,000 deductible at W/H 48,000,000 (BI)
(Boiler, Turbine @ 500,000)
Difference in Condition 100,000 deductible except 100,000,000
500,000 flood @ WG except
400,000 flood @ Richmond 50,000,000 for earthquake
220,000 flood @ Rochester and
130,000 flood @ 425,000 for dams
Hughesville
120,000 flood @ Fitchburg
Utility Service Interruption 100,000 deductible (ppty) 15,000,000 limit of liability
plus 1 day outage (BI)
Extra Expense for rebuilding -- 500,000 limit of liability
</TABLE>
23
<PAGE>
FLOOD - National Flood Insurance
Warren Glen 5,000 deductible 500,000 real property
5,000 deductible 500,000 personal property
Richmond Hollywood 5,000 deductible 500,000 real property
5,000 deductible 500,000 personal property
Richmond Saturator 5,000 deductible 500,000 real property
5,000 deductible 500,000 personal property
Hughesville 5,000 deductible 161,000 real property
5,000 deductible 161,000 personal property
Rochester no coverage
Fitchburg no coverage
FIDUCIARY LIABILITY - Chubb Group
-0- 500,000
DIRECTORS & OFFICERS LIABILITY - Executive Risk
100,000 retention 5,000,000 includes
employment practices
(includes defense costs)
24
<PAGE>
SCHEDULE 3.18
Employment Relations
Collective Bargaining Agreements
1. Labor Agreement between Custom Papers Group, Fitchburg Mill and United
Paperworkers International Union and Local No. 1360
May 1, 1993 to April 30, 1998
2. Agreement between Custom Papers Group Inc., Warren and Hughesville Mills
and United Paperworkers International Union and Affiliated Local No. 1712
May 21, 1995 to May 23, 1999
3. Agreement between Custom Papers Group Inc., Warren and Hughesville Mills
and International Brotherhood of Electrical Workers and Affiliated Local
No. 1940
May 23, 1995 to May 25, 1999
4. Labor Agreement between Custom Papers Group Inc., Rochester Mill and
United Paperworkers International Union and Local No. 1023
June 27, 1994 to June 26, 1999
5. Labor Agreement between Custom Papers Group Inc., Richmond Mill and United
Paperworkers International Union and Local Union 421
April 28, 1995 to April 28, 2000
Asserted/Threatened Employment Claims
The Rochester UPIU has voted to arbitrate a grievance related to lost wages;
however no notice to arbitrate has been received by the company.
25
<PAGE>
SCHEDULE 3.19
Employee Benefit Plans
3.19(a) List of Plans, Programs and Company Policies
1. Custom Papers Group Inc. Salaried Employees' Retirement Savings Plan (Plan
001)
2. Custom Papers Group Inc. Hourly Employees' Retirement Savings Plan (Plan
002)
3. Custom Papers Group Inc. Hourly Employees' Pension Plan (Plan 003) (Hourly
Defined Benefit Pension Tracks Collective Bargaining Agreements)
4. Custom Papers Group Inc. Health Plan (Plan 501):
(Most Salaried and Hourly Medical and Dental Programs)
A. Managed Choice Program - AEtna POS
B. Preferred Provider Program - AEtna PPO
C. Base Medical Program - AEtna Indemnity
D. Prescription Drug Program AEtna (Walgreens)
E. AEtna Dental Program:
1. AEtna Basic Dental Program
2. AEtna Managed Dental Program
F. AEtna (Walgreens) Prescription Drug Program (for non-HMO Hourly
Medical Enrollees)
G. Salaried Employee's Retiree Medical Program
H. AEtna Base Medical Program (Fitchburg Hourly)
(Replacing prior Mass Mutual Coverage under Plan 506)
I. AEtna Dental Program (Fitchburg Hourly)
(Replacing prior Mass Mutual Coverage under Plan 506)
J. AETna Managed Choice Medical Program (Richmond Hourly)
K. AEtna Managed Dental Program (Richmond Hourly)
L. AEtna Basic Dental Program (Richmond Hourly)
M. AEtna Preferred Care Medical Program (Rochester Hourly)
26
<PAGE>
N. AEtna Dental Program (Rochester Hourly)
O. AEtna Base Medical Program (Warren Glen and Hughesville Hourly)
5. Custom Papers Group Inc. Life and Disability Plan (Plan 502):
(Most Life, Accident and Long Term Disability Programs)
A. ITT Hartford Long Term Disability Program
B. ITT Hartford Life Insurance Program
C. ITT Hartford Travel Accident Program
D. ITT Hartford Accidental Death and Dismemberment Program
E. ITT Hartford Survivor Income Insurance Program
F. Hourly Accidental Death & Dismemberment Program through ITT Hartford
G. Hourly Life Insurance Program through Hartford
H. Retiree Life Insurance Program (Fitchburg Hourly)
I. Retiree Life Insurance Program (Richmond Hourly)
J. Retiree Life Insurance Program (Warren Glen and Hughesville Hourly)
6. Plan Number 503 skipped - was to be for AD&D coverage
(AD&D coverage instead maintained under Plan 502)
7. Plan Number 504 skipped - was to be for Business Travel Accident coverage
(Business Travel Accident coverage instead maintained under Plan 502)
8. Plan Number 505 skipped - was to be for Flexible Spending Accounts
(FSAs included as components of Plan 508)
9. Custom Papers Group Inc. Hourly Medical and Dental Plan (Plan 506):
(Certain Hourly Medical and Dental Plans - Blue Cross and prior Mass
Mutual)
A. Warren Glen and Hughesville Hourly Dental Program
(Blue Cross & Blue Shield Dental)
10. Custom Papers Group Inc. HMO Health Plan (Plan 507)
(Salaried Employees HMO - currently U.S. HealthCare HMO)
11. Custom Papers Group Inc. Flexible Benefits Program/Plan (Plan 508):
A. Custom Papers Group Inc. Flexible Benefits Program
(Salaried Employees Health Premium Conversion)
27
<PAGE>
B. CPG Dependent Care Expense Reimbursement Account
(Salaried Employees Dependent Care FSA)
C. CPG Health Care Reimbursement Account
(Salaried Employees Medical Reimbursement FSA)
D. CPG Hourly Premium Plan/Program
(Hourly Employees Health Premium Conversion)
12. Custom Papers Group Inc. Fitchburg Hourly HMO Medical Plan (Plan 509)
(Hourly Employees at Fitchburg with HMO only) (currently Fallon HMO)
13. Custom Papers Group Inc. Hourly Retiree Medical Plan (Plan 510)
(Hourly Retiree Medical - currently for Fitchburg Hourly only)
14. Custom Papers Group Inc. Rochester Hourly HMO Medical Plan (Plan 511)
(Hourly Employees at Rochester with HMO only) (currently SelectChoice HMO)
15. Custom Papers Group Inc. New Jersey Hourly HMO and Dental Plan (Plan 512)
(Hourly Employees at Warren Glen and Hughesville with HMO only) (currently
US HealthCare HMO and US HealthCare Dental)
16. Custom Papers Group Inc. Extended Travel and Accident Plan (Plan 513)
(CIGNA 24 Hour Accident Coverage for selected HR, other employees)
17. Custom Papers Group Inc. Employee Assistance Policy/Plan (to be Plan 514):
(to incorporate all CPGI EAP Programs)
A. Richmond Salaried Employee Assistance Program
B. Richmond Hourly Employee Assistance Program
C. Rochester Salaried Employee Assistance Program
D. Rochester Hourly Employee Assistance Program
18. Confidentiality and Patent Agreement
19. Relocation Program for New Employees
20. Relocation Program for Current Employees
21. CPG Profit Sharing Plan (Cash Bonus)
22. Middle Management Incentive Bonus Plan (Cash Bonus)
23. Management Incentive Bonus Plan (Cash Bonus)
28
<PAGE>
24. CPG Investors Stock Option Plan (Nonqualified Stock Option Plan)
25. Leased Vehicle Policy
26. Standards of Conduct Agreement
27. Code of Ethics Agreement
28. Confidentiality and Patent Agreement
29. Tuition Reimbursement Policy
30. Military Reserve Training Policy
31. Military Service Leave Policy
32. Vacation Policy
33. Holiday Policy
34. Leave of Absence Policy
35. Excused Absence Policy:
A. Funeral Leave
B. Jury Duty
C. Other Absence
36. Sick Leave Policy
37. Salary Continuation Policy (Cash Severance Policy)
38. Maternity Leave of Absence Policy
39. Other Hourly Policies and Programs with respect to holidays, personal
days, vacation, leaves of absence, excused absences (military service,
jury duty, funerals, etc.), and sick leave as set forth in the Collective
Bargaining Agreement applicable to each site.
40. Agreements - Employment, Termination and Service:
A. Employment Contracts:
1. James 0. Eubanks
2. Robert F. Yousey
B. Employment Letters
1. William W. Huffman, Jr.
29
<PAGE>
2. Peter R. Hoppe
3. Jaroslav J. Lacina
4. Stanley S. Luczycki
5. Lawrence McEnroe III
6. Dillwyn P. Paiste IV
3.19(b) Status of Plans
* 1. Plan 11 above, Custom Papers Group Inc. Flexible Benefits Program (Plan
508) consists of the salaried employees health and dental coverage premium
conversion program, the salaried employees dependent care expense reimbursement
account program, the salaried employees medical reimbursement flexible spending
account program, as well as the hourly employees health and dental coverage
premium conversion program. While the four components are described in the
Salaried Employees Benefits and Policies handbook or under various labor
agreements and administrative documentation (for hourly employees), the Company
has yet to prepare a consolidated cafeteria/flexible benefits plan that meets
(1) the written plan requirements of ERISA and (2) the requirements set forth in
ss. 105, 125 and 129 of the Internal Revenue Code. The failure to adopt a
written plan could expose the Company to DOL administrative penalties. Moreover,
the lack of a written ss. 125 plan could subject the Company and its employees
to substantial tax liabilities for open tax years (regarding IRS
recharacterization of 125 benefits as taxable income). In turn, this could
trigger Company exposure to participant claims of negligent maintenance of the
Plan.
* 2. Plan 11 also may fail summary plan description requirements. The
salaried employees handbook has the deficiencies described above. Otherwise, the
appears to be no summary plan description describing the health premium
conversion plan to hourly employees. The lack of sufficient SPDs could trigger
DOL penalties.
* 3. Plan 17, Custom Papers Group Inc., Employee Assistance Policies and
Programs (anticipated to be Plan 514). Until now, Custom Papers Group Inc. has
taken the position that each of its local employee assistance policies
represented a corporate policy of the company and not an "ERISA plan". However,
as the policies are formal programs where the company funds the provision of
employee assistance and counseling benefits over time (and subject to an ongoing
administrative scheme with specific benefits and program limitations), the
company has consulted with counsel about probable characterization as an ERISA
plan and the immediate need for documentation, disclosure and reporting.
However, to the extent that DOL determines that an ERISA employee
assistance plan has existed prior to 1996, the DOL could impose administrative
penalties on the Company for failure to maintain a written plan, failure to
properly disclose the plan and failure to file annual returns/reports for the
Plan (or costs could be incurred to file the "Plan" under the DOL Delinquent
Filer Voluntary Compliance Program.
30
<PAGE>
4. Plan 15, Custom Papers Group Inc., Investors Stock Option Plan. This
plan is a non-qualified stock option plan maintained for a select group of CPG
employees. As such, the plan is intended to qualify as a top-hat plan for a
select group of employees under ERISA and, therefore, be exempt from ERISA
requirements except for the ERISA fiduciary requirements under Title I. As such,
the plan is entitled to file a Title I notice statement with the DOL in lieu of
filing any form 5500. If no ERISA Title I statement has been filed, however, the
possibility remains that the Company could be subject to late filing penalties
or incur costs of filing once under the DOL delinquent filer voluntary
compliance program.
3.19(c) Liabilities
1. Fitchburg Hourly Retiree Medical Benefit, as described in the
Collective Bargaining Agreement.
2. Fitchburg Hourly Retiree Life Benefit, as described in the Collective
Bargaining Agreement.
3. Richmond Hourly Retiree Life Benefit, as described in the Collective
Bargaining Agreement.
4. Warren Glen and Hughesville Hourly Retiree Life Benefit, as described
in the Collective Bargaining Agreements.
5. Regarding Unfunded Liabilities. Outside of the Company plans qualified
under IRC Section 401, the Company maintains all of the plans and policies
listed in Section 3.19(a) above, items 440. As each of these plans is insured or
unfunded (with premiums, fees or payments usually due and paid monthly), then to
the extent of the monthly payments regularly due under these programs between
the date of representation under Section 3.19 of the Agreement and the Closing,
there are unfunded liabilities for all of these premiums, fees and other usual
payments.
6. With respect to the Hourly Employees Retirement Savings Plan, the plan
received an excess contribution with respect to Mr. Marian Sroka for 1995. As
such, the company incurred a liability for a 10% excise tax in the amount of
$238 which has been paid.
3.19(e) Funded Status: Withdrawal Liability
1. The Hourly Employees Pension Plan currently is underfunded, when
comparing present value of accrued benefits to the market value of Plan assets.
According to the most recent actuarial report for the plan issued by Hewett
Associates, LLC (as of January 1, 1995), the present value of accrued benefits
under the Plan was $4,564,684 but the market value of assets was $4,166,350,
leaving an unfunded liability of approximately $398,334.
3.19 (g) Transactions
1. See 3.19 (b) above regarding possible DOL, IRS and participant actions
regarding welfare plan "written plan" and "SPD/disclosure" obligations and the
obligation to maintain a sufficient written Section 125 plan for the flexible
benefits program.
31
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3.19 (h) Triggering Events
1. See 3.19 (a)(40) above.
2 See 3.19 (a)(24), CPG Investor Stock Option Plan, above.
3. See 3.19 (a)(37), Salary Continuation Policy, above.
32
<PAGE>
SCHEDULE 3.20
Interests in Customers, Suppliers, etc.
Shareholder & Director - Mr. Ronald Shapiro is a shareholder and director of CPG
Investors Inc. and a shareholder, director and/or an officer of Permafiber, a
customer of Custom Papers Group Inc.
Shareholder - AWA Paper Mfg. Co. & Miki Sangyo (USA) Inc. are shareholders of
CPG Investors Inc. and a customer of Custom Papers Group Inc.
33
<PAGE>
SCHEDULE 3.21
Environmental
(a) Hazardous Materials
(i) Hazardous Materials have been released at the Warren Glen
mill and the Hughesville mill and are the subject of
ISRA/ECRA Administrative Consent Orders ("ACOs"), as
amended, entered into by James River Paper Company, Inc.
with the New Jersey Department of the Environmental
Protection ("NJDEP") and an ACO entered into by Custom
Papers - Warren Glen Inc. and Custom Papers - Hughesville
Inc. with NJDEP guaranteeing the obligations of James River
at the Warren Glen mill and the Hughesville mill,
respectively, to NJDEP. Descriptions of the Hazardous
Materials Released, identified Releases, and remedial
actions being performed are found in NJDEP ISRA Case files
nos. 91205 and 91206 and are incorporated herein by
reference.
(ii) All mill sites have or had some asbestos or
asbestos-containing material and lead-based paint on or in
buildings and other structures, and have or had
polychlorinated biphenyls in electrical equipment or
transformers.
(iii) A Release of approximately 20 gallons of diesel fuel
occurred at the Rochester mill in or about April, 1995.
(iv) A Release of approximately 3000 gallons of polyvinyl acetate
resin occurred within the tank farm containment dikes at the
Rochester mill in or about February, 1995.
(v) A Release of approximately 3 gallons of mineral oil occurred
at the Fitchburg mill in or about February, 1995.
(vi) A Release of approximately 220 gallons of ISC 24A degreasing
agent allegedly occurred through the process wastewater
treatment system at the Hughesville mill in or about August,
1995.
(vii) A Release of approximately 20 gallons of diesel fuel
occurred at the Warren Glen mill in or about January, 1995.
(viii) A Release of less than 100 gallons of #6 fuel oil occurred
in or about March, 1990, and a Release of approximately 50
gallons of #6 fuel oil occurred in or about March, 1991, at
the Warren Glen mill.
34
<PAGE>
(ix) A Release of #6 fuel oil occurred at the Warren Glen mill in
or about April, 1992.
(x) A Release of less than 25 gallons of diesel fuel occurred at
the Warren Glen mill in or about September, 1992.
(b) Compliance with Environmental Laws/Permits
(i) The Warren Glen mill received a Notice of Violation dated
August 1, 1996 from the New Jersey Department of the
Environment regarding the temporary storage of paper fiber
sludge on the ground.
(ii) A Release of Hazardous Materials has apparently occurred
from two former paper pulp waste settling lagoons at the
Rochester mill. The Company is in the process of determining
whether further Remedial Work is required under an
Environmental Law in connection with such apparent Release.
(iii) A Release of approximately 3,000 gallons of polyvinyl
acetate resin occurred within the tank farm containment
dikes at the Rochester mill in or about February, 1995. A
verbal report was made to the Michigan DEQ regarding this
Release on August 23, 1996 which report was subsequently
confirmed in writing. CPG is evaluating whether any
additional reports are required pursuant to Environmental
Law.
(c) Environmental Claims
(i) The Warren Glen mill received a Notice of Violation dated
August 1, 1996 from the New Jersey Department of the
Environment regarding the temporary storage of paper fiber
sludge on the ground.
(ii) Richard J. Gonzales, as trustee of G&G Realty Trust, a
Massachusetts nominee trust, filed suit against Custom
Papers Group, Inc. on June 14, 1996, in the Superior Court
Department of the Trial Court at Worcester, Massachusetts.
The plaintiff and Custom Papers had entered into a Purchase
and Sale Agreement, dated November 13, 1995 (the
"Agreement"), for the sale of certain property owned by
Custom Papers and located in Fitchburg, Massachusetts. The
plaintiff alleges that, pursuant to the Agreement, Custom
Papers is obligated to perform additional environmental
testing on such property, and that Custom Papers' refusal to
do so constitutes a breach of such Agreement and further
constitutes a violation of M.G.L. c. 93A. The plaintiff
seeks an order awarding its actual damages, compelling
specific performance by Custom Papers of such additional
environmental testing, awarding its actual damages, awarding
35
<PAGE>
double or triple damages pursuant to M.G.L. c. 93A ss.2 and
11, and awarding interest, costs and reasonable attorneys'
fees. By agreement of plaintiff's counsel, the time within
which Custom Papers must file its response has been enlarged
to August 31, 1996 to allow the parties time to reach a
settlement of such dispute.
(iii) A Release of Hazardous Materials has apparently occurred
from two former paper pulp waste settling lagoons at the
Rochester mill.
(d) Facts and Circumstances
(i) Hazardous Materials have been released at the Warren Glen
mill and the Hughesville mill and are the subject of
ISRA/ECRA Administrative Consent Orders ("ACOs"), as
amended, entered into by James River Paper Company, Inc.
with the New Jersey Department of the Environmental
Protection ("NJDEP") and an ACO entered into by Custom
Papers Warren Glen Inc. and Custom Papers - Hughesville Inc.
with NJDEP guaranteeing the obligations of James River at
the Warren Glen mill and the Hughesville mill, respectively,
to NJDEP. Descriptions of the Hazardous Materials Released,
identified Releases, and remedial actions being performed
are found in NJDEP ISRA Case files nos. 91205 and 91206 and
are incorporated herein by reference.
(ii) The Warren Glen and Hughesville mills are subject to
ISRA/ECRA Administrative Consent Orders ("ACOs") entered
into by James River Paper Company, Inc. ("James River") and
the New Jersey Department of the Environment ("NJDEP") for
remediation of Hazardous Materials at these sites and an ACO
entered into by Custom Papers-Warren Glen Inc. and Custom
Papers-Hughesville Inc. with NJDEP guaranteeing the
obligations of James River at the Warren Glen mill and
Hughesville mill, respectively. Pursuant to these ACOs,
ISRA, ECRA, and an Agreement between James River and
CPG-Virginia Inc. dated October 31, 1993 as to the
Hughesville mill (the "Hughesville ISRA Agreement"), and an
Agreement between James River and CPG-Warren Glen Inc. dated
October 31, 1993 as to the Warren Glen mill (the "Warren
Glen ISRA Agreement"), institutional and/or engineering
controls, including but not limited to a deed notice or deed
restrictions, may be imposed at these properties in
connection with the utilization of remediation standards
other than residential remediation standards. In addition,
the Hughesville ISRA Agreement and the Warren Glen ISRA
Agreement grant James River, its consultants, contractors,
subcontractors, employees and agents a license to enter upon
the property at the Hughesville mill and the Warren Glen
mill, respectively, for the
36
<PAGE>
purpose of complying with requirements imposed upon James
River by ISRA/ECRA.
(e) Underground Storage Tanks (USTs)
(i) Richmond mill
o Two (2) 10,000 gallon (aprox.) steel USTs used for the
storage of #6 fuel oil.
o Two (2) 7,000 gallon (aprox.) USTs that are empty.
o Two (2) UST were previously in use but have been
removed or closed in place.
(ii) Fitchburg mill
o One (1) 500 gallon (aprox.) concrete emergency dump
tank that is empty.
o Six (6) or seven (7) USTs were previously in use but
have been removed or closed in place.
(iii) Rochester mill
o None
(iv) Warren Glen mill
o Seven (7) or eight (8) USTs were previously in use but
have been removed or closed in place.
(v) Hughesville mill
o One (1) 4,750 gallon (aprox.) UST that is empty.
o Five (5) USTs were previously in use but have been
removed or closed in place.
37
<PAGE>
SCHEDULE 3.22
Bank Accounts, Powers of Attorney
- --------------------------------------------------------------------------------
Account Description Account Number Bank Authorized Signature
- --------------------------------------------------------------------------------
Richmond Disbursing 200560526 Crestar Bank Joseph W. Crowe
919 East Main Street William W. Huffman
P.O. Box 26665 James M. Olson
Richmond, VA 23261 J. J. Lacina
Samuel G. Bruce
Wayne K. Coake
John Kenyon
- --------------------------------------------------------------------------------
Rochester Disbursing 200560497 Crestar Joseph W. Crowe
William W. Huffman
Stanley S. Luczycki
Gregg Hunsanger
Richard Marciniak
Mary Lou Deaton
- --------------------------------------------------------------------------------
Fitchburg Disbursing 200560489 Crestar Joseph W. Crowe
William W. Huffman
Robert F. Yousey
Bruce E. Whitney
Richard G. McAllister
Charles H. Doody
- --------------------------------------------------------------------------------
Warren Glen Disbursing 200560518 Crestar Joseph W. Crowe
William W. Huffman
R. J. Piazza
Kenneth L. Corey
Terry Buyer
Lawrence E. McEnroe
- --------------------------------------------------------------------------------
Corporate Disbursing 200560585 Crestar Joseph W. Crowe
Peter R. Hoppe
William W. Huffman
James O. Eubanks
Dave Guerra
Facsimile Signatures:
---------------------
Peter R. Hoppe
James O. Eubanks
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
Hourly Payroll 200560454 Crestar Joseph W. Crowe
Peter R. Hoppe
William W. Huffman
James O. Eubanks
J. J. Lacina
J. M. Olson
Samuel G. Bruce
Wayne K. Coake
Facsimile Signatures:
---------------------
Peter R. Hoppe
James O. Eubanks
- --------------------------------------------------------------------------------
Salary Payroll 200560796 Crestar Joseph W. Crowe
Peter R. Hoppe
William W. Huffman
James O. Eubanks
David Guerra
- --------------------------------------------------------------------------------
Master Account/Lock Box 201154196 Crestar Joseph W. Crowe
Custom Papers Group Inc. William W. Huffman
Department 79072 Dave Guerra
Baltimore, MD 21279-0072
================================================================================
39
<PAGE>
SCHEDULE 3.23
Compensation of Employees
Salaried Employees Earning > $50,000
1995
EMPLOYEE NAME S.S. NUMBER GROSS INCOME
Eubanks, James O. ###-##-#### $427,280.39
Yousey Jr., Robert F. ###-##-#### $301,747.21
Huffman, William W. ###-##-#### $177,584.78
McEnroe III, Lawrence ###-##-#### $175,233.55
Hoppe, Peter R. ###-##-#### $173,740.32
Paiste IV, Dillwyn P. ###-##-#### $167,801.20
Luczycki, Stanley S. ###-##-#### $163,548.19
Lacina, Jaroslav J. ###-##-#### $155,690.25
Wardwell, Robert C. ###-##-#### $136,872.73
Kinsley Jr., H.B. ###-##-#### $134,048.55
Crowe, Joseph W. ###-##-#### $104,365.42
Imig, Ronald P. ###-##-#### $96,097.21
King Jr., John J. ###-##-#### $92,842.33
Allen, J. H. ###-##-#### $85,983.27
Bruce Jr., Samuel G. ###-##-#### $85,371.27
Corey, Kenneth L. ###-##-#### $80,898.16
Dalrymple, Frederick T ###-##-#### $80,771.19
Quinn, Michael L. ###-##-#### $77,841.59
Harris, James M. ###-##-#### $76,123.14
Olson, James M. ###-##-#### $75,178.79
Doody, Charles H. ###-##-#### $74,374.03
Hagen, William J. ###-##-#### $74,159.28
Nett, Marvin R. ###-##-#### $73,911.46
Guerra, David G. ###-##-#### $73,420.58
Ludvik, J. Frank ###-##-#### $72,796.18
Coake, Wayne K. ###-##-#### $71,184.68
McAllister, Richard G. ###-##-#### $71,125.57
Walsh Jr., Edmund M. ###-##-#### $69,540.56
Meaker, Douglas W. ###-##-#### $67,573.24
Jones, Steven L. ###-##-#### $67,402.56
Dobranksy, R. A. ###-##-#### $67,200.06
Hutchinson, S. Pemberton ###-##-#### $66,481.67
Lapanowski, Richard S. ###-##-#### $66,439.67
Norris Jr., John J. ###-##-#### $66,152.47
Lederach, Robert ###-##-#### $65,141.31
Brutvan Jr., Donald R. ###-##-#### $65,086.29
Hamilton, Alden W. ###-##-#### $65,063.30
Ziolkowski, Steven G. ###-##-#### $62,569.12
Broadhead, Nelson W. ###-##-#### $62,227.00
Wilson, Thomas J. ###-##-#### $61,627.51
Hille, Gerrit ###-##-#### $60,149.94
Reinbold, Michael F. ###-##-#### $59,949.11
Knoble, Edward A. ###-##-#### $59,358.94
40
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Kenyon Jr., John E. ###-##-#### $59,011.46
Miller, J. G. ###-##-#### $58,646.22
Combower, Tyrone R. ###-##-#### $56,568.16
Hill, Scott A. ###-##-#### $56,218.78
Bartz, William J. ###-##-#### $55,930.64
Abramowski, Larry A. ###-##-#### $55,484.76
Gary, Robert P. ###-##-#### $54,143.40
Moser Jr., Donald ###-##-#### $54,117.28
Hutchins, Walter E. ###-##-#### $54,036.48
Bridges, Charles C. ###-##-#### $53,826.95
Whitney, Bruce E. ###-##-#### $53,696.08
Tubiello, Ralph ###-##-#### $53,665.35
Hunsanger, Gregg T. ###-##-#### $53,461.65
Knowles, Richard T. ###-##-#### $53,248.14
Dunlop, Paul A. ###-##-#### $52,898.09
Buyer, Terry D. ###-##-#### $52,350.01
Wismer III, Raymond G. ###-##-#### $52,340.75
Le Sieur, Louis O. ###-##-#### $51,853.28
Vieweg, Neil F. ###-##-#### $51,838.10
Moreau, Carl F. ###-##-#### $50,032.30
41
<PAGE>
Salaried Employees With > = $50,000 in Projected Earnings for 1996
PROJECTED BONUS/ PROJECTED
1996 BASE PFT. SHARE 1996
EMPLOYEE NAME SSN SALARY PAID IN 1996 TOTAL
Eubanks, James O. ###-##-#### $210,000 $63,000 $273,000
Yousey Jr., Robert F. ###-##-#### $146,000 $44,000 $190,000
Huffman Jr., William W. ###-##-#### $107,200 $32,000 $139,200
Hoppe, Peter R. ###-##-#### $103,000 $31,000 $134,000
Paiste IV, Dillwyn P. ###-##-#### $100,000 $31,000 $131,000
McEnroe III, Lawrence ###-##-#### $101,500 $29,000 $130,500
Kinsley Jr., H. B. ###-##-#### $109,000 $19,000 $128,000
Wardwell, Robert C. ###-##-#### $97,600 $29,000 $126,600
Luczycki, Stanley S. ###-##-#### $95,600 $29,000 $124,600
Lacina, Jaroslav J. ###-##-#### $91,500 $30,000 $121,500
Spruce, Murray E. ###-##-#### $98,800 $13,000 $111,800
Crowe, Joseph W. ###-##-#### $87,000 $15,000 $102,000
King Jr., John J. ###-##-#### $80,008 $17,000 $97,008
Imig, Ronald P. ###-##-#### $79,725 $9,000 $88,725
Corey, Kenneth L. ###-##-#### $76,290 $12,000 $88,290
Bruce Jr., Samuel G. ###-##-#### $71,400 $14,000 $85,400
Allen, James H. ###-##-#### $68,640 $13,000 $81,640
Quinn, Michael L. ###-##-#### $76,258 $3,800 $80,058
Guerra, David G. ###-##-#### $71,994 $6,500 $78,494
Nett, Marvin R. ###-##-#### $76,958 $1,500 $78,458
Olson, James M. ###-##-#### $73,250 $3,400 $76,650
Doody, Charles H. ###-##-#### $71,797 $2,540 $74,337
Walsh Jr., Edmund M. ###-##-#### $65,000 $9,000 $74,000
Coake, Wayne K. ###-##-#### $66,800 $5,200 $72,000
Ludvik, J. Frank ###-##-#### $59,050 $12,000 $71,050
McAllister, Richard G. ###-##-#### $67,919 $3,000 $70,919
Meaker, Douglas W. ###-##-#### $68,879 $2,020 $70,899
Hutchinson, S. Pemberton ###-##-#### $63,082 $6,000 $69,082
Hamilton, Alden W. ###-##-#### $64,804 $2,190 $66,994
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Hille, Gerrit ###-##-#### $64,896 $1,500 $66,396
Norris Jr., John J. ###-##-#### $62,689 $2,420 $65,109
Reinbold, Michael F. ###-##-#### $52,258 $12,000 $64,258
Broadhead, Nelson W. ###-##-#### $60,550 $3,600 $64,150
Lapanowski, Richard S. ###-##-#### $54,950 $9,000 $63,950
Bartz, William J. ###-##-#### $61,215 $2,500 $63,715
Dobransky, R. A. ###-##-#### $61,170 $2,190 $63,360
Brutvan Jr., Donald R. ###-##-#### $60,373 $2,200 $62,573
Wilson, Thomas J. ###-##-#### $60,367 $1,090 $61,457
Bridges, Charles C. ###-##-#### $58,800 $2,530 $61,330
Ziolkowski, Steven G. ###-##-#### $51,800 $9,000 $60,800
Kenyon Jr., John E. ###-##-#### $57,600 $2,900 $60,500
Combower, Tyrone R. ###-##-#### $56,145 $310 $59,455
Miller, James G. ###-##-#### $56,630 $2,500 $59,130
Whitney, Bruce E. ###-##-#### $55,597 $1,840 $57,437
Buyer, Terry D. ###-##-#### $56,131 $1,180 $57,311
Robinson, Glenn J. ###-##-#### $57,200 $30 $57,230
Abramowski, Larry A. ###-##-#### $55,400 $1,400 $56,800
Richmond, Ronald P. ###-##-#### $55,000 $1,500 $56,500
Moser Jr., Donald ###-##-#### $53,295 $2,200 $55,495
Knowles, Richard T. ###-##-#### $54,411 $710 $55,121
Hunsanger, Gregg T. ###-##-#### $50,500 $4,000 $54,500
Hutchins, Walter E. ###-##-#### $52,863 $1,400 $54,263
Lederach, Robert ###-##-#### $53,924 $230 $54,154
Hemingway, E. B. ###-##-#### $52,155 $960 $53,115
Vieweg, Neil F. ###-##-#### $50,722 $2,300 $53,022
Maguy, Bernice M. ###-##-#### $51,499 $1,200 $52,699
LeSieur, Louis 0. ###-##-#### $51,650 $710 $52,360
Marciniak, Richard J. ###-##-#### $50,000 $1,300 $51,300
Knoble, Edward A. ###-##-#### $50,621 $120 $50,741
Austin, Jennifer M. ###-##-#### $50,000 $0 $50,000
43
<PAGE>
Hourly Employees Earning > $50,000
1995
EMPLOYEE NAME S.S. NUMBER GROSS INCOME
Sroka, Marian ###-##-#### $78,925.28
Fleck, Dennis ###-##-#### $65,979.19
Weeast, Randal E. ###-##-#### $60,315.56
Fulper, Jack A. ###-##-#### $59,754.04
Whitehead Ill, Ben ###-##-#### $56,134.81
Sakkinen, Andrew C. ###-##-#### $55,140.93
Krecker Sr., Paul W. ###-##-#### $53,237.69
Kale, Randy ###-##-#### $53,042.70
Godiska, Edward ###-##-#### $52,375.24
Bundro, James L. ###-##-#### $50,696.56
Grogg, John R. ###-##-#### $50,653.71
Vanderbilt, Ronald ###-##-#### $50,406.47
Hooper, Henry ###-##-#### $50,223.77
44
<PAGE>
Hourly Employees With the Potential of Earning
> $50,000 in 1996
PROJECTED PROJECTED
MILL EMPLOYEE 1996 1996 1996
LOCATION NAME SSN HOURLY PROFIT TOTAL
WAGES SHARE COMP.
New Jersey Fleck, Dennis ###-##-#### $83,299 $0 $83,299
New Jersey Whitehead III, Ben ###-##-#### $67,503 $0 $67,503
New Jersey Sroka, Marian ###-##-#### $64,602 $0 $64,602
New Jersey Weeast, Randal E. ###-##-#### $58,918 $0 $58,918
Fitchburg Sakkinen, Andrew C. ###-##-#### $56,512 $1,135 $57,647
Rochester Slavensky, Dennis ###-##-#### $54,448 $1,442 $55,890
New Jersey Fulper, Jack A. ###-##-#### $53,911 $0 $53,911
New Jersey Grouleff, Donald ###-##-#### $53,745 $0 $53,745
Fitchburg Maillet, Francis J. ###-##-#### $51,305 $1,007 $52,312
Fitchburg Burdick, Donald S. ###-##-#### $50,904 $780 $51,684
Fitchburg Michaud, Jacques ###-##-#### $49,775 $1,004 $50,779
Fitchburg Pitre, Donald F. ###-##-#### $49,596 $855 $50,451
Fitchburg Leger, Daniel L. ###-##-#### $48,989 $1,024 $50,013
Fitchburg Velez, Aladino ###-##-#### $48,819 $911 $49,730
New Jersey Gunderman, Kenneth ###-##-#### $49,353 $0 $49,353
New Jersey Krecker Sr., Paul W. ###-##-#### $49,249 $0 $49,249
Richmond Lord, Bernie A. ###-##-#### $46,801 $2,159 $48,959
New Jersey Wyant, Thomas A. ###-##-#### $48,801 $0 $48,801
New Jersey Altner, Henry E. ###-##-#### $48,665 $0 $48,665
Fitchburg Rodgers, John F. ###-##-#### $46,898 $987 $47,885
New Jersey Lenz, Leonard ###-##-#### $47,630 $0 $47,630
New Jersey Jensen, Eric F. ###-##-#### $46,832 $0 $46,832
New Jersey Walter, Gary ###-##-#### $46,535 $0 $46,535
New Jersey Sutton, Alvah E. ###-##-#### $46,092 $0 $46,092
New Jersey Kale, Randy ###-##-#### $46,045 $0 $46,045
New Jersey Blanco, Joseph ###-##-#### $44,756 $1,240 $45,996
New Jersey Godiska, Edward ###-##-#### $45,780 $0 $45,780
45
<PAGE>
New Jersey Gittings, David J. ###-##-#### $44,574 $1,205 $45,780
Fitchburg Angelini Jr., Frank A. ###-##-#### $44,866 $790 $45,657
New Jersey Deemer, Richard W. ###-##-#### $45,430 $0 $45,430
Fitchburg Walker, Kenneth R. ###-##-#### $44,503 $907 $45,410
Fitchburg Bolduc, Donald H. ###-##-#### $44,129 $913 $45,043
New Jersey Torcivia, Fred E. ###-##-#### $44,996 $0 $44,996
New Jersey Fortebuono, Anthony ###-##-#### $43,659 $1,272 $44,931
Fitchburg Swett Jr., Robert A. ###-##-#### $43,769 $939 $44,707
Richmond Wiles, H. L. ###-##-#### $42,732 $1,904 $44,636
Richmond Harris, Rydell O. ###-##-#### $42,192 $2,077 $44,269
Please refer to the Collective Bargaining Agreements listed on Schedule 3.18
for information regarding wage rates.
46
<PAGE>
SCHEDULE 3.24
Conduct of Business
Action taken by the Company since December 31, 1995:
(a) Amendments or modifications to Certificate of Incorporation or Bylaws.
None
(b) Payment or increase in any bonus, salary or other compensation to any
director, officer or employee other than in the ordinary course of
business consistent with past practice.
None
(c) Adopting or increasing any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees.
(i) The Management and the Mid-Management Incentive Bonus Plans were
modified effective January 1, 1996.
(ii) Effective June 1, 1996. changes were made in the health plans for
hourly employees at the Fitchburg Mill and changes were made in
the medical plan for the hourly employees at the Warren Glen and
Hughesville Mills and a dental insurance plan was added for such
employees.
(iii) Such changes in pension and life insurance benefits required
under the collective bargaining agreements for all Mills.
(iv) The Board of Directors has by resolution approved an amendment to
all outstanding CPG Investors Inc. Stock Option Plan,
Nonqualified Stock Option Agreements in order to fully vest the
Options granted and evidenced thereby in the Optionees.
(d) Entering into any material contract or commitment except material
contracts and commitments in the ordinary course of business
consistent with past practice.
(i) First Amendment to Deed of Lease, dated as of July 19, 1996,
between Custom Papers Group Inc. and James River Paper Company,
Inc. In consideration for this Amendment, Custom Papers Group
Inc. paid James River Paper Company, Inc. the sum of $250,000.
47
<PAGE>
(ii) Agreement dated June 14, 1996, 1996 between Custom Papers Group
Inc. and Harris Williams & Co. pursuant to which Harris Williams
was retained to advise and represent Custom Papers Group Inc. in
connection with the contemplated transaction with Specialty
Paperboard, Inc. (or alternative transactions) and pursuant to
which Harris Williams is entitled to be paid certain fees and
reimbursable expenses.
(iii) Resolution of the Board of Directors authorizing the payment to
SCI Investors Inc. of certain fees in connection with its
representation of the Company and its subsidiaries in connection
with the contemplated transaction with Specialty Paperboard, Inc.
(e) Increasing its indebtedness for borrowed money, except current
borrowings in the ordinary course of business.
(i) Any increase in borrowing under the Crestar Loan attributable to
the items described in (d) (i), (ii) and (iii) above.
(f) Cancel or waive any claim or right of substantial value which,
individually or in the aggregate, is material.
None
(g) Declare or pay any dividends in respect of its capital stock or
redeeming, purchasing or otherwise acquiring any of its capital stock.
None
(h) Make any material change in accounting methods or practices, except as
required by law or generally accepted accounting principles.
None
(i) Other than in connection with the exercise of options, issue or sell
any shares of capital stock or any other securities, or issue any
securities convertible into, or options, warrants or rights to
purchase or subscribe to, or enter into any agreement or contract with
respect to the issue and sale of, any shares of its capital stock or
any other securities, or making any other changes in its capital
structure.
None
(j) Other than inventory sold in the ordinary course of business, sell,
lease or otherwise dispose of any asset or property having a value in
excess of $100,000 in the aggregate, unless pursuant to a contract or
commitment to do so which is listed on Schedule 3.11.
None
48
<PAGE>
(k) Enter into any commitment for the making of a capital expenditure in
excess of $100,000.
(i) Purchase Order H6755 dated June 21, 1996 between Custom Papers
Group Inc. (Richmond Mill) and Electro Mechanical Handling, Inc.
for $130,747.00 (70% outstanding).
(ii) Purchase Order H6107 dated February 19, 1996 between Custom
Papers Group Inc. (Richmond Mill) and Spooner Industries, Inc.
for $479,000.00 (40% outstanding).
(l) Write off, as uncollectible, any notes or accounts receivable, except
write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate is material.
None
(m) Agree in writing to do any of the items listed in (a) through (l)
above. None other than referred to in items (a) through (l) above.
49
<PAGE>
SCHEDULE 3.27
Broker's or Finder's Fees
Fees payable to Harris Williams & Co. and SCI Investors Inc.
50
<PAGE>
SCHEDULE 6.3
Contracts or Other Arrangements Restricting Disclosure
1. Letter Agreement dated April 9, 1996 between Air Products and Chemicals,
Inc., and Custom Papers Group Inc.
2. Option/License Agreement dated as of September 21, 1992 between Air Products
and Chemicals, Inc., and Custom Papers Group Inc.
3. Exchange of Confidential Information Agreement dated October 1, 1995 between
Air Products and Chemicals, Inc., and Custom Papers Group Inc.
4. Agreement dated January 14, 1992 between Custom Papers Group Inc. and
Advanced Friction Materials Inc. and Confidential Disclosure Agreement dated
February 12, 1992 between Advanced Friction Materials Inc. and Custom Papers
Group Inc.
5. Proprietary Information Agreement dated August 12, 1991 between
Allied-Signal, Inc. and Custom Papers Group Inc.
6. Agreement Concerning Non-Disclosure of Confidential Information dated as of
February 6, 1995 between Dynax Corporation, AWA Paper Manufacturing Co., Ltd.,
and Custom Papers Group Inc.
7. Letter Agreement dated November 16, 1994 between Custom Papers Group Inc. and
Buckeye Cellulose Corporation.
8. Letter Agreement dated October 21, 1991 between Specialty Coatings Group Inc.
and Buckman Laboratories, Inc.
9. Letter Agreement dated June 13, 1996 between Custom Papers Group Inc. and
Cooper Industries, Cooper Power Systems Division and Proprietary Information
Exchange Agreement dated June 20, 1996 between Custom Papers Group Inc. and
Cooper Industries, Cooper Power Systems Division.
10. Manufacture of Pulplus Agreement dated November 1, 1989 between E. I. du
Pont de Nemours and Company and Custom Papers Group Inc.
11. CPG/du Pont Agreement for Development of Wet-Lay Paper/Wet-Lay Nonwoven
Materials for Ballistic Resistant Applications dated September 20, 1991 between
E. I. du Pont de Nemours and Company and Custom Papers Group Inc.
12. Confidentiality Agreement dated July 8, 1991 between E. I. du Pont de
Nemours and Company and Custom Papers Group Inc.
13. Confidentiality Agreement dated October 13, 1994 between E. I. du Pont de
Nemours and Company, DuPont Canada, Inc. and Custom Papers Group Inc.
51
<PAGE>
14. Letter Agreement (CUSUM, Cumulative Sum Statistical Control Software Product
Agreement) dated May 23, 1990 between E. I. du Pont de Nemours and Company and
James River Corporation.
15. Confidential Information and Invention Agreement dated October 31, 1988
between E. I. du Pont de Nemours and Company and James River Corporation.
16. Proprietary Information Agreement dated December 19, 1995 between Graver
Chemical Company and Custom Papers Group Inc.
17. Letter Agreement dated September 25, 1991 between Custom Papers Group Inc.
and Fleetguard, Inc.
18. Agreement of Nondisclosure of Proprietary Information dated June 1, 1992
between Custom Papers Group Inc. and Fleetguard, Inc.
19. Confidential Disclosure Agreement dated February 8, 1983 between General
Latex and Chemical Corporation and James River-Fitchburg, Inc.
20. Letter Agreement dated August 5, 1993 between BF Goodrich Company and Custom
Papers Group Inc.
21. Letter Agreement dated August 20, 1991 between Herty Foundation and Custom
Papers Group Inc.
22. Agreement dated June 25, 1987 between International Fuel Cells Corporation
and Fitchburg Division of James River Corporation, as amended.
23. Letter Agreement dated March 6, 1992 between International Fuel Cells and
Custom Papers Group Inc.
24. Confidential Relationship Agreement dated February 9, 1993 between
Weyerhauser Company and Custom Papers Group Inc.; as amended by letters dated
May 17, 1995 and November 17, 1995.
25. Agreement for Kodak Disclosure to Supplier dated June 19, 1995 between
Eastman Kodak Company and Custom Papers Group Inc.
26. Agreement for Kodak Disclosure to Supplier dated June 1, 1995 between
Eastman Kodak Company and Custom Papers Group Inc.
27. Letter Agreement dated May 12, 1993 between La Roche Chemicals Inc. and
Custom Papers Group Inc.
28. Letter Agreement dated April 6, 1994 between Laser Services Inc. and Custom
Papers Group Inc.
52
<PAGE>
29. Letter Agreement dated October 2, 1995 between Memtec America Corporation
and Custom Papers Group Inc.
30. Letter Agreement dated November 25, 1991 between MLX Specialty Friction
Materials Group (Sintermet Corp./The S.K. Weilman Corp.) and Custom Papers Group
Inc.
31. Letter Agreement dated October 3, 1990 between S.K. Weliman Corp. and James
River-Fitchburg.
32. General Supplier and Patent Agreement dated January 29, 1992 between Custom
Papers Group Inc. and Minnesota Mining and Manufacturing Company.
33. Letter Agreement dated June 15, 1994 between NALCO Chemical Company and
Custom Papers Group Inc.
34. Letter Agreement dated November 7, 1994 between Custom Papers Group Inc. and
National Starch and Chemical Company.
35. Agreement dated August 5, 1988 between Pall Corporation and the Filtration
Division of James River Corporation.
36. Letter Agreement dated July 14, 1994 between Perdue Farms Incorporated and
Custom Papers Group Inc.
37. Letter Agreement dated April 22, 1994 between Custom Papers Group Inc. and
Pratt and Lambert, Powder Coatings Division.
38. Letter Agreement dated June 4, 1993 between Southchem Inc. and Custom Papers
Group Inc.
39. Letter Agreement dated February 14, 1996 between Steinbess Gessner, GmbH and
Custom Papers Group Inc.
40. Letter Agreement dated January 6, 1993 between Sunshine Paper Company and
Custom Papers Group Inc.
41. Letter Agreement dated December 1, 1995 between Technical Graphics Inc. and
Custom Papers Group Inc.
42. Mutual Non-Disclosure Agreement dated December 5, 1995 between Technical
Graphics Inc. and Custom Papers Group Inc.
43. Letter Agreement dated January 29, 1992 between Custom Papers Group
Fitchburg and Valeo Friction Materials Inc.
44. Confidentiality Agreement dated January 18, 1995 between Custom Papers
Group Inc. and Thermal Ceramics.
53
<PAGE>
45. Letter Agreement dated September 29, 1995 between Custom Papers Group Inc.
and Thermal Ceramics.
46. Secrecy Agreement dated December 12, 1991 between Custom Paper Group Inc.
and W. R. Grace & Co.-Conn.
47. Letter Agreement dated February 18, 1992 between WITCO and Custom Papers
Group Inc.
48. Letter Agreement dated March 25, 1996 between Sentrex Company, Inc. and
Custom Papers Group Inc.
49. Letter Agreement dated May 20, 1991 between Miki Sangyo (USA) Inc. and
Custom Papers Group Inc.
50. Letter Agreement dated August 31, 1994 between International Paper and
Custom Papers Group Inc.
51. Intellectual Property and Asset Acquisition Agreement dated February 16,
1994 between SunShine Paper Company and Custom Papers Group Inc.
54
<PAGE>
SCHEDULE 7.8
Indebtedness; Security Interests
Debt related to the Credit Agreement dated November 5, 1993 among CPG Holdings
Inc. and its subsidiaries, the banks listed therein (the "Banks") and Crestar
Bank as agent for the Banks.
55
<PAGE>
EX-2.2
================================================================================
STOCK PURCHASE AGREEMENT
Dated as of August 28, 1996
By and Among
SPECIALTY PAPERBOARD, INC.,
ARCON COATING MILLS, INC.,
ARCON HOLDINGS CORP.,
THE STOCKHOLDERS OF
ARCON HOLDINGS CORP.
and
VARIOUS OTHER PARTIES
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS........................................................... 4
Section 1.1 Definitions......................................... 4
ARTICLE II
PURCHASE OF STOCK; CANCELLATION OF OPTIONS AND WARRANTS............... 11
Section 2.1 Purchase of Stock; Cancellation of Option
and Warrants..................................... 11
Section 2.2 Price............................................... 12
Section 2.3 Cash on Hand........................................ 14
Section 2.4 Closing............................................. 15
ARTICLE III
REPRESENTATIONS OF THE COMPANIES...................................... 15
Section 3. Representations of the Company...................... 15
Section 3.1 Existence and Good Standing......................... 15
Section 3.2 Capital Stock....................................... 16
Section 3.3 Authorization and Validity of this
Agreement........................................ 17
Section 3.4 Subsidiaries and Investments........................ 18
Section 3.5 Financial Statements; No Material Changes........... 18
Section 3.6 Books and Records................................... 20
Section 3.7 Title to Properties; Encumbrances................... 20
Section 3.8 Real Property....................................... 22
Section 3.9 Intellectual Property............................... 22
Section 3.10 Leases............................................. 22
Section 3.11 Material Contracts................................. 23
Section 3.12 Consents and Approvals; No Violations.............. 25
Section 3.13 Litigation......................................... 26
Section 3.14 Taxes.............................................. 27
Section 3.15 Liabilities........................................ 30
Section 3.16 Insurance.......................................... 30
Section 3.17 Compliance with Laws............................... 31
Section 3.18 Employment Relations............................... 31
Section 3.19 Employee Benefit Plans............................. 32
Section 3.20 Interests in Customers, Suppliers, etc............. 40
(i)
<PAGE>
Page
----
Section 3.21 Environmental Laws and Regulations................. 41
Section 3.22 Bank Accounts, Powers of Attorney.................. 44
Section 3.23 Compensation of Employees.......................... 44
Section 3.24 Conduct of Business................................ 45
Section 3.25 Customer Relations................................. 45
Section 3.26 Condition of Assets................................ 45
Section 3.27 Broker's or Finder's Fees.......................... 46
ARTICLE IV
REPRESENTATIONS OF THE SELLERS........................................ 46
Section 4. Representations of the Seller....................... 46
Section 4.1 Ownership of Stock.................................. 46
Section 4.2 Authorization and Validity of Agreement............. 47
Section 4.3 Restrictive Documents............................... 48
Section 4.4 Consents............................................ 48
Section 4.5 Broker's or Finder's Fees........................... 49
ARTICLE V
REPRESENTATIONS OF THE PURCHASER...................................... 49
Section 5. Representations of the Purchaser.................... 49
Section 5.1 Existence and Good Standing; Power and
Authority........................................ 49
Section 5.2 Restrictive Documents; No Legal Bar................. 50
Section 5.3 Purchase for Investment............................. 50
Section 5.4 Broker's or Finder's Fees........................... 51
Section 5.5 Litigation; Disputes................................ 51
Section 5.6 Consents............................................ 51
ARTICLE VI
TRANSACTIONS PRIOR TO THE CLOSING DATE................................ 52
Section 6.1 Conduct of Business of the Companies................ 52
Section 6.2 Exclusive Dealing................................... 54
Section 6.3 Review of the Companies............................. 55
Section 6.4 Reasonable Efforts.................................. 55
Section 6.5 Agreement by the Purchaser Regarding No
Other Representations or Warranties by the
Sellers......................................... 56
Section 6.6 Satisfaction of Financing Condition................. 56
ARTICLE VII
CONDITIONS TO THE PURCHASER'S OBLIGATIONS............................. 57
Section 7. Conditions to the Purchaser's Obligations........... 57
(ii)
<PAGE>
Page
----
Section 7.1 Opinions of Counsel................................. 57
Section 7.2 Good Standing and Other Certificates................ 57
Section 7.3 [Intentionally Omitted]............................. 58
Section 7.4 Truth of Representations and Warranties............. 58
Section 7.5 Performance of Agreements........................... 58
Section 7.6 No Litigation Threatened............................ 59
Section 7.7 Third Party Consents; Governmental
Approvals........................................ 59
Section 7.8 Termination of Security Interests................... 59
Section 7.9 Resignations........................................ 59
Section 7.10 Financing.......................................... 59
Section 7.11 [Intentionally omitted]............................ 60
Section 7.12 FIRPTA............................................. 60
Section 7.13 HSR Act............................................ 60
Section 7.14 Escrow Agreement................................... 60
ARTICLE VIII
CONDITIONS TO THE COMPANIES AND
THE SELLERS' OBLIGATIONS.............................................. 60
Section 8. Conditions to the Seller's Obligations.............. 60
Section 8.1 Opinions of Counsel................................. 60
Section 8.2 Truth of Representations and Warranties............. 61
Section 8.3 Third Party Consents; Governmental
Approvals........................................ 61
Section 8.4 Performance of Agreements........................... 61
Section 8.5 No Litigation Threatened............................ 62
Section 8.6 HSR Act............................................. 62
Section 8.7 Warrants............................................ 62
ARTICLE IX
TAX MATTERS........................................................... 62
Section 9.1 Tax Returns......................................... 62
Section 9.2 Overlap Period, Refunds, Tax Benefits............... 68
Section 9.3 Cooperation; Audits................................. 71
Section 9.4 Controversies....................................... 73
Section 9.5 Transfer Taxes...................................... 75
Section 9.6 Amended Returns..................................... 75
Section 9.7 Non-foreign Person Affidavit........................ 76
Section 9.8 Indemnification..................................... 76
Section 9.9 FSE Tax Indemnity................................... 78
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.......................... 80
(iii)
<PAGE>
Page
----
Section 10.1 Survival of Representations........................ 80
Section 10.2 Indemnification.................................... 81
Section 10.3 Indemnification Procedure.......................... 85
ARTICLE XI
TERMINATION........................................................... 91
Section 11.1 Termination........................................ 91
Section 11.2 Effect of Termination.............................. 92
ARTICLE XII
MISCELLANEOUS......................................................... 93
Section 12.1 Knowledge.......................................... 93
Section 12.2 Expenses........................................... 93
Section 12.3 Governing Law...................................... 94
Section 12.4 Captions........................................... 94
Section 12.5 Publicity.......................................... 94
Section 12.6 Notices............................................ 95
Section 12.7 Parties in Interest................................ 96
Section 12.8 Counterparts....................................... 96
Section 12.9 Entire Agreement................................... 96
Section 12.10 Amendments........................................ 97
Section 12.11 Severability...................................... 97
Section 12.12 Third Party Beneficiaries......................... 98
Section 12.13 Jurisdiction...................................... 98
Section 12.14 Action by Sellers................................. 98
Section 12.15 Sellers' Representative........................... 99
Section 12.16 Assignment........................................100
Section 12.17 Construction......................................100
Section 12.18 Schedules.........................................100
SCHEDULES
Schedule 3.2 Capital Stock
Schedule 3.5(b) Financial Statements
Schedule 3.7 Title to Properties; Encumbrances.
Schedule 3.8 Real Property.
Schedule 3.9 Intellectual Property
Schedule 3.10 Leases
Schedule 3.11 Material Contracts
Schedule 3.12 Consents and Approvals; No Violations
Schedule 3.13 Litigation
Schedule 3.14 Taxes
(iv)
<PAGE>
Schedule 3.15 Liabilities
Schedule 3.16 Insurance
Schedule 3.17 Compliance with Laws
Schedule 3.18 Employment Relations
Schedule 3.19 Employee Benefit Plans
Schedule 3.20 Interests in Customers, Suppliers, etc.
Schedule 3.21 Environmental Laws and Regulations
Schedule 3.22 Bank Accounts, Powers of Attorney
Schedule 3.23 Compensation of Employees
Schedule 3.24 Conduct of Business
Schedule 3.25 Customer Relations
Schedule 4.4 Consents
Schedule 5.6 Third Party Consents
EXHIBITS
Exhibit A Form of Escrow Agreement
ANNEXES
Annex I Stock Ownership
Annex II Percentage Interests
(v)
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of August 28, 1996 by
and among SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Purchaser"),
the stockholders (the "Stockholders") of ARCON HOLDINGS CORP., a Delaware
corporation ("Arcon Holdings") and the sole stockholder of ARCON COATING MILLS,
INC., a Delaware corporation (the "Company"), the option holders ("the
Optionholders") listed on Annex I attached hereto, Arcon Holdings and the
Company. Each of the Stockholders and the Optionholders shall be referred to
herein individually as a "Seller" and collectively as the "Sellers."
W I T N E S S E T H :
WHEREAS, Arcon Holdings owns all of the issued and outstanding shares of
common stock, $.01 par value, of the Company (collectively the "Company Stock"),
such shares being all of the outstanding shares of the capital stock of the
Company;
WHEREAS, each of the Sellers identified as a Common Stock Seller under
Column A of Annex I attached hereto (the "Common Stock Holders") is the holder
of the number of shares of common stock, $0.01 par value, of Arcon Holdings (the
"Common Stock"), set forth opposite such Seller's name in
<PAGE>
Column B of Annex I attached hereto, which shares of Common Stock constitute all
of the issued and outstanding shares of Common Stock of Arcon Holdings;
WHEREAS, each of the Sellers identified as a Series A Holder under Column
A of Annex I attached hereto (the "Series A Stock Holders") is the holder of the
number of shares of Series A Non-Voting Convertible Preferred Stock, $0.01 par
value, of Arcon Holdings (the "Series A Stock") set forth opposite such Seller's
name in Column B of Annex I attached hereto, which shares of Series A Stock
constitute all of the issued and outstanding shares of Series A Stock of Arcon
Holdings;
WHEREAS, each of the Sellers identified as a Series B Holder under Column
A of Annex I attached hereto (the "Series B Stock Holders") is the holder of the
number of shares of Series B (Voting) Convertible Preferred Stock, $0.01 par
value, of Arcon Holdings (the "Series B Stock" and together with the Series A
Stock, the "Preferred Stock" and together with the Common Stock and the Series A
Stock, the "Stock") set forth opposite such Seller's name in Column B of Annex I
attached hereto, which shares of Series B Stock constitute all of the issued and
outstanding shares of Series B Stock of Arcon Holdings;
WHEREAS, each of the Optionholders (collectively with the Common Stock
Holders, the Series A Stock Holders and the
-2-
<PAGE>
Series B Stock Holders, the "Common Stock Sellers") is the holder of options
(the "Options") to acquire the number of shares of Common Stock set forth
opposite such Seller's name in Column B of Annex I attached hereto, which
Options constitute all of the issued and outstanding options to purchase Common
Stock or any other capital stock of Arcon Holdings;
WHEREAS, the Bank is the holder of warrants (the "Warrants") to acquire
85,000 shares of Common Stock, which Warrants constitute all of the issued and
outstanding warrants to purchase Common Stock or any other capital stock of
Arcon Holdings;
WHEREAS, the Optionholders desire to cancel the Options in consideration
of payment by the Purchaser to each Optionholder of the Net Option Payment;
WHEREAS, prior to the Closing, Arcon Holdings intends to repurchase the
Warrants from the Bank and cancel the Warrants; and
WHEREAS, it is the intention of the parties hereto that, upon consummation
of the purchase and sale of the Stock, the payment of the Net Option Payment and
the cancellation of the Options and the Warrants pursuant to this Agreement, the
Purchaser shall own all of the outstanding shares (and rights to acquire shares)
of capital stock of Arcon Holdings.
NOW, THEREFORE, IT IS AGREED:
-3-
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms shall have the respective meanings
specified therefor below (such meanings to be equally applicable to both the
singular and plural forms of the terms defined).
"Aggregate Closing Payment" shall have the meaning specified in Section
2.2.
"Agreement" shall mean this Agreement, as amended, modified or
supplemented from time to time.
"Arcon Holdings" shall have the meaning specified in the preamble to this
Agreement.
"Audited Statements" shall have the meaning specified in Section 3.5.
"Balance Sheet" shall have the meaning specified in Section 3.5.
"Balance Sheet Date" shall have the meaning specified in Section 3.5.
"Bank" shall mean Heller Financial, Inc.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks located in New York, New York shall be authorized or required by
law to close.
"Claim" shall have the meaning specified in Section 10.3
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"Closing" shall have the meaning specified in Section 2.4.
"Closing Date" shall have the meaning specified in Section 2.4.
"Code" shall have the meaning specified in Section 3.14.
"Common Stock" shall have the meaning specified in the preamble to this
Agreement.
"Common Stock Holders" shall have the meaning specified in the preamble to
this Agreement.
"Common Stock Sellers" shall have the meaning specified in the preamble to
this Agreement.
"Companies" shall have the meaning specified in Article III.
"Company" shall have the meaning specified in the preamble to this
Agreement.
"Company Property" shall have the meaning specified in Section 3.21.
"Company Stock" shall have the meaning specified in the preamble to this
Agreement.
"Confidentiality Agreement" shall have the meaning specified in Section
6.3.
"Damages" shall have the meaning specified in Section 10.2.
"Deductions" shall have the meaning specified in Section 9.2.
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"Determination" shall have the meaning specified in Section 10.3.
"Dispute Notice" shall have the meaning specified in Section 9.1.
"Employee Benefit Plans" shall have the meaning specified in Section 3.19.
"Encumbrances" shall have the meaning specified in Section 3.7.
"Environmental Claims" shall have the meaning specified in Section 3.21.
"Environmental Law" shall have the meaning specified in Section 3.21.
"ERISA" shall have the meaning specified in Section 3.19.
"Escrow Account" shall have the meaning specified in Section 2.2.
"Escrow Agent" shall have the meaning specified in Section 2.2.
"Escrow Agreement" shall have the meaning specified in Section 7.14.
"Escrow Amount" shall have the meaning specified in Section 2.2(b).
"FSE Tax Indemnity" shall mean the Stock Purchase Agreement among Arcon
Holdings, Arcon Acquisition Corp., FSE Holdings, Inc. and the Company, dated as
of April 14, 1994.
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"FSE Indemnifiable Amounts" shall have the meaning specified in Section
9.9.
"GAAP" shall have the meaning specified in Section 3.5. "Hazardous
Materials" shall have the meaning specified in Section 3.21.
"HSR Act" shall have the meaning specified in Section 6.4.
"Indemnified Party" shall have the meaning specified in Section 10.3.
"Indemnifiable Amounts" shall have the meaning specified in Section
10.3(f).
"Indemnifying Party" shall have the meaning specified in Section 10.3.
"Indemnity Response" shall have the meaning specified in Section 10.3.
"Independent Auditor" shall have the meaning specified in Section 9.1.
"Insurable Amounts" shall have the meaning specified in Section 10.3(f).
"Intellectual Property" shall have the meaning specified in Section 3.9.
"IRS" shall have the meaning set forth in Section 3.19.
"Material Adverse Effect" shall have the meaning specified in Section 3.1.
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"Net Option Payment" shall mean, as to each Optionholder, the portion of
the Aggregate Closing Payment payable to each Optionholder pursuant to Section
2.2(d) plus his respective portion of the Escrow Amount set forth under Column C
of Annex I.
"Option" shall have the meaning specified in the preamble to this
Agreement.
"Optionholders" shall have the meaning specified in the preamble to this
Agreement.
"Outstanding Indebtedness" shall mean the outstanding indebtedness for
borrowed money of Arcon Holdings and the Company at the Closing (including
unpaid interest thereon and penalties, if any, associated with the repayment
thereof).
"Overlap Period" shall have the meaning specified in Section 9.2.
"PBGC" shall have the meaning set forth in Section 3.19.
"Percentage Interest" of any Person shall mean the percentages as set
forth across from such Person's name on Annex II attached hereto.
"Permitted Encumbrances" shall have the meaning specified in Section 3.7.
"Person" shall have the meaning specified in Section 3.11.
"Personal Liability Amount" shall have the meaning specified in Section
10.2.
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"Pre-Closing Period" shall have the meaning specified in Section 3.14.
"Preferred Stock" shall have the meaning specified in the preamble to this
Agreement.
"Purchaser" shall have the meaning specified in the preamble to this
Agreement.
"Real Property" shall have the meaning set forth in Section 3.8.
"Refund Requests" shall have the meaning specified in Section 9.1(a).
"Required Sellers" shall mean such Sellers who hold in the aggregate more
than 50% of the then issued and outstanding Common Stock held by all Sellers as
of immediately prior to the Closing (calculated (i) as if all issued and
outstanding shares of Preferred Stock were converted into shares of Common Stock
and (ii) as if all Options have been fully exercised into shares of Common
Stock).
"Returns" shall have the meaning specified in Section 3.14.
"Seller" and "Sellers" shall have the meanings specified in the preamble
to this Agreement.
"Sellers' Liability Amount" shall have the meaning set forth in Section
10.2.
"Sellers' Representative" shall have the meaning specified in Section 9.1.
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"Series A Stock" shall have the meaning specified in the preamble to this
Agreement.
"Series A Stock Holders" shall have the meaning specified in the preamble
to this Agreement.
"Series B Stock" shall have the meaning specified in the preamble to this
Agreement.
"Series B Stock Holders" shall have the meaning specified in the preamble
to this Agreement.
"Single Employer Plan" shall have the meaning set forth in Section 3.19.
"Stock" shall have the meaning specified in the preamble to this
Agreement.
"Stockholder" shall have the meaning specified in the preamble to this
Agreement.
"Tax Matter" shall have the meaning specified in Section 9.4.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, without limitation, all Federal, state,
local, foreign and other income, capital, franchise, profits, capital gains,
capital stock, transfer, sales, use, occupation, property, excise, severance,
windfall profits, stamp, license, payroll, withholding and other taxes,
assessments, charges, duties, fees, levies or other governmental charges of any
kind whatsoever (whether payable directly or by withholding and whether or
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not requiring the filing of a Return), all estimated taxes, deficiency
assessments, additions to tax, penalties and interest and shall include any
liability for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity.
"Termination Date" shall have the meaning specified in Section 2.4.
"Unaudited Statements" shall have the meaning specified in Section 3.5.
"Warrants" shall have the meaning specified in the preamble to this
Agreement.
ARTICLE II
PURCHASE OF STOCK; CANCELLATION OF OPTIONS AND WARRANTS
Section 2.1 Purchase of Stock; Cancellation of Option and Warrants.
Subject to the terms and conditions set forth in this Agreement, the Purchaser
agrees to purchase from each of the Sellers on the Closing Date and each of
the Sellers agrees to sell, assign, transfer and deliver to the Purchaser on
the Closing Date, the shares of Stock so owned by such Seller. Subject to the
terms and conditions of this Agreement, each of the Optionholders agrees to
cancel such Optionholder's Options and to deliver to the Purchaser on the
Closing Date, the cancelled Options. Subject to the terms of
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this Agreement, the Company agrees to cancel the Warrants and to deliver to the
Purchaser on the Closing Date the cancelled Warrants. The certificates
representing the Stock shall be duly endorsed in blank, or accompanied by stock
powers duly executed in blank by each of the Sellers, transferring the same to
the Purchaser with all necessary transfer tax and other revenue stamps affixed
and cancelled. Each of the Sellers agrees to cure any deficiencies with respect
to the endorsement of the certificates representing the Stock or with respect to
the stock power accompanying any such certificates.
Section 2.2 Price. In consideration for the sale to the Purchaser by
Sellers of the Stock and the cancellation by the Optionholders of the
Options, the Purchaser shall deliver at the Closing an aggregate cash amount
equal to $32,000,000 (such amount, the "Aggregate Closing Payment") by wire
transfer in immediately available funds as follows:
(a) to the escrow agent (the "Escrow Agent") to be held in an escrow
account (the "Escrow Account") pursuant to the provisions of the Escrow
Agreement as contemplated by Section 10.2 hereof, an amount equal to $2,000,000
(the "Escrow Amount"), representing the sum of that portion of the Aggregate
Closing Payment to be held in the Escrow Account as set forth under Column C of
Annex I attached hereto;
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(b) to the Bank, the amount of Outstanding Indebtedness owed to the Bank
on the Closing Date to an account specified to the Purchaser at least two
Business Days prior to the Closing (it being acknowledged and agreed that it is
the intent of the parties hereto that such amount shall be deemed to have been
paid to the Bank immediately prior to the Closing);
(c) to the Shareholders' Representative an amount equal to $300,000 to an
account specified by the Shareholders' Representative at least two Business Days
prior to the Closing; and each Seller hereby acknowledges and agrees that such
amount, together with any and all earnings in respect thereof (collectively, the
"Sellers Amount"), will be used by the Sellers' Representative in its sole
discretion to pay any and all costs and expenses of the Sellers' under this
Agreement or in connection with the execution, delivery, performance or
consummation of the transactions contemplated hereby, including, without
limitation, to pay all costs and expenses of the Sellers' attorneys and
accountants, to pay Taxes, expenses and other liabilities of the Sellers arising
under Article IX (including, without limitation in connection with the
preparation and filing of Tax Returns and Refund Requests) and Article X, and to
pay the costs and expenses incurred by the Sellers' Representative in connection
with or relating to its acting as Sellers' Representative hereunder
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or under the Escrow Agreement. Each Seller hereby irrevocably and
unconditionally authorizes the Sellers' Representative to utilize in its sole
discretion the Sellers Amount to make any and all of the foregoing payments and
to otherwise utilize the Sellers Amount as provided above. In addition, each
Seller acknowledges that the Sellers' Representative shall not be responsible
for determining the foregoing amounts and that the Sellers Amount may not be
sufficient to pay in full all of the foregoing amounts;
(d) to each of the Optionholders (i) the balance of the Aggregate Closing
Payment multiplied by his Percentage Interest minus (ii) the aggregate exercise
price of the Options held by such Optionholder to the account specified by each
of the Optionholders at least two Business Days prior to Closing; each of the
Sellers hereby acknowledges and consents to the payment of the Net Option
Payment to each of the Optionholders; and
(e) to each of the Sellers (other than the Optionholders) the balance of
the Aggregate Closing Payment multiplied by the Percentage Interest of such
Seller to the account specified by each of the Sellers to the Purchaser at least
two Business Days prior to Closing.
Section 2.3 Cash on Hand. The Purchaser agrees and acknowledges that, any
and all cash on hand of the Companies (or either of them) at or prior to the
Closing shall be
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utilized in the sole discretion of the Companies including, without limitation,
to pay bonuses to employees of the Companies, to prepay Outstanding Indebtedness
and/or to purchase the Warrants.
Section 2.4 Closing. The purchases and sales referred to in Section 2.1
(the "Closing") shall take place at 10:00 A.M. at the offices of White &
Case, New York, New York within 10 Business Days after the later of the
termination or expiration of the applicable waiting period (and any extension
thereof) under the HSR Act or the satisfaction or waiver of all other
conditions precedent set forth in Articles VII and VIII hereof, or at such
other time and date (not later than October 31, 1996 (the "Termination
Date")) as the parties hereto shall designate in writing. Such date is herein
referred to as the "Closing Date."
ARTICLE III
REPRESENTATIONS OF THE COMPANIES
Section 3. Representations of the Company. Each of Arcon Holdings and the
Company (collectively, the "Companies") hereby jointly and severally represents
and warrants as of the date hereof to the Purchaser as follows:
Section 3.1 Existence and Good Standing. Each of the Companies is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
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Each of the Companies has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Each of the Companies is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the character or location
of the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or license necessary, except where the
failure to be so duly qualified or licensed would not have a material adverse
effect on the business, operations, financial condition or results of operations
of the Companies taken as a whole (a "Material Adverse Effect").
Section 3.2 Capital Stock. Arcon Holdings has an authorized capitalization
consisting of (i) 1,500,000 shares of Common Stock of which 41,175.1 shares are
issued and outstanding, (ii) 100,000 shares of Class B Common Stock, $0.01 par
value per share, none of which are issued and outstanding on the date hereof and
none of which will be issued and outstanding at Closing, (iii) 32,000 shares of
Series A Stock of which 31,944.8 shares are issued and outstanding, and (iv)
6,500 shares of Series B Stock of which 6,225.3 shares are issued and
outstanding. The Company has an authorized capitalization consisting of 1,000
shares of Company Stock, of which 1,000 shares are issued and outstanding and
held of record and beneficially by Arcon Holdings. All outstanding shares
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of capital stock of each of Arcon Holdings and the Company have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth on Schedule 3.2 attached hereto, there are no outstanding
subscriptions, options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of the capital stock of Arcon Holdings
or the Company.
Section 3.3 Authorization and Validity of this Agreement. Each of the
Companies has the requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by each of the
Companies and the performance of their respective obligations hereunder have
been duly authorized and approved by their respective Board of Directors and
no other corporate action on the part of the Companies or action by the
stockholders of the Companies is necessary to authorize the execution,
delivery and performance of this Agreement by the Companies. This Agreement
has been duly executed and delivered by each of the Companies and, assuming
due execution of this Agreement by the Purchaser, is a valid and binding
obligation of each of the Companies enforceable against each of the Companies
in accordance with its terms, except to the extent that its enforceability
may be subject to applicable bankruptcy,
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insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Section 3.4 Subsidiaries and Investments. Neither Arcon Holdings (except
for its ownership of the Company Stock) nor the Company owns any capital
stock or other equity or ownership or proprietary interest in any
corporation, partnership, association, trust, joint venture or other entity.
Section 3.5 Financial Statements; No Material Changes. (a) The Company has
heretofore furnished the Purchaser with consoli- dated audited balance sheets of
Arcon Holdings and the Company and audited balance sheets of the Company as of
October 31, 1994, and October 31, 1995, respectively, together with related
consolidated statements of operation, stockholders' equity and cash flows for
the periods then ended, together with the report of Price Waterhouse LLP
(collectively, the "Audited Statements"). The Audited Statements, including the
footnotes thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied by the Companies throughout the
periods indicated ("GAAP") and fairly present in all material respects the
consolidated financial position of the Companies and the financial position of
the Company, as applicable, at the respective dates thereof, and the
consolidated results of the operations and cash flows of the Companies and the
results of operations
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and cash flows of the Company for the respective periods indicated.
(b) The Company has also heretofore furnished the Purchaser with a
consolidated unaudited balance sheet of the Companies as of June 30, 1996,
together with related consolidated statements of operations for the period then
ended (collectively, the "Unaudited Statements"). The Unaudited Statements have
been prepared in accordance with GAAP (except that the Unaudited Statements do
not contain footnotes and do not reflect normal year-end adjustments) and,
except as disclosed on Schedule 3.5(b), fairly present in all material respects
the consolidated financial position of the Companies at its date thereof and the
results of the operations of the Companies for the period indicated. The
unaudited balance sheet of the Companies dated June 30, 1996, is hereinafter
referred to as the "Balance Sheet" and June 30, 1996, is hereinafter referred to
as the "Balance Sheet Date."
(c) Since October 31, 1995, there has been no (i) material adverse change
in the business, operations, financial condition or results of operations of the
Companies or (ii) material damage, destruction or loss to any asset or property,
tangible or intangible, of the Companies which materially and adversely affects
the ability of the Companies to conduct their respective business.
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Section 3.6 Books and Records. The minute books of Arcon Holdings, as
previously made available to the Purchaser and its representatives, contain
materially accurate records of all meetings of, and corporate actions taken by
(including action taken by written consent), their respective shareholders and
Boards of Directors. At Closing all of the books and records of Arcon Holdings
will be in the possession of Arcon Holdings and the Company.
Section 3.7 Title to Properties; Encumbrances. Except as set forth on
Schedule 3.7 attached hereto and except for such properties and assets which
have been sold or otherwise disposed of in the ordinary course of business,
each of Arcon Holdings and the Company has good title to its material
properties and assets (real and personal, tangible and intangible) owned by
it (and good leasehold title to the material properties and assets leased by
it), including, without limitation, the material properties and assets
reflected in the Balance Sheet, subject to no encumbrance, lien, charge or
other restriction of any kind or character ("Encumbrances"), except for (i)
Encumbrances reflected in the Balance Sheet, (ii) Encumbrances for current
taxes, assessments or governmental charges or levies on property not yet due
and delinquent, (iii) Encumbrances arising by operation of law, (iv) pledges
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insur-
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ance and other social security legislation, (v) easements, rights-of-way,
restrictions and other similar Encumbrances previously incurred in the ordinary
course of business which, in respect of properties or assets of the Companies
are not material and which, in the case of such encumbrances on the assets or
properties of the Companies, do not materially detract from the value of any
such properties or assets or materially interfere with any present use of such
properties or assets, (vi) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Encumbrances arising in the ordinary course of
business which are not overdue for a period of more than 90 days or which are
being contested in good faith by appropriate proceedings, (vii) deposits to
secure the performance of bids, contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business,
(viii) statutory and contractual Encumbrances on the property of the Companies
in favor of landlords securing leases, and (ix) Encumbrances in existence on the
Closing Date and described on Schedule 3.7 attached hereto (Encumbrances of the
type described in clauses (i) through (ix) above are hereinafter sometimes
referred to as "Permitted Encumbrances").
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Section 3.8 Real Property. Schedule 3.8 attached hereto contains an
accurate and complete list of all real property owned in whole or in part by
Arcon Holdings or the Company (the "Real Property"). With respect to all of
the buildings, structures and appurtenances situated on the Real Property,
each of the Companies has adequate rights of ingress and egress for operation
of the business of the Companies in the ordinary course consistent with past
practice. None of such buildings, structures or appurtenances, nor the
operation or maintenance thereof, violates any restrictive covenant or
encroaches, on any property owned by others, except for such violations,
encumbrances or encroachments which would not have a Material Adverse Effect.
Section 3.9 Intellectual Property. All licenses, patents, trade names,
trademarks and service marks (collectively, the "Intellectual Property") owned
by Arcon Holdings or the Company are set forth on Schedule 3.9 attached hereto.
All such Intellectual Property is, to the Companies' knowledge, in full force
and effect and neither Arcon Holdings nor the Company has received any written,
or to its knowledge, oral notice of any event, inquiry, investigation or
proceeding threatening the validity of any such Intellectual Property, except as
set forth on Schedule 3.9.
Section 3.10 Leases. Schedule 3.10 attached hereto contains a list of all
leases or sub-leases to which Arcon Holdings or
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the Company is a party requiring an annual aggregate payment of at least
$25,000. Except as otherwise set forth in Schedule 3.10 attached hereto, each
lease or sub-lease set forth in Schedule 3.10 is in full force and effect; all
rents and additional rents due to date from Arcon Holdings or the Company on
each such lease or sub-lease have been paid; neither Arcon Holdings nor the
Company has received written notice (nor, to the knowledge of the Companies,
oral notice) that it is in material default under any such lease or sublease;
and, to the knowledge of the Companies, there exists no default by either of the
Companies or any other party under such lease or sub-lease, except for such
defaults which would not have a Material Adverse Effect.
Section 3.11 Material Contracts. Except as set forth on Schedule 3.10 and
Schedule 3.11 attached hereto, neither Arcon Holdings nor the Company is bound
by (a) any agreement, contract or commitment that involves the performance of
services or the delivery of goods and/or materials by it of an amount or value
in excess of $25,000, (b) any agreement, contract or commitment not in the
ordinary course of business, (c) any agreement, indenture or other instrument
which contains restrictions with respect to payment of dividends or any other
distribution in respect of its capital stock, (d) any agreement, contract or
commitment relating to capital expenditures in excess of $25,000, (e) any
agreement,
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indenture or instrument relating to indebtedness, liability for borrowed money
or the deferred purchase price of property (excluding trade payables in the
ordinary course of business), (f) any loan or advance to, or investment in, any
individual, partnership, joint venture, corporation, trust, unincorporated
organization, government or other entity (each a "Person"), any agreement,
contract or commitment relating to the making of any such loan, advance or
investment or any agreement, contract or commitment involving a sharing of
profits, other than loans or advances to employees of Arcon Holdings and the
Company in the ordinary course of business not in excess of $5,000 in any
individual instance (g) any guarantee or other contingent liability in respect
of any indebtedness or obligation of any Person (other than in the ordinary
course of business), (h) any management service, consulting or any other similar
type of contract, (i) any agreement, contract or commitment limiting the ability
of Arcon Holdings or the Company to engage in any line of business or to compete
with any Person, (j) any warranty, guaranty or other similar undertaking with
respect to a contractual performance extended by Arcon Holdings or the Company
other than in the ordinary course of business, or (k) any amendment,
modification or supplement in respect of any of the foregoing. Except as
otherwise set forth on Schedule 3.11, each contract or agreement set forth on
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Schedule 3.11 is, to the knowledge of the Companies, in full force and effect
and there exists no default or event of default by the Companies thereunder,
except for such defaults which would not have a Material Adverse Effect.
Section 3.12 Consents and Approvals; No Violations. Except as set forth in
Schedule 3.12 attached hereto, the execution and delivery of this Agreement by
Arcon Holdings and the Company and the consummation of the transactions
contemplated hereby to be consummated by the Companies (a) will not violate or
contravene any provision of the Certificate of Incorporation or By-laws of Arcon
Holdings or the Company, (b) except as may be required under the HSR Act will
not violate or contravene any statute, rule, regulation, order or decree of any
public body or authority by which Arcon Holdings or the Company is bound or by
which any of its respective properties or assets are bound, (c) except as may be
required under the HSR Act will not require by Arcon Holdings or the Company any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority, or any other Person
and (d) will not result in a violation or breach of, conflict with, constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation, payment or acceleration) under, or
result in the creation of any Encumbrance upon any of the properties or assets
of Arcon
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Holdings or the Company under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or any other instrument or obligation to which Arcon
Holdings or the Company is a party, or by which it or any of their respective
properties or assets is bound, except, in the case of clauses (c) and (d), for
such filing, permit, consent or approval, the absence of which, and violations,
breaches, defaults, conflicts and Encumbrances which, in the aggregate would not
have a Material Adverse Effect.
Section 3.13 Litigation. Except as set forth on Schedule 3.13 attached
hereto, there is no action, suit, proceeding at law or in equity, arbitration
or administrative or other proceeding by or before (or to the knowledge of
the Companies any investigation by) any governmental or other instrumentality
or agency, pending, or, to the knowledge of the Companies, threatened,
against Arcon Holdings or the Company or any material portion of their
respective properties or rights which, if adversely determined, would
materially and adversely affect the right or ability of Arcon Holdings or the
Company to carry on its business as now conducted, or which would have a
Material Adverse Effect; and neither Arcon Holdings nor the Company knows of
any valid basis for any such action, proceeding or investigation. Neither
Arcon
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Holdings nor the Company is subject to any judgment, order or decree entered in
any lawsuit or proceeding which would have a Material Adverse Effect.
Section 3.14 Taxes. Except as set forth in Schedule 3.14: (a) Tax
Returns. Each of Arcon Holdings and the Company has timely filed or caused to
be timely filed or will timely file or cause to be timely filed with the
appropriate taxing authorities all returns, statements, forms and reports for
Taxes ("Returns") that are required to be filed by, or with respect to,
either of them on or prior to the Closing Date. The Returns have accurately
reflected and will accurately reflect all material liability for Taxes of
Arcon Holdings and the Company for the periods and the type covered thereby.
(b) Payment of Taxes. All material Taxes and Tax liabilities of Arcon
Holdings and the Company for all taxable years or periods that end on or before
the Closing Date and, with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable year or
period ending on and including the Closing Date ("Pre-Closing Periods") have
been timely paid or accrued and adequately disclosed on the books and records of
the Companies in accordance with GAAP.
(c) Other Tax Matters. (i) (A) there are no audits or other examinations
of Taxes by the appropriate tax authorities of any nation, state or locality
currently in progress
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(or to the knowledge of Companies scheduled as of the Closing Date to be
conducted), (B) there have been no audits or other examinations relating to
Federal income taxes of Arcon Holdings or the Company which have resulted in an
adjustment in Federal income tax liability, (C) there are no taxable years or
other taxable periods of Arcon Holdings or the Company which will not be subject
to the normally applicable statute of limitations by reason of the existence of
circumstances that would cause any such statute of limitations for applicable
Taxes to be extended, (D) no taxing authority has notified Arcon Holdings or the
Company that it has proposed or assessed any adjustments or assessed any
deficiency relating to any Returns for Tax liability of Arcon Holdings or the
Company and (E) neither Arcon Holdings nor the Company has received any written
notice from any taxing authority relating to any issue which could affect the
Tax liability of Arcon Holdings or the Company, which issue has not been finally
determined and which, if determined adversely to Arcon Holdings or the Company,
could result in a Tax liability.
(ii) Except for the consolidated, unitary or combined Returns filed
by Arcon Holdings that have included the Company, as set forth on Schedule 3.14
hereto, the Companies have not been included in any "consolidated," "unitary" or
"combined" Return provided for under the law of
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the United States, any foreign jurisdiction or any state or locality with
respect to Taxes for any taxable period for which the statute of limitations has
not expired.
(iii) All Taxes which Arcon Holdings or the Company is (or was)
required by law to withhold or collect have been duly withheld or collected, and
have been timely paid over to the proper authorities to the extent due and
payable.
(iv) Neither Arcon Holdings nor the Company is a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code").
(v) There are no tax sharing, allocation, indemnification or similar
agreements or arrangements in effect as between Arcon Holdings or the Company or
any predecessor or affiliate thereof and any other party (including any of the
Sellers and any predecessor or affiliate thereof) under which the Purchaser,
Arcon Holdings or the Company could be liable for any Taxes or other claims of
any party.
(vi) Neither Arcon Holdings nor the Company has applied for, been
granted, or agreed to any accounting method change for which it will be required
to take into account any adjustment under Section 481 of the Code or any similar
pro-
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vision of the Code or the corresponding tax laws of any nation, state or
locality.
(vii) At and after giving effect to Closing there will not be any
indebtedness of Arcon Holdings or the Company that consists of "corporate
acquisition indebtedness" within the meaning of Section 279 of the Code.
(viii) Neither Arcon Holdings nor the Company is a party to any
agreement that would require it to make any payment that would constitute an
"excess parachute payment" for purposes of Sections 280G and 4999 of the Code.
Section 3.15 Liabilities. Neither Arcon Holdings nor the Company has any
outstanding indebtedness or other liabilities, contingent or otherwise, except
(i) as set forth in the Balance Sheet or referred to in the footnotes in the
Audited Statements, (ii) liabilities incurred subsequent to the Balance Sheet
Date in the ordinary course of business, (iii) as set forth in Schedule 3.15 and
(iv) liabilities which would not have a Material Adverse Effect.
Section 3.16 Insurance. Schedule 3.16 contains an accurate listing of all
policies of property, fire and casualty, product liability, workers compensation
and other forms of insurance owned or held by Arcon Holdings or the Company. The
Companies have not received (i) any written notice of cancellation of any policy
described in such Schedule or refusal of coverage thereunder, (ii) any written
notice that
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any issuer of such policy has filed for protection under applicable bankruptcy
laws or is otherwise in the process of liquidating or has been liquidated, or
(iii) any other written notice that such policies are no longer in full force or
effect.
Section 3.17 Compliance with Laws. Except as set forth on Schedule 3.17,
the Companies are in compliance with all applicable laws, regulations, orders,
judgments and decrees, except where the failure to so comply would not have a
Material Adverse Effect.
Section 3.18 Employment Relations. Except as set forth on Schedule 3.18:
(a) The Companies are in compliance with all Federal, state or other applicable
laws, domestic or foreign, respecting employment and employment practices, and
are not engaged in any unfair labor practice, except where the failure to so
comply would not have a Material Adverse Effect;
(b) no unfair labor practice complaint against the Companies is pending
before the National Labor Relations Board;
(c) there is no labor strike, slowdown or stoppage actually pending or to
the Companies' knowledge, threatened against the Companies;
(d) neither Arcon Holdings nor the Company is a party to any collective
bargaining agreement and no collective bar-
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gaining agreement is currently being negotiated by the Companies; and
(e) except for written claims for benefits in the ordinary course, no
claim in respect of the employment of any employee has been asserted or, to the
knowledge of the Companies, threatened, against the Companies.
Section 3.19 Employee Benefit Plans. (a) List of Plans. Set forth in
Schedule 3.19 attached hereto is an accurate and complete list of all
domestic and foreign (i) "employee benefit plans," within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"); (ii) bonus,
stock option, stock purchase, restricted stock, incentive, profit-sharing,
pension, retirement, deferred compensation, medical, life, disability,
accident, accrued leave, vacation, sick pay, sick leave, supplemental
retirement and unemployment benefit plans and/or programs (whether or not
insured); and (iii) employment, consulting, termination, and severance
contracts or agreements; for active, retired or former employees or
directors, whether or not any such plans, programs, arrangements,
commitments, contracts, agreements and/or practices (referred to in (i), (ii)
or (iii)) are in writing or are otherwise exempt from the provisions of
ERISA; that have been established, maintained or contributed to (or with
respect to which an obligation to contribute has been
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undertaken by Arcon Holdings or the Company or with respect to which any
potential liability is borne by Arcon Holdings or the Company (including, for
this purpose and for the purpose of all of the representations in Sections
3.19(c) and (d), any predecessors to Arcon Holdings or the Company and all
employers (whether or not incorporated) that are by reason of common control
treated together with Arcon Holdings or the Company as a single employer (A)
within the meaning of Section 414 of the Code or (B) as a result of Arcon
Holdings or the Company being or having been a general partner of any such
employer in each case while treated as a single employer with Arcon Holdings or
the Company, within the last six years from the date hereof ("Employee Benefit
Plans").
(b) Status of Plans. Each Employee Benefit Plan has at all times been
maintained and operated in compliance with its terms and the requirements of all
applicable laws, including, without limitation, ERISA and the Code except where
failure to so comply will not have a Material Adverse Affect. Except as set
forth on Schedule 3.19 attached hereto, (i) no complete or partial termination
of any Employee Benefit Plan has occurred or is expected to occur and (ii)
neither Arcon Holdings nor the Company has any commitment, intention or
understanding to create, modify or terminate any Employee Benefit Plan. Except
as required by applicable law, no condition or, to the Company's or Arcon
Holding's knowledge,
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circumstance exists, that would prevent the amendment or termination of any
Employee Benefit Plan. No event has occurred and, to the Company's or Arcon
Holding's knowledge, no condition or circumstance has existed, that could result
in a material increase in the benefits under or the expense of maintaining any
Employee Benefit Plan from the level of benefits or expense incurred for the
most recent fiscal year ended thereof other than premium increases in the normal
course.
(c) Liabilities. No Employee Benefit Plan subject to Section 412 of the
Code or Section 302 of ERISA has incurred any accumulated funding deficiency
within the meaning of Section 412 of the Code or Section 302 of ERISA,
respectively, or has applied for or obtained a waiver from the Internal Revenue
Service ("IRS") of any minimum funding requirement under Section 412 of the
Code. Except as set forth in Schedule 3.19, neither Arcon Holdings nor the
Company currently maintains, sponsors or is required to make contributions, nor
within the previous six years maintained, contributed to, or was required to
make contributions, to any "employee pension benefit plan" (within the meaning
of Section 3(2) of ERISA) which is subject to Title IV of ERISA. Neither Arcon
Holdings nor the Company has ever contributed to or had any obligation to
contribute to (or borne any
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liability with respect to) any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
Neither Arcon Holdings nor the Company maintains any Employee
Benefit Plan which is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code) that has not been administered and operated in all
respects in substantial compliance with the applicable requirements of Section
601 of ERISA and Section 4980B(f) of the Code and neither Arcon Holdings nor the
Company is subject to any material liability, including, without limitation,
additional contributions, fines, penalties or loss of tax deduction as a result
of such administration and operation. Except as set forth on Schedule 3.19,
neither Arcon Holdings nor the Company maintains any Employee Benefit Plan
(whether qualified within the meaning of Section 401(a) of the Code or
nonqualified) providing for retiree health and/or life benefits and having
unfunded liabilities. Neither Arcon Holdings nor the Company maintains any
Employee Benefit Plan which is an "employee welfare benefit plan" (as such term
is defined in Section 3(1) of ERISA) that has provided any "disqualified
benefit" (as such term is defined in Section 4976(b) of the Code) with respect
to which an excise tax could be imposed.
Except as set forth in Schedule 3.19, neither Arcon Holdings nor the
Company has any unfunded liabilities
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pursuant to any Employee Benefit Plan that is not intended to be qualified under
Section 401(a) of the Code.
Neither Arcon Holdings nor the Company has incurred any liability
for any tax or excise tax arising under Section 4971, 4977, 4978, 4978B, 4979,
4980 or 4980B of the Code, and no event has occurred and is continuing and, to
each of their knowledge, no condition or circumstance has existed and is
continuing that could give rise to any such liability.
There are no actions, suits or claims pending, or, to the knowledge
of Arcon Holdings and the Company, threatened, anticipated or expected to be
asserted against any Employee Benefit Plan or the assets of any such plan (other
than routine claims for benefits and appeals of denied routine claims). No civil
or criminal action brought pursuant to the provisions of Title I, Subtitle B,
Part 5 of ERISA is pending, or to the knowledge of Arcon Holdings and the
Company, threatened, anticipated, or expected to be asserted against Arcon
Holdings or the Company or any fiduciary of any Employee Benefit Plan, in any
case with respect to any Employee Benefit Plan. No Employee Benefit Plan or, to
the knowledge of Arcon Holdings and the Company, any fiduciary thereof has been
the direct or indirect subject of an audit, investigation or examination by any
governmental or quasi-governmental agency which audit, investigation or
examination has not been settled.
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(d) Contributions. Full payment has been made of all amounts which Arcon
Holdings or the Company is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to which
Arcon Holdings or the Company is a party, to have paid as contributions thereto
as of the last day of the most recent fiscal year of such Employee Benefit Plan
ended prior to the date hereof which are required to be contributed as of the
date hereof. All such contributions have been fully deducted for income tax
purposes to the extent permitted by applicable law and no such deduction has
been challenged or, to the knowledge of the Company and Arcon Holdings after due
inquiry, disallowed, by any governmental entity, and to the knowledge of Arcon
Holdings and the Company no event has occurred and no condition or circumstance
has existed that could give rise to any such challenge or disallowance. Each of
Arcon Holdings and the Company has made adequate provision for reserves to meet
contributions that have accrued but that have not been made because they are not
yet due under the terms of any Employee Benefit Plan or related agreements.
Except as set forth in Schedule 3.19, benefits under all Employee Benefit Plans
are as represented and have not been increased subsequent to the date as of
which documents have been provided.
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(e) Tax Qualification. Each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has been determined to be so qualified by the
Internal Revenue Service. Each trust established in connection with any Employee
Benefit Plan which is intended to be exempt from Federal income taxation under
Section 501(a) of the Code has been determined to be so exempt by the Internal
Revenue Service. Since the date of each most recent determination referred to in
this paragraph (f), no event has occurred and no condition or, to the knowledge
of Arcon Holdings and the Company, circumstance has existed that resulted or is
likely to result in the revocation of any such determination or that could
adversely affect the qualified status of any such Employee Benefit Plan or the
exempt status of any such trust.
(f) Transactions. No "reportable event" (as such term is defined in
Section 4043 of ERISA) for which the 30-day notice requirement has not been
waived by the PBGC has occurred or is expected to occur with respect to any
Employee Benefit Plan. Neither Arcon Holdings nor the Company nor any of their
respective directors, officers, employees or, to the knowledge of Arcon Holdings
and the Company, other persons who participate in the operation of any Employee
Benefit Plan or related trust or funding vehicle, has engaged in any transaction
with respect to any Employee Benefit Plan or breached any applicable fiduciary
responsibilities or obligations
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under Title I of ERISA that would subject any of them to a tax, penalty or
liability for prohibited transactions under ERISA or the Code or would result in
any claim being made under, by or on behalf of any such Employee Benefit Plan by
any party with standing to make such claim.
(g) Triggering Events. The execution of this Agreement and the
consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Employee Benefit Plan or program, whether or not
legally enforceable, which will or may result in any payment (whether of
severance pay or otherwise), acceleration, vesting or increase in benefits to
any employee or former employee or director of Arcon Holdings and/or the
Company. Except as set forth in Schedule 3.19, no Employee Benefit Plan provides
for the payment of severance benefits upon the termination of an employee's
employment.
(h) Documents. Arcon Holdings and/or the Company has delivered or caused
to be delivered to Purchaser and its counsel true and complete copies of the
following documents in connection with each Employee Benefit Plan (where
applicable): (i) all Employee Benefit Plans as in effect on the date hereof,
together with all amendments thereto, including, in the case of any Employee
Benefit Plan not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifica-
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tions thereof, and material written employee communications; (iii) all current
trust agreements, declarations of trust and other documents establishing other
funding arrangements (and all amendments thereto and the latest financial
statements thereof); (iv) the most recent Internal Revenue Service determination
letter obtained with respect to each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) of the
Code; (v) the annual report on Internal Revenue Service Form 5500-series for
each of the last three plan years for each Employee Benefit Plan required to
file such form; (vi) the most recently prepared financial statements; and (vii)
all contracts relating to each Employee Benefit Plan, including, without
limitation, service provider agreements, insurance contracts, annuity contracts,
investment management agreements, subscription agreements, participation
agreements, and recordkeeping agreements.
Section 3.20 Interests in Customers, Suppliers, etc. Except as set forth
on Schedule 3.20 attached hereto, none of the Sellers nor, to the knowledge of
the Companies or any officer or director of Arcon Holdings or the Company,
possesses, directly or indirectly, any ownership interest in, or is a director,
officer or employee of, any Person which is a supplier, customer, lessor,
lessee, licensor, developer or competitor of Arcon Holdings or the Company.
Ownership of
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securities of a company whose securities are registered under the Securities
Exchange Act of 1934 of 5% or less of any class of such securities shall not be
deemed to be a financial interest for purposes of this Section 3.20.
Section 3.21 Environmental Laws and Regulations. Except as set forth on
Schedule 3.21 and except for that which would not have a Material Adverse
Effect:
(a) Hazardous Materials (as hereinafter defined) have not been generated,
used, treated stored, released or disposed by Arcon Holdings or the Company or,
to the knowledge of the Companies, by any other Person on any Company Property,
except in substantial compliance with Environmental Laws.
(b) Each of Arcon Holdings and the Company is in substantial compliance
with Environmental Laws (as hereinafter defined) and the requirements of permits
issued under such Environmental Laws with respect to the Companies' business,
operations and any Company Property.
(c) There are no pending or, to the knowledge of the Companies, threatened
Environmental Claims (as hereinafter defined) against Arcon Holdings, the
Company or any Company Property.
(d) There are no facts, circumstances, conditions or occurrences regarding
the Companies' past or present business or operations or any Company Property or
former Company
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Property that could reasonably be anticipated (i) to form the basis of an
Environmental Claim against Arcon Holdings, the Company or any Company Property
or (ii) to cause such Company Property to be subject to any restrictions on its
ownership, occupancy, use or transferability under any Environmental Law.
(e) For purposes of this Section 3.21 the following definitions shall
apply:
"Company Property" means any real property and improvements owned,
leased, used, operated or occupied by Arcon Holdings or the Company.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable, urea formaldehyde
foam insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; and (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any applicable Environmental Law.
"Environmental Law" means any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law in effect and in
each case as amended
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as of the Closing Date, and any judicial or administrative interpretation
thereof as of the Closing Date, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health,
safety or Hazardous Materials, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 6901 et seq.; the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 9601 et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et
seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651 et seq.; and
their state and local counterparts and equivalents.
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings by, from or in favor
of any governmental or regulatory authorities or any other party or entity
alleging liability (a) for enforcement, cleanup, investigatory, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) for damages, contribution, indemnification, cost
recovery, com-
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pensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
(e) The Purchaser agrees that the only representations and warranties of
Arcon Holdings and the Company or the Sellers herein as to Environmental Laws,
Environmental Claims and all other environmental-related matters are those
contained in this Section 3.21.
Section 3.22 Bank Accounts, Powers of Attorney. Set forth on Schedule 3.22
attached hereto is an accurate and complete list showing (a) the name and
address of each bank in which Arcon Holdings or the Company has a material
account or safe deposit box, the number of any such account or any such box and
the names of all persons authorized to draw thereon or to have access thereto
and (b) the names of all persons, if any, holding powers of attorney from Arcon
Holdings or the Company.
Section 3.23 Compensation of Employees. The Company has previously
provided the Purchaser with an accurate and complete list for fiscal year 1995
showing the names of all persons employed by the Company who received more
than $50,000 in 1995 cash compensation (including, without limitation, salary,
commission and bonus) and who are employed by the Companies as of the date
hereof. Such list sets forth the present salary or hourly wage (including,
without limitation,
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salary, commission and bonus) and fringe benefits (excluding Employee Benefit
Plans set forth on Schedule 3.19), of each such person.
Section 3.24 Conduct of Business. Except as disclosed on Schedule 3.24
attached hereto and except as expressly contemplated by this Agreement, since
October 31, 1995, neither Arcon Holdings nor the Company has taken any action
which, if taken subsequent to the execution of this Agreement and on or prior
to the Closing Date, would constitute a breach of the Companies' agreements
set forth in clauses (a) through and including (m) of Section 6.1.
Section 3.25 Customer Relations. Except as set forth on Schedule 3.25
attached hereto, neither Arcon Holdings nor the Company has, since June 30,
1996, received written notice (nor, to the knowledge of the Companies, any
oral notice) from any of the top ten customers of Arcon Holdings or the
Company (based on 1995 revenues of the Companies) that any such customer
intends to reduce the volume or dollar amount of purchases from Arcon
Holdings or Company which could have a Material Adverse Effect.
Section 3.26 Condition of Assets. The assets and properties utilized in
and material to the conduct of the Companies' business, whether owned or
leased, are in the aggregate adequate operating condition and repair (normal
wear and tear
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excepted) and are adequate for the purposes for which they are presently being
used.
Section 3.27 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of Arcon Holdings, the Company or the Sellers, is, or will be,
entitled to any commission or broker's or finder's fees from Arcon Holdings or
the Company, or from any Person controlling, controlled by or under common
control with the Company, in connection with any of the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS OF THE SELLERS
Section 4. Representations of the Sellers. Each of the Sellers represents
and warrants as of the date hereof (severally and not jointly and with each
Seller's personal liability expressly limited as set forth in Article X) as
to such Seller to the Purchaser as follows:
Section 4.1 Ownership of Stock. Each of the Sellers is the lawful owner
of the Stock and/or the Options listed under column B on Annex I attached
hereto, free and clear of all liens, encumbrances, restrictions and claims of
every kind. Such Seller has the (partnership in the case of Northwood
Ventures and Kuhn, Loeb & Co.; and limited liability company in the case of
Northwood Capital Partners LLC) full legal right, power and authority to
enter into this Agreement and
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to sell, assign, transfer and convey such shares of Stock pursuant to this
Agreement, and the delivery to the Purchaser of such shares of Stock pursuant to
the provisions of this Agreement will transfer to the Purchaser good title
thereto, free and clear of all Encumbrances, except for those encumbrances
created by the Purchaser or its affiliates in connection with the acquisition by
the Purchaser of such shares pursuant to this Agreement.
Section 4.2 Authorization and Validity of Agreement. Northwood Ventures
is a limited partnership validly existing and in good standing under the laws
of the State of New York. Kuhn, Loeb & Co. is a general partnership, validly
existing and in good standing under the laws of the State of New York.
Northwood Capital Partners, LLC is a limited liability company, validly
existing and in good standing under the laws of the State of New York. Such
Seller has the requisite (partnership in the case of Northwood Ventures and
Kuhn, Loeb & Co.; and limited liability company in the case of Northwood
Capital Partners LLC) power and authority to execute and deliver this
Agreement, to perform its respective obligations hereunder and to consummate
the transactions contemplated to be performed by it hereby. This Agreement
has been duly executed and delivered by such Seller and, assuming the due
execution of this Agreement by the Purchaser, is a valid and binding
obligation of such Seller, enforceable against such
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Seller in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization and similar laws affecting the enforcement of creditors'
rights generally and to general equitable principles. The representations and
warranties of Northwood Ventures, Kuhn, Loeb & Co. and Northwood Capital
Partners, LLC set forth in this Section 4.2 are made only by Northwood
Ventures, Kuhn, Loeb & Co. and Northwood Capital Partners LLC, respectively,
as to itself, and not by any other Seller.
Section 4.3 Restrictive Documents. Subject to the termination or
expiration of all applicable waiting periods under the HSR Act, such Seller
is not subject to any mortgage, lien, lease, agreement, instrument, order,
law, rule, regulation, judgment or decree, or any other restriction of any
kind or character which would prevent consummation by such Seller of the
transactions contemplated by this Agreement.
Section 4.4 Consents. Except as may be required under the HSR Act or as
set forth on Schedule 4.4 hereto, no consents, approvals or authorizations
of, or filings with, any governmental authority or any other person or entity
are required in connection with the execution and delivery of this Agreement
by such Seller and the consummation of the transactions contemplated hereby
to be consummated by it.
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Section 4.5 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of such Seller is, or will be, entitled to any commission or
broker's or finder's fees from Arcon Holdings, the Company, or from any Person
controlling, controlled by or under common control with the Company, in
connection with any of the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS OF THE PURCHASER
Section 5. Representations of the Purchaser. The Purchaser represents and
warrants as of the date hereof to the Companies and each of the Sellers as
follows:
Section 5.1 Existence and Good Standing; Power and Authority. The
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Purchaser has the
requisite corporate power and authority to enter into, execute and deliver
this Agreement and perform its obligations hereunder. This Agreement has been
duly authorized and approved by the Purchaser and, assuming the due execution
of this Agreement by each of the Sellers, is a valid and binding obligation
of the Purchaser enforceable against it in accordance with its terms, except
to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium
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and other similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles.
Section 5.2 Restrictive Documents; No Legal Bar. The Purchaser is not
subject to any mortgage, lien, lease, agreement, instrument, order, law,
rule, regulation, judgment or decree, or any other restriction of any kind or
character which would prevent consummation by it of the transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement by the Purchaser, nor the consummation of the transactions
contemplated hereby by the Purchaser, (i) violates any provision of the
certificate of incorporation or by-laws of the Purchaser, (ii) except for the
termination or expiration of all applicable waiting periods under the HSR
Act, constitutes a violation of any applicable law, or (iii) violates or
conflicts with, or results in any breach of any of the terms of any material
contract, commitment, agreement, or lease of any kind to which the Purchaser
is a party or by which the Purchaser or any of its assets are bound
including, without limitation, the financing documents contemplated by the
commitment letter referred to in Section 7.10.
Section 5.3 Purchase for Investment. The Purchaser will acquire the Stock
for its own account for investment and not with a view toward any resale or
distribution of all or any part thereof; provided, however, that the disposition
of the
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Purchaser's property shall at all times remain within the sole control of the
Purchaser.
Section 5.4 Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Purchaser is, or will be, entitled to any commission
or broker's or finder's fees from the Seller in connection with any of the
transactions contemplated by this Agreement.
Section 5.5 Litigation; Disputes. There is no action, suit, proceeding at
law or in equity, arbitration or administrative or other proceeding by or before
(or, to the knowledge of the Purchaser any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of the Purchaser,
threatened, against the Purchaser which challenges the validity of this
Agreement, or which if adversely determined, would adversely materially affect
its ability to consummate the transactions contemplated by this Agreement; and
the Purchaser knows of no valid basis for any such action, proceeding or
investigation.
Section 5.6 Consents. Except as may be required under the HSR Act or as
set forth on Schedule 5.6 hereto, no consents, approvals or authorizations
of, or filings with, any governmental authority or any other person or entity
are required in connection with the execution and delivery of this Agreement
by the Purchaser and the consummation of the transactions contemplated hereby
to be consummated by it.
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ARTICLE VI
TRANSACTIONS PRIOR TO THE CLOSING DATE
Section 6.1 Conduct of Business of the Companies. During the period from
the date of this Agreement to the Closing Date, the Companies shall conduct
their operations only according to its ordinary course of business; use their
reasonable efforts to preserve intact its business organizations, keep
available the services of their officers and employees and maintain its
relationships and goodwill with licensors, suppliers, distributors,
customers, landlords, agents and others having business relationships with
it; confer with the Purchaser (as reasonably requested by the Purchaser
during normal business hours without undue interruption) concerning the
business, operations and finances of the Companies. Notwithstanding the
immediately preceding sentence, prior to the Closing Date, except as
permitted in Section 2.3 and otherwise except as may be first approved in
writing by the Purchaser, each of Arcon Holdings and the Company shall, (a)
refrain from amending or modifying its Certificate of Incorporation or
By-Laws from its form on the date of this Agreement, (b) refrain from paying
or increasing any bonuses, salaries, or other compensation to any director,
officer, employee or stockholder or entering into any employment, severance,
or similar agreement with any
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director, officer, or employee other than, in each case, in the ordinary course
of business consistent with past practice or as disclosed to the Purchaser
pursuant to Section 3.23 hereof, (c) except as set forth on Schedule 3.19,
refrain from the adopting or increasing of any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other employee benefit
plan for or with any of its employees, (d) refrain from entering into any
material contract or commitment except material contracts and commitments in the
ordinary course of business consistent with past practice, (e) refrain from
increasing its indebtedness for borrowed money, except borrowings in the
ordinary course of business, (f) refrain from cancelling or waiving any claim or
right of substantial value which individually or in the aggregate is material
other than in the ordinary course of business, (g) refrain from declaring or
paying any dividends in respect of its capital stock or redeeming, purchasing or
otherwise acquiring any of its capital stock, (h) refrain from making any
material change in accounting methods or practices, except as required by law or
generally accepted accounting principles, (i) refrain from issuing or selling
any shares of capital stock or any other securities, or issuing any securities
convertible into, or options, warrants or rights to purchase or subscribe to, or
entering into any arrangement or contract with respect to the issue and sale
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of, any shares of its capital stock or any other securities, or making any other
changes in its capital structure, except pursuant to outstanding options or
other rights disclosed on Schedule 3.2 attached hereto, (j) refrain from
selling, leasing or otherwise disposing of any material asset or property other
than the sale of inventory and other assets in the ordinary course of business
consistent with past practices, (k) refrain from entering into any commitment
for the making of a capital expenditure, except in the ordinary course of
business consistent with past practice, (l) refrain from writing off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material and (m) refrain from agreeing in
writing to do any of the foregoing.
Section 6.2 Exclusive Dealing. During the period from the date of this
Agreement to the earlier of the termination of this Agreement and the Closing
Date, none of the Sellers, Arcon Holdings or the Company shall take any action
to, directly or indirectly, encourage, initiate or engage in discussions or
negotiations with, or provide any information to, any Person, other than the
Purchaser, concerning any purchase of any capital stock of Arcon Holdings or the
Company or any merger, sale of all or substantially all assets or similar
transaction involving Arcon Holdings or the Company.
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Section 6.3 Review of the Companies. Upon reasonable notice, during normal
business hours and without undue interruption, the Companies shall permit the
Purchaser and its representatives to have, after the date of execution of this
Agreement, full access to the premises and to all the books and records of the
Companies and to cause the officers of the Companies to furnish the Purchaser
with such financial and operating data and other information with respect to the
business and properties of the Company as the Purchaser shall from time to time
reasonably request. The parties hereto acknowledge that the Purchaser, Arcon
Holdings, the Company and the Sellers have entered into a Confidentiality
Agreement dated December 6, 1995 (the "Confidentiality Agreement") and that
information obtained during any such review will be subject to the terms of the
Confidentiality Agreement.
Section 6.4 Reasonable Efforts. Each of Arcon Holdings, the Company, the
Sellers and the Purchaser shall reasonably cooperate and use their respective
reasonable best efforts to cause to be made the filing of Notification and
Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") with the Federal Trade Commission and the Antitrust
Division of the Department of Justice) and to obtain, prior to the Closing Date,
all required consents and approvals of parties to contracts with Arcon Holdings
or the Company set forth in Schedule 3.12
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attached hereto and designated by an asterisk and to fulfill the conditions to
the sale contemplated hereby.
Section 6.5 Agreement by the Purchaser Regarding No Other Representations
or Warranties by the Sellers. The Purchaser agrees that except for the
representations and warranties expressly set forth in Articles II and III of
this Agreement, neither Arcon Holdings, the Company nor any of the Sellers nor
any affiliate thereof has made and shall not be construed as having made to the
Purchaser or to any representative or affiliate thereof any representation or
warranty of any kind. Without limiting the generality of the foregoing, the
Purchaser agrees that neither Arcon Holdings, the Company nor any of the Sellers
nor any affiliate thereof makes or has made any representation or warranty to
the Purchaser or to any representative or affiliate thereof with respect to any
projections, estimates or budgets heretofore or hereafter delivered to or made
available to the Purchaser or its counsel, accountants, advisors, lenders,
representatives or affiliates of future revenues, expenses or expenditures,
future results of operations (or any component thereof), future cash flows (or
any component thereof) or future financial condition (or any component thereof)
of the Companies or the future business, operations or affairs of the Companies.
Section 6.6 Satisfaction of Financing Condition. The Purchaser shall use
all reasonable efforts to satisfy the
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condition set forth in Section 7.10 on or prior to the Termination Date.
ARTICLE VII
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
Section 7. Conditions to the Purchaser's Obligations. The obligation of
the Purchaser to purchase the Stock contemplated by this Agreement is
conditioned upon satisfaction, at or prior to the Closing, of the following
conditions:
Section 7.1 Opinions of Counsel. The Companies shall have furnished the
Purchaser with an opinion, dated the Closing Date, of Haythe & Curley, in form
and in substance reasonably acceptable to the Purchaser and its counsel.
Section 7.2 Good Standing and Other Certificates. The Purchaser shall have
received (a) copies of the charters, including all amendments thereto, in each
case certified by the Secretary of State or other appropriate official of the
jurisdiction of incorporation of each of Arcon Holdings and the Company, (b) a
certificate from the Secretary of State or other appropriate official of the
jurisdiction of incorporation of each of Arcon Holdings and the Company to the
effect that such company is in good standing and listing all charter documents
of such company on file, (c) a certificate from the Secretary of State or other
appropriate official in each State in which each of Arcon Holdings and the
Company is
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qualified to do business to the effect that such company is in good standing in
such State, (d) a certificate as to the tax status of each of Arcon Holdings and
the Company from the appropriate official in their respective jurisdictions of
incorporation and each state in which such company is qualified to do business
and (e) a copy of the By-Laws of Arcon Holdings and the Company certified by the
Secretary of such company as being true and correct and in effect on the Closing
Date.
Section 7.3 [Intentionally Omitted].
Section 7.4 Truth of Representations and Warranties. The representations
and warranties of the Companies contained in this Agreement and the
representations and warranties of the Sellers contained in this Agreement
shall be true and correct in all material respects (other than those
representations and warranties of the Companies and the Sellers which are
qualified by "materiality," "material adverse effect" or words of equivalent
import, which shall be true and correct) on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of such date, and the Companies and the Seller shall have each
delivered to the Purchaser a certificate, dated the Closing Date, to such
effect.
Section 7.5 Performance of Agreements. All of the agreements of the
Companies and the Sellers to be performed prior to the
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Closing pursuant to the terms of this Agreement shall have been duly performed
in all material respects, and the Companies and the Sellers shall have each
delivered to the Purchaser a certificate, dated the Closing Date, to such
effect.
Section 7.6 No Litigation Threatened. No action or proceedings shall have
been instituted or, to the knowledge of the Companies or the Sellers,
threatened before a court or other government body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby.
Section 7.7 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, disclosed on Schedules 3.12 or 5.6 attached hereto
and designated by an asterisk or required in connection with the consummation of
the transactions contemplated by this Agreement shall have been received.
Section 7.8 Termination of Security Interests. All security interests,
liens, mortgages, claims or other encumbrances of any kind securing
Outstanding Indebtedness shall be released.
Section 7.9 Resignations. All members of the Board of Directors of the
Companies shall have tendered their resignation from such positions effective
at the Closing.
Section 7.10 Financing. The Purchaser shall have received financing on
substantially the same terms and conditions as set forth in the commitment
letter of Bankers Trust company
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dated August 27, 1996, a copy of which has been delivered to the Seller's
Representative.
Section 7.11 [Intentionally omitted]
Section 7.12 FIRPTA. The Sellers shall have furnished to the Purchaser,
on or prior to the Closing Date, a non-foreign person affidavit required by
Section 1445 of the Code.
Section 7.13 HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the transactions contemplated by this
Agreement shall have expired or terminated.
Section 7.14 Escrow Agreement. The Sellers, the Purchaser and the Escrow
Agent shall have entered into an escrow agreement substantially in the form of
Exhibit A hereto (the "Escrow Agreement").
ARTICLE VIII
CONDITIONS TO THE COMPANIES AND
THE SELLERS' OBLIGATIONS
Section 8. Conditions to the Seller's Obligations. The obligations of the
Companies and the Sellers to effect the transactions contemplated by this
Agreement on the Closing Date are conditioned upon satisfaction or waiver, at or
prior to the Closing, of the following conditions:
Section 8.1 Opinions of Counsel. The Purchaser shall have furnished the
Sellers with an opinion, dated the Closing
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Date, of White & Case, in form and in substance reasonably acceptable to the
Sellers' Representative and its counsel.
Section 8.2 Truth of Representations and Warranties. The representations
and warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects (other than those representations and
warranties of the Companies and the Sellers which are qualified by
"materiality," "material adverse effect" or words of equivalent import, which
shall be true and correct) on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the Purchaser shall have delivered to the Sellers an officer's certificate,
dated the Closing Date, to such effect.
Section 8.3 Third Party Consents; Governmental Approvals. All consents,
approvals or waivers, if any, disclosed on Schedule 3.12 and Schedule 4.4 and
designated by an asterisk shall have been received.
Section 8.4 Performance of Agreements. All of the agreements of the
Purchaser to be performed prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed in all material respects, and the
Purchaser shall have delivered to the Sellers an officer's certificate, dated
the Closing Date, to such effect.
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Section 8.5 No Litigation Threatened. No action or proceeding shall be
instituted or, to the knowledge of the Purchaser, threatened before a court or
other government body or any public authority to restrain or prohibit any of the
transactions contemplated hereby, and the Purchaser shall have delivered to the
Sellers an officer's certificate, dated the Closing Date, to such effect.
Section 8.6 HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the transactions contemplated by this Agreement
shall have expired or terminated.
Section 8.7 Warrants. The Bank shall have executed and delivered an
agreement with Arcon Holdings providing for the purchase by Arcon Holdings of
the Warrants from the Bank, in form and substance reasonably acceptable to
Arcon Holdings and such purchase shall have been consummated.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns. (a) The Sellers, acting through an appointed
representative (the "Sellers' Representative"), shall have the exclusive
authority and obligation, subject to compliance by the Purchaser and the
Companies with their obligations under this Article IX, to prepare and timely
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file, or cause to be prepared and timely filed, (i) all Returns of the Company
and Arcon Holdings that are due and (ii) at its sole option and discretion, all
applications or requests for refunds ("Refund Requests") of Taxes paid by or on
behalf of the Company and Arcon Holdings, in each case, with respect to any
taxable year or other taxable period ending on or prior to the Closing Date.
Such authority shall include, but not be limited to, the determination of the
manner in which any items of income, gain, deduction, loss or credit arising out
of the income, properties and operations of the Company and Arcon Holdings shall
be reported or disclosed in such Returns and Refund Requests; provided, however,
that such Returns and Refund Requests shall be prepared by treating items on
such Returns and Refund Requests in a manner consistent with the past practices
with respect to such items, unless otherwise required by law. The Sellers'
Representative shall provide to the Purchaser drafts of all Returns and Refund
Requests of the Company and Arcon Holdings required or permitted to be prepared
and filed by the Sellers' Representative under this Section 9.1(a) at least
thirty (30) days prior to the due date (including extensions) for the filing of
such Returns or Refund Requests. No later than fifteen (15) days after receipt
of such draft, the Purchaser shall give written notice (the "Dispute Notice") of
the existence of any objection the
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Purchaser may have to any items set forth on such draft Returns or Refund
Requests to the Sellers' Representative, which Dispute Notice shall specify in
reasonable detail the nature and basis for such objection (and in the absence of
any such Dispute Notice, the Purchaser shall be deemed to have no objection to
the filing of such Return or Refund Request). The Purchaser and the Sellers'
Representative agree to consult and use their best efforts to resolve in good
faith any such objection within 15 days of receipt by the Sellers'
Representative of the Dispute Notice. If the Sellers' Representative and the
Purchaser are unable to resolve the disputed matters within such 15-day period
all disputed matters raised in the Dispute Notice and not so resolved shall be
submitted to such nationally recognized independent accounting firm as is chosen
by mutual agreement of the Sellers' Representative and the Purchaser acting in
good faith (such firm which accepts the engagement, the ("Independent Auditor"),
for final resolution. Each party shall be permitted to submit to the Independent
Auditor a written statement in support of its position with respect to the
disputed matters raised in the Dispute Notice and not resolved. The Sellers'
Representative and the Purchaser shall use their respective reasonable best
efforts to cause the Independent Auditor to make its determination as soon as
possible, but in no event later than 30 days after receipt of
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the disputed matters. Such determination shall be final and binding upon all
parties hereto. The Independent Auditor's determination shall be limited to
matters of dispute which are raised in the Dispute Notice and not resolved by
the Sellers' Representative and the Purchaser. The Independent Auditor's
resolution of any such dispute shall be reflected in a written report which
shall be delivered to the Sellers' Representative and the Purchaser. All fees
and disbursements of the Independent Auditor and any interest or penalties
attributable to the late filing of a Return that results from the failure of the
parties to resolve such issues prior to the due date of such Return, shall be
borne by the party whose position with respect to such issues is most at
variance from the position with respect to such issues determined by the
Independent Auditor. The Sellers' Representative shall not file any Return or
Refund Request without the prior consent of the Purchaser, which consent shall
not be unreasonably withheld or delayed; provided, however, that no such consent
shall be required if the Purchaser shall not have delivered a Dispute Notice or
if the objections contained in a Dispute Notice shall have been finally
resolved, in each case in accordance with this Article IX. None of Purchaser,
the Company, Arcon Holdings, nor any affiliate of the foregoing shall file any
application or request to extend, or consent to the extension of, the
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time to file any Return of the Company or Arcon Holdings with respect to any
taxable year or other taxable period ending on or prior to the Closing Date,
including any Return of the Company or Arcon Holdings for the short taxable year
ending on the Closing Date, unless requested to do so by the Sellers'
Representative (provided, however, that no such extended period shall extend
beyond the termination of the Escrow Account pursuant to the Escrow Agreement).
(b) Except as provided in Section 9.1(a), the Purchaser shall have the
exclusive authority and obligation to prepare and timely file, or cause to be
prepared and timely filed, all Returns and Refund Requests of the Company and
Arcon Holdings. Such authority shall include, but not be limited to, the
determination of the manner in which any items of income, gain, deduction, loss
or credit arising out of the income, properties and operations of the Company
and Arcon Holdings shall be reported or disclosed on such Returns and Refund
Requests; provided, however, with respect to Returns and Return Requests to be
filed by the Purchaser pursuant to this Section 9.1 for taxable periods
beginning before the Closing Date and ending after the Closing Date, items set
forth on such Returns and Return Requests shall be treated in a manner
consistent with the past practices of the Companies with respect to such items,
unless otherwise required by law. The Purchaser shall provide to the Sellers'
Representative
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drafts of all Returns and Refund Requests of the Company and Arcon Holdings
required or permitted to be filed by the Purchaser pursuant to this Section
9.1(b) with respect to taxable years or other taxable periods beginning before
the Closing Date and ending after the Closing Date at least thirty (30) days
prior to the due date (including extensions) for the filing of such Returns or
Refund Requests. No later than fifteen (15) days after receipt of such draft,
the Sellers' Representative shall give the Purchaser a Dispute Notice with
respect to the existence of any objection (which Dispute Notice shall specify in
reasonable detail the nature and basis of such objection) the Sellers'
Representative may have to any items set forth on such draft Returns or Refund
Requests (and in the absence of any such timely objection, the Sellers'
Representative shall be deemed to have no objection to the filing of such Return
or Refund Request). The Purchaser and the Sellers' Representative agree to
consult and use their best efforts to resolve in good faith any such objection
within such 15-day period. In the event that the Purchaser and the Sellers'
Representative are unable to resolve such objection within such 15-day period,
the dispute resolution and cost allocation procedure set forth in Section 9.1(a)
shall apply. None of the Purchaser, Arcon Holdings, the Company, nor any
affiliate of the foregoing shall file any such Return or Refund Request with
respect to
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taxable years or other taxable periods beginning before the Closing Date and
ending after the Closing Date without the prior consent of the Sellers'
Representative, which consent shall not be unreasonably withheld or delayed;
provided, however, that no such consent shall be required if the Sellers'
Representative shall not have delivered a Dispute Notice or if the objections
contained in a Dispute Notice shall have been finally resolved, in each case
in accordance with this Article IX. None of the Purchaser, Arcon Holdings,
the Company, or any affiliate of the foregoing will make any election under
Treasury Regulation Section1.1502-76(c) to file a separate return for the
entire taxable year ending October 31, 1996.
Section 9.2 Overlap Period, Refunds, Tax Benefits. All Taxes and Tax
liabilities with respect to the income, property or operations of the Company
and Arcon Holdings that relate to a taxable year or other taxable period
beginning before and ending after the Closing Date (an "Overlap Period") shall
be apportioned between the Pre-Closing Period and the portion of such Overlap
Period after the Closing Date (the "Post-Closing Period") as follows: (A) in the
case of Taxes other than income Taxes and sales and use Taxes, on a per diem
basis, and (B) in the case of income Taxes (including income Taxes based on
capital or other alternative bases) and sales and use Taxes, as determined from
the books and records of the
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Company and Arcon Holdings, between the Pre-Closing Period and the Post-Closing
Period as though the taxable year of Arcon Holdings or the Company terminated at
the close of business on the Closing Date, and based on accounting methods,
elections and conventions that do not have the effect of distorting income and
expenses.
To the extent the Company or Arcon Holdings has made a payment of
Taxes on or prior to the Closing Date with respect to Taxes attributable to a
Pre-Closing Period in excess of the liability of the Companies for such Taxes
for such Pre-Closing Period, the Purchaser and the Companies will, if requested
by the Sellers' Representative, use their reasonable best efforts to obtain a
prompt refund of such overpayment. The Purchaser or the Companies shall remit
any refund received pursuant to the preceding sentence (and any refunds under
Section 9.1(a)), net of any Taxes of the Purchaser, the Company or Arcon
Holdings arising from the receipt of such refund, to the Sellers' Representative
for the benefit of the Sellers within 10 days of the receipt of such refund.
Further, to the extent any deductions attributable to unamortized
original issue discount attributable to the Warrants and the exercise or
cancellation of the Options (the "Deductions") are included as deductions in any
Return of the Company or Arcon Holdings for any taxable year or other
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taxable period ending after the Closing Date, the Purchaser, the Company or
Arcon Holdings shall remit to the Sellers' Representative for the benefit of the
Sellers the amount of the actual reduction in the Tax liability of the Company
and/or Arcon Holdings (the "Tax Benefit") attributable to the Deductions (a) for
taxable years or other taxable periods commencing on or after the day following
the Closing Date, and (b) with respect to an Overlap Period, for the portion of
such Overlap Period commencing on the day following the Closing Date (it being
understood and agreed that the parties intend that for purposes of preparing the
Returns provided for in Section 9.1, the Purchaser, the Companies and the
Sellers shall treat the Deductions as being attributable to a Pre-Closing
Period). The Purchaser, the Company or Arcon Holdings shall remit such amount
within 10 days after the filing of a Return in which any such Deduction is
utilized. The Purchaser shall determine and shall certify to the Sellers the
amount of the Tax Benefit and the timing of the utilization of such Tax Benefit
in its reasonable discretion (provided, however, the Purchaser and the Companies
shall not be obligated to disclose any information with respect to the income,
results of operations, or Taxes or Returns of the Companies with respect to any
period after the Closing Date, other than the information with respect to an
Overlap Period provided for in Section 9.1(b) and other than contemplated by
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Section 9.3). If the Tax liability of the Company or Arcon Holdings is adjusted
by the appropriate taxing authority after filing a Return in which the
Deductions are utilized and such adjustment reduces the amount of the Tax
Benefit realized by the Company and/or Arcon Holdings from the Deductions, the
Sellers shall reimburse the Purchaser for the amount of such reduced Tax Benefit
to the extent that the Purchaser or the Companies previously remitted such
reduced Tax Benefit to the Sellers (but not in excess of the amount paid by the
Purchaser and the Companies to the Sellers' Representative pursuant to this
Section 9.2), as reasonably determined by the Purchaser (provided, however, the
Purchaser and the Companies shall not be obligated to disclose any information
with respect to the income, results of operations, or Taxes or Returns of the
Companies with respect to any period after the Closing Date, other than the
information with respect to an Overlap Period provided for in Section 9.1(b) and
other than contemplated by Section 9.3), within 10 days after receipt by
Sellers' Representative from the Purchaser of a certificate setting forth the
amount of such reduced Tax Benefit.
Section 9.3 Cooperation; Audits. In connection with the preparation of
Returns, Refund Requests, audit examinations and any administrative or
judicial proceedings relating to the Tax liabilities imposed on the Company
and Arcon Holdings
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for all Pre-Closing Periods, the Purchaser, the Company and Arcon Holdings on
the one hand, and the Sellers' Representative on the other hand, will cooperate
fully with each other, including, but not limited to, the furnishing or making
available during normal business hours, at no cost to Sellers or Sellers'
Representative (except out-of-pocket costs, excluding salaries and wages of
personnel, provided such cooperation does not interfere with normal operations
of the Company, Arcon Holdings or the Purchaser), of records, personnel (as
reasonably required), books of account, powers of attorney or other materials
with respect to Pre-Closing Periods and the Post-Closing Period necessary or
helpful for the preparation of such Returns or Refund Requests, the conduct of
audit examinations or the defense of claims by Tax authorities as to the
imposition of Taxes. Without limiting the generality of the foregoing, the
Sellers' Representative and its accountants and attorneys shall be entitled to
examine books and records of the Company and Arcon Holdings, with respect to any
Pre-Closing Period and the Post-Closing Period, and shall have reasonable access
to personnel of the Company and Arcon Holdings, including their cooperation in
timely signing Returns and Refund Requests and applying any current liability
accruals to the payment of Taxes shown due thereon, to the extent necessary or
helpful for purposes of
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preparing or filing any Tax Returns or obtaining Tax refunds with respect to all
Pre-Closing Periods.
Section 9.4 Controversies. The Purchaser shall promptly notify the
Sellers' Representative in writing upon receipt by the Purchaser or any
affiliate of the Purchaser (including Arcon Holdings and the Company after
the Closing Date) of written notice of any inquiries, claims, assessments,
audits or similar events with respect to Taxes relating to a taxable period
ending on or prior to the Closing Date for which the Sellers may be liable
under this Agreement (any such inquiry, claim, assessment, audit or similar
event, a "Tax Matter"). The Sellers' Representative, at the sole expense of
the Sellers, shall have the exclusive authority to represent the interests of
the Companies with respect to any Tax Matter before the Internal Revenue
Service, any other taxing authority, any other governmental agency or
authority or any court and shall have the sole right to extend or waive the
statute of limitations with respect to a Tax Matter and to control the
defense, compromise or other resolution of any Tax Matter, including
responding to inquiries, filing Tax returns and settling audits; provided,
however, that the Sellers' Representative shall not enter into any settlement
of or otherwise compromise any Tax Matter that affects or may affect the Tax
liability of the Purchaser, Arcon Holdings, or the Company or any affiliate
of the foregoing for any period
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ending after the Closing Date, including the Post-Closing Period, without the
prior written consent of the Purchaser, which consent shall not be unreasonably
withheld or delayed. The Sellers' Representative shall keep the Purchaser
reasonably informed with respect to the commencement, status and nature of any
Tax Matter. The Sellers' Representative shall, in good faith, allow the
Purchaser to make comments to the Sellers' Representative regarding the conduct
of or positions taken in any such proceeding.
Except as otherwise provided in Section 9.1, this Section 9.4, Section 9.8
and Section 9.9 the Purchaser shall have the sole right to control any audit or
examination by any taxing authority, initiate any claim for refund or amend any
Return, and contest, resolve and defend against any assessment for additional
Taxes, notice of Tax deficiency or other adjustment of Taxes of, or relating to,
the income, assets or operations of the Companies for all taxable periods;
provided, however, that the Purchaser shall not, and shall cause its affiliates
(including the Companies) not to, enter into any settlement of any contest or
otherwise compromise any issue that affects or may affect the Tax liability of
the Sellers, Arcon Holdings or the Company for any Pre-Closing Period, including
the portion of an Overlap Period ending on or prior to the Closing Date, without
the prior written consent of the Sellers' Representative, which
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consent shall not be unreasonably withheld or delayed. The Purchaser shall keep
the Sellers' Representative reasonably informed with respect to the
commencement, status and nature of any Tax matter conducted by Purchaser with
respect to the Overlap Period. The Purchaser shall, in good faith, allow
Sellers' Representative to make comments to the Purchaser regarding the conduct
of or position taken in any such proceeding with respect to the Overlap Period.
Section 9.5 Transfer Taxes. All transfer, sales and use, registration,
stamp and similar Taxes imposed in connection with the sale of the Stock or
any other transaction that occurs pursuant to this Agreement shall be borne
equally by the Sellers, on the one hand, and the Purchaser, on the other hand.
Section 9.6 Amended Returns. None of the Sellers or the Sellers'
Representative, shall file or cause to be filed any amended Return of or
including the Company or Arcon Holdings without the prior written consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed. None of
the Purchaser, the Company, Arcon Holdings, nor any affiliate of the foregoing
shall file or cause to be filed any amended Return relating to or including any
Pre-Closing Period, including the portion of an Overlap Period ending on or
prior to the Closing Date, of the Company or Arcon Holdings without the prior
written consent of the Sellers'
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Representative, which consent shall not be unreasonably withheld or delayed.
Section 9.7 Non-foreign Person Affidavit. Each Seller shall furnish to the
Purchaser on or before the Closing Date a non- foreign person affidavit as
required by Section 1445 of the Code.
Section 9.8 Indemnification. Subject to Section 9.3, Section 9.4 and
Section 9.9, each of the Sellers agrees severally (on the basis of such Seller's
Percentage Interest and with each Seller's personal liability expressly limited
as set forth in Section 10.2(c)) to indemnify, defend and hold harmless the
Purchaser, its affiliates (including Arcon Holdings and the Company) and the
successors to the foregoing (and their respective shareholders, officers,
directors, employees and agents) on an after-tax basis against (i) all Taxes,
losses, claims and expenses resulting from, arising out of, or incurred with
respect to, any claims that may be asserted by any party based upon,
attributable to, or resulting from the failure of any representation or warranty
made pursuant to Section 3.14 (other than Section 3.14(b)) to be true and
correct as of the Closing Date; and (ii) all unpaid Taxes imposed on or asserted
against the properties, income or operations of Arcon Holdings and the Company
at any time after the Closing Date to the extent such Taxes relate to any
Pre-Closing Period. Notwithstanding any of the foregoing,
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(v) any indemnification provided under any clause of the preceding sentence
shall be without duplication of any indemnification provided under the other
clause of the preceding sentence, (w) the indemnification provided under clause
(ii) above shall not apply to any Tax liability paid to the appropriate taxing
authority on or prior to the Closing Date to the extent such amount is not
refunded or otherwise returned to any of the Sellers, the Sellers'
Representative, the Company or Arcon Holdings, (x) the indemnification provided
under the preceding sentence shall not apply to income Tax and sales or use
Taxes to the extent of the current liability accruals attributable to income
Taxes and sales and use Taxes disclosed to the Purchaser and set forth on the
books and records of the Company or Arcon Holdings at the Closing Date
(maintained in accordance with past practices), (y) the indemnification provided
in the preceding sentence for any liability that is related to an income Tax or
sales or use Tax shall be subject to and included in the $4,000,000 limit on the
Sellers' indemnification liabilities (but not the $400,000 "Deductible")
provided for in Section10.2 hereof, and (z) the indemnification provided in the
preceding sentence for any liability that is not related to an income Tax or
sales or use Tax shall be subject to and included within the $400,000
"Deductible" and the $4,000,000 limit on the Sellers'
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indemnification liabilities provided for in Section10.2 hereof. The Purchaser
shall promptly give the Sellers' Representative written notice of all Taxes,
losses, claims and expenses which the Purchaser has reasonably determined may
give rise to a right of indemnification under this Section 9.8, including a
computation of the amount of the required indemnification with sufficient
detail and particularity to enable the Sellers' Representative to reasonably
determine the amount of such required indemnification. The Sellers shall not
be liable for any Tax or payment hereunder to the extent that the Purchaser's
failure timely to notify the Sellers' Representative as required by the
preceding sentences or in Section 9.4 causes or increases a Tax or other
payment to be due or otherwise materially prejudices the ability of the
Sellers to contest such Tax liability.
Section 9.9 FSE Tax Indemnity. The Purchaser and the Companies shall
cooperate reasonably and in good faith, at Sellers' sole expense, with
Sellers and the Sellers' Representative to enforce any and all rights
Purchaser or the Companies may have under the FSE Tax Indemnity in respect of
Taxes and liabilities which are otherwise indemnifiable amounts of the
Sellers under this Article IX (such indemnifiable amounts recoverable under
the FSE Tax Indemnity (the "FSE Indemnifiable Amount")), all without
prejudice to the Sellers' agreements and obligations under this Article IX
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or under the Escrow Agreement. The Purchaser and the Companies shall, subject to
the terms and conditions of this Section 9.9, at Sellers' sole expense, seek to
recover all FSE Indemnifiable Amounts under the FSE Tax Indemnity first, before
proceeding to enforce against the Sellers any of their rights under this Article
IX. Subject to Sellers' obligation to advance, in reasonable increments as
mutually agreed in good faith by the Purchaser and the Sellers' Representatives,
all of the Companies' reasonable costs and expenses (including, without
limitation, reasonable attorney's fees) of such enforcement, the Purchaser and
the Companies shall pursue all available remedies to enforce the FSE Tax
Indemnity, including by recourse to appropriate judicial proceedings); provided,
however that neither the Purchaser nor the Companies shall be obligated to
pursue any such legal proceeding unless the Sellers shall have paid the FSE
Indemnifiable Amounts to the Purchaser in accordance with this Agreement and the
Escrow Agreement whereupon the Sellers shall be subrogated to the rights of the
Companies under the FSE Tax indemnity. Any amounts actually recovered by the
Purchaser and the Companies pursuant to the FSE Tax Indemnity (i) shall be
without duplication of any indemnification provided in Section 9.8 hereof, (ii)
shall be excluded from the $400,000 "Deductible" and the $4,000,000 limitation
on Sellers' indemnification liabilities provided for in Section
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10.2 hereof and (iii) which constitute reimbursement or other payment of costs
and expenses of the Sellers, the Purchaser and the Companies incurred in
connection with pursuing FSE Indemnifiable Amounts which have been paid by or on
behalf of the Sellers shall be promptly paid to the Sellers' Representative upon
receipt by the Purchaser or the Companies. Notwithstanding anything to the
contrary herein, the Purchaser and the Companies agree that the Sellers'
Representative, at Sellers' sole expense, shall have the exclusive authority to
represent the interests of the Companies with respect to any FSE Tax Indemnity
matter and to control the prosecution, compromise and resolution of any such
matter (including with attorneys and other advisors chosen by the Sellers'
Representative) and the Purchaser and each of the Companies shall cooperate
reasonably and in good faith with the Sellers and the Sellers' Representative in
the prosecution of any such FSE Tax Indemnity matter.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 10.1 Survival of Representations. The respective representations
and warranties of the Companies, the Sellers and the Purchaser contained in
this Agreement shall survive the Closing for a period of 18 months except for
the repre-
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sentations and warranties contained in Section 3.14 (other than the
representations and warranties contained in Section 3.14(b) which shall not
survive the Closing), which shall survive for the applicable statute of
limitations period (subject to Section 9.1(a)), and the representations and
warranties of the Sellers in Section 4.1 which shall survive indefinitely.
Section 10.2 Indemnification. (a) Following the Closing, each of the
Sellers, severally and not jointly (based upon their respective Percentage
Interest and with each Sellers's personal liability expressly limited as set
forth in Section 10.2(b) and 10.2(c)) hereby agrees to indemnify and hold the
Purchaser and its officers, directors, affiliates (including, without
limitation, Arcon Holdings and the Company) and agents, and any successors
thereto, harmless from damages, losses, costs or expenses (including, without
limitation, reasonable attorneys' fees and expenses) ("Damages") incurred or
suffered as a result of or arising out of (i) the failure of any
representation or warranty made by the Company in this Agreement (without
regard to any "materiality" or any "material adverse effect" exception
contained in any such representation and warranty other than the
representations and warranties contained in Section 3.5 and Section 3.24 (but
only as to clauses (d), (h) and (l) of Section 6.1 incorporated by reference
into such Section 3.24) and Section
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3.25) to be true and correct as of the Closing Date with the same effect as
though such representation and warranty had been made on and as of the Closing
Date, (other than a breach of Section 3.14 with respect to Taxes which shall be
governed by Section 9.8), or (ii) the breach of any covenant or agreement made
or to be performed by the Sellers pursuant to this Agreement; provided, however,
that the Sellers shall not be liable under clause (i) of this Section unless the
aggregate amount of Damages exceeds $400,000 and then only to the extent of such
excess; provided further, however, that, except as set forth in Section 10.2(b)
below, the Sellers' aggregate liability under this Article X and Article IX
shall not exceed $4,000,000 in the aggregate (the "Sellers Liability Amount").
(b) Following the Closing, each of the Sellers, severally as to itself and
not jointly, hereby agrees to indemnify and hold the Purchaser and its officers,
directors, affiliates (including without limitation, Arcon Holdings and the
Company) and agents, and any successors thereto, harmless from Damages incurred
or suffered as a result of or arising out of the failure of any representation
or warranty made by such Seller in Article IV of this Agreement to be true and
correct as of the Closing Date; provided, however, that aggregate liability of
the Sellers under this Section 10.2(b) shall not exceed the Aggregate Closing
Payment (net of the
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amount of Outstanding Indebtedness paid to the Bank pursuant to Section 2.2(b)
and amounts recovered under Sections 10.2(a) and 9.8 of such Seller) and the
liability of each of the Sellers under this Section 10.2(b) shall not exceed, as
to each Seller, the product of the Aggregate Closing Payment and the Percentage
Interest (net of the amount of Outstanding Indebtedness paid to the Bank
pursuant to Section 2.2(b) and amounts recovered under Sections 10.2(a) and 9.8
of such Seller).
(c) Personal Liability of the Sellers. Except as set forth in Section
10.2(b), the aggregate personal liability (the "Personal Liability Amount")
of each of the Sellers with respect to the subject matter of this Agreement
and the transactions contemplated hereby is, and shall be, limited to an
aggregate amount equal to the product of the Sellers' Liability Amount and
the Percentage Interest of such Seller. No Seller shall have any personal
liability in excess of the applicable Personal Liability Amount for the
performance or observance of the covenants, agreements, representations and
warranties of Sellers, the Sellers' Representative, Arcon Holdings or the
Company contained in this Agreement (including, without limitation, Article
IX hereof and, except as set forth in Section 10.2(b), this Article X or in
any document executed in connection herewith and the Purchaser, on behalf of
itself and its affiliates (including, without limitation,
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each of the Companies), covenants and, absent fraud, agrees not to seek any
Damages or personal money judgment against any or all Sellers, in excess of the
Sellers' Liability Amount with respect to all of the Sellers (except as set
forth in Section 10.2(b)) or the applicable Personal Liability Amount with
respect to any Seller (except as set forth in Section 10.2(b)), for any Damage
sustained by the Purchaser, for any default or breach under this Agreement or
any other document executed in connection herewith or otherwise. To the extent
any term or provision of this Agreement provides for the joint and several
liability of the Sellers, such joint and several liability shall be limited in
the aggregate, in all respects with respect to all of the Sellers, to the
Sellers' Liability Amount (except as set forth in Section 10.2(b)), and in all
respects with respect to any of the Sellers, to the applicable Personal
Liability Amount (except as set forth in Section 10.2(b)).
(d) After the Closing, the Purchaser hereby agrees to indemnify and hold
the Sellers harmless from Damages incurred or suffered as a result of or arising
out of (i) the failure of any representation or warranty made by the Purchaser
in this Agreement to be true and correct as of the Closing Date with the same
effect as though such representation and warranty had been made on and as of the
Closing Date or (ii) the breach of any covenant or agreement made or to be
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performed by the Purchaser or the Companies pursuant to this Agreement after the
Closing; provided, however, that the Purchaser shall not be liable under clause
(i) of this Section unless the aggregate amount of Damages exceeds $400,000 and
then only to the extent of such excess; provided further, however, that the
Purchaser's aggregate liability under this Article X shall not exceed $4,000,000
in the aggregate.
(e) The foregoing indemnification provisions in this Article X and the
indemnification by Sellers provided in Section 9.8 shall be the sole and
exclusive remedy for any breach of the covenants, obligations, representations
or warranties or other agreements set forth in this Agreement or any other
agreement or other document executed in connection herewith; provided, however,
that the provisions of this Section 10.2(e) shall not prevent the Seller or the
Purchaser from seeking the remedies of specific performance or injunctive relief
prior to Closing in connection with a breach of a covenant or agreement of any
party contained herein.
Section 10.3 Indemnification Procedure. (a) Any party seeking
indemnification (the "Indemnified Party") from any other party (the
"Indemnifying Party") with respect to any claim, demand, action, proceeding
or other matter pursuant to this Agreement other than a claim by Purchaser
with respect to Taxes (a "Claim") shall promptly notify the Indemnifying
Party of the existence of the Claim, setting forth in
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reasonable detail the facts and circumstances pertaining thereto, the basis for
the Indemnified Party's right to indemnification, the amount of Damages for
which indemnification is being asserted, if known, and, in the case of third
party claims, such notice shall be accompanied by copies of all relevant
pleadings, demands and other papers, if any, served on the Indemnified Party.
(b) If any third party shall notify any Indemnified Party with respect to
any matter which may give rise to a Claim for indemnification against the
Indemnifying Party under this Agreement, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
materially prejudiced by such failure to give notice. In the event that any
Indemnifying Party notifies the Indemnified Party within 30 days after the
Indemnified Party has given notice of the matter that the Indemnifying Party
would be required to indemnify the Indemnified Party in full against any such
Claim and is assuming the defense thereof:
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(i) the Indemnifying Party will defend the Indemnified Party against
the matter with counsel of its choice reasonably satisfactory to the Indemnified
Party;
(ii) the Indemnified Party may retain separate co-counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the reasonable fees and expenses of the separate co-counsel (a) to the
extent the Indemnified Party concludes reasonably based upon written advice of
counsel that a conflict of interest exists between the Indemnified Party and
Indemnifying Party or (b) the named parties to any such action (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party and such Indemnified Party shall have been advised in writing by counsel
that there may be one or more material legal defenses available to the
Indemnified Party which are not available to the Indemnifying Party, or
available to the Indemnifying Party, but the assertion of which would be
materially adverse to the interest of the Indemnified Party);
(iii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld or delayed
unreasonably);
(iv) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement (other
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than with respect to a judgement or settlement involving exclusively money
damages), without the written consent of the Indemnified Party (not to be
withheld or delayed unreasonably), provided, that, in the case of entry of any
such judgement or settlement (to the extent involving exclusively money
damages), the claimant or plaintiff in the matter shall have provided the
Indemnified Party a written release from all liability with respect thereto; and
(v) subject to Section 10.3(d), within 30 days after the
Determination Date with respect to a third party Claim, the Indemnifying Party
shall pay the Indemnified Party the amount of Damages incurred by the
Indemnified Party. As used herein, the term "Determination Date" shall mean the
date on which the Determination is final, legally binding, and non-appealable.
As used herein, the term "Determination" shall mean (i) the final non-appealable
judgment by a court of competent jurisdiction with respect to any third party
Claim covered by this Article X or (ii) a compromise and settlement agreement
executed and delivered by both Indemnifying Party and Indemnified Party with
respect to any third party Claim covered by this Article X.
(c) If no Indemnifying Party notifies the Indemnified Party within 30 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, then the Indemnified Party may defend
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against, or enter into any settlement with respect to (subject to subsection
(b)(iii) above), the matter in any manner it reasonably may deem appropriate,
without prejudice to any of its rights hereunder.
(d) The Indemnified Party shall be entitled to reimbursement of reasonable
out-of-pocket expenses included in Damages with respect to any Claim (including,
without limitation, the reasonable out-of-pocket cost of defense, preparation
and investigation relating to such Claim) as such expenses are incurred by the
Indemnified Party following receipt by the Indemnifying Party of appropriate
invoices with respect thereto.
(e) In the event that liability hereunder does not involve a third party
claim, the Indemnifying Party shall within 30 days after the date of an
Indemnity Notice respond in writing to the Indemnified Party (the "Indemnity
Response") and set forth with reasonable specificity those items in the
Indemnity Notice to which the Indemnified Party does not agree as well as the
summary basis upon which such disagreement is founded. Within 30 days following
the delivery of the Indemnity Response to the Indemnified Party, representatives
of the Indemnifying Party and Indemnified Party shall meet to attempt to resolve
through good faith negotiations the applicable indemnification claims.
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(f) The amount of any Damages for which indemnification is provided under
this Article X shall be net of the amount of Tax benefits actually realized by
the Indemnified Party in the tax year in which payments in respect of
indemnification are received, and net of any amounts actually recovered by the
Indemnified Party under insurance policies (other than premiums paid and related
costs of collection) with respect to such Damages. The Indemnified Party shall
use all reasonable efforts to recover amounts under its insurance policies, if
any, in respect of Claims for Damages for which indemnification is provided
under this Agreement ("Insurable Amounts"). To the extent Insurable Amounts are
actually recovered by the Purchaser after the Purchaser has recovered from the
Escrow Account or the Sellers amounts in respect of the same Claims for Damages
for which the Purchaser has actually received such Insurable Amounts
("Indemnifiable Amount"), the Purchaser shall promptly pay to the Sellers'
Representative for the benefit of the Sellers out of such Insurable Amounts
actually recovered an amount equal to such Indemnifiable Amount.
(g) Except for Claims that the Purchaser may have pursuant to this Article
X or Article IX and Claims for fraud, the Purchaser, on behalf of itself and its
successors and assigns, hereby waives and releases from and after the Closing
the other parties hereto and their respective
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successors and assigns from any and all claims of any kind or nature (including,
without limitation, claims for contribution, cost recovery or reimbursement)
which the Purchaser may otherwise have under any laws, rules or regulations
(including, without limitation, Environmental Laws) applicable to the Companies,
any of the Sellers or the Company Property.
ARTICLE XI
TERMINATION
Section 11.1 Termination. This Agreement may be terminated in writing at
any time prior to the Closing:
(a) by the mutual written consent of the Purchaser and the Required
Sellers;
(b) by the Purchaser, if there has been a material breach by Arcon
Holdings, the Company or any of the Sellers of any material covenant,
representation or warranty contained in this Agreement which has prevented the
satisfaction of any condition to the obligations of the Purchaser at the Closing
and such breach has not been waived by the Purchaser or, in the case of a
covenant breach, cured by Arcon Holdings, the Company or any of the Sellers
within the earlier of 30 days after written notice thereof from the Purchaser or
the Termination Date;
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(c) by the Required Sellers, if there has been a material breach by the
Purchaser of any material covenant, representation or warranty contained in this
Agreement which has prevented the satisfaction of any condition to the
obligation of the Sellers or the Companies at the Closing and such breach has
not been waived by the Required Sellers or, with respect to a covenant breach,
cured by the Purchaser within the earlier of 30 days after written notice
thereof by the Sellers or the Companies or the Termination Date;
(d) by either the Purchaser or the Required Sellers if (i) the
transactions contemplated hereby have not been consummated by the Termination
Date; provided, however, that neither the Purchaser nor the Sellers shall be
entitled to terminate this Agreement pursuant to this Section 11.1(d) if such
Person's breach of this Agreement has prevented the consummation of the
transactions contemplated hereby.
(e) by either the Purchaser or the Required Sellers if any governmental
authority shall have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable.
Section 11.2 Effect of Termination. In the event that this Agreement
shall be terminated pursuant to Section 11.1, all further obligations of the
parties hereto under this Agree-
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ment or otherwise (other than pursuant to Sections 12.2 and 12.5 and the
Confidentiality Agreement, which shall continue in full force and effect in
accordance with their terms) shall terminate without further liability or
obligation of the Sellers or the Companies, on the one hand and the Purchaser on
the other hand; provided, however, that no party shall be released from
liability hereunder if this Agreement is terminated pursuant to Section 11.1(b),
11.1(c) or 11.1(d) and the transactions abandoned by reason of (i) willful
failure of such party to have performed its obligations hereunder or (ii) any
knowing material misrepresentation made by such party of any matter set forth in
Article III, IV or V, as applicable.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Knowledge. Where any representation or warranty made by the
Companies or either of them contained in this Agreement is expressly qualified
by reference to its knowledge, such knowledge shall be deemed to exist if the
matter is within the actual knowledge of any of the Sellers and/or the executive
officers of Arcon Holdings or the Company.
Section 12.2 Expenses. Subject to Section 9.3 the parties hereto shall pay
their own expenses relating to the transac- tions contemplated by this
Agreement, including, without
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limitation, the fees and expenses of their respective counsel and financial
advisers, it being understood that all third party out-of-pocket expenses of the
Companies incurred prior to the Closing in connection with the transactions
contemplated by this Agreement shall be paid by the Sellers prior to the Closing
Date (it being understood and agreed by the parties, without limiting the
generality of the foregoing in this Section 12.2, that all accounting fees and
expenses of the Companies incurred in connection with the Purchaser's financing
of the transaction contemplated by this Agreement, whether or not the Closing
occurs, shall be borne by the Purchaser).
Section 12.3 Governing Law. THE INTERPRETATION AND CONSTRUC- TION OF THIS
AGREEMENT, AND ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY
WITHIN SUCH STATE.
Section 12.4 Captions. The Article and Section captions used herein are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 12.5 Publicity. Except as otherwise required by law, none of the
parties hereto shall issue, prior to the Closing, any press release or make any
other public statement, in each case relating to, connected with or arising out
of this Agreement or the matters contained herein, without obtaining
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the prior approval of the Companies, on the one hand, and the Purchaser, on the
other hand, to the contents and the manner of presentation and publication
thereof. Except as otherwise required by law, after the Closing the Sellers
shall not issue any press release or make any other public statement, in each
case relating to, connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the Purchaser which
shall not be unreasonably withheld or delayed.
Section 12.6 Notices. Any notice or other communication required or
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage
prepaid, addressed as follows: if to the Purchaser, to Specialty Paperboard,
Inc., Brudies Road, P.O. Box 498, Brattleboro, Vermont 05302 (Facsimile
Number (802) 257-5900) Attention: Chief Financial Officer, with a copy to its
counsel, White & Case, 1155 Avenue of the Americas, New York, New York 10036
(Facsimile Number (212) 354-8113), Attention: Frank L. Schiff, Esq.; and if
to the Sellers, to the Sellers' Representative, initially Northwood Ventures,
485 Underhill Boulevard, Syosset, New York 11791 (Facsimile Number (516)
364-0879), Attention: Peter G. Schiff, with a copy to their counsel, Haythe &
Curley, 237 Park Avenue, New York, New York 10017 (Facsimile Number (212)
682-0200), Attention: Bradley P.
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Cost, Esq. or such other address or number as shall be furnished in writing by
any such party, and such notice or communication shall be deemed to have been
given as of the date so delivered, sent by facsimile or mailed.
Section 12.7 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
Section 12.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 12.9 Entire Agreement. This Agreement (including the Schedules
hereto) and the Confidentiality Agreement, including the other documents
referred to herein and therein which form a part hereof and thereof, contain
the entire understanding of the parties hereto with respect to the subject
matter contained herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matter other than the Confidentiality Agreement which, in accordance
with its terms, shall survive termination hereof but shall terminate and be
of no further force and effect on and after the Closing.
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Section 12.10 Amendments. This Agreement may not be changed orally, but
only by an agreement in writing signed by the Purchaser, the Companies and
each of the Sellers.
Section 12.11 Severability. Should any provision of this Agreement be
held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as
though originally set forth in this Agreement. The parties further agree that
any such court is expressly authorized to modify any such unenforceable
provision of this Agreement in lieu of severing such unenforceable provision
from this Agreement in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree
that this Agreement as so modified by such court shall be binding upon and
enforceable against each of them. In any event, should one or more of the
provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof,
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and if such provision or provisions are not modified as provided above, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
Section 12.12 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any Person other than the parties hereto.
Section 12.13 Jurisdiction. Any judicial proceeding brought against any
of the parties to this Agreement or any dispute arising out of this Agreement
or any matter related hereto shall be brought in the courts of the State of
New York, or in the United States District Court for the Southern District of
New York, and, by execution and delivery of this Agreement, each of the
parties to this Agreement accepts the exclusive jurisdiction of such courts,
and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. The foregoing consent to jurisdiction shall
not be deemed to confer rights on any Person other than the respective
parties to this Agreement.
Section 12.14 Action by Sellers. Except as expressly set forth herein,
whenever this Agreement requires or permits action to be taken by the
Sellers, such action shall be sufficient if taken by the Required Sellers.
Each of the Sellers hereby consents and agrees to all actions or inac-
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tions taken or omitted to be taken by the Required Sellers and agrees to
indemnify and hold harmless the Required Sellers from and against all costs and
expenses (including, without limitation, reasonable attorneys fees and expenses
incurred by the Required Sellers in any claim, action or proceeding between the
Required Sellers and the Sellers (or any of them) or between the Required
Sellers and any third party (including, without limitation, the Purchaser or the
Companies) or otherwise) incurred or suffered as a result of or arising out of
such actions or inactions.
Section 12.15 Sellers' Representative. By the execution and delivery of
this Agreement, each Seller hereby irrevocably constitutes and appoints
Northwood Ventures, a New York limited partnership, as the Sellers'
Representative with the exclusive authority and power to take all actions
required or permitted to be taken by the Sellers' Representative under this
Agreement including, without limitation, under Article IX hereof and the
Escrow Agreement. Each of the Sellers hereby consents and agrees to all
actions or inactions taken or omitted to be taken by the Sellers'
Representative under this Agreement and the Escrow Agreement hereby agrees to
indemnify and hold harmless the Sellers' Representative from and against all
costs and expenses (including, without limitation, reasonable attorneys' fees
and accountants' expenses) incurred by the Sellers' Representative in any
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claim, action or proceeding between the Sellers' Representative and the Sellers
(or any of them) or between the Sellers' Representative and any third party
(including, without limitation, the Purchaser or the Companies) or otherwise
incurred or suffered as a result of or arising out of such actions or inactions.
Upon written notice to the Purchaser, the Sellers may change the identity of the
Sellers' Representative by written consent signed by the Required Sellers.
Section 12.16 Assignment. This Agreement shall not be assignable by any of
the parties hereto except pursuant to a writing executed by all of the parties
hereto.
Section 12.17 Construction. The parties hereto agree that this Agreement
is the product of negotiations between sophisticated parties and individuals,
all of whom were represented by counsel, and each of whom had an opportunity
to participate in, and did participate in, the drafting of each provision
hereof. Accordingly, ambiguities in this Agreement, if any, shall not be
construed strictly or in favor of or against any party hereto but rather
shall be given a fair and reasonable construction without regard to the rule
of contra proferentem.
Section 12.18 Schedules. All Schedules, Exhibit A and Annex I and Annex
II to this Agreement are integral parts of this Agreement. Without limiting the
generality of the foregoing,
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the fact that any disclosure on any of the Schedules is not required to be
disclosed in order to render the applicable representation or warranty to which
it relates true, or that the absence of such disclosure on the Schedule would
not constitute a breach of such representation or warranty, shall not be deemed
or construed to expand the scope of any representation or warranty hereunder or
to establish a standard of disclosure in respect of any representation or
warranty.
-101-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf by its respective officer thereunto duly
authorized, all as of the day and year first above written.
SPECIALTY PAPERBOARD, ARCON HOLDINGS CORP.
INC.
By: /s/ Alex Kwader By /s/ Peter G. Schiff
--------------------- -----------------------------
Name: Alex Kwader Name: Peter G. Schiff
Title: President Title: Chairman
ARCON COATING MILLS, INC.
By /s/ David R. Kruft
-----------------------------
Name: David R. Kruft
Title: President - CEO
NORTHWOOD VENTURES
By /s/ Peter G. Schiff
-----------------------------
Name: Peter G. Schiff
Title: General Partner
NORTHWOOD CAPITAL PARTNERS LLC
By /s/ Peter G. Schiff
-----------------------------
Name: Peter G. Schiff
Title: Chairman and CEO
<PAGE>
KUHN, LOEB & CO.
By /s/ David T. Schiff
-----------------------------
Name: David T. Schiff
Title: Managing Partner
/s/ Rodney B. Berens
-------------------------------
Rodney B. Berens
/s/ Richard C. Webel
-------------------------------
Richard C. Webel
/s/ William Dunn
-------------------------------
William Dunn
/s/ Alexander J. Smith
-------------------------------
Alexander J. Smith
/s/ Henry T. Wilson
-------------------------------
Henry T. Wilson
/s/ David R. Kruft
-------------------------------
David R. Kruft
/s/ Thomas S. Ablum
-------------------------------
Thomas S. Ablum
/s/ David M. Knott
-------------------------------
David M. Knott
-103-
<PAGE>
ANNEX I
A B C
Sellers'
Shares of Stock/ Escrow
Name Options Owned Payment
- ---------------------------------- ---------------- --------
Preferred Stock Holders
Series A Holders
Northwood Ventures 21,239.2 --
Northwood Capital Partners LLC 10,610.1 --
Henry T. Wilson 95.5 --
Series B Holders
Kuhn, Loeb & Co. 2,387.5 --
Rodney B. Berens 955.0 --
Richard C. Webel 955.0 --
Alexander J. Smith 382.0 --
David R. Kruft 238.8 --
Thomas S. Ablum 382.0 --
David M. Knott 955.0 --
Common Stock Sellers
Northwood Ventures 22,893.3 1,030,630
Northwood Capital Partners LLC 11,436.4 514,906
Kuhn, Loeb & Co. 2,573.4 115,856
Rodney B. Berens 1,029.4 46,342
Richard C. Webel 1,029.4 46,342
Alexander J. Smith 411.8 18,536
Henry T. Wilson 102.9 4,644
David R. Kruft 257.3 124,102
Thomas S. Ablum 411.8 18,536
David M. Knott 1,029.4 46,342
William Dunn -- 33,764
Optionholders
David R. Kruft 55,556 N/A
William Dunn 16,667 N/A
<PAGE>
ANNEX II
Percentage
Interest
----------
Northwood Ventures 51.5333
Northwood Capital Partners LLC 25.7455
Kuhn, Loeb & Co. 5.7928
Rodney B. Berens 2.3171
Richard C. Webel 2.3171
Alexander J. Smith .9268
Henry T. Wilson .2322
David R. Kruft 6.2051
Thomas S. Ablum .9268
David M. Knott 2.3171
William Dunn 1.6882
Total 100%
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Escrow Agreement") made this 31st day of
October, 1996 by and among SPECIALTY PAPERBOARD, INC., a Delaware corporation
(the "Purchaser"), each of the Persons listed on Exhibit A hereto (each a
"Seller" and, collectively, the "Sellers"), former owners of all of the
outstanding Stock, Options and Warrants of ARCON HOLDINGS CORP., a Delaware
corporation ("Arcon Holdings"), and The Bank of New York, a New York banking
corporation (the "Escrow Agent").
WHEREAS, the Sellers and the Purchaser have entered into a Stock
Purchase Agreement dated as of August 28, 1996 (the "Agreement");
WHEREAS, the Agreement provides that the Purchasers shall put into
escrow with the Escrow Agent the amount of Two Million Dollars ($2,000,000) (the
"Escrow Amount"), to be used to satisfy claims arising out of and under Article
IX and/or Article X of the Agreement during the period from the date hereof
until a date which is eighteen months after the date hereof; and
WHEREAS, the parties to this Escrow Agreement have agreed upon and
wish to set forth the terms and conditions with respect to the Escrow Amount
held by the Escrow Agent.
NOW THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged the parties agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the respective meanings set forth in the Agreement. The following terms
shall have the following meanings when used herein:
"Agreed Amount" shall have the meaning specified in Section 7(a)
hereof.
"Arcon Holdings" shall have the meaning specified in the
introductory paragraph hereof.
<PAGE>
"Claim Notice" shall have the meaning specified in Section 7(a)
hereof.
"Escrow Account" shall have the meaning specified in Section 3.
"Escrow Agent" shall have the meaning specified in the introductory
paragraph hereof.
"Escrow Agreement" shall have the meaning specified in the
introductory paragraph hereof.
"Escrow Amount" shall have the meaning specified in the third
WHEREAS clause of this Escrow Agreement.
"Escrow Deposit" shall have the meaning specified in Section 4(b)
hereof.
"Expiration Date" shall have the meaning
specified in Section 4(a) hereof.
"Final Judgment" shall have the meaning specified in Section 8
hereof.
"Judgment Amount" shall have the meaning specified in Section 7(b)
hereof.
"Purchaser" shall have the meaning specified in the introductory
paragraph hereof.
"Required Sellers" shall mean such Sellers who hold in the aggregate
more than 50% of the then issued and outstanding Common Stock held by all
Sellers as of the Closing Date (calculated (i) as if all issued and outstanding
shares of Preferred Stock were converted into shares of Common Stock and (ii) as
if all Options have been fully exercised into shares of Common Stock).
"Seller" or "Sellers" shall have the meaning specified in the
introductory paragraph hereof.
"Sellers' Representative" shall mean the representative of the
Sellers appointed pursuant to Section 19 of this Escrow Agreement.
2. Escrow Agent. The Sellers and Purchaser hereby designate and
appoint the Escrow Agent to serve in accordance with the terms, conditions and
provisions of this Escrow Agreement, and the Escrow Agent hereby agrees
-2-
<PAGE>
to act as such, upon the terms, conditions and provisions provided in this
Escrow Agreement.
3. Deposit of Escrow Amount. Concurrently with the execution of this
Escrow Agreement, the Purchaser has deposited for the account of the Sellers
with the Escrow Agent the Escrow Amount, to be held in a separate account (the
"Escrow Account") subject to the terms and provisions herein contained.
Subject to the removal of the Escrow Agent or the right of the
Escrow Agent to resign as hereinafter provided, the Escrow Agent shall hold the
funds placed in escrow pursuant to this Escrow Agreement to satisfy certain
contingent indemnity obligations of the Sellers to the Purchaser and funds
representing the payment thereof shall not be disbursed except as herein
provided.
4. Termination of Escrow Agreement; Release of Escrow Amount. (a)
This Escrow Agreement shall terminate and the Purchaser and the Sellers'
Representative shall give joint written notice to the Escrow Agent of such
termination, on the later of (i) April 30, 1998 (the "Expiration Date"), or (ii)
if on such Expiration Date, a written claim shall have been previously delivered
to the Sellers' Representative and the Escrow Agent and not theretofore
determined pursuant to a written agreement between Purchaser and the Sellers'
Representative or pursuant to a Final Judgment, the date when such claim shall
have been finally determined as provided herein and payment thereof, if any,
shall have been made to the Purchaser or the Sellers, as the case may be.
(b) The Escrow Agent shall release the Escrow Amount and all
interest, earnings and proceeds therefrom (collectively, the "Escrow Deposit")
to the Sellers upon termination pursuant to Section 4(a); provided, however,
(i) that if on the Expiration Date, a written claim shall have been
delivered to the Sellers' Representative and the Escrow Agent in an
amount less than the remaining Escrow Amount, the Escrow Agent shall
release to the Sellers all interest, earnings and proceeds from the
Escrow Amount plus the difference between the remaining Escrow
Amount and the asserted claim; and
(ii) that if on the Expiration Date, a written claim shall have been
delivered to the Sellers' Representative and the Escrow Agent in an
amount
-3-
<PAGE>
greater than the remaining Escrow Amount, the Escrow Agent shall
release to the Sellers an amount determined in accordance with
Section 4(a)(ii) hereof (except that the Escrow Agent shall release
to the Sellers all interest, earnings and proceeds from the Escrow
Amount on the Expiration Date).
5. Investment of Escrow Amount. The Escrow Agent shall invest and
reinvest the funds in the Escrow Account as directed from time to time in
writing by the Sellers' Representative in any one or more of the following
investments: in United States treasury bills or United States treasury notes, in
any other direct obligation issued by or guaranteed in full as to principal and
interest by the United States of America, or in certificates of deposit issued
by a commercial bank having capital, surplus and undivided profits of not less
than One Hundred Million Dollars ($100,000,000) (including the Escrow Agent) or
in such other interest-bearing security or account as shall be approved in
writing by the Purchaser and the Sellers; provided, however, that any such
obligations shall have maturities of no more than 90 days. The Escrow Agent
shall not be liable or responsible in any manner for any loss or depreciation
resulting from any such investment, or for any costs in connection therewith
other than due to its gross negligence, bad faith or willful misconduct, and all
of said losses and costs shall be borne by the Escrow Account. The Escrow Agent
shall hold all securities in the Escrow Account in the name of one or more of
its nominees. The Escrow Agent shall have the power to sell or liquidate the
investments described in this Section 5 whenever the Escrow Agent shall be
directed in writing to release all or any portion of the Escrow Deposit
hereunder.
6. Investment Income. All income, interest, earnings and gains of
all kinds from amounts held in the Escrow Account shall be a part of the Escrow
Account. All interest, earnings and proceeds accrued or paid upon amounts held
in the Escrow Account shall be disbursed quarterly to the Sellers on the last
day of March, June, September and December of each year. The Escrow Agent shall
prepare for and deliver to each Seller Forms 1099 for the applicable periods
occurring during the term of this Escrow Agreement.
7. Claims by Purchaser under Agreement. If at any time or from time
to time while this Escrow Agreement continues in effect:
-4-
<PAGE>
(a) the Purchaser has notified the Sellers' Representative and the
Escrow Agent in writing (a "Claim Notice") that the Purchaser is entitled
to indemnification under Article IX and/or Article X of the Agreement, in
a specified amount on or prior to the Expiration Date, and the Sellers
agree in writing that the Purchaser is entitled to such indemnification in
such amount (the "Agreed Amount"); or
(b) with respect to a claim made on or prior to the Expiration Date,
the Purchaser delivers to the Sellers a copy of a Final Judgment entered
by a court of competent jurisdiction in favor of the Purchaser assessing
Damages in favor of the Purchaser, as certified by an officer of the
Purchaser in a written certificate delivered to the Sellers (the aggregate
of the amount of such Damages approved pursuant to such Final Judgment are
hereinafter referred to as the "Judgment Amount");
and copies of appropriate documentation verifying the Agreed Amount or the
Judgment Amount, as the case may be, shall have been delivered (in the case of
subsection (a) above, pursuant to the joint written instructions of the
Purchaser and the Sellers' Representative) to the Escrow Agent and the Sellers'
Representative, the Escrow Agent shall deliver to the Purchaser the Agreed
Amount or the Judgment Amount within five (5) Business Days after receipt of
such appropriate documentation. If a Final Judgment in respect of a claim made
by the Purchaser prior to the Expiration Date for indemnification under Article
IX and/or Article X of the Agreement is entered in favor of the Sellers, the
Escrow Agent shall deliver the amount of money approved pursuant to such Final
Judgement upon receipt by the Escrow Agent of copies of appropriate
documentation verifying such amount within five (5) Business Days after receipt
of such appropriate documentation. The Purchaser shall deliver each Claim Notice
to the Escrow Agent and the Sellers' Representative. Upon receipt by the Escrow
Agent of each Claim Notice, the Escrow Agent shall send a copy thereof to the
Sellers' Representative within three (3) Business Days of such receipt.
8. Responsibilities of the Escrow Agent. The Escrow Agent shall have
no duties or responsibilities except those expressly set forth herein. The
Escrow Agent shall have no responsibility for the validity of any agreements
referred to in this Escrow Agreement, or for the performance of any such
agreements by any party thereto or for interpretation of any of the provisions
of any of such
-5-
<PAGE>
agreements. The liability of the Escrow Agent hereunder shall be limited solely
to bad faith, willful misconduct or gross negligence on its part. The Escrow
Agent shall be protected in acting upon any certificate, notice or other
instrument whatsoever received by the Escrow Agent under this Escrow Agreement,
not only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information therein
contained, which the Escrow Agent in good faith believes to be genuine and to
have been signed or presented by a proper person or persons or their counsel.
If a controversy arises between two or more of the parties hereto,
or between any of the parties hereto and any person not a party hereto, as to
whether or not or to whom the Escrow Agent shall deliver the Escrow Deposit or
any portion thereof or as to any other matter arising out of or relating to this
Escrow Agreement, the Escrow Agent shall not be required to determine same and
need not make any delivery of the Escrow Deposit held in escrow or any portion
thereof but may retain the same until the rights of the parties to the dispute
shall have finally been determined by written agreement of the Purchaser and the
Sellers' Representative or by final judgment of a court of competent
jurisdiction after all appeals have been finally determined or the time for
further appeals has expired without an appeal having been made (for purposes of
this Agreement, a "Final Judgment"). The Escrow Agent shall be entitled to
assume that no such controversy has arisen unless it has received a written
notice that such a controversy has arisen which refers specifically to this
Escrow Agreement and identifies the adverse claimants to the controversy.
Except as provided herein the Escrow Agent shall have no
responsibility as to the validity, collectibility or value of any cash and
securities held by it in escrow pursuant to this Escrow Agreement, and the
Escrow Agent may rely on any notice, instruction, certificate, statement,
request, consent, confirmation, agreement or other instrument which it believes
to be genuine and to have been signed or presented by a proper person or
persons. In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions from any of the undersigned
with respect to any portion of the Escrow Deposit held by it in escrow pursuant
to this Escrow Agreement which, in the opinion of the Escrow Agent, are in
conflict with any of the provisions of this Escrow Agreement, the Escrow Agent
shall be entitled to refrain from taking any action until it shall be directed
otherwise
-6-
<PAGE>
in writing by all of the other parties hereto or by an order of a court of
competent jurisdiction. The Escrow Agent shall be deemed to have no notice of,
or duties with respect to, any agreement or agreements with respect to the
Escrow Deposit (or any portion thereof) held by it in escrow pursuant to this
Escrow Agreement other than this Escrow Agreement or except as otherwise
provided herein. This Escrow Agreement and the Agreement (to the extent referred
to herein) sets forth the entire agreement between the parties hereto and the
Escrow Agent as escrow agent with respect to the Escrow Account and the
distribution of the Escrow Deposit (or any portion thereof) held therein.
Notwithstanding any provision to the contrary contained in any other agreement
(excluding any amendment to this Escrow Agreement) between any of the parties
hereto, the Escrow Agent shall have no interest in the Escrow Deposit (or any
portion thereof) held by it in escrow pursuant to this Escrow Agreement. With
respect to the Escrow Account, in the event that any of the terms and provisions
of any other agreement (excluding any amendment to this Escrow Agreement)
between any of the parties hereto conflict or are inconsistent with any of the
terms and provisions of this Escrow Agreement, the terms and provisions of this
Escrow Agreement shall govern and control in all respects.
9. Amendment and Cancellation. The Escrow Agent shall not be bound
by any cancellation, waiver, modification or amendment of this Escrow Agreement,
including the transfer of any interest hereunder, unless such modification is in
writing and signed by each of the Purchaser and the Sellers' Representative and,
if the duties of the Escrow Agent hereunder are affected, unless the Escrow
Agent also shall have given its written consent thereto.
10. Legal Counsel. The Escrow Agent may consult with, and obtain
advice from, legal counsel in the event of any question as to any of the
provisions hereof or its duties hereunder, and it shall incur no liability and
shall be fully protected in acting in good faith in accordance with the opinion
and instructions of such counsel.
11. Resignation and Removal. The Escrow Agent shall have the right,
in its discretion, to resign as escrow agent hereunder at any time, by giving at
least thirty (30) days' prior written notice of such resignation to the Sellers'
Representative and the Purchaser. The Escrow Agent may be removed at any time by
an instrument or concurrent instruments in writing delivered to the Escrow Agent
and signed by each of the Sellers' Representative and Purchaser. Such
resignation or removal, as the case may
-7-
<PAGE>
be, shall take effect upon the appointment of a successor escrow agent in
accordance with the provisions of this Section 11 and the acceptance of such
appointment by the successor escrow agent. Upon such resignation or removal, as
the case may be, each of the Sellers and the Purchaser shall use their best
efforts to appoint another bank with capital, surplus and undivided profits of
not less than One Hundred Million Dollars ($100,000,000) as successor Escrow
Agent. Upon acceptance of such appointment, each of the Sellers and the
Purchaser will enter into an agreement with such successor escrow agent in
substantially the form of this Escrow Agreement. Resignation by or removal of,
as the case may be, the Escrow Agent shall relieve the Escrow Agent of any
responsibility or duty thereafter arising hereunder, but shall not relieve the
Escrow Agent of responsibility to deliver the Escrow Deposit as provided for in
this Section 11. Immediately upon the effectiveness of such resignation or
removal, as the case may be, the Escrow Agent shall deliver to the successor
escrow agent the Escrow Deposit then held in the Escrow Account. In the event of
the resignation of the Escrow Agent, if a substitute for the Escrow Agent
hereunder shall not have been selected as aforesaid within the 30-Business Day
notice period referred to in the first sentence of this Section 11, the Escrow
Agent shall be entitled to petition any court of competent jurisdiction for the
appointment of a substitute for it hereunder or, in the alternative, it may
transfer and deliver the Escrow Deposit then held in the Escrow Account to or
upon the order of such court. The Escrow Agent shall be discharged from all
further duties hereunder upon the effectiveness of such resignation or removal
as set forth above and upon transfer and delivery of the Escrow Deposit in the
Escrow Account to or upon the order of any such court, as the case may be.
12. Fees. The Sellers (severally, and not jointly, in accordance
with such seller's percentage interest as set forth in Exhibit A hereto), on the
one hand, and the Purchaser, on the other hand, agree to share equally the
Escrow Agent's annual fee (such fees to be based upon the anniversary date of
this Escrow Agreement) and all other fees and expenses of the Escrow Agent
pursuant to the fee schedule attached hereto as Exhibit B. Each of the Sellers
hereby agrees that the Sellers' Representative may pay such Seller's percentage
interest of such fees from the Sellers Amount, as provided for in Section 2.2(c)
of the Agreement. This Section 12 shall survive the termination of this
Agreement.
-8-
<PAGE>
13. Payments. At any time the Escrow Agent is required to distribute
or pay over any amounts held by or received by it under any of the provisions of
this Escrow Agreement to the Sellers, such distribution and payment shall be
effected by issuance of the Escrow Agent's check in the appropriate amount
payable to such Seller and by mailing of such check to such Seller at the
address of such Seller set forth in Exhibit A hereto, provided that:
A. Any Seller may, by written notice delivered to the Escrow Agent, direct
that payment of amounts required to be distributed to such Seller be effected by
wire transfer in immediately available funds to an account established by such
Seller for such purpose, or by mailing the Escrow Agent's check for such amounts
to any other or changed address specified in such notice, and payments
thereafter (but not theretofore) made by the Escrow Agent to such Seller
hereunder shall thereafter be made in accordance with such notice (until changed
by subsequent notice delivered to the Escrow Agent as herein provided);
B. In the event of any transfer or assignment, by death, divorce or
otherwise by operation of law, or by sale, assignment, contract, security
agreement or otherwise, of any right to receive payment of any part of any
amounts held by the Escrow Agent (notice of which sale, transfer or assignment
shall be given by such Seller to the Escrow Agent) the Escrow Agent shall
nevertheless be entitled to withhold payment of any amounts to such assignee,
transferee or successor in interest until written instructions from such
assignee, transferee or successor in interest are delivered to the Escrow Agent
specifying the mailing address or account of such assignee, transferee or
successor in interest pursuant to the foregoing provisions of this Section; and
C. All payments and distributions of all kinds required to be made to the
Sellers in accordance with the terms hereof shall be made according to each such
Seller's Percentage Interest as set forth in Exhibit A hereto.
14. Notices. All communications and disbursements required
pursuant to this Escrow Agreement shall be addressed to the Escrow Agent, the
Purchaser and the Sellers, respectively, as follows:
-9-
<PAGE>
If to the Escrow Agent:
The Bank of New York
Insurance Trust and Escrow Department
101 Barclay Street, 12-E
New York, New York 10286
If to the Purchaser:
Specialty Paperboard, Inc.
161 Brudies Road
Brattleboro, Vermont 05302
Attention: Glenn S. McKenzie
If to the Sellers:
To the respective addresses of the Sellers
shown in Exhibit A to this Escrow Agreement.
with a copy to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017-3142
Attention: Joseph J. Romagnoli, Esq.
If to the Sellers' Representative:
Northwood Ventures
485 Underhill Boulevard
Suite 205
Syosset, New York 11791-3419
with a copy to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017-3142
Attention: Joseph J. Romagnoli, Esq.
Any notice or instructions under any of the provisions of this Escrow Agreement
shall be deemed effectively given only if such notice is in writing and is
received by the recipient thereof if notice is personally delivered or sent by
courier or three (3) Business Days after date of mailing, if sent by certified
mail, return receipt requested. Any delivery under this Escrow Agreement shall
be made by
-10-
<PAGE>
hand delivery, or by courier with receipt acknowledged, or by certified mail,
return receipt requested, addressed to the respective addresses of the parties
hereto as set forth in this Section 14 or at such other address as any of the
parties hereto may hereafter specify to the others in writing. Notwithstanding
any of the foregoing, no notice or instructions to the Escrow Agent shall be
deemed to have been received by the Escrow Agent prior to actual receipt by the
Escrow Agent, and any computation of a time period which is to begin after
receipt of a notice by the Escrow Agent shall run from the date of such receipt
by the Escrow Agent.
15. Parties in Interest. This Escrow Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
16. Headings. The Section headings used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Escrow Agreement.
17. Execution by Escrow Agent. The execution of this Escrow
Agreement by the Escrow Agent shall constitute a receipt for the Escrow Amount
and shall evidence its acceptance and agreement to the terms hereof.
18. Indemnification of Escrow Agent. Sellers, on the one hand, and
the Purchaser, on the other hand, hereby jointly and severally agree to
indemnify the Escrow Agent and its officers, directors, employees,
representatives and agents form and hold each of them harmless against any and
all liabilities, obligations (including removal or remedial actions), losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements incurred by any of them as a result of, or arising out of, or in
any way related to, or by reason of any investigation, litigation or other
proceeding (whether or not the Escrow Agent is a party thereto) related to the
entering into and/or performance of this Agreement, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the bad faith, gross negligence or willful misconduct of the Escrow
Agent). The foregoing indemnities in this Section shall survive termination of
this Escrow Agreement.
-11-
<PAGE>
19. Sellers' Representative. The initial Sellers' Representative
shall be Northwood Ventures, a New York limited partnership. Upon written notice
to the Purchaser and the Escrow Agent, the Sellers may change the identity of
the Sellers' Representative by written consent signed by the Required Sellers.
20. Governing Law. This Escrow Agreement shall be construed and
interpreted in accordance with the law of the State of New York. Any judicial
proceeding brought against any of the parties to this Escrow Agreement or any
dispute arising out of this Escrow Agreement or any matter related hereto shall
be brought in the courts of the State of New York, or in the United States
District Court for the Southern District of New York, and, by execution and
delivery of this Escrow Agreement, each of the parties to this Escrow Agreement
accepts the exclusive jurisdiction of such courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Escrow Agreement.
The foregoing consent to jurisdiction shall not be deemed to confer rights on
any Person other than the respective parties to this Escrow Agreement.
21. Counterparts. This Escrow Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereunto have duly caused this
Escrow Agreement to be executed as of the day first above written.
SPECIALTY PAPERBOARD, THE BANK OF NEW YORK
INC.
By______________________ By___________________________
Name: Bruce P. Moore Name:
Title: Vice President Title:
and Chief Financial
Officer
ARCON HOLDINGS CORP.
By___________________________
Name:
Title:
ARCON COATING MILLS, INC.
By___________________________
Name:
Title:
NORTHWOOD VENTURES
By__________________________
Name:
Title:
NORTHWOOD CAPITAL
PARTNERS LLC
By__________________________
Name:
Title:
-13-
<PAGE>
KUHN, LOEB & CO.
By__________________________
Name:
Title:
____________________________
Rodney B. Berens
____________________________
Richard C. Webel
____________________________
William Dunn
____________________________
Alexander J. Smith
____________________________
Henry T. Wilson
____________________________
David R. Kruft
____________________________
Thomas S. Ablum
____________________________
David M. Knott
-14-
<PAGE>
EXHIBIT A
ADDRESS PERCENTAGE INTEREST
------- -------------------
Northwood Ventures 51.5333
Suite 205
485 Underhill Blvd.
Syosset, New York 11791-3419
Attention: Peter G. Schiff
General Partner
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
Northwood Capital Partners LLP 25.7455
Suite 205
485 Underhill Blvd.
Syosset, New York 11791-3419
Attention: Peter G. Schiff
General Partner
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
Kuhn, Loeb & Co. 5.7928
20th Floor
485 Madison Avenue
New York, New York 10022
Attention: David T. Schiff
Telephone: (516) 935-4995
Facsimile: (516) 826-1093
Rodney B. Berens 2.3171
Salomon Brothers Inc.
40th Floor
7 World Trade Center
New York, New York 10048
Telephone: (212) 783-4218
Facsimile: (212) 783-2254
<PAGE>
EXHIBIT A
Page 2
Richard C. Webel 2.3171
Innocenti & Webel
85 Forest Avenue
P.O. Box 506
Locust Valley, New York 11560
Telephone: (516) 674-4200
Facsimile: (516) 674-4241
William Dunn 1.6882
Arcon Coating Mills, Inc.
3067 New Street
Oceanside, New York 11572
Telephone: (516) 766-8800
Facsimile: (516) 766-1775
Alexander J. Smith .9268
John Hassall Inc.
Contiague Rock Road
P.O. Box 698
Westbury, New York 11590
Telephone: (516) 249-9191
Facsimile: (516) 249-4161
Henry T. Wilson .2322
Suite 205
485 Underhill Blvd.
Syosset, New York 11791
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
David R. Kruft 6.2051
Arcon Coating Mills, Inc.
3067 New Street
Oceanside, New York 11572
Telephone: (516) 766-8800
Facsimile: (516) 766-1775
<PAGE>
EXHIBIT A
Page 1
Thomas S. Ablum .9268
Alblum, Brown & Co.
Suite 205
175 North Franklin
Chicago, Illinois 60606
Telephone: (312) 372-8529
Facsimile: (312) 372-6288
David M. Knott 2.3171
Suite 205
485 Underhill Blvd.
Syosset, New York 11791
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
<PAGE>
EXHIBIT B
ESCROW AGENT FEE SCHEDULE
Acceptance Fee........................................................$1,500.00
Review Escrow Agreement and supporting documents
Establish Account
Annual Administration Fee.............................................$5,000.00
(pro rated for partial years subject to a minimum of
$2,500.00)
Investment Transaction Fee, (if applicable)..............................$25.00
Wire Transfers and Checks, each (if applicable)..........................$15.00
Preparation of Forms 1099......................................$250.00 per year
<PAGE>
Schedule 3.2
Capital Stock
1.* Warrant Certificate dated as of April 14, 1994 issued to the Bank (the
"Warrant Certificate").
2. Take-Along Rights Agreement dated as of April 14, 1994 by and between
Arcane Holdings and the Bank (the "Take-Along Rights Agreement").
3. Certificate of Incorporation of Arcon Holdings, as amended (the "Holdings
Charter").
4. Stock Purchase Agreement dated as of April 14, 1994 by and among Arcon
Holdings, the Company, Arcon Acquisition Corp. and FSE Holdings, Inc. (the
"FSE Purchase Agreement").
5. Stock Purchase Agreement dated as of April 14, 1994 among Arcon Holdings
and certain of the Sellers (the "Stock Purchase Agreement").
6.** Shareholder Agreement by and among Arcon Holdings and certain of the
Sellers dated April 14, 1994 (the "Shareholder Agreement").
7.** Registration Rights Agreement dated April 14, 1994.
8. Stock Option Plan of Arcon Holdings Corp.
9.* Option Certificate dated April 14, 1994 issued to David R. Kruft relating
to the Common Stock.
1O.* Option Certificate dated April 14, 1994 issued to William Dunn relating to
the Common Stock.
11. Prior to the Closing, Arcon Holdings intends to purchase from the Bank the
Warrants.
- ----------
* To be cancelled and delivered at Closing in exchange for applicable payment
of Purchase Price pursuant to Section 2.2 of this Agreement.
** To be terminated at or prior to Closing.
<PAGE>
Schedule 3.5(b)
Financial Statements; No Material Change
1. The Consolidated unaudited balance sheet of the Companies as of June 30,
1996 fairly present in all material respects the consolidated financial
position of the Companies at its date thereof except as indicated below:
(a) the stock options issued under stock option agreements to William Dunn
& David Kruft should be revalued, which will increase compensation
expense and liability for deferred compensation;
(b) the Warrants should be revalued based upon the fair market value of
the Company, which will increase expenses and liabilities for the
Warrants; and
(c) the retained earnings should be reallocated to the carrying value of
preferred stock.
<PAGE>
Schedule 3.7
Title to Properties; Encumbrances
1. Encumbrances referred to in Title Insurance Policy No. 36-907-02-64854CK
dated April 18, 1994 with the Bank as named insured, a copy of which is
attached hereto and made a part hereof. [Not attached. Will file upon
request of the Commission.]
2. Easements, rights of way, restrictions and other Encumbrances of record
affecting the leased property located at 3067 New Street, Oceanside, New
York 11572.
3. Certain properties and assets of each of the Company and Arcon Holdings are
subject to Encumbrances pursuant to that certain Credit Agreement dated as
of April 14, 1994 by and between the Company, the Bank, and the other
parties thereto and the additional security and other credit documentation
(including, but not limited to security agreements, mortgages, guarantees,
promissory notes, pledges and financing statements) executed in connection
therewith (collectively, the "Bank Documents").
4. Jurisdiction: Ohio Secretary of State
File No. AM16675
File Date: September 22, 1995
Secured Party: Scot Leasing Company
Collateral: Leased telephone system.
5. Jurisdiction: Clark County, Ohio
File No.: 95003719
File Date: September 22, 1995
Secured Party: Scot Leasing Company
Collateral: Leased telephone system.
<PAGE>
Schedule 3.8
Real Property
-------------
1. The real property and improvements thereon located at 1713 Sheridan Avenue,
Springfield, Ohio 45505.
2. Leasehold interest in the real property and improvements thereon located at
3067 New Street, Oceanside, New York 11572.
<PAGE>
Schedule 3.9
Intellectual Property
---------------------
1. Trademark Registration No. 1,829,385 relating to SUPER ARCOFLEX -Registered
Trademark- for ungummed paper tape for binding pads, binders and books in
Class 16. Registered April 5, 1994.
2. Trademark Registration No. 1,848,580 relating to ARCOFLEX for ungummed
paper tape for binding pads, binders and books in Class 16. Registered
August 9, 1994.
<PAGE>
Schedule 3.10
Leases
-------------
1. Amended and Restated Agreement of Lease between the Company, as lessee, and
Arnold Barsky d/b/a/ A&C Realty, as lessor, dated June 1, 1988 relating to
premises located at 3067 New Street, Oceanside, New York 11572.
<PAGE>
Schedule 3.11
Material Contracts
1. The Warrant Certificate.
2.* The Take-Along Rights Agreement.
3. The FSE Purchase Agreement.
4. The Stock Purchase Agreement.
5.* The Shareholder Agreement.
6. Arcon Coating Mills, Inc. Profit Sharing Plan & Trust Agreement dated
November 1, 1993, as amended.
7. Supply Agreement effective as of August 1, 1995 by and between the Company
and CPM, Inc.
8. Supply Agreement dated as of January 1, 1996 by and between the Company and
CPM, Inc.
9. Supply Agreement dated as of October 14, 1992 by and between the Company
and Kimberly-Clark Corporation.
10. Arcon Holdings owns all of the issued and outstanding shares of Company
Stock.
11. Lease Agreement dated December 27, 1994 by and among King O'Rourke Cadillac
Sales Inc., the Company and David R. Kruft.
12. Lease Agreement dated March 18, 1996 by and between the Company and Crown
Lift Trucks.
13. Arcon Coating Mills Profit Sharing Plan and Trust Agreement dated November
1, 1993, as amended.
14.* Management and Administrative Services Agreement by and among the Company,
Arcon Holdings, Northwood Ventures and Northwood Management Corp. dated as
of April 14, 1994.
15. The Bank Documents.
- --------------
* To be terminated at or prior to the Closing.
<PAGE>
16. See attached Schedule of open customer orders over $25,000, as of
August 9, 1996.
17. See attached Schedule of open purchase orders over $25,000, as of
August 9, l996.
18. The Internal Revenue Service (the "IRS") is currently conducting an audit
of FSE Holdings, Inc. ("FSE"), the former parent of the Company, regarding
the consolidated federal income tax return filed by FSE for the tax year
relating to the Company's 1990 fiscal year. FSE has advised the Company
that it has waived the applicable statutes of limitations relating to
federal tax returns filed by it for the tax year relating to the Company's
1990 fiscal year and such subsequent tax years as have been requested by
the IRS.
<PAGE>
ARCON COATING MILLS
OPEN ORDER OVER $25,000
August 9, 1996
Customer Amount
-------- ------
ACCO $41,388.98
AMPAD, MA 35,021.39
AMPAD, IL 96,223.29
BUSHNELL 45,233.00
DELUXE CHECK, NJ 29,939.73
DELUXE CHECK, KS 38,447.25
DIVERSIFIED 36,240.00
EXPANDEX 26,127.30
ESSELTE 165,665.62
KRUYSMAN 34,417.00
SMEAD, GA 47,332.20
SMEAD, OH 39,205.45
SMEAD, MN 63,051.40
<PAGE>
ARCON COATING MILLS
OPEN PURCHASE ORDERS OVER $25,000
August 9, 1996
Vendor Amount
------ ------
Du Pont $354,409.67
BROWN-BRIDGE MILLS 111,381.40
KIMBERLY-CLARK 172,339.23
EMTECH 24,765.06
DEL VAL INK 32,424.96
<PAGE>
Schedule 3.12
Consents and Approvals; No Violations
1. Supply Agreement effective as of August 1, 1995 by and between the Company
and CPM, Inc.
2. Supply Agreement dated as of January 1, 1996 by and between the Company and
CPM, Inc.
3. Supply Agreement dated as of October 14, 1992 by and between the Company
and Kimberly-Clark Corporation.
4. The Holdings Charter provides for certain contingent rights for the holders
of Preferred Stock with respect to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
5. The consummation of the transactions contemplated by this Agreement would
be an event of default under certain of the Bank Documents.
6. Pursuant to the Warrant Certificate, the Bank is entitled to 30 days prior
written notice of the transactions contemplated by this Agreement.
7. Pursuant to the Take-Along Rights Agreement, the Bank is entitled to 45
days prior written notice of the transactions contemplated by this
Agreement.
<PAGE>
Schedule 3.13
Litigation
1. The IRS is currently conducting an audit of FSE, the former parent of the
Company, regarding the consolidated federal income tax return filed by FSE
for the tax year relating to the Company's 1990 fiscal year. FSE has
advised the Company that it has waived the applicable statutes of
limitations relating to federal tax returns filed by it for the tax year
relating to the Company's 1990 fiscal year and such subsequent tax years as
have been requested by the IRS.
2. Order on Consent No. Rl-4837-92-0l issued by the New York State Department
of Environmental Conservation, together with letter amendments thereto,
attached to Schedule 3.21.
<PAGE>
Schedule 3.14
Taxes
1. The IRS is currently conducting an audit of FSE, the former parent of the
Company, regarding the consolidated federal income tax return filed by FSE
for the tax year relating to the Company's 1990 fiscal year. FSE has
advised the Company that it has waived the applicable statutes of
limitations relating to federal tax returns filed by it for the tax year
relating to the Company's 1990 fiscal year and such subsequent tax years as
have been requested by the IRS.
2. Prior to April 14, 1994 the Company was included in the consolidated,
unitary or combined Returns of FSE.
3. The FSE Purchase Agreement contains provisions relating to the payment of,
liability for and indemnities in respect of certain Taxes.
<PAGE>
Schedule 3.15
Liabilities
1. The IRS is currently conducting an audit of FSE, the former parent of the
Company, regarding the consolidated federal income tax return filed by FSE
for the tax year relating to the Company's 1990 fiscal year. FSE has
advised the Company that it has waived the applicable statutes of
limitations relating to federal tax returns filed by it for the tax year
relating to the Company's 1990 fiscal year and such subsequent tax years as
have been requested by the IRS.
2. All matters disclosed in Schedule 3.21 are incorporated herein by
reference.
3. Liabilities incurred subsequent to the Balance Sheet Date with respect to
the payment of bonuses disclosed in items 7, 8 and 9 of Schedule 3.19 and
items 2 and 3 of Schedule 3.23.
<PAGE>
Schedule 3.16
Insurance
1. See attached schedule of insurance.
<PAGE>
ARCON COATING MILLS, INC.
INSURANCE SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
EFFECT. LIMITS
BROKER POLICY DATE PREMIUM COVERAGE OCCUR/AGGR DEDUCTIBLE
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OCEANSIDE
- -------------------------------------------------------------------------------------------------------------
SOBEL AFFIL. BUSINESS AUTO 6/1/96 $ 7,443 1,000 K .5K/2K
- -------------------------------------------------------------------------------------------------------------
SOBEL AFFIL EXCESS 6/1/96 5,500 5,000K 1,000K/2,000K
UMBRELLA
- -------------------------------------------------------------------------------------------------------------
SOBEL AFFIL. COMMERCIAL 6/1/96 18,114 4,368K PROP 2,000K
PACKAGE 3,120K B.I. 30K TRANSIT .5K
1,000K EQUAKE 25K
50K .5K
DISHONESTY
- -------------------------------------------------------------------------------------------------------------
SOBEL AFFIL. PROPERTY & 6/1/96 13,841 1,600K PROP 1,000K/2,000K 1K
CASUALTY 288K B.I.
- -------------------------------------------------------------------------------------------------------------
STATE WORKERS' COMP 1/1/96 54,232
INSURANCE FUND
- -------------------------------------------------------------------------------------------------------------
HARTFORD TRAVEL 7/2/93 7,640 1,000K/500K 2,500K
ACCIDENT 3 YR
DK/JK/MH/EM
ES/WD
- -------------------------------------------------------------------------------------------------------------
HARTFORD LIFE DK DISABILITY 8/1/93 3,629 4K/MO.
- -------------------------------------------------------------------------------------------------------------
FIRST STATE 7/1/96 1,732
REHABILITATION DISABILITY
- -------------------------------------------------------------------------------------------------------------
TRAVELERS JK/ES LIFE 12/2/95 1,484
- -------------------------------------------------------------------------------------------------------------
COLONIAL LIFE DK LIFE 11/1/95 7,100 2,000K
- -------------------------------------------------------------------------------------------------------------
WILLIAM PENN DK LIFE 9/1/95 1,800 1,000K
- -------------------------------------------------------------------------------------------------------------
ANTHEM HEALTH MEDICAL 12/1/95 8,385/MO
AVG.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
EFFECT. LIMITS
BROKER POLICY DATE PREMIUM COVERAGE OCCUR/AGGR DEDUCTIBLE
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NY LIFE/ MEDICAL 12/1/95 5,149/MO
NYLCARE AVG.
- -------------------------------------------------------------------------------------------------------------
ANTHEM HEALTH LIFE 12/1/95 776/MO
- -------------------------------------------------------------------------------------------------------------
PAUL REVERE LTD 12/1/95 990/MO
AVG.
- -------------------------------------------------------------------------------------------------------------
SPRINGFIELD
- -------------------------------------------------------------------------------------------------------------
BUREAU OF WORKERS COMP 12,373
WORKERS COMP
- -------------------------------------------------------------------------------------------------------------
WALLACE & PACKAGE 2/19/96 13,018
TURNER
- -------------------------------------------------------------------------------------------------------------
EMPLOYERS LIFE/MAJOR 4/1/96 2,910
HEALTH MEDICAL MO
- -------------------------------------------------------------------------------------------------------------
MASS MUTUAL R. SCHWARTZ 9/1/95 1,481 1,000/MO
DISABILITY
- -------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Schedule 3.17
Compliance with Laws
1. All matters disclosed on Schedule 3.21 are incorporated herein by
reference.
2. The IRS is currently conducting an audit of FSE, the former parent of the
Company, regarding the consolidated federal income tax return filed by FSE
for the tax year relating to the Company's 1990 fiscal year. FSE has
advised the Company that it has waived the applicable statutes of
limitations relating to federal tax returns filed by it for the tax year
relating to the Company's 1990 fiscal year and such subsequent tax years as
have been requested by the IRS.
<PAGE>
Schedule 3.18
Employment Relations
None.
<PAGE>
Schedule 3.19
Employee Benefit Plans
l.* Arcon Coating Mills, Inc. Retirement Plan and Trust dated August 1,
1984, which Plan was terminated as of May 31, 1991, and which Plan
received a favorable determination letter from the IRS dated June 17,
1992 with respect to such termination. The Pension Benefit Guaranty
Corporation ("PBGC") has not issued a Notice of Noncompliance with
respect to such termination.
2.** Arcon Coating Mills, Inc. Profit Sharing Plan & Trust Agreement dated
November 1, 1993, as amended.
3.* International Envelope Company Savings and Investment Plan (from which
Arcon Coating Mills, Inc. Profit Sharing Plan & Trust was spun-off
effective November 1, 1993).
4. Stock Option Plan of Arcon Holdings Corp.
5. The IRA Matching Plan of the Thomas Tape Company dated October 1,
1979, as amended, which is a "simplified employee pension" (as defined
in Section 408(k) of the Code).
6. Employment Agreement dated as of April 14, 1994 by and between Arcon
Holdings and David R. Kruft.
7. Employment Agreement dated as of April 14, 1994 by and between Arcon
Holdings and William Dunn.
8. The following individuals eligible for the indicated bonus for the
fiscal year ending 10/31/96: Andrew Haug, $18,000; Eugene Mueller,
$5,000; Edward Siarkowicz, $5,000; John Gregory, $10,000; all office
employees, one week's pay.
- ----------
* Plan documents, Forms 5500,financial statements and the most recent
determination letter have not been provided to Purchaser with respect to this
plan.
** Plan to be amended prior to the Closing to fully vest all participants as of
the Closing Date.
<PAGE>
9. Productivity/length of service bonuses will be given to manufacturing
personnel for fiscal year 1996 as follows: Juan Alayo, $550; Horace Awai,
$420; Dindial Boodram, $150; Mario Campos, $150; Alex Castro, $250; Mario
Cifuentes, $1,310; Michael de Jesus, $1,940; Francisco Dominguez, $440;
Jose Dominguez, $150; Robert Fisher, $1,500; Emanuel Georges, $2,000;
Eduardo Heredia, $380; Julio Heredia, $328; James Jelley, $2,000; Steven
Jenkins, $150; Francisco Jimenez, $300; Julio Marrero, $447; Nick
Parsekian, $2,000; Danny Postell, $315; Sam Ramcharitar, $440; James Reid,
$2,000; Angel Rodriguez, $1,420; Oswaldo Rodriguez, $330, Alfonso Rosario,
$875; Luis Salazar, $300; Roger Salgado, $385; Jesus Segura, $250; Douglas
Soto Lopez, $245, Inmar Valle Marcia, $250; Taiwan Verene, $150; Tony
Tellex, $1,000;
10. See attached description of executive bonus program.
11. See attached description of paid time off and vacation policies.
12. Reference is made to the schedule of insurance attached to Schedule 3.16.
<PAGE>
MEMORANDUM
----------
TO: Arcon Board of Directors
FROM: David Kruft
DATE: December 15,1995
SUBJECT: 1996 BONUS PROGRAMS/PERSONAL OBJECTIVES
---------------------------------------
Enclosed please find the finalized bonus programs and personal objectives for
our key employees. Individual bonus formulas are shown separately along with
appropriate personal objectives (P.O.). The general bonus parameters which
relate operating income performance and personal objectives, and pertain to all,
are given below.
- - General Formula:
Goal Performance = (X) X O.I. Mult. + (Y) X O.I. MULT. X P.O.
X - Y = 100%. Weight (%) of X & Y for each employee is indicated in the
individual bonus programs.
- - The operating income multiplier will index as per the following and
will be reviewed annually:
O.I. O.I. O.I. O.I.
% To Plan Mult. % To Plan Mult.
--------- ----- --------- ----
80% 65% 103% 105%
82% 70% 106% 110%
85% 75% 109% 115%
88% 80% 112% 120%
91% 85% 115% 125%
94% 90% 118% 130%
97% 95% 121% 135%
100% 100% 124% 140%
127% 145%
130% 150%
- - Over-accruals of profit sharing and management bonuses will not be
considered when calculating the goal performance (i.e., operating income
is calculated assuming bonus and profit sharing monies are the lesser of
plan or actual amount).
- - No bonus payout if operating income falls below 80% of plan.
- - The operating income multiplier in the Personal Objectives (P.O.) part of
the equation has a maximum of 125%.
- - The operating income multiplier in the P.O. part of the equation can not go
below 100%.
<PAGE>
Page 1 of 2
ARCON COATING MILLS, INC.
-------------------------
MEMORANDUM
----------
TO: Board of Directors
FROM: David Kruft
DATE: December 15,1995
SUBJECT: 1996 PERSONAL OBJECTIVES/BONUS PROGRAMS
---------------------------------------
- - SALES/MARKETING 25%
- Insure Sales Department activity to generate sales forecast.
- Spearhead a continuing new product development program.
- Continue efforts for European sales by direct Arcon personnel and
actively recruit an agent.
- - FINANCIAL 25%
- Initiate profit improvement program by negotiation with vendors,
material substitution and overall cost reductions to save $250,000 in
materials and $50,000 in S.G. & A. Both to be measured against 1996
budget.
- Provide leadership to complete the installation of a fully automated
order entry, production planning, inventory, and billing system by
March 31, 1996.
- - OPERATIONS 25%
- Insure coater waste stays below 3.5%.
- Continue effort to source TYVEK -Registered Trademark- gumming vendor.
- Continue development of alternative TYVEK -Registered Trademark-
material.
- - OTHER
- Initiate and investigate possible acquisition candidates. 15%
- Explore and prepare a review of alternative markets for Arcon products
and technology. 10%
<PAGE>
Page 2 of 2
BONUS PROGRAM
-------------
ASSUMPTIONS:
CONSOLIDATED FINANCIALS
O.I. = 75% P.O. = 25%
Goal performance indexes 2 points for every point above 100% to a maximum
of 150%.
Target Bonus Potential = 35% of Salary X ($175,000) + $61,250
G.P. = (.75) X Oper. Inc. Mult. + (.25) X (O.I. Mult.) X P.O.
bonus = G.P. % X ($61,250)
DK:dv
<PAGE>
Page 1 of 2
M E M O R A N D U M
TO: Dave Kruft
FROM: Bill Dunn
DATE: December 15, 1995
SUBJECT: WILLIAM DUNN - 1996 PERSONAL OBJECTIVES/BONUS PROGRAM
SALES - 65%
Increase Office Products sales from $18,182,000 to $19,635,000. 25%
Grow export sales from $800,000 to $1,000,000. 10%
Increase Book Products sales performance from $3,054,000 to
$3,300,000. Reevaluate our sales coverage and wholesaler network
by 2/28/96. 10%
Institute a profitability program for the top 25 accounts in
conjunction with the finance group. This will include current
margins, profit mix, and recommendations to improve margins. 15%
Redefine Thomas Tape's product offering and sales thrust by 6/30/96. 5%
ADMINISTRATIVE - 25%
Guide the new products development team to develop three new
products in 1996 with at least two by 8/30/96. 15%
Direct the implementation of a quality control system to cover
incoming WIP, finished goods, and outbound shipments by 2/28/96. 10%
NEW MARKETS - 10%
Investigate potential of five new markets as a result of DuPont
referrals. 10%
<PAGE>
Page 2 of 2
BONUS PROGRAM
ASSUMPTIONS:
CONSOLIDATED FINANCIALS
O.I. = 75% P.O. = 25%
Goal performance indexes 2 points for every point above 100%
to a maximum of 150%.
Target Bonus Potential = 30% of Salary x ($131,000) = $39,300
G.P. = (.75) x Oper. Inc. Mult. + (.25) x (O.I. Mult.) x P.O.
Bonus = G.P. % X (39,300)
<PAGE>
Page 1 of 2
M E M O R A N D U M
TO: David Kruft
FROM: John Gregory
DATE: December 15, 1995
SUBJECT: 1996 PERSONAL OBJECTIVES/BONUS PROGRAM
1. a. Meet all of Heller Financial's reporting deadlines including monthly
financial statements, borrowing base certificates, compliance
certificates (including coverages), operations reports, and annual
projections.
10%
b. Provide appropriate support for special projects as requested by
Northwood Ventures and/or the President.
5%
2. a. Complete installation and deliver operational order entry system
by March 31, 1996.
20%
b. Bring in-house and consolidate on the Macola system the accounts
receivable and accounts payable of Thomas Tape by April 1, 1996.
15%
c. Develop computer reports to enable sales and marketing to determine
profitability by customer/by product.
5%
3. Analyze all areas of overhead costs and develop action plans to generate
potential cost savings of $50,000 below 1996 budgeted levels from the
following target areas: telephone, utilities, freight, health care
costs, bad debts, insurance, and repairs and maintenance.
15%
<PAGE>
4. Insure Arcon Oceanside's trade receivable twelve-month average DSO do
not exceed 31 days. Insure working capital stays at or below budget
projections.
5%
5. Provide appropriate support for Price Waterhouse year-end audit, tax
preparations, and all other activity as required.
15%
6. Analyze the feasibility of implementing a fully-integrated manufacturing
cost system for Arcon with recommendations by September 1, 1996.
10%
BONUS PROGRAM
ASSUMPTIONS:
CONSOLIDATED FINANCIALS
O.I. = 60% P.O. = 40%
Goal performance Maximum = 125%
Target Bonus Potential = 15% of Salary x ($90,000) = $13,500
G.P. = .60 x (O.I. Mult.) + .40 x (O.I. Mult.) x P.O.
Bonus = G.P. % x ($13,500)
<PAGE>
Page 1 of 2
M E M O R A N D U M
TO: Dave Kruft
FROM: Bill Dunn
DATE: December 15, 1995
SUBJECT: JOE KELLY - 1996 PERSONAL OBJECTIVES/BONUS PROGRAM
SALES - 75%
Increase Office Products sales from $9,100,000 to $9,800,000 (see attached
account list). Smead adjusted by $400,000.
25%
Qualify pressure sensitive TYVEK-Registered Trademark- with release liner
at Smead by July 31, 1996.
20%
Implement cost savings and increased margin contribution for Deluxe Check.
Replace 890-1HS with CMP/KC.
Replace Rexford/Foliotronics with 800-1HS. Replace Ideal Tape with 211-1PS.
20%
Grow #5 Drill from $50,000 to $75,000 and sell as a replacement for in-house
combining resulting in 10% material savings.
10%
NEW PRODUCTS - 20%
Develop a source for ribbed Super B Text to compete with Holliston.
10%
Introduce hi-stretch Sontara with Yates for spine reinforcing.
10%
ADMINISTRATIVE - 5%
Submit pre-call planning and call reports on a timely basis.
5%
<PAGE>
Page 2 of 2
BONUS PROGRAM
ASSUMPTIONS:
ARCON OCEANSIDE FINANCIALS
O.I. = 60% P.O. = 40%
Goal Performance Maximum = 125%.
Target Bonus Potential = $54,000
G.P. = .60 x (O.I. Mult.) + .40 x (O.I. Mult.) x (P.O)
Bonus = G.P. % x ($54,000)
<PAGE>
Page 1 of 2
M E M O R A N D U M
TO: Dave Kruft
FROM: Bill Dunn
DATE: December 15, 1995
SUBJECT: ED SIARKOWICZ
1996 PERSONAL OBJECTIVES/BONUS PROGRAM
SALES - 20%
Increase target accounts by 8% (see attached list).
20%
NEW PRODUCTS - 60%
Develop three new viable products for presentation to the new products
committee: one by 3/31/96, one by 8/31/96, and one by 10/31/96.
25%
Develop a product to meet 701 vertical burn test for the indoor decorative
market.
10%
Improve base costs on two line items by 10% (paper or cloth).
15%
Set up and install a complete procedure for all new product trials for the
company by January 30, 1996. This is to include forms for recording data,
samples, binders, and physical location for same.
10%
QUALITY - 10%
Institute formal quality control standards and procedures to monitor same by
February 28, 1996.
10%
ADMINISTRATION - 10%
Submit pre-call planning and call reports on a timely basis.
10%
<PAGE>
Page 2 of 2
BONUS PROGRAM
ASSUMPTIONS:
ARCON OCEANSIDE FINANCIALS
O.I. = 60% P.O. = 40%
Goal Performance Maximum = 125%.
Target Bonus Potential = $4,000
G.P. = .60 x (O.I. Mult.) + .40 x (O.I. Mult.) x (P.O.)
Bonus = G.P. % x ($4,000)
<PAGE>
ARCON COATING MILLS
DESCRIPTION OF PAID TIME OFF AND VACATION
PAID HOLIDAYS
After completion of one full month of work, all full-time employees are
entitled to the following paid holidays. In order to be paid for a holiday,
an employee must work the normal work days before and after the holiday in
that pay period.
New Year's Day Labor Day
Washington's Birthday Thanksgiving Day
Good Friday Friday after Thanksgiving
Memorial Day Christmas
July 4th
VACATION
After completing one year of work, all full-time hourly employees are
entitled to one paid week.
After completing two years of work, all full-time hourly employees are
entitled to two paid weeks.
After completing ten years of work, all full-time hourly employees are
entitled to three paid weeks.
SICK/PERSONAL TIME
All full-time hourly employees are eligible for six (6) personal/sick days
per calendar year after completion of a full calendar year of work. This
breaks down to one-half day per month and is accrued at a rate of 4 hours per
month. Any unused sick/personal time remaining at the end of the calendar
year is paid to the employees at their base hourly salary. (The four hours
accrued for the month of December are carried over to the following year to
be used for those employees wishing to observe Martin Luther King, Jr. Day in
January.)
SALARIED EMPLOYEES
There is no formal written policy with respect to vacation and sick/personal
time for salaried employees.
<PAGE>
Schedule 3.20
Interests in Customers, Suppliers, etc.
None.
<PAGE>
Schedule 3.21
Environmental Laws and Regulations
1. See attached draft environmental audit prepared by ENSR Consulting and
Engineering, dated as of August 1996, which is incorporated by reference
herein and made a part hereof. The matters disclosed in the final version
of such draft are also disclosed herein by reference.
2. The Company did not comply with certain New York State Department of
Environmental Conservation ("NYSDEC") and Clean Air Act requirements at its
facility located at 3067 New Street, Oceanside, New York (the "Oceanside
Facility"), as further described in the following documents (or provisions
thereof, as applicable) which are attached hereto: (i) Section 2.6.1 of the
Phase I Environmental Site Assessment dated March 1994 by Woodward-Clyde
Consultants; (ii) Sections A. (starting on page 1) and I. (starting on page
5) of the Environmental Audit dated July 11, 1991 by Pro-Flex Consultants,
Ltd. (the "Pro-Flex Audit"); (iii) Mass Balance Analysis dated August 19,
1991; (iv) Sections A. and II. of the Mid-Year Environmental and Safety
Report of the Company dated June 12, 1992 (the "Safety Report") and
Sections I.A., II and III of the Environmental and Safety Compliance
Assessment dated October 11, 1991 (the "Compliance Report"); (v) Notice of
Compliance Determination dated October 21, 1991; (vi) Order on Consent No.
R1-4837-92-0l issued by NYSDEC, together with letter amendments thereto
(collectively, the "Order on Consent") and (vii) Letter dated August 5,
1993 from Ropes & Gray to NYSDEC regarding final obligations under the
Order on Consent together with the permits obtained by the Company in
compliance therewith.
3. The Company did not comply with certain hazardous materials and waste
regulations at the Oceanside Facility as further described in the following
documents (or provisions thereof, as applicable) which are attached hereto:
(i) Sections B. (starting on page 2) and II. (starting on page 9) of the
Pro-Flex Audit and (ii) Sections B., C . and II. of the Safety Report and
Sections I.B., I.C., II. and III. of the Compliance Report.
4. The Company did not comply with certain OSHA regulations at the Oceanside
Facility as further
<PAGE>
described in the following documents (or provisions thereof, as applicable)
which are attached hereto: (i) Sections C. (starting on page 3) and III.
(starting on page 17) of the Pro-Flex Audit and (ii) Sections C., D. and
II. of the Safety Report and I.C., I.D., II. and III. of the Compliance
Report.
5. On March 31,. 1996, Aquatite Tyvek Red Ink was discharged from the
Oceanside Facility as further described in the following documents which
are attached hereto: (i) Request for Clean-up Notification dated March 31,
1996 issued by NYSDEC and (ii) Field Inspection Report dated April 15,
1996.
6. In March 1994, the following conditions were noted at the Company's
facility located at 1713 Sheridan Avenue, Springfield, Ohio: (i)
non-compliance with the National Pollution Discharge Elimination Notice of
Intent and Stormwater Pollution Prevention Plan filing requirements; (ii)
the potential impact of soil and/or groundwater in the former tank basin of
an 8,400 gallon underground storage tank in which heating oil had been
stored; (iii) inadequate eye protection policy for certain employees, a
written Lock-Out/Tag-Out Program, and Noise Survey; (iv) potentially
damaged asbestos containing material insulation on overhead piping in the
east building at the facility; and (v) potential impact of oil/grease to
surface and subsurface soil along the east property boundary from an
adjacent property. The Memorandum of the Company dated March 28, 1994
responding to the above issues is attached hereto.
<PAGE>
DRAFT
Specialty Paperboard
Brattleboro, Vermont
[LOGO] ESNER Environmental Due Diligence:
Arcon Coating Mills,
Oceanside, NY
and
Thomas Tape Co.,
Springfield, OH
ENSR Consulting and Engineering
August 1996
Document Number 8700-550-500
<PAGE>
Specialty Paperboard
Brattleboro, Vermont
Environmental Due Diligence:
Arcon Coating Mills,
Oceanside, NY
and
Thomas Tape Co.,
Springfield, OH
ENSR Consulting and Engineering
August 1996
Document Number 8700-550-500
<PAGE>
ENSR
- --------------------------------------------------------------------------------
CONTENTS
1.0 INTRODUCTION ........................................................ 1-1
1.1 Preface ......................................................... 1-1
1.2 Objectives ...................................................... 1-1
1.3 Scope of Work ................................................... 1-1
1.4 Study Limitations ............................................... 1-2
2.0 OCEANSIDE, NEW YORK ................................................. 2-1
2.1 Site Description ................................................ 2.1
2.1.1 Site Location ............................................. 2-1
2.1.2 Site History .............................................. 2-1
2.1.3 Description of Current Site Activities
and Operational History ................................. 2-1
2.2 Prior Investigations ............................................ 2-2
2.3 Data Base Search Results ........................................ 2-2
2.4 Key Findings .................................................... 2-3
3.0 SPRINGFIELD, OHIO ................................................... 3-1
3.1 Site Description ................................................ 3-1
3.1.1 Site Location ............................................. 3-1
3.1.2 Site History .............................................. 3-1
3.1.3 Description of Current Site Activities
and Operational History ................................. 3-1
3.2 Prior Investigations ............................................ 3-2
3.3 Data Base Search Results ........................................ 3-3
3.4 Key Findings .................................................... 3-3
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i
<PAGE>
ENSR
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1.0 INTRODUCTION
1.1 Preface
ENSR Consulting and Engineering (ENSR) was retained by Specialty Paperboard,
Inc. to evaluate the actual or potential environmental liabilities associated
with two specialty paper manufacturing facilities currently owned and/or
operated by Arcon Coating Mill, Inc. ("Arcon"). These facilities are situated in
Oceanside, NY and Springfield, OH, respectively. The latter facility operates
under the name, The Thomas Tape Co.
1.2 Objectives
The purpose of this investigation was to determine, where possible, whether the
subject facilities and associated properties might contain actual or potential
environmental liabilities and if so, to provide a reasonable worst case cost
estimate of their financial magnitude.
Reasonable worst case costs are those costs relating to an environmental issue
which are the highest that ENSR believes are reasonably possible. That is, the
chance that the costs will be significantly higher appear to be reasonably
small, but not zero. The reasonable worst case estimate is not based on a true
worst case. Of all the damaging contingencies that might occur, this estimate
takes into account only those that are reasonably possible in this case.
We have not attempted to estimate a most likely cost for addressing the
potential problems identified herein because a commercial Phase I report does
not provide a sufficiently detailed factual or engineering analysis, or an
understanding of the specific regulatory context for preparing such an estimate.
As with any due diligence evaluation, there simply is not sufficient information
available upon which to base such assumptions.
1.3 Scope of Work
Consistent with the above described objectives, ENSR's work scope focused on the
following broad areas of inquiry:
o The extent to which a significant hazardous materials or petroleum
contamination problem may be affecting the subject properties and
potentially necessitating a major expenditure to remediate (clean
up).
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1-1
<PAGE>
ENSR
- --------------------------------------------------------------------------------
o The extent to which facility operations are being conducted in a
manner consistent with key federal and state EH&S regulations,
including those related to air, water, hazardous waste, underground
storage tanks, PCBs, asbestos-containing building materials, and
worker health and safety.
o The extent to which there exist contingent environmental liabilities
associated with wastes generated from the subject facilities and
taken off-site for disposal.
Both facilities were the subject of previously Phase I site assessment reports
prepared by Woodward-Clyde Consultants in March 1994. This current ENSR
investigation builds upon this earlier work in addition to reviewing a
substantial volume of documents obtained by White & Case from Arcon. ENSR also
used EDR of Southport, CT to conduct searches of selected federal and state
regulatory data bases. Lastly, ENSR conducted a site visit to the Thomas Tape
facility on July 30, 1996. ENSR did not visit the Oceanside, NY facility, though
we have incorporated comments from David Allen of Specialty Paperboard, who
visited the Oceanside facility on July 28, 1996.
ENSR has attempted to make this a management-style summary report rather than an
exhaustive recitation of information. The report begins with a description of
each of the subject sites and facilities, including site histories and
identification of current activities taking place. The results of prior Phase I
investigations are then discussed. Finally, a summary of outstanding issues of
potential concern is presented, including estimates of the costs required to
correct or remediate each identified issue. This latter section is intended to
provide a relatively succinct identification of potential environmental
liability issues that might be considered material to the proposed transaction.
1.4 Study Limitations
This Report describes the results of ENSR's due diligence investigation to
identify the presence of significant environmental liabilities materially
affecting the subject facilities and/or properties. In the conduct of this due
diligence investigation, ENSR has attempted to independently assess the presence
of such problems within the limits of the established scope of work as described
in our letter proposals dated July 19, 1996.
As with any due diligence evaluation, there is a certain degree of dependence
upon oral information provided by facility or site representatives which is not
readily verifiable through visual inspection or supported by any available
written documentation. ENSR shall not be held responsible for conditions or
consequences arising from relevant facts that were concealed,
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1-2
<PAGE>
ENSR
- --------------------------------------------------------------------------------
withheld, or not fully disclosed by facility or site representatives at the time
this investigation was performed.
This report and all field data and notes were gathered and/or prepared by ENSR
in accordance with the agreed upon scope of work and generally accepted
engineering and scientific practice in effect at the time of ENSR's
investigation of the subject sites. The statements, conclusions, and opinions
contained in this report are only intended to give approximations of the
environmental conditions at these locations.
This report, including all supporting field data and notes (collectively
referred to hereinafter as "information"), was prepared or collected by ENSR
Consulting and Engineering (ENSR) for the benefit of its' client, Specialty
Paperboard, Inc. ENSR's client may release the information to its lender or
other third parties, who may use and rely upon the information at their
discretion. However, any use of or reliance upon the information by a party
other than specifically named above shall be solely at the risk of such third
party and without legal recourse against ENSR, its parent or its subsidiaries
and affiliates, or their respective employees, officers or directors, regardless
of whether the action in which recovery of damages is sought is based upon
contract, tort (including the sole, concurrent or other negligence and strict
liability of ENSR), statute or otherwise. This information shall not be used or
relied upon by a party that does not agree to be bound by the above statement.
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1-3
<PAGE>
ENSR
- --------------------------------------------------------------------------------
2.0 OCEANSIDE, NEW YORK
2.1 Site Description
A summary description of Arcon's Oceanside, NY facility is presented below,
including a discussion of the site location, site history, and current uses of
the subject property.
2.1.1 Site Location
Arcon operates a leased 31,000 s.f. facility addressed as 3067 New Street,
Oceanside, Nassau County, New York. The facility is located on Long Island about
400 feet east of the confluence of Mill River and Powell Creek. The site is
bounded by an indoor tennis court facility to the north; a marina and residences
to the east; a boat yard and shipping container repair facility to the south;
and New Street to the west. On the far side of New Street is a scrap metal and
auto junk yard.
2.1.2 Site History
According to the Woodward-Clyde March 1994 Phase I report (WCC report), Arcon
was the first and only tenant of its building, which was constructed in 1972.
Uses of the site prior to 1972 are not discussed in the WCC report.
2.1.3 Description of Current Site Activities and Operational History
Arcon is involved in surface coating and printing operations at this single
story facility. The company coats Tyvek and other materials with water-based
inks and adhesives. Solvent-based inks were used until 1992.
Arcon switched to water-based inks in 1993, largely in response to an
administrative consent order (ACO) with the New York State Department of
Environmental Conservation (NYSDEC). With the switch to water-based inks, Arcon
has limited emission sources. The facility holds current air emission
Certificates to Operate; these have been issued by the Nassau County Department
of Health.
The facility is a small quantity generator of hazardous waste. One of their inks
(green) contains above threshold levels of copper and cannot be disposed of into
the sewer system as a result. This material is taken to S&W Waste in South
Kearny, NJ for disposal.
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2-1
<PAGE>
ENSR
- --------------------------------------------------------------------------------
The subject facility is served by municipal water and sewer. Arcon discharges to
the sewer small quantities of washwater produced from cleaning inks from
printing equipment; no permit is required. Nassau County Department of Public
Works last conducted a field inspection of the facility on April 15, 1996; no
compliance issues were identified.
Space heating is by natural gas. There is no history of underground storage
tanks on the subject property. Lastly, there is no known asbestos containing
materials present.
2.2 Prior Investigations
The 1994 WCC Phase I report did not identify any current environmental problems
involving the subject facility, though it did note that the company was
operating under a NYSDEC administrative consent order relative to air problems.
In 1991, Arcon voluntarily disclosed its problems and subsequently was issued a
notice of violation by the Nassau County Department of Health for operating air
emission sources without proper permits. The company entered into an ACO with
the state in November 1992. The required permits were received in July 1993
(current air permits are dated January 1, 1996 and expire in January 1997). It
is our understanding that the company has fulfilled all of its obligations
relative to the ACO.
In July 1991, Pro-Flex Consultants conducted an audit of the Arcon facility. The
audit identified numerous issues, including the absence of air emission permits.
Other notable issues included the absence of the required hazardous
communications plan and poor hazardous waste storage practices. Additionally,
Pro-Flex noted that, "The housekeeping at the presses and in the ink mixing area
is terrible." The documentation obtained by White & Case from Arcon indicates
that immediate actions were taken by Arcon management to correct the identified
deficiencies, including housekeeping problems. The 1994 WCC report found no
outstanding compliance issues. Moreover, housekeeping procedures inside the
facility were noted to be good. There are also no floor drains present,
according to WCC.
2.3 Data Base Search Results
The EDR data base search did not identify any outstanding issues or problems
relative to the Arcon facility or any others in the immediate site vicinity.
Arcon was not identified as being a potentially responsible party (PRP) at any
federal Superfund site.
Although not identified in the data base search results, Arcon had a release of
water-based, non-hazardous red ink on March 31, 1996. Apparently, a 5-gallon
bucket containing residual material
- --------------------------------------------------------------------------------
2-2
<PAGE>
ENSR
- --------------------------------------------------------------------------------
had been placed in an outdoor compactor where it was crushed; the liquid
eventually leaked to a nearby storm drain that was located about 15 feet away.
The state was notified and a cleanup of the storm drain was undertaken. Arcon
subsequently installed a lock on the compactor door to prevent anyone except
management from using it. Additionally, employees were re-informed about company
policy involving the proper disposal of unusable ink and wash water. There has
been no further action taken by any regulatory agency relative to this incident,
and none is expected.
2.4 Key Findings
The Arcon facility was observed by David Allen to be reasonably well maintained,
with limited opportunities for environmental impairment. Only water-based inks
are used and no floor drains or other conduits for contaminant migration are
present within the plant. Housekeeping is considered good, with there being
adequate attention being paid to environmental compliance issues.
The only identifiable issue concerns the fact that the Arcon facility is
situated in a mixed commercial and industrial area, with a boat and ship repair
facility abutting the subject facility to the south, and a scrap metal & auto
junkyard present on the opposite side of New Street to the west. Neither of
these facilities was identified in the data base report as having been involved
in any contamination-related incidences or as having underground storage tanks.
Both are potential sources of contamination, which could migrate and impact the
subject site (though there is no evidence that this has occurred). However, as
noted earlier, the subject facility is leased. Therefore, these off-site threats
are less an issue of potential concern, in our opinion.
Relative to future compliance matters, particularly as they pertain to the Clean
Air Act (CAAA) Amendments, it appears that the subject facility does not use
sufficient quantity of regulated chemicals to be considered a significant
generator of hazardous air pollutants. All inks and adhesives are water-based.
Therefore, CAAA should have little to no financial impact on Arcon.
No liability costs have been assigned to this facility.
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2-3
<PAGE>
ENSR
- --------------------------------------------------------------------------------
3.0 SPRINGFIELD, OHIO
3.1 Site Description
A summary description of the Thomas Tape Company's Springfield, OH facility is
presented below, including a discussion of the site location, site history, and
current uses of the subject property.
3.1.1 Site Location
Thomas Tape ("Thomas") operates an owned facility (Arcon Coating Mills, Inc. is
owner) that involves two connected buildings situated on a 2-acre site. Each
building has about a 10,000 s.f. footprint, and contains a single story with
full basement. The complex is addressed as 1713 Sheridan Avenue, Springfield,
Clark County, Ohio.
The subject facility is bounded by Sheridan Avenue to the north, beyond which
are residences; a printing company and a moving company to the east; railroad
tracks to the south; and an abandoned former industrial facility to the west.
3.1.2 Site History
The west building was constructed in the 1860's and was originally used for
manufacturing buggy wheels. Thomas Tape, which was founded in 1891 in
Wilmington, DL, moved to Springfield, OH and began occupying this facility in
1901. The upper floors of the west building were demolished in 1995, leaving
this a single story building with a below ground basement.
The east building was constructed in 1904 and has been occupied by Thomas Tape
since its construction.
3.1.3 Description of Current Site Activities and Operational History
The company coats paper and cloth with water-based inks and adhesives to produce
stripping and binding tapes for notebooks and pads. Solvent-based inks were used
until the mid-1970's.
The facility is a generator of hazardous waste, though on an infrequent basis.
They last generated hazardous waste in 1992 when ten drums of spent adhesives
were sent to Klor Kleen of Cincinnati, OH for disposal. This was a one-time
situation involving obsolete inks and adhesives. Asbestos from past abatement
activities were sent to the Bigfoot Run Sanitary landfill
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3-1
<PAGE>
ENSR
- --------------------------------------------------------------------------------
in Morrow, OH. The company sends its non-hazardous solid waste to Waste
Management of Ohio's landfill in Fairborn, OH.
The subject facility is served by municipal sewer and water. Thomas Tape
discharges all wash waters, compressor blowdown, and boiler blowdown to the
sewer. The City of Springfield does not consider the facility to be a
Significant Industrial User; therefore, no local discharge permit is required.
The city conducted sampling of Thomas Tape's effluent in 1992 and no problems
were identified. On-site production activities have not changed since that
sampling event.
Space and process heat are provided by two natural gas-fired boilers located in
the basement of the west building. Until 1987, these boilers used heating oil.
An 8,400 gallon underground storage tank (UST) was located in the alley along
the westerly side of the west building; it was removed on January 14, 1987. No
information was available concerning the age of the UST at the time of removal.
No soil or groundwater sampling took place, though the tank removal company
company, Adams Excavating, reported to Woodward-Clyde Consultants in 1994 that
there were no visual signs of leakage and no obvious signs of soil
contamination.
The subject facility has the necessary state air permits and/or registrations to
operate its equipment, including the rotogravure press, laminator, and gumming
machine. All permits and registrations are current.
Asbestos abatement programs were performed at the Thomas Tape facility in June,
1992 and December 1993 at which time asbestos was removed from the boilers and
steam lines. Additional ACM abatement activities took place in the second and
third floors of the west building; both floors were demolished about a year and
a half ago, leaving the west building a single story structure.
3.2 Prior Investigations
The 1994 WCC Phase I report identified a limited number of issues concerning the
Thomas Tape facility; these included the following:
o The facility has not filed the required Notice of Intent relative to
the National Pollution Discharge Elimination Discharge System
(NPDES) stormwater requirements; a stormwater pollution prevention
plan had also not been prepared.
o Potential impact of the former 8,400 gallon UST on site soil and
groundwater, though no information was found by WCC to indicate that
a problem exists.
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3-2
<PAGE>
ENSR
- --------------------------------------------------------------------------------
o Need for improved OSHA-related practices as they pertain to the use
of eye protection by workers, the development of a written
Lock-Out/Tag-Out program, and conduct of a noise survey.
o The presence of suspect damaged ACM insulation on overhead piping in
the east building.
o Potential impact of oil/grease to surface and subsurface soils along
east property boundary due to the activities taking place on the
abutting which is occupied by a truck maintenance yard operated by
Rollins Moving & Storage. At the time of the WCC site inspection,
drums labeled as containing waste oil were observed along the
property boundary.
WCC did not assign any liability costs to any of the above identified issues.
The Thomas Tape facility was audited by PF Technical Services of Levittown, NY
in September 1993. No issues were identified. The audit report concluded by
stating that, "....the facility is in compliance with current safety and
environmental regulations."
3.3 Data Base Search Results
The EDR data base search did not identify any outstanding issues or problems
relative to the Thomas Tape facility or any others in the immediate site
vicinity.
Thomas Tape was not identified as being a potentially responsible party (PRP) at
any federal Superfund site.
3.4 Key Findings
ENSR visited the Thomas Tape facility on July 30, 1996. On the basis of the site
visit and review of facility records, key observations are noted as follows:
o Facility interior and exterior housekeeping needs improvement. The
basement production areas exhibited signs of past spills of
hydraulic oils and adhesives. Exterior areas are overgrown, with
several plastic drums formerly containing water treatment
chemicals having been discarded there. Although there are limited
opportunities for environmental impairment, given the size of the
facility operations and the limited quantities of hazardous
chemicals used, housekeeping improvements are recommended to at
least enhance the appearance of the plant
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3-3
<PAGE>
ENSR
- --------------------------------------------------------------------------------
and its grounds in the event that there is a future regulatory
inspection. No costs have been allocated to this task, since the
necessary improvements can be made using internal staff resources.
o The Thomas Tape facility still needs to file a Notice of Intent for
its stormwater permit and to prepare a pollution prevention plan.
This is a mandatory requirement since the facility is classified as
being in SIC 26. The estimated cost to prepare the necessary filings
is $10,000 to $15,000.
o The former presence of an 8,400 gallon heating oil UST represents a
source of possible concern since the facility has no documentation
pertaining to subsurface conditions at the time of the tank's
removal in 1987. While there were no legal requirements in-place at
the time to conduct sampling (nor would there be any ongoing
requirement for a new owner), a $15,000 to $25,000 contingency
should be considered, particularly if there are any plans to sell
the property.
o The Thomas Tape facility is situated in a mixed residential/
industrial neighborhood. Abutting the subject site to the east is a
trucking firm; to the west is an abandoned former manufacturing
plant (activities not known). The WCC report expressed concerns
about the trucking firm in particular. Because of the overgrown
conditions that exists between Thomas Tape and the referenced
trucking firm (i.e., area covered by dense vegetation), no specific
indications of improper waste management practices on the abutting
property were observable at the time of the site visit. Neither of
the abutting properties was identified on the data base search as
being involved in any contamination-related incidents. Nonetheless,
this is an older industrial area. Therefore, off-site conditions
should be monitored. No liability costs have been assigned.
o Minor quantities of suspect ACM is present in the piping that is
located in the basement of the east building; the condition of the
material is variable. Verification of the material as asbestos
containing would be required prior to initiating any corrective
abatement work. Total abatement costs are estimated to be on the
order of $5,000 to $10,000.
The previously identified OSHA compliance issues have been rectified.
Relative to future compliance matters, particularly as they pertain to the Clean
Air Act (CAAA) Amendments, it appears that the subject facility does not use
sufficient quantity of regulated chemicals to be considered a significant
generator of hazardous air pollutants. All inks and
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3-4
<PAGE>
ENSR
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adhesives are water-based. Therefore, CAAA should have little to no financial
impact on Thomas Tape.
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3-5
<PAGE>
Woodward - Clyde
Phase I Environmental Site Assessment
<PAGE>
PHASE I ENVIRONMENTAL SITE ASSESSMENT
ARCON COATING MILLS, INC.
3067 NEW STREET
OCEANSIDE, NEW YORK 11572
Prepared for:
NORTHWOOD VENTURES
485 UNDERHILL BOULEVARD
SYOSSET, NEW YORK 11791
MARCH 1994
PROJECT NO.: 4E04070
Prepared by:
WOODWARD-CLYDE CONSULTANTS
201 WILLOWBROOK BOULEVARD
WAYNE, NEW JERSEY 07470
<PAGE>
2.6.1 ENVIRONMENTAL COMPLIANCE
This section includes the results of the review of Arcon's environmental
compliance status regarding air and solid/hazardous waste issues. Based on a
review of documents provided to WCC by Arcon and the site inspections conducted
it appears that the facility is in compliance with applicable environmental
regulations. As stated in Sections 2.5.1 and 2.5.2 above, WCC has not completed
the review of the files at the various agencies contacted.
Air
Arcon is currently operating under a NYSDEC administrative consent order (ACO).
This ACO, signed on November 2, 1992, was designed to allow Arcon to operate
while reducing air emissions to meet NYSDEC and Clean Air Act requirements. At
this time, it appears that Arcon is in compliance with the ACO.
To reduce air emissions, specifically volatile organic compounds (VOCs), Arcon
has switched from solvent-based inks to water-based inks. Because of this
switch, Arcon attempted to get approval from Nassau County Department of Public
Works to discharge waste water (generated from cleaning ink from printing
equipment) to the public sewer system. The amount of discharge is approximately
25 gallons per week. Nassau County Department of Public Works has reviewed their
application and approved it with a
2-7
<PAGE>
qualifier. Arcon cannot discharge the "green" waste water because of the copper
level. The discharge limit for copper is 2.0 mg/l and Arcon's "green" water
contained copper at 37 mg/l.
Waste Disposal
WCC has reviewed applicable documents regarding Arcon's waste disposal
practices. The documents were obtained from Arcon and our review is based solely
on these documents. Because of the short time frame for completion of the
project, WCC was unable to obtain any written compliance information from
either NYSDEC or Nassau County Department of Health. Based on our review, it
appears that Arcon is in compliance with applicable federal, state, and local
waste regulations.
<PAGE>
Pro - Flex Audit
<PAGE>
[Logo] PRO-FLEX consultants ltd.
210 STEPHEN ST. LEVITTOWN, NY 11756 (516) 935-7241
ARCON COATING MILLS
ENVIRONMENTAL AUDIT, JULY 11, 1991
RECOMMENDATIONS:
A. CLEAN AIR REGULATIONS
1. Identify the course of action to come into compliance by evaluating the
following alternatives:
a. Conversion to waterbourne ink technology
Evaluate the ramifications and requirements of using water
technology. Conduct appropriate tests where necessary. Determine equipment
modifications or additions that will enhance the ability of the presses to
use water inks.
b. Installation of add-on control system - incineration or solvent
recovery.
c. Combination of the available methods to achieve compliance:
(1) Press #1 - Incineration or solvent recovery
(2) Press #2 - Use only water inks and adhesives.
2. Develop a schedule to ascertain the time restraints necessary to
achieve compliance.
3. Due to the nature of the potential legal problems and penalties, engage
an attorney who can facilitate the reception of the applications for
permits and negotiate favorable terms.
4. Submit schedules to come into compliance and applications for permits
to the Nassau County Health Department.
Prior to submitting the applications, suggest that a request be made
to the County Health Department for a conference to discuss the
applications and schedule of compliance. This should initiate a dialogue
and negotiation for acceptance of the proposed course of action.
5. Based on the schedule of compliance, prepare specification packages to
submit to vendors of add-on control systems requesting proposals.
1
<PAGE>
During the preparation of the specification package, identify
deficiencies in the existing equipment or plant layout which may require
modification to assure adequate air flows, drying and vapor capture. This
would include consideration of the recirculation of the drying systems,
and other alternatives which would optimize the use of the controls but
reduce the capital cost of the system.
B. HAZARDOUS MATERIALS AND WASTE REGULATIONS
1. Hazardous materials storage requires significant upgrading to meet the
requirements of Nassau County's Article III. This upgrading will include
elimination or replacement of the trailer for ink storage, construction of
a new flammable materials storage area, and consolidation of inks, ink
blends, and solvents into this new area.
Article 3 requirements include provisions for secondary containment,
fire suppression, electrical standards, vapor detection, and exhaust.
2. The ink mixing area at Arcon should be consolidated with the new
storage facilities. The consolidation will allow for improved ventilation,
upgraded electrical, and secondary containment.
3. Solvent currently purchased in 55 gallon drums may be more economically
purchased and managed in larger tote type containers (200 - 500 gallon
capacity). Evaluation of ink containers may also determine that major
colors (white and black, for example) should be purchased in larger tote
type containers.
4. Documentation should be obtained from the drum recycler used by Arcon
to assure that he is operating in accordance with State and New York City
regulations.
5. Drums containing ink blends in the mixing area should be properly
labeled.
6. Determine exactly how much hazardous waste from inks and solvent is
generated by collecting the residues, any ink that must be discarded, etc.
This determination should include the water inks.
7. Consideration should be given to the purchase or lease of a cleaning
tub, in which the solvents are reused and the solids removed periodically
for disposal. This will minimize hazardous waste generation.
8. At the time hazardous waste generator determination is
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established, Arcon would file for an EPA Identification Number. This
number is required in order to have an authorized waste transporter and
disposer remove the hazardous waste from the premises.
9. Recommend that Arcon prepare an Emergency Fire, Explosion and Spill
Control Contingency Plan; prepare and implement a hazardous waste
management program.
10. Instead of buying bales of rags and disposing of the dirty rags in the
garbage, rag services should be engaged to supply, collect and clean the
right quality wipers.
11. Options for recycling of waste tyvek should be explored, including
pursuing DuPont's program using scavenger recycling firms, internal reuse
as packaging material, off-site use of the material for packaging
(give-away program, for example), or other options.
12. The sewer discharges should be screened on an annual basis to assure
compliance with Nassau and local sewer ordinances. Assurance should be
taken to avoid use of the wash tubs for cleaning of machine parts, inks,
etc.
C. OSHA
1. Plan and initiate a Safety Committee and Safety Program which would
address all safety and environmental concerns on a regular schedule.
2. Recommend that an OSHA Hazard Communication program be authorized that
will bring the firm into compliance with all sections of the law.
3. Recommend that lock out/tag out procedure should be initiated and the
employees equipped and trained to perform in accordance with the
provisions of the regulation.
4. Recommend that a fork lift truck training program be instituted.
5. Recommend that the dryer system should be checked, cleaned and
otherwise upgraded to improve the negative exhausting of all vapors from
the printing stack. Relocation of the floor fan to another location.
6. Recommend, per letter sent to Dave Kruft, that air tests should be made
by Susan Cook PE using Draeger Tubes. This will quantify the vapor levels
in various parts of the presses and plant. Based on the outcome, in-house
testing can be conducted on a designated schedule and recommendations made
for further action if warranted.
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7. Give the press and ink mixing areas a good cleaning and train personnel
to maintain the presses and ink mixing areas.
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[Logo] PRO-FLEX consultants ltd.
210 STEPHEN ST. LEVITTOWN, NY 11756 (516) 935-7241
ARCON COATING MILLS
ENVIRONMENTAL AUDIT, JULY 11, 1991
I. CLEAN AIR REGULATIONS PERTAINING TO ARCON OPERATIONS
A. New York State Air Regulations 6NYCRR
1. Part 201 Permits and Certificates - requires permits to erect and
certificates to operate an air contamination source.
2. Part 231 New Source Review in Nonattainment Area - requires
permits to erect and certificates to operate for air sources in
excess of deminis quantities and in excess of a potential 100 tons
emissions per year. The emission of Volatile Organic Compounds
(VOC's) carry a deminis quantity of 40 tons per year.
A nonattainment area is one which has been designated as
requiring regulatory restraints to reduce contamination levels to
acceptable levels as determined by the EPA and the NYSDEC (or
appropriate state or local enforcement agency). The entire
Metropolitan New York area, including Nassau County, has been
identified as a nonattainment area. Restrictions are more stringent
than in other areas of the state and country.
The methods of coming into compliance with regulatory
standards for emissions generated by Arcon are outlined in Part 228,
Surface Coating, and Part 234, Graphic Arts.
Part 228 Surface Coating Processes - sets standards for
"emission sources associated with the application, conveyance and
drying of coated materials onto a surface. A coating line may
consist of one emission source or of several emission sources
associated with a common surface coating operation.
The regulation sets standards in pounds per gallon of volatile
organic compounds (solvents) based on the nature of the substrate or
coated surface, and variables which exist within the particular
grouping that would impact on the amount of solvents required.
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Arcon's adhesives coating operation would be assigned to the
category "Paper Coating Lines," which includes plastic films. The
standard allowed is 2.9 pounds of VOC's per gallon of coating
material.
Compliance with Part 228 can be achieved through the use of
high solids inks, waterbourne inks, or add-on control equipment.
Based on our observations and examination of the Material
Safety Data Sheets, the adhesives used by Arcon would qualify for
compliance under the surface coating standards of Part 228.
4. Part 234 Graphic Arts - this part covers Gravure and Flexographic
printing processes. Unlike Part 228, the definition of compliance is
established by percentages of volume per gallon of ink as applied,
or percentage of overall destruction of volatile organic compounds.
The regulation does not define the VOC content by weight under any
circumstances. (In some states, there is a pounds of VOC per gallon
provision.)
For both Gravure and Flexography, water ink may be used to
establish compliance. The VOC content may be no more than 25% by
volume of the Ink As Applied.
High solids inks are offered as an alternative, but there are
no such inks in existence for the two processes at the percentages
described - no more than 40% solvents by volume per gallon of ink
applied.
Add-on controls, such as incineration or solvent recovery, are
methods of compliance. Gravure operations must demonstrate an
overall destruction of 65% of VOC's in the process; Flexographic
presses must achieve an overall destruction of 60% of VOC's.
The overall destruction is a result of both the capture and
removal of the vapors by the press drying system, and the
effectiveness of the control equipment in destroying what has been
captured.
Arcon can commit to compliance by means of extending the use
of water ink technology to all applications, or by installing add-on
controls where required to allow for the continued use of solvent
based ink technology.
B. Enforcement of the regulations has been granted by the State of New
York to the Nassau County Department of Health. Its activities with regard
to permitting and compliance schedules are subject to review and approval
by the New York
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State Department of Environmental Conservation (DEC), Region 1 - located
in Stony Brook.
Legal affairs are handled by the engineers and attorneys for the
DEC. The County Health Department refers all cases in which it cannot
grant a permit outright to the State for review, negotiations, and
settlement.
C. Penalties are levied based on the time period for which operations are
not "permitted" and/or "out of compliance."
There is a formula which is used to calculate a penalty based on the
number of days of non-compliance. However, this is usually used for
dramatic impact and to set the framework within which legal negotiations
will take place.
A more vindictive method of penalizing a non-compliant firm has been
the use of a formula which calculates the economic advantage a firm has
over its competitors in the marketplace by not having spent the funds to
come into compliance. In most cases, this formulas seeks to exact a
penalty which would approximate the cost to the firm of attaining
compliance, i.e. the cost of purchasing an add-on control system and
operating it for the period involved.
It is difficult to say what the penalties will be. The establishment
of an acceptable penalty sum relates to the personalities of the
enforcement personnel, the region of the state, the nature of the process
and prevalence of other firms in the same business, and the perceived
impact of the resolution of the case.
The NYSDEC does not want to set precedents which can be used by
other firms to restrain enforcement of the regulations or penalties levied
against offenders.
OBSERVATIONS:
To the best of our knowledge, Arcon has not filed for any air emissions
permits during its existence.
The operation emits in excess of 100 tons per year of volatile organic
compounds. An initial estimate for the year 1990 indicates the purchase of inks
(solvent portion only) and solvents for dilution and clean-up amounted to
between 250,000 and 260,000 pounds. This would amount to emissions in excess of
125 tons. A more accurate and detailed evaluation will be made when information
is provided by Del Val Inks for the purchases of the years 1988, 1989 and 1990.
The solvent based inks used are not compliant, containing in
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excess of the allowable percentages of VOC's as they are supplied. The standard
for solvent based inks is a maximum of 40% by volume as applied. The arriving
inks have solvent contents ranging from 38.8% to 78.8% (based on the listing
provided by Del Val as of May 29, 1991).
Additional solvents are blended in with the inks at the presses prior to
use, and during the run, to maintain operating viscosity levels and color
control. The additional solvent normally amounts to an additional 20% by volume.
The water based inks in use should be in compliance with the regulations.
That would be tantamount to having a maximum of 25% solvents by volume in each
gallon of ink as applied. The information from Del Val will corroborate this
position.
Press #1 runs primarily solvent based inks. On some occasions for small
runs, paper is printed on #1 with water based inks.
Press #2 runs water based inks approximately 85% of the time.
Press #2 also coats the substrates with a water based adhesive. The water
based adhesive meets the criteria of the Part 228 standards. The Material Safety
Data Sheet for the Reslyn does not list any VOC's as components of the
formulation. This phase of the operation is in compliance as noted earlier.
RECOMMENDATIONS:
1. Identify the course of action to come into compliance by evaluating the
following alternatives:
a. Conversion to waterbourne ink technology
Evaluate the ramifications and requirements of using water
technology. Conduct appropriate tests where necessary. Determine equipment
modifications or additions that will enhance the ability of the presses to
use water inks.
The evaluation should consider the ability of Arcon to attain
wettability of the inks on Tyvek and Paper, adhesion of the inks to the
substrate, and other visual properties as required by customers, i.e.
exact color hues and gloss.
Submit samples and rationale to customers to ascertain their
acceptance of the quality of the product.
This is, perhaps, the fastest route to compliance. It will require
expenditures of time and money to modify equipment and work crews trained
to use the new technology.
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b. Installation of add-on control system - incineration or solvent
recovery.
c. Combination of the available methods to achieve compliance:
(1) Press #1 - Incineration or solvent recovery
(2) Press #2 - Use only water inks and adhesives.
2. Develop a schedule to ascertain the time restraints necessary to
achieve compliance.
3. Due to the nature of the potential legal problems and penalties, engage
an attorney who can facilitate the reception of the applications for
permits and negotiate favorable terms.
I would not want Arcon to go directly to the Nassau County engineers
without having Management obtain a full legal orientation as to the
potential liabilities and penalties, and having the benefit of legal
council as to the best strategy to bring the firm to the attention of the
regulatory agency.
4. Submit schedules to come into compliance and applications for permits
to the Nassau County Health Department.
Prior to submitting the applications, I would suggest that a request
be made to the County Health Department for a conference with them and the
NYSDEC to discuss the applications and schedule of compliance. This should
initiate a dialogue and pave the way for acceptance of the proposed course
by the regulatory agencies.
5. Based on the schedule of compliance, prepare specification packages to
submit to vendors of add-on control systems requesting proposals.
During the preparation of the specification package, identify
deficiencies in the existing equipment or plant layout which may require
modification to assure adequate air flows, drying and vapor capture. This
would include consideration of the recirculation of the drying systems,
and other alternatives which would optimize the use of the controls but
reduce the capital cost of the system.
6. Determine, based on the economic and technical analysis of the add-on
control proposals, and evaluation of the water technology tests and
economics, which approach is best suited to provide Arcon with a viable
compliance solution.
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ARCON COATING MILLS
ENVIRONMENTAL AUDIT, July 11, 1991
II. HAZARDOUS MATERIALS AND WASTE REGULATIONS AND RELATED SOLID WASTE AND
WASTEWATER REGULATIONS PERTAINING TO ARCON
A. HAZARDOUS WASTES
New York State 6NYCRP., Parts 370, 371 and 372
Anyone who uses hazardous materials and generates waste is
responsible for the proper collection, packaging, labelling, segregation
and disposition of that waste.
The law differentiates between hazardous waste generators by the
amount of waste produced on a monthly basis. The requirements at each
level varies; however, at every level certain restrictions apply.
A copy of the New York State Small Quantity Generators manual is
attached.
OBSERVATIONS AND COMMENTS
At this time, it would appear that Arcon is not a generator of
hazardous wastes and should strive to maintain such status. The practice
of using overruns of inks in other darker color formulations would give
the impression that no waste is generated; this practice should be
continued to keep Arcon out of the hazardous waste program.
However, in observing various drums and kits filled with dirty
solvents and machine parts, i.e. ink fountains and rolls, the question was
raised as to what happened with that dirty solvent and ink solids. We were
advised that the solvent was removed and used in ink mixing; the solids
were placed in the dumpsters.
This would constitute a violation of the hazardous waste
regulations. Any hazardous materials which enters the waste stream cannot
be placed in regular solid waste unless the waste has been delisted in
accordance with existing regulations. From past experience in arguing this
practice with the NYSDEC, liquid inks and solvents will retain solvents
when allowed to stand in a drum and "dry." They cannot be discarded as
solid waste unless tests are made to assure the State to the contrary.
We also saw one drum of "Bad Ink" that was in the Ink Storage
container, and was advised that Del Val would be asked to take it back.
Del Val had taken back ink waste in the past.
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This is not legal. If the inks are waste, i.e. off-spec due to use and
handling in plant, and not defective product, they should be labelled
accordingly and shipped as hazardous waste.
The waste that might be generated in the adhesives coating
application is primarily a result of wash-up of the coating station at the
end of a day or job. "All" water waste, we were advised, goes into the
empty pallet bins for return to National Starch (the water keeps the bins
moist and easy to clean.) Precautions should be taken to assure that this
waste is not polluted with any hazardous wastes; the trucks used by
National Starch are not licensed to haul hazardous wastes and could be
penalized if the bins were contaminated. Since the water based adhesives
contain no hazardous chemicals the waste would not be subject to the same
DOT transportation regulations as those transporting hazardous wastes.
We were told that there was no water ink waste to speak of, yet
found coloration in the wash tub behind Press #2. It would be wise to see
what is actually being done when jobs using water inks are finished and
the fountains are cleaned; or what is being done with ink residues. These
wastes are in essence hazardous waste due to the use of the alcohols and
esters (ignitable) in the formulation of the inks.
RECOMMENDATIONS AND OTHER COMMENTS
Determine exactly how much dirty solvent residue is generated by
collecting the residues, any ink that must be discarded, etc. I mentioned
this to Gene when I was in the plant. This determination should include
the water inks as well
From a second point of view, the current exposure related to the use
of dirty solvents for cleaning equipment poses an explosive safety
potential. The open drums of cleaning solvent evaporate to create health
and fire hazards.
Consideration should be given to the purchase of a cleaning tub, in
which the solvents are reused and the solids removed periodically for
disposal. The cleaning tanks are closed and built with safeguards for
health and fire. Some firms lease the cleaning tanks in conjunction with
the purchase and recycling of solvents.
Arcon would most likely be considered a Small Quantity Generator,
perhaps even an Exempt Small Quantity Generator, reducing the regulatory
burdens compared with that of a large quantity generator. Small quantity
generators produce between 100 to 1000 kilograms of waste a month. 100
kilograms is equal to half a fifty five gallon drum.
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At the time this determination is established, Arcon would file for
an EPA Identification Number. This number is required in order to have an
authorized waste transporter and disposer remove the hazardous waste from
the premises.
When the ID filing is made, Arcon will have to designate an
Emergency Coordinator and develop an Emergency Fire, Explosion and Spill
Control Contingency Plan; train all personnel who are involved in the
management and safety aspects of handling hazardous wastes; collect, store
and label the waste in accordance with the law; inspect periodically, and
- on Long Island due to the aquifer level - have a closure plan to clean
up the site in the event the facility shuts down.
The plant seems to have a very active ink management program, using
press returns for mixing fresh inks. The total effect of this effort is
still subject to the amount of special color matches requested by
customers for short runs. With the amount of ink used, it would be
worthwhile investigating a small color computer to house color mixing
formulas with the capability of including press returns in its
computations.
Inks with a shelf life should be rotated to avoid generating a
hazardous waste. Defective inks should be promptly returned to the vendor
for replacement.
B. SOLID WASTE MANAGEMENT
New York State is currently reviewing regulations to reduce the
amount of solid waste generated. With the closing of landfills and the
problem of erecting incineration plants, legislative moves have been
directed to either banning certain types of wastes, i.e. plastics that are
not biodegradable, or to establishing percentages for industry to reduce
waste over a period of years. This can be done by source reduction or
recycling.
Two areas stand out at Arcon.
1. Currently, spent rags containing ink and solvent are thrown in
the compactor. The rags are collected in open drums in the plant.
Safety cans should be used for these rags. The potential fire hazard
that solvent laden rags presents is significant.
The question of whether dirty rags are hazardous wastes has been
discussed by regulatory agencies for years. EPA has deferred making a
decision. Recently, there have been indications that New York State will
classify rags as hazardous
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wastes if used to clean up specific solvents, heavy metal pigments or
other listed chemicals. These rags cannot be placed into the normal solid
waste disposal containers for shipment to landfills.
Instead of buying bales of rags, and disposing of the dirty rags in
the garbage, rag services should be researched to supply, collect and
clean the right quality wipers. These services operate much like a diaper
service; cleaning and returning the wipers for your reuse.
2. Options for recycling of waste tyvek should be explored,
including pursuing DuPont's program using scavenger recycling firms,
internal reuse as packaging material, off-site use of the material for
packaging (give-away program, for example), or other options.
The same approach should be taken with paper waste. There are
smaller scavenger companies who will remove paper waste. Although there
may not be a return in terms of being able to sell the paper waste (the
market is terrible at this time), Arcon may be able to reduce the amount
of waste it discards. This could reduce the number of dumpsters that are
carted away by Oceanside or the amount of time the compactor is used and
emptied at a very high cost per load.
C. WASTEWATER
Process water entering the sewer system or septic tanks, and
chemicals leaching into the drinking water layers of the aquifer are
subject to various laws and regulations. Arcon's plant would be governed
by Federal, State and local laws.
Our observations indicated that the sole source of process water
waste would come from the clean-up procedures used with the equipment
using water inks and adhesives. If the inks and adhesives are removed from
the pans before cleaning, the residues should be well within the normal
levels acceptable to sewer treatment systems in the county.
OBSERVATIONS AND RECOMMENDATIONS:
1. Wastewater is generated at Arcon as a result of tray washing
where water-based materials are used. It should be made clear to all
employees that only water-based materials are allowed to be cleaned in the
sink. Solvents and solvent based inks are to be reused in the plant. Signs
can be posted stating such required practices.
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2. The wastewater should be screened on an annual basis (or when a
change in inks is implemented) to insure compliance with the Nassau County
sewer ordinance. This screening procedure involves grabbing one sample
during a production period when tray washing is being conducted and
submitting this sample for analytical testing. The parameters regulated by
the county and their limits are indicated in the attached table.
D. HAZARDOUS MATERIALS MANAGEMENT
The two regulations which govern the storage and handling of
hazardous materials in Nassau County are:
1. Article XI Nassau County Public Health Ordinance Toxic and
Hazardous Materials, Storage, Handling and Control
2. Article III Nassau County Fire Prevention Ordinance Flammable
and Combustible Liquids
Both cover the manner and amounts in which chemicals can be stored
and used. In either regulation, permits are required and limits are placed
on the amount of any chemical which may be stored in a given facility.
OBSERVATIONS:
Arcon does not have adequate storage facilities or controls for the
types or amounts of chemicals used. There are no permits for the existing
structure.
Inks and solvents are stored in a truck trailer that has been set on
the ground alongside the building with little regard for safety of the
contents or the neighboring plant.
Inks are mixed in an area that is out of compliance with many
regulations of NYSDEC, OSHA and the Nassau Fire Department. It is an open
area which spills into the #1 press workspace.
Solvent and ink drums are not grounded, although a grounding strip
is in place on the two walls that form part of the boundaries of the area.
The floors are covered with inks and solvents, many of which may
have leached into the ground and the surrounding water.
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The practice of using Tyvek to cover the floor and hide the
condition is unsafe and misleading. Tyvek can be slippery and loose, with
a potential for falls and injuries resulting.
It may be construed that in the absence of process water waste,
there is no concern for pollution of the ground water under the building.
With the location of the plant near the shoreline and the nature of the
chemicals used in the printing process, responsible management policy
indicate a more stringent approach to the way in which the inks and
solvents are in use. Any inspection of pollution in the canals near the
plant that indicate Arcon as the source, can result in liability for
clean-up of the pollutants.
Drums are currently being wiped clean and sent to AS Steel Drum, 619
E. 82nd Street, Brooklyn, NY 11236 for reclamation.
RECOMMENDATIONS:
1. Hazardous materials storage requires significant upgrading to meet the
requirements of Nassau County's Article III. This upgrading will include
elimination of the trailer for ink storage, construction of a new
flammable materials storage area, and consolidation of inks, ink blends,
and solvents into this new area.
Article 3 requirements include provisions for secondary containment,
fire suppression, electrical standards, vapor detection, and exhaust.
2. The ink mixing area at Arcon should be consolidated with the new
storage facilities. The consolidation will allow for improved ventilation,
upgraded electrical, and secondary containment.
3. Solvent currently purchased in 55 gallon drums may be more economically
purchased and managed in larger tote type containers (200 - 500 gallon
capacity). Evaluation of ink containers may also determine that major
colors (white and black, for example) should be purchased in larger tote
type containers, if available.
4. Documentation should be obtained from the drum recycler used by Arcon
to assure that he is operating in accordance with State and New York City
regulations. This documentation is necessary to protect Arcon in the event
that any of its drums show up in an illegal dumpsite, or are cited as
contributors to pollution from the reclamation plant.
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5. Drums containing ink blends in the mixing area should be properly
labeled with the contents and for their hazardous characteristics.
6. Several observations were made regarding the storage of materials.
These conditions were observed at the site visit and should be corrected
immediately:
a. Bungs on drums and totes were found open, missing and/or leaking;
b. Grounding of drums of flammable materials was not in use,
although the wiring was available; there have been three major
accidents in the past year and a half in our industry involving fire
and explosion caused by static electricity and solvents in drums.
c. A solvent drum was leaking onto the floor. The pipe fitting was
loose and wrapped with a rag. The drum was not grounded. The leaking
solvent was being collected in a pail under the spout.
d. Safety equipment was not in use when transferring flammable
materials - funnels, pans, etc.
e. Hazardous materials were found outside in an area without
containment.
f. The container housing the inks and solvents outside of the
building had been hit by a truck or two. With any more force or a
spark, the trailer and the plant would have been consumed by a major
fire.
The existing trailer should be fitted with posts for traffic
control during the interim while upgraded material storage
facilities are under design and construction. These posts should
reduce the likelihood of damage to the containers of material in
storage in case they are hit by a vehicle.
Vehicular damage to this trailer could result in spills to the
environment, fire/explosion, or both.
g. Welding gases may require a permit from the local fire
department. These gases are in use in the maintenance shop.
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h. A propane tank was found outside without a chain; the tank was at
the corner of the building near New Street.
Since you do not use Propane, the tank must belong to someone
else. This tank should be returned to the vendor, as it apparently
is not in use.
i. Periodic inspections should be conducted and documented to insure
that proper hazardous materials storage practices are being
implemented.
7. To provide some assurance as to the condition of the site in the event
that Arcon closes the facility, it is recommended that ground boring
samples be taken in the area of the ink and presses. This will indicate
the potential for pollution of the groundwater under the building, and the
liability of Arcon for clean-up of the site.
E. SPILL CONTROL AND EMERGENCY RESPONSE REQUIREMENTS
1. Written programs must be developed to define Arcon's procedures
to handle emergencies. These situations include fires, spills, first aid,
chemical and physical injuries, and other scenarios. Arrangements with
local response groups (hospitals, fire and police departments, spill
contractor, etc.) must be documented.
2. Emergency and spill control equipment is required in sufficient
quantity to handle the worst case situation. This equipment may include
spill adsorbent, emergency personnel protection equipment, access to
response information, etc.
3. Records are required demonstrating inspection of emergency
equipment such as fire extinguisher maintenance, sprinkler system
inspections, maintenance of appropriate quantities of emergency response
supplies, etc.
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ARCON COATING MILLS
ENVIRONMENTAL AUDIT, JULY 11, 1991
III. OSHA AND RELATED SAFETY AND HEALTH REGULATIONS AT ARCON
A. OSHA has enacted a complete set of regulations and standards for
industry under the Code of Federal Regulations Labor 29, Parts 1900 to
1910.
These are enforced by OSHA and the State of New York through the
County Health Department.
Of particular concern during the audit were compliance with the:
1. Hazard Communication Standard
2. Lock-Out/Tag-Out
3. Powered Industrial Trucks
4. In-door Air Pollution
5. General regulations pertaining to the use of machinery
(i.e. guards and electrical grounding) and chemicals (fire).
B. The OSHA Hazard Communication Standard, frequently called the
"Right To Know" laws, require certain basic actions on the part of
Management:
1. Inventory of all chemicals in building.
2. Material Safety Data Sheets for all chemicals; available for
employees to read as part of their jobs.
3. Labelling of all container - from vender or in use in-plant - to
identify content and hazards.
4. Written Safety Program to implement regulations.
5. Training programs (ongoing). This is intended for groups of
employees who have been on the job at such time as any chemistry changes
or with the passage of time. Every new employee should be given an
indoctrination on hiring.
Arcon did undergo a portion of this activity in 1986, when Frank
Hamel of Del Val Ink came in to conduct a training session and left you
with an outline of the program used at
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Del Val. An MSDS Book was organized at that time. Records are in the
manual for the class held at that time, with some test papers for a few
of the participants.
Since then there has been no Right To Know activity. The MSDS books
have not been updated; the chemical inventory appears to be the one filed
for Del Val in NJ rather than one for Arcon. No training has taken place
since 1986. New employees have not been given orientations in chemical
safety and the tools of the Hazard Communication Standard.
Containers in the plant, in all areas, were without labels. Drums
and kits in the mixing area and at the presses did not have any labels.
Employees in the mixing areas should be fitted with gloves, aprons,
and eye protection while mixing inks.
C. LOCK-OUT/TAG-OUT
This regulation is intended to define written standards to insure
that equipment that has been shutdown for maintenance or set-up is not
started up inadvertently while the mechanic is working in the machine.
It provides for a survey of equipment to identify power sources and
points at which they can be shut off and secured by a lock. The lock is
tagged to identify who is working on the machine and when. Each mechanic
has his own lock which he removes when he is finished.
Tags identify who is working and when work started.
Arcon does not a lock out/tag out program, but does have equipment
on which such precautions should be taken.
D. FORK LIFT TRUCK OPERATIONS
OSHA requires that every operator be trained in the safe operation
of his/her vehicle. This includes a knowledge of safe operating
procedures, characteristics of fork lift truck operation, safety
precautions and equipment.
Arcon's drivers have not been given this training program. The basic
training given by Arcon at time of hiring has been to show how the truck
starts, stops and functions.
Among our observations with regard to the forklifts:
1. Lines painted on the floor should allow for easier recognition
of fork lift routes.
18
<PAGE>
2. Fork lifts should have fire extinguishers and back up horns.
E. INDOOR AIR POLLUTION
OSHA has lowered the levels at which many pollutants can exist in
the workplace. The major solvent at Arcon is Isopropyl Acetate, which has
a PEL of 250 ppm. We are awaiting the breakdown of the inks and quantities
to see if there are any other solvents to check.
Of immediate concern are the areas around the two presses and the
ink mixing area.
The machine areas should be checked to find the covers for the ink
fountains. If not found, covers should be made. Lack of fountain covers
increases the transmission of fugitive vapors in the plant.
The press personnel must be made aware of the need to place the
covers on the fountains after the press has been set-up
Furthermore, the practice of leaving kits and drums of inks and
solvents open at the presses must stop. All open containers facilitate
evaporation of the solvents and the contamination of the plant air.
In the ink mixing area, covers should be on all containers whether
in-process or for feeding the mixer. We did see some drums covers with V's
out in the area for the mixing impeller, but none in use.
A major concern is the location of the ventilation fan at the base
of the printing stack of Press #1. It is pulling all the vapors from the
dryer system back down into the area in which the press personnel work.
This results in a heavy concentration of solvent fumes, a condition which
mandates wearing of respiratory masks when working in the area of the
printing stack.
We did not see Press #2 in full operation and will have to wait for
the air testing to determine levels of vapor concentration.
E. MISCELLANEOUS OBSERVATIONS/COMMENTS
1. Guards are not being used on the presses. Some are lying on the floor
behind Press #2.
They should be in place or made where required to cover gears,
belts, other moving parts including printing rollers.
19
<PAGE>
2. Waste oils generated from equipment maintenance should be managed
properly. It was not clear at the audit what the fate of this material
was.
3. Fire exits should be kept clear at all times. Several were found to be
blocked with debris.
4. The ink vat at the smaller press can be moved closer to the press using
less hose. Clean-up should be easier.
5. Housekeeping at the presses and in the ink mixing area is terrible.
This would be a major deterrent in considering water ink technology as a
solution for air emissions compliance.
See comments in other section which relate to conditions in the
press and ink areas.
RECOMMENDATIONS:
1. Plan and initiate a Safety Committee and Safety Program which would
address all safety and environmental concerns on a regular schedule.
2. Recommend that an OSHA Hazard Communication program be authorized that
will bring the firm into compliance with all sections of the law.
3. Recommend that lock out/tag out procedure should be initiated and the
employees equipped and trained to perform in accordance with the
provisions of the regulation.
4. Recommend that a fork lift truck training program be instituted.
5.Recommend that the dryer system should be checked, cleaned and
otherwise upgraded to improve the negative exhausting of all vapors from
the printing stack. Relocation of the fan will most likely be recommended.
6. Recommend, per letter sent to Dave Kruft, that air tests should be made
by Susan Cook PE using Draeger Tubes. This will quantify the vapor levels
in various parts of the presses and plant. Based on the outcome, in-house
testing can be conducted on a designated schedule and recommendations made
for further action if warranted.
7. Give the press areas a good cleaning and train personnel to maintain
the presses and ink mixing areas.
20
<PAGE>
[Logo] PRO-FLEX consultants ltd.
210 STEPHEN ST. LEVITTOWN, NY 11756 (516) 935-7241
ARCON COATING MILLS
ESTIMATED BUDGETS TO COME INTO COMPLIANCE
At your request, we are estimating the cost of coming into compliance with
the major areas of concern and the respective regulations.
These are ball park budgets, intended as a means of putting a perspective
on the work to be done. More refined budgets can be determined as a second stage
in the process. The budget dollars are on the high side of the range of time
required.
I. CLEAN AIR
A. Develop program to come into compliance
Detailed evaluation of the presses and coating operation to
determine the merits of the various options, prepare specifications to
submit to vendors of equipment, obtain proposals for equipment, and
evaluate proposals. Prepare schedule to come into compliance. Budget
includes an audit of the presses and drying systems.
Estimated time required ............. 9-12 days
Estimated cost ...................... $12,000.00
B. Permit application submission to NYSDEC
Collection of data and computations for submission of applications,
drawing of site and preparation of permits. Will involve communications,
possibly meetings with County engineers.
Estimated time required ............. 5-6 days
Estimated cost ...................... $ 6,500.00 plus fees
C. Conciliation meetings and negotiations
This is a nebulous budget, intended to stress the potential
consulting and legal fees that may be required to negotiate with the
County and State engineers and legal affairs department.
Estimated time for budget:
Attorneys 5-l0 days; Consultants 5-10 days
Estimated cost ...................... $30,000.00
<PAGE>
D. Cost of Equipment to come into compliance:
1. Incineration - cost of system installed:
Both Presses estimate 30,000 CFM $800,000-l,250,000
Press #1 Only estimate 4,000 CFM $250,000
Arcon would have to provide utilities to site, permits, stack
test, etc.
Estimated cost ................ $50,000
Major consideration would be location of the system in the
building or on the grounds.
2. Water Technology
Estimate is very rough, to consider potential need to modify drying
equipment, re-etch anilox rollers and gravure cylinders, possibly
add a corona treating unit. This information will be developed
during the audit of the presses.
Press #1 $50,000.00
Press #2 $50,000.00
Total $100,000.00
System to handle water waste from inks $30,000.00
TOTAL COST TO COME INTO COMPLIANCE WITH CLEAN AIR
HIGH .......................... $1,298,500.00
LOW ........................... $ 178,500.00
This does not include any penalties for non-compliance and lack of
permits, training of personnel and loss of production during the training
period.
II. HAZARDOUS MATERIALS AND WASTE STORAGE AND HANDLING
1. Construction of proper chemical storage and mixing room.
Engineering and permits $10,000.00
Construction $50,000 - 60,000.00
Total estimate ...................... $70,000.00
<PAGE>
Based on inquiries for other clients to use pre-fab hazardous
materials storage buildings, the substitution of a replacement for the
outside trailer housing would cost as much, if not more than constructing
a proper Storage and Mixing Room in the building.
2. Wastewater sampling, testing and analysis.
Estimated cost including lab fees ... $ 2,500.00
3. Hazardous Chemical Emergency Contingency Plan (Spill Control) and
necessary Hazardous Waste Program
Develop program and plans; train personnel
Estimated time 3 days
Estimated cost ...................... $ 2,400.00
TOTAL COST OF HAZARDOUS MATERIAL AND WASTE $74,900.00
C. OSHA
1. Safety and Hazard Communication Program
Preparation of written program and training; initiate Safety
Committee program.
Estimated time 4 days
Estimated cost ...................... $ 3,200.00
2. Lock-out/Tag-out Program
Estimated time 1 day
Estimated cost ...................... $ 800.00
3. Fork-Lift Training Program
Estimated time l/2 day
Estimated cost ...................... $ 400.00
4. Indoor air quality tests
Testing with Draiger tubes, letter July 19, 1991
Estimated cost ...................... $ 700.00
TOTAL COST OF OSHA RELATED PROGRAMS $ 5,100.00
plus materials
<PAGE>
D. ESTIMATED COST OF COMING INTO COMPLIANCE
1. HIGH ESTIMATE $1,378,500.00 PLUS PENALTIES
2. LOW ESTIMATE $ 258,500.00 PLUS PENALTIES
The cost of compliance estimates are rough budgets, to be used for
guidance in making the decisions necessary to move to the next phase - assigning
priorities and executing the necessary programs.
<PAGE>
Mass Balance Analysis
<PAGE>
[Logo] PRO-FLEX Consultants ltd.
210 STEPHEN ST. LEVITTOWN, NY 11756 (516) 935-7241
August 19, 1991
David Kruft
Arcon Coating Mills Inc.
3067 New Street
Oceanside, NY 11572
Re. Environmental Audit - Mass Balance Analysis, VOC'S
Dear David:
Based on the information provided by Del Val, letter dated August 14, we have
completed the mass balance analysis of the printing operations.
For the three prior years, Arcon has emitted volatile organic compound
emissions in excess of the 100 tons per year guideline specified in the EPA and
New York State regulations for air pollution permits and controls.
1990 145.19 tons
1989 141.76 tons
1988 143.79 tons (estimated)
The emissions were further allocated to the two presses based on the assumption
that the two presses run a total of 120 hours per week in a 48 week year. It was
further assumed that the #2 press would run two shifts, #1 one shift. This
breakdown would be helpful in sizing an add-on control system.
The third station of the Press #2 is isolated, since it has been used for
adhesive coating and would be addressed under Part 228 of the NYSDEC
regulations. The coating are viewed for compliance in terms of pounds of VOC's
per gallon. Based on the MSDS's the adhesives are water based and contain no
VOC's. This part of the operation is in compliance with the regulations.
At the end of the spreadsheet, I have indicated some concept of incineration
sizing based on air flows and the recirculation of the air in the drying system.
This needs further engineering analysis.
<PAGE>
If the Arcon option selected is water based technology, you should talk to the
following ink suppliers who have done considerable work in this area. Please
note that Frank Hamel told me that he had water inks for the Tyvek and would
like to have you try his inks.
Environmental Inks & Coatings - Bill Gamble - 800-525-6159
Sun Chemical Corporation - Mort Landes - 516-467-8155
Polytex Color & Chemical - Bill Forte - 212-402-2000
CZ Inks - John Brennan - 215-363-2702
Water Ink Technologies - Mike or Pat Hague - 704-735-8282
Arcar Graphics, Inc. - Bob Baber - 800-553-5222
Please let me know when you have completed your review of the audit and are
prepared to sit down to discuss the contents.
Sincerely,
/s/ Fred Shapiro
----------------------------
Fred Shapiro
P.S. You still require MSDS's from Del Val for your inks. As you move ahead, a
better breakdown of the solvents in the inks will be required.
<PAGE>
ARCON COATING MILLS
MASS BALANCE EVALUATIONS AIR EMISSIONS
<TABLE>
<CAPTION>
1990 1989 1988
INK(LBS) VOC'S(LBS) INK(LBS) VOC'S(LBS) INK(LBS) VOC'S(LBS)
<S> <C> <C> <C> <C> <C> <C>
INK SYSTEMS:
AQUATITE
White 26,927 1,348 22,400 1,120 23,000 1,150
COLORS 1,523 90 991 50 752 38
VARNISH 200 10 0 0 35 4
SUB-TOTAL 28,650 1,448 23,391 1,170 23,787 1,192
PLASTOPRINT
WHITE 73,550 39,937 72,049 39,125 63,000 34,209
COLORS 157,644 99,123 143,584 89,656 152,530 96,438
VARNISH 3,660 2,880 4,420 3,478 2,400 1,889
SUB-TOTAL 234,854 141,940 220,053 132,259 217,930 132,536
MULTIPRINT
WHITE 0 0 0 0 0 0
COLORS 2,304 1,044 866 389 644 342
VARNISH 0 0 0 0 0 0
SUB-TOTAL 2,304 1,044 866 389 644 342
FLEXOPRINT
THERMOPRINT
VARNISH 10,503 8,350 11,534 9,141 l6,192 12,939
SUB-TOTAL 10,503 8,350 11,534 9,141 16,192 12,939
SOLVENT BASED INKS
WHITE 73,550 39,937 72,049 39,125 63,000 34,209
COLORS 159,948 100,167 l44,450 90,045 153,174 96,780
VARNISH 14,163 11,230 15,954 12,619 18,592 14,828
TOTAL 247,661 151,334 232,453 141,789 234,766 145,817
WATERBOURNE INKS
WHITE 26,927 1,348 22,400 1,120 23,000 1,150
COLORS 1,523 90 991 50 752 38
VARNISH 200 10 0 0 35 4
TOTAL 28,650 1,448 23,391 1,170 23,787 1,192
SOLVENTS
ISOPROPYL ACETATE 137,600 137,600 140,800 140,800 140,800 140,800
TOTAL VOC EMISSIONS 290,382 283,759 287,809
TONS VOC'S 145.19 141.88 l43.90
PRESS HOURS OPERATED 5760 5760 5760
POUNDS EMITTED PER PRESS HOUR 50.41 49.26 49.97
</TABLE>
<PAGE>
ARCON COATING MILLS
COMPUTATION VOC EMISSIONS BY PRESS
HOURS VOC'S EMITTED
OPERATED 1990 1989 1986
PRESS #1 1920
WATERBOURNE 0 0 0
SOLVENT BASED 173360 169553 171970
TOTAL 173360 169553 171970
POUNDS VOC/HOUR 90.29 88.31 89.57
POUNDS VOC/RUN HOUR (EST) 180.58 176.62 179.14
PRESS #2 3840
WATERBOURNE 1448 1170 1192
SOLVENT 115574 113036 114647
TOTAL 117022 114206 115839
POUNDS VOC/OPERATING HOUR 30.47 29.74 30.17
POUNDS VOC/RUN HOUR (EST) 60.95 59.48 60.33
AIR FLOWS -DRYER SYSTEM
ACFM
PRESS #1 4,000 estimated recirculate to 2,000 approx.
PRESS #2 21,532 printing stacks recirculate to 10,000 approx.
10,766 coating stacks
INCINERATOR CONFIGURATIONS
Press #1 and #2 as is 25,500 CFM
Press #1 and #2 recirced 12,000 CFM
Press #1 recirc (#2 water) 2,000 CFM
ESTIMATED USED FOR SOLVENT PURCHASED IN 1988 - SAME AS 1989.
<PAGE>
[Logo] DEL VAL INK AND COLOR
INCORPORATED
- ---------------------------------
FLEXOGRAPHIC AND ROTOGRAVURE INKS
- ---------------------------------
1301 TAYLOR'S LANE
RIVERTON, NJ 08077
Phone (Area Code 609) 829-7474
Penna. (Area Code 215) 671-1500
August 14, 1991
Mr. David Kruft, General Manager
Arcon Coating Mills
P.O. Box 486
Oceanside, New York 11572
Dear David:
As requested by Fred Shapiro, we are enclosing ink purchase and VOC
emission data for the years 1988, 1989 and 1990 as follows:
YEAR INK PURCHASED, LBS. VOC LBS.
------------------- --------
1988 258,553 147,009
1989 255,844 142,959
1990 276,311
Worksheets for this summary are attached.
Glad to be of help.
Very truly yours,
DE VAL INK & COLOR INC.
/s/ Frank A. Hamel
------------------------
FAM:rf Frank A. Hamel, Jr.
Encls. President
cc: Fred Shapiro
Pro-Flex Consultants Ltd.
<PAGE>
DEL VAL INK & COLOR, INC. 8/13/91
ARCON COATING MILLS, INC.
-------------------------
Purchases 1990 - Colors
<TABLE>
<CAPTION>
INK NUMBER INK NAME Lbs. % VOC Lbs. VOC
- -------- ---------- ---- ----- --------
<S> <C> <C> <C> <C>
??-F-1686 Aquatite (LF) White 26,375 5.0 1,320
??-F-1824 Aquatite (LF) White 552 5.0 28
??-Q-1217 Plastoprint (LF) Tyvek White 73,500 54.3 39,190
??-Q-1987 Plastoprint (LF) 3 1/2% Wax White 50 53.0 27
??-F-5673 Aquatite (LF) Green Shade yellow 70 5.0 4
??-Q-4064 Plastoprint (L) Primrose Yellow 8,677 53.8 4,668
??-Q-4065 Plastoprint (L) Chrome Yellow 24,250 57.6 13,968
??-Q-5080 Plastoprint (L) Anti Stat Yellow 355 54.0 191
??-Q-5661 Plastoprint (LF) Green Shade Yellow 2,402 73.6 1,768
??-Q-5663 Plastoprint (LF) Yellow 2 70.0 1
??-Q-5692 Plastoprint (LF) 3 1/2% Wax G.S. Yellow 40 70.0 28
??-F-2964 Aquatite (LF) Orange 37 5.0 2
??-U-921 Multiprint (L) Moly Orange 50 41.0 20
??-U-2137 Multiprint (LF) Flourescent Blaze Orange 1,545 41.8 645
??-Q-1995 Plastoprint (L) Moly Orange Base 29,600 54.4 16,102
??-Q-2959 Plastoprint (LF) Orange 2,402 54.4 1,306
??-Q-2972 Plastoprint (LF) 3 1/2% Wax Orange 120 53.0 64
??-F-9899 Aquatite (LF) Red 38 5.0 2
??-Q-7242 Plastoprint (LF) Watchung Red 2,575 70.7 1,820
??-Q-7243 Plastoprint (LF) Lithol Rubine 2,851 68.8 1,961
??-F-5505 Aquatite (LF) Phthalo Green 38 5.0 2
??-Q-4034 Plastoprint (LF) Cyan Green 2,342 72.8 1,705
??-F-9209 Aquatite (LF) Red Shade Blue 200 5.0 10
??-P-9485 Aquatite (LF) Red Shade Phthalo Blue 795 5.0 40
??-F-9489 Aquatite (LF) Red Shade Phthalo Blue 194 5.0 10
??-?-6938 Plastoprint (LF) Process Red Shade Blue 10,425 71.6 7,463
??-F-6939 Plastoprint (LF) G.S. Phthalo Blue 4,000 71.6 2,064
??-Q-1117 Plastoprint (LF) Purple 266 68.7 182
??-Q-2256 Plastoprint (LF) Spec Black 66,860 68.4 45,732
??-?-2938 Plastoprint (LF) 3 1/2% Wax Black 36 67.0 24
??-U-2396 Multiprint (LF) Non-Scuff Black 268 53.8 144
??-U-2498 Multiprint (LF) Black 419 53.0 222
??-F-2527 Aquatite (LF) Black 241 5.0 12
</TABLE>
<PAGE>
DEL VAL INK & COLOR, INC. 8/13/91
Page 2
ARCON COATING MILLS
Purchases 1990 - Colors
-----------------------
<TABLE>
<CAPTION>
INK NUMBER INK NAME Lbs. % VOC Lbs. VOC
- -------- ---------- ---- ----- --------
<S> <C> <C> <C> <C>
??-F-2784 Aquatite (LF) Black 160 5.0 8
??-Q-1374 Plastoprint (LF) 175-1 Gold 191 44.4 84
??-U-1614 Multiprint (LF) Pantone 873 Gold 9 50.0 5
??-U-305 Multiprint (LF) Silver 13 63.0 8
Purchase 1990 - Varnishes
-------------------------
??-211 Plastoprint (LF) Varnish 3,660 78.7 2,880
??-2664 Thermoprint (LF) Wax Free Lacquer 9,830 80.5 7,913
??-3009 Thermoprint (LF) Wax Compound 673 65.0 437
??-2955 Aquatite (LF) Extender 200 5.0 10
------- ------
276,311
</TABLE>
<PAGE>
DEL VAL INK & COLOR, INC. 8/13/91
ARCON COATING MILLS
Purchases 1989
--------------
<TABLE>
<CAPTION>
INK NUMBER INK NAME Lbs. % VOC Lbs. VOC
- ---------- -------- ---- ----- --------
<C> <S> <C> <C> <C>
10-Q-1217 Plastoprint (LF) Tyvek White 72,000 54.3 39,095
10-P-1900 Plexiprint (LF) Hi Hide White 49 60.0 30
10-F-1686 Aquatite (LF) White 22,400 5.0 1,120
20-Q-4064 Plastoprint (L) Primrose Yellow 7,200 53.8 3,873
20-Q-4065 Plastoprint (L) Chrome Yellow 27,200 57.6 15,667
30-Q-1995 Plastoprint (L) Moly Orange Base 29,200 54.4 15,884
30-U-2137 Multiprint (LF) Fluorescent Blaze Orange 620 41.8 260
30-Q-2198 Plastoprint (LF) Orange 40 40.0 16
30-Q-7242 Plastoprint (LF) Watchung Red 2,426 70.7 1,715
40-Q-7243 Plastoprint (LF) Lithol Rubine 2,844 68.8 1,956
50-Q-4034 Plastoprint (LF) Cyan Green 244 72.8 177
50-Q-6938 Plastoprint (LF) Process R.S. Blue 9,932 71.6 7,111
50-Q-6939 Plastoprint (LF) G.S. Phthalo Blue 4,825 71.6 3,454
60-Q-9433 Plastoprint (LF) Fast Dry Blue 37 70.0 25
60-F-9485 Aquatite (LF) R.S. Phthalo Blue 356 5.0 18
??-Q-1117 Plastoprint (LF) Purple 151 68.7 103
??-U-4018 Multiprint (LF) Tan 39 50.0 20
??-Q-2256 Plastoprint (LF) Spec. Black 59,400 68.4 40,630
??-Q-2498 Multiprint (LF) Black 198 53.0 104
??-F-2527 Aquatite (LF) Black 635 5.0 32
??-Q-1374 Plastoprint (LF) 175-1 Gold 45 44.4 20
??-U-1614 Multiprint (LF) Pantone 873 Gold 9 50.0 5
??-Q-395 Plastoprint (LF) Silver 40 63.0 25
??-Q-211 Plastoprint (LF) Vinyl Varnish 4,420 78.7 3,478
??-G-3009 Thermoprint (LF) Wax Compound 919 65.0 597
??-G-2664 Thermoprint (LF) Wax Free Lacquer 10,535 80.5 8,480
??-A-2545 Flexoprint (LF) Straining Varnish 80 80.0 64
------- -------
255,844 142,959
</TABLE>
<PAGE>
DEL VAL INK & COLOR, INC. 8/13/91
ARCON COATING MILLS
Purchases 1988
--------------
<TABLE>
<CAPTION>
INK NUMBER INK NAME Lbs. % VOC Lbs. VOC
- ---------- -------- ---- ----- --------
<C> <S> <C> <C> <C>
6-6 Ammonia Water 35 10 4
5-A-2545 Flexoprint (LF) Staining Varnish 3,138 80 2,510
5-G-2664 Thermoprint (LF) Wax Free Top Lacquer 12,550 80.5 10,102
5-G-3009 Thermoprint (LF) Wax Compound 504 65.0 327
5-Q-211 Plastoprint (LF) Vinyl Varnish 2,400 78.7 1,889
10-F-1686 Aquatite (LF) White 16,500 5.0 825
10-F-1824 Aquatite (LF) White 6,500 5.0 325
??-Q-1217 Plastoprint (LF) Tyvek White 63,000 54.3 34,209
??-Q-4064 Plastoprint (L) Primrose Yellow 7,600 53.8 4,089
??-Q-4065 Plastoprint (L) Chrome Yellow 26,450 57.6 15,235
??-Q-5080 Plastoprint (L) Anti Stat Yellow 390 54.0 210
??-Q-1995 Plastoprint (L) Moly Orange Base 31,200 54.4 16,972
??-U-921 Multiprint (L) Moly Orange 150 54.4 01
??-Q-7242 Plastoprint (LF) Watchung Red 2,986 70.7 2,111
??-Q-7243 Plastoprint (LF) Lithol Rubine 3,579 68.8 2,455
??-Q-4034 Plastoprint (LF) Cyan Green 800 72.8 576
??-Q-6938 Plastoprint (LF) Process R.S. Blue 12,000 71.6 8,592
??-Q-6939 Plastoprint (LF) G.S. Cyan Blue 5,125 71.6 3,669
??-P-9209 Aquatite (LF) R.S. Blue 200 5.0 10
??-Q-1117 Plastoprint (LF) Purple 228 68.7 156
??-F-2527 Aquatite (LF) Black 472 5.0 24
??-F-2708 Aquatite (LF) Tyvek White 80 5.0 4
??-U-2498 Multiprint (LF) Black 474 53.0 251
??-U-2256 Plastoprint (LF) Special Black 61,500 68.4 42,066
??-Q-1374 Plastoprint (LF) 175-1 Gold 525 44.4 233
??-U-1614 Multiprint (LF) Pantone 873 Gold 20 50.0 10
??-Q-1919 Plastoprint (LF) Gold 147 50.0 74
------- -------
258,553 147,009
</TABLE>
<PAGE>
Long Island Water (gallons)
- -----------------
1/15/91 - 4/16/91 34,800
10-18-90 - 1-15-91 35,300
7-19-90 - 10-18-90 42,400
4-19-90 - 7-19-90 33,800
1-18-90 - 4-19-90 30,900
10-20-89 - 1-18-90 28,600
TOTAL 205,800
Pride Solvents - Isopropyl Acetate (pounds)
- ----------------------------------
1991 (thru May) 43,200
1990 104,000
1989 140,800
Harcross - Isopropyl Acetate (pounds)
- ----------------------------
1991 (thru May) 19,200
1990 33,600
<PAGE>
Safety Report
<PAGE>
CONFIDENTIAL
MEMORANDUM
D R A F T
TO: Tom Isola
FROM: David Kruft
DATE: June 12, 1992
RE: Mid Year Environmental & Safety Report
At your request, I have prepared the following Environmental and Safety update.
In an effort to address all the issues, this report will follow the format of
the October 11, 1991 Ropes & Gray attorney work product. The number and letter
designations identifying the issues are consistent with the page numbers and
paragraph identification in the original report (copy attached).
A. AIR REGULATION
Background Information
Following the initial notification to the DEC on October 16, 1991, we
embarked upon an aggressive water-based ink testing program and an
extensive investigation of the incineration option, either of which would
bring us into compliance. On May 15, 1992, notification was sent to the
DEC selecting the water-based ink option.
Page 2, Para. 2a. - Permits
With the water-based option selected, permits to construct and/or operate
have been submitted to the Bureau of Air Management of Nassau County.
These permits were submitted (June 11, 1992) for all seven emission points
in the Oceanside facility.
Page 3, Para. (ii) - Graphic Arts Process (Printing)
Compliance issues addressed in this section will be satisfied with the
conversion to water-based inks. We are operating within the time line
issued and the dating suggested in the May 15th letter (i.e., 6 to 9
months). Applications to operate will be submitted immediately thereafter.
[Logo] ARCON
COATING MILLS
<PAGE>
MID YEAR ENVIRONMENTAL & SAFETY REPORT
June 12, 1992
Page 2
B. HAZARDOUS WASTE REGULATION ISSUES
To avoid any misunderstanding, let me state unequivocally that the
collection, packaging, labeling, storage, handling regulations and
disposal of hazardous waste at Arcon is not, nor has it ever been an issue
or problem since we do not and have never generated any hazardous wastes.
Page 4a
The ink formulation program of make up, that is, using ink overruns and
wash in darker colors, as opposed to disposing of same, is ongoing.
Our ink rotation program has been improved and formalized. Ink stored
in-house has been reduced by more than 50%.
Page 4 b1
Now that the water-based ink option has been chosen, the necessity of a
cleaning tank will be reviewed. A decision to buy/not buy will be made by
June 30, 1992.
Page 4 b2
We have obtained an EPA hazardous waste generator I.D. number.
Page 4 b3
No water from the water-base program is sent into the sewers. All clean up
water is used in make up and cutting of raw ink.
Page 5 c
Adhesive coating wastes do not (per MSDS) generate any hazardous waste.
The minimum wash water generated continues to be put in the empty pallet
bins per the supplier's request.
Pace 5 d
NO ink of any type, solvent or water, is being poured in the wash tubs.
Signs have been posted and repetitive instructions to all employees
insures "no ink in the sink".
[Logo] ARCON
COATING MILLS
<PAGE>
MID YEAR ENVIRONMENTAL & SAFETY REPORT
June 12, 1992
Page 3
Page 5 e
Ink drums are now sold to a licensed recycler. Fred Shapiro has confirmed
that our method of disposing of the drums is sufficient and within
regulations.
Pace 6 f
All off-specification inks and inks which were to be tested have been
returned to the respective manufacturers.
Page 6 g
We are now on a formal rag recycling program with a licensed firm. All
used rags are stored in a safety container awaiting the once per week pick
up. Fred Shapiro has confirmed this practice is sufficient and within
specifications.
C. HAZARDOUS MATERIALS MANAGEMENT
This section of the attorney work product deals with potential hazardous
material storage. Only those items no totally resolved at the time of the
original writing (October 11, 1991) will be addressed.
Pace 6 a
Drum covers are now in use throughout the plant.
Pace 7 c2
The plant clean up program is complete and a housekeeping tour is
conducted on a regular basis so as to keep the plant in a satisfactory
condition.
Pace 7 c3
Spill containment permits and plans have been filed with Nassau County.
Once these are approved, bids and, ultimately, construction will begin. We
are anticipating a September 1, 1992 completion.
Pace 7 c4
An explosion-proof room, by regulation, is required only if the VOC's in
the ink have a flash point of 200 degrees F or less. All of the water-base
inks we are using and testing have flash points above 200 degress F;
therefore, we do not anticipate the need for nor the building of an
explosion-proof room.
[Logo] ARCON
COATING MILLS
<PAGE>
MID YEAR ENVIRONMENTAL & SAFETY REPORT
June 12, 1992
Page 4
Page 7 d2
A formal safety program, along with regularly scheduled safety tours, is
now in place. Additionally, written contingency plans are now complete.
Page 7c
Addressed in 7 c3 above.
D. MISCELLANEOUS ISSUES
Page 8a
A "Right to Know" program has been developed. All employees, as of this
writing, have been given formalized classroom-type instruction. The MSDS
file is maintained on a regular basis with current MSDS's for all
materials on file.
Page 9b
A written safety plan, which includes safety tours, committee meetings,
etc. has been published.
Page 9f
All ink fountains now have covers.
Page 9h
Air quality tests were conducted on October 24, 1991 by a contracted
professional engineer. The results indicate we are in compliance with
current air regulations.
II. CONTACTING OF GOVERNMENT AGENCIES
As has been reported on a regular basis, appropriate contact has been made
with the DEC. Our progress to date and the May 15, 1992 selection of the
water-based ink option has been communicated. Additionally, permits have
been filed.
Page 11b
To the best of this writer's understanding, all items raised in the
October 11, 1991 attorney work product are either complete or will be
underway within the time line established with the government agencies.
[Logo} ARCON
COATING MILLS
<PAGE>
MID YEAR ENVIRONMENTAL & SAFETY REPORT
June 12, 1992
Page 5
A similar program, far less involved however, is underway at Thomas Tape. It is
expected that a formal review of the facility, by Fred Shapiro and myself, will
take place sometime in late July or early August. We would expect Thomas, at
that time or soon thereafter, to be in full compliance with all local and
federal regulations.
DK:dv
[Logo] ARCON
COATING MILLS
<PAGE>
Compliance Report
<PAGE>
[Letterhead of Ropes & Gray]
October 11, 1991
PRIVILEGED AND CONFIDENTIAL
ATTORNEY WORK PRODUCT
Board of Directors
FSE Holdings, Inc.
Re: Arcon Coating Mills, Inc.
Environmental and Safety Compliance Assessment
----------------------------------------------
Gentlemen:
At your request, we have consulted with the management of Arcon Coating
Mills, Inc. ("Arcon" or the "Company") and Fred Shapiro of Pro-Flex Consultants
Ltd. to compile information regarding Arcon's compliance with environmental and
safety regulations. In conducting this review, we have focused on the New York
air regulations, which appear to present the most significant compliance issues.
As to other matters, we have relied on Pro-Flex's analysis to identify issues
requiring further action or investigation.
I. Compliance Issues
A. Air Regulation
1. Initial Conditions
Arcon utilizes two presses in its surface coating and printing operations.
Press #1 primarily uses solvent-based inks containing volatile organic compounds
(VOCs). On some occasions, for small runs, water-based inks are used to print
paper on this press. Press #2 uses water-based inks approximately 85% of the
time. This press also coats the substrates with a water-based adhesive.
Operations at the facility appear to have emitted in excess of 100 tons per year
of VOCs during the last three years.
The solvent-based inks currently used contain solvents at concentrations
ranging from 38.8% to 78.8%. Additional solvents were added to the inks at the
presses prior to use, and during the run, to maintain operating viscosity levels
and color control.
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Ropes and Gray
This solvent normally amounts to an additional 20% to 30% by volume.
It does not appear that Arcon has filed for or received any air emissions
permits.
2. Issue Discussion
a. Permits
Part 2Ol of the New York Air Pollution Control Regulations generally
prohibits operation of an air contamination source without "a valid certificate
to operate issued by the Commissioner." ss.201.2(b). An air contamination source
is defined as "[a]ny apparatus, contrivance or machine capable of causing
emission of any air contaminant to the outdoor atmosphere, including any
appurtenant exhaust system, air cleaning device or emission point...."
ss.200.1(d). An air contaminant is defined as "[a] dust, fume, gas, mist, odor,
smoke, vapor, pollen or any combination thereof," ss.200.1(b) and would include
VOCs emitted from the Arcon facility. A "person who owns or operates an existing
air contamination source" must "apply for a certificate to operate."
ss.201.2(c). Part 201 also provides that "no person shall commence construction
of an air contamination source or proceed with a modification without having a
valid permit to construct issued by the Commissioner." ss.201.1.
Given that Arcon does not appear to have a "certificate to operate," Arcon
should apply for such a permit. Arcon may also need to apply for a "permit to
construct" should it modify its production process to run with water-based inks.
b. Performance standards
In addition to establishing requirements for permits to authorize the
construction and operation of air contamination sources, the NYSDEC regulations
also establish performance standards for different types of air contamination
sources. Those standards, which establish limits on the amount or rate of
emissions from particular types of sources, apply to both Arcon's surface
coating operation (adhesives) and graphic arts process (printing).
(i) Surface Coating Operations (Adhesives)
Part 228, dealing with surface coating operations, applies to an owner or
operator of listed coating lines that are located in a nonattainment area for
ozone and which emit in excess of 100 tons per year of VOCs or are located in
the New York City metropolitan area (which includes Nassau County) ss.228.1(a).
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ROPES & GRAY
Part 228 sets standards in pounds per gallon of VOCs. This standard varies
depending on the process.
Arcon's adhesives coating operation run on Press #2 wou1d probably be
considered a "paper coating line." ss. 228.8. Paper coating lines are
described in the regulations as "[p]aper, pressure sensitive tape regardless of
substance (including paper, fabric, or plastic film) and related web coating
processes on plastic film such as but not limited to: typewriter ribbons,
photographic film and magnetic tape. Also metal foil gift wrap and packaging."
ss. 228.8. Part 228 sets a standard of 2.9 pounds of VOCs per gallon of
coating material for paper coating lines. ss.228.8.
Based on Fred Shapiro's analysis of the adhesives used by Arcon, these
adhesives appear to be in compliance with the Part 228 standards.
(ii) Graphic Arts Processes (Printing)
Arcon's major compliance issue relates to Part 234's performance
standards, dealing with graphic arts processes.
Part 234 applies to an owner or operator of packaging rotogravure,
publication rotogravure or flexographic printing processes that are located in a
nonattainment area for ozone and which emit in excess of 100 tons of VOCs per
year or are located in the New York City metropolitan area. Arcon's printing
processes on presses #1 and #2 appear to be subject to these requirements.
Part 234 requires that operators of these facilities limit emissions by
one of three control strategies. First, a process will be in compliance if the
volatile fraction of ink, as it is applied to the substrate, contains 25% by
volume or less of VOCs and 75% by volume or more of non-reactive volatiles. The
solvent-based inks currently used by Arcon do not satisfy this requirement.
According to Fred Shapiro, for both gravure and flexography, water-based inks
may be used to establish compliance.
Second, a process will be in compliance if the ink, as it is applied to
the substrate, less non-reactive volatiles, contains at least 60% by volume of
non-volatile material. However, according to Fred Shapiro, no such high solids
inks exist for the two processes at the percentages described (i.e., no more
than 40% solvents by volume per gallon of ink applied).
Third, add-on controls, such as incineration or solvent recovery, may be
used to comply. The capture system and the air cleaning device must provide for
an overall reduction in VOC emissions of at least 65% for packaging rotogravure
processes, of
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Ropes & Gray
at least 70% for publication rotogravure processes and of at least 60% for
flexographic printing processes. Arcon currently has no such add-on controls.
B. Hazardous Waste Regulation Issues
The collection, packaging, labelling, storage, handling, segregation and
disposal of hazardous wastes is regulated under both New York and federal law.
Fred Shapiro identified several areas of concern relative to the possible
generation and handling of hazardous wastes.
a. Fred Shapiro indicates that, in the past, Arcon has avoided
generating hazardous waste in the form of leftover inks by
utilizing ink overruns in other darker color formulations.
- Arcon should continue utilizing ink overruns in other darker
color formulations in order to minimize the generation of
hazardous wastes in the future.
- Arcon will formalize its ink rotation program to minimize
waste in the form of unusable inks. The formal ink rotation
program will be finalized by November 15, 1991.
b. Dirty solvents and machine parts, i.e., ink fountains and rolls,
have been cleaned by soaking them in drums and kits of solvents.
This produces two forms of waste, both of which would likely be
considered hazardous: (i) used solvents and (ii) solids or "bottoms"
at the bottom of the drums or kits. Arcon currently recycles its
solvents and solids by using them in ink mixing.
- Arcon plans to investigate the purchase of a cleaning tank for
all rollers, mixers, parts, etc. A cleaning tank decision will
be made by October 30, 1991. Should a cleaning tank be
purchased, any unrecyclable solids that result from this
process should be disposed of as hazardous waste.
- Arcon should obtain an EPA hazardous waste generator I.D.
Number and dispose of any unrecyclable wastes generated by
this new cleaning process through a licensed hazardous waste
disposal company.
- The water used in the cleaning process should be tested to
determine whether it contains hazardous substances.
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Ropes & Gray
- In the interim, Arcon management informs us that it will
continue to recycle ink solvents and solids back into solvent
solutions and dispose of them through use in black ink
batches.
c. Adhesives coating wastes have primarily resulted from wash-up of
the coating station at the end of a day or job. Water waste has gone
into the empty pallet bins for return to National Starch (the water
keeps the bins moist and easy to clean).
- Assuming that the coating system does not generate any
hazardous waste, this practice may continue. Periodic testing
should be undertaken to confirm that this wastewater is not
subject to regulation under applicable hazardous waste
management laws.
d. Coloration has been observed on the wash tub behind Press #2.
Management has indicated that wastewater has been generated as a
result of tray washing associated with water-based ink processes.
- The coloration in the wash tub indicates that inks may have
been poured into this wash tub in the past. Solvent-based inks
should never be disposed of or be cleaned from equipment in
the wash tubs. Water-based inks may, in some instances,
contain hazardous constituents and should also not be disposed
of in this manner. Fred Shapiro suggested that, so long as the
inks and adhesives were removed from the pans before cleaning,
the residues should be within levels acceptable to sewer
treatment systems in the county. Fred Shapiro should confirm
this with the regulators and confirm that a permit is not
required. The sinks should be monitored and the employees
should be instructed not to dispose of any inks in the wash
tub.
- Arcon management has informed employees that no ink clean-up
whatsoever may be accomplished in common sinks and that all
inks, solvent or water-based, must be recycled. Signs have
been posted at both sinks. Any waste containing hazardous
substances that cannot be recycled back into darker ink
formulations should be disposed as hazardous waste.
e. Drums are wiped clean and then sent back to the ink vendors for
crushing.
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Ropes & Gray
- Arcon informs us that the ink manufacturer is licensed for
this activity. The manufacturer has been asked to supply
documentation.
- Fred Shapiro should confirm with the regulators that Arcon's
method of cleaning these drums is sufficient. The cleaning
process may generate hazardous wastes, such as ink-soaked
rags, which will need to be properly disposed.
f. Off-spec ink has been returned to the manufacturer.
- Off-spec ink should be returned to the manufacturer as soon as
possible. Off-spec ink that cannot be used for any purpose or
that results from in-plant use may be considered a hazardous
waste. Fred Shapiro should confirm with the regulators that
this material does not need to be handled as a hazardous
waste. If the regulators indicate that off-spec ink is a
hazardous waste, it should be disposed of as such.
g. Spent rags containing ink and solvent have been thrown in the
compactor. The rags are collected in open drums in the plant.
- Safety containers for rags ladened with solvent/flammables are
now in place. An outside rag service has been employed that
will provide rags and be responsible for cleaning them. Fred
Shapiro should confirm with the regulators that this practice
is sufficient.
C. Hazardous Materials Management
The following conditions at the Arcon facility, which have potential
hazardous material storage implications, were observed by Fred Shapiro during
his visit to the plant. Below each item, we have identified measures that
management has indicated have been taken or will be taken in the near future to
address these conditions. We recommend that Fred Shapiro confirm with the
regulators that these practices and measures are consistent with the applicable
regulations.
a. Bungs on drums and totes have been open, missing and/or leaking.
- All drums not actively in use at the coaters are now covered.
A program is being designed to insure covering even when drums
are in use. These covers should be in place by November 7,
1991.
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Ropes & Gray
b. Drums of flammable materials have not been grounded, although the
wiring is available.
- All solvent/flammable drum containers are now grounded.
c. A solvent drum was leaking onto the floor. The pipe fitting was
loose and wrapped with a rag. The drum was not grounded. The leaking
solvent was being collected in a pail under the spout.
- All solvent/flammable drum containers are now grounded.
- A written program regarding initial clean-up activities and
then on-going housekeeping activities will be prepared.
Initial plant clean-up is scheduled to be complete by November
15, 1991.
- Arcon has contacted an environmental consulting firm and is
awaiting their proposal for a spill containment program. A
final decision on spill containment will be made by October
30, 1991.
- Arcon is also obtaining proposals for an explosion-proof ink
room. Arcon, however, is currently testing nonflammable
water-based inks. This would eliminate the need for special
storage measures. A final decision on ink storage will be made
once a decision is made whether or not to proceed with the
water-based inks.
d. Safety equipment has not been used when flammable materials have
been transferred - funnels, pans, etc.
- Emergency equipment has been purchased and put in place. A
test procedure for fire extinguishers has been instituted.
- A safety program, including a safety plan for employees, will
be incorporated as part of written contingency plans for
responses to fire explosion, spills and so forth currently
under development and will be accomplished by December 31,
1991.
e. Inks and solvents have been stored in a truck trailer that has been
set on the ground alongside the building creating a fire hazard.
- Arcon has contacted an environmental consulting firm and is
awaiting their proposal for a spill
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Ropes & Gray
containment program. A final decision on spill containment
will be made by October 30, 1991.
- Arcon is also obtaining proposals for an explosion-proof ink
room. Arcon, however, is currently testing nonflammable
water-based inks, which would eliminate the need for special
storage measures. A final decision on ink storage will be made
once a final decision is made whether or not to proceed with
waterbased inks.
- A guard rail has been installed around the outside trailer
used for storage.
f. Inks have been mixed in an area next to the Press #1 work space.
- Written contingency plans will be developed by December 31,
1991, for responses to fire, explosion, spills and so forth.
g. Inks and solvents have been found on the floors. The concrete floor
was pitted in the drum storage area. Tyvek has been used to cover
the floor.
- A written program regarding initial clean-up activities and
then on-going housekeeping activities will be prepared.
Initial plant clean-up is scheduled to be completed by
November 15, 1991.
- The concrete floor will be repaired and upgraded to enhance
spill control and management in this area.
- Written contingency plans will be developed by December 31,
1991 for responses to fire, explosion, spills and so forth.
D. Miscellaneous Issues
Arcon has taken steps to address several additional conditions at the
plant. These conditions and the actions Arcon informs us they have taken or will
take are described below. Fred Shapiro should confirm with the regulators that
these practices are consistent with the applicable regulations.
a. There has been no "Right To Know" activity since 1986. The MSDS
books have not been updated. A proper chemical inventory does not
appear to have been filed.
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Ropes & Gray
- A "Right to Know" program for employees currently is being
developed and will be in place by December 1, 1991.
b. In discussions with Fred Shapiro, several physical safety issues
were observed: no employee training seminars have taken place since
1986; no formal training program for fork lift truck operators is in
place; not all employees mixing inks were wearing the gloves and eye
protection provided by the company; and new employees have not been
given orientations in chemical safety and the requirements of the
Hazard Communication Standard.
- Arcon will develop a written safety plan involving employees
by December 31, 1991.
c. Containers in the plant have not been labeled. Drums and kits in the
mixing area and at the presses have not been labeled.
- All solvent/flammable drum containers are now labeled.
d. Arcon has not had a lock out/tag out program.
- A lock-out tag-out system is now in place.
e. Fork lifts have not been equipped with fire extinguishers or back-up
horns.
- Back-up warning systems and fire extinguishers have been
placed on the forklifts.
f. The ink fountains have not had covers.
- Existing covers are being modified and new covers are being
fabricated. Arcon expects to complete this project by November
14, 1991.
g. Kits and drums of inks and solvents have been left open at the
presses.
- All drums not actively in use at the coaters are now covered
with a program being designed to insure covering even when
drums are in use.
h. The ventilation fan at Press #1 has been located at the base of the
printing stack and appears to have been pulling vapors from the
dryer system into an area in which press personnel work.
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Ropes & Gray
- A new exhaust arrangement is in place. Air quality tests using
Drager Tubes have been scheduled for later this month. These
tests will quantify the vapor levels in various parts of the
presses and the plant.
i. Guards have not been used on the presses.
- All existing guards have been installed. A sheet metal
contractor is fabricating and installing new guards. This
project is expected to be complete by November 7, 1991. Plans
are in place to cyclone fence potential safety hazards that
don't require frequent access.
j. Several fire exits have been blocked with debris.
- All fire exits are now clear and are being maintained in that
fashion.
k. Housekeeping at the presses and ink mixing area has needed
improvement.
- A written program regarding initial clean-up activities and
then on-going housekeeping activities will be prepared.
Initial plant clean-up is scheduled to be complete by November
15, 1991.
l. Welding gases have been used in the maintenance shop.
- Rather than apply for welding gas permits at this time, Arcon
will cease the small amount of welding using gas that it
currently does.
II. Contacting of Government Agencies
We recommend that Arcon contact the Nassau County Board of Health and
request a meeting to discuss compliance issues as soon as possible.
At the meeting with the regulators, Arcon should propose a plan to address
the concerns noted in this report. In the meantime, Arcon should continue to
investigate the feasibility of using water-based inks, obtain quotes on
incinerators and proceed with other actions suggested by Fred Shapiro.
If Arcon does not hear promptly from the County, Fred Shapiro should make
a follow-up telephone call to Bruce Smith, the person responsible for air
quality matters in the County.
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Ropes & Gray
III. Future Actions
A. Compliance with Part 234
Arcon has two possible options for complying with the performance
standards of Part 234:
a. Conversion to water-based inks which do not contain
hydrocarbon solvents at concentrations in excess of 25% of the
ink solution. The water-based inks which Arcon is considering
generally contain about 5% solvent by volume.
b. Add-on controls, such as catalytic incineration or a solvent
recovery system, which will reduce VOC emissions through
capture and destruction of 60% of the total solvents in the
inks.
Arcon management has indicated that it prefers to convert the production
processes to run on water-based inks for several reasons: (1) the use of
water-based inks is more environmentally sound because it reduces overall usage
of hazardous materials at the facility; (2) the use of water-based inks
eliminates the need for compliance with numerous special requirements for
handling and storing solvent-based inks; and (3) it is significantly less
expensive. Arcon will simultaneously investigate add-on controls to be used
should water-based inks prove to be impractical.
B. Operations Manual
We recommend that Arcon prepare an Operations Manual that would compile
written procedures for manufacturing processes, materials handling, storage and
disposal, environmental reporting and recordkeeping, responses to fire,
explosion and spills, housekeeping and safety.
C. Independent Investigaton
We recommend that an investigation be undertaken into the circumstances
that led to the existence of the conditions referred to in this report. The
investigation should be conducted by an outside counsel to be retained and
supervised by the FSE Holdings, Inc. Board of Directors. The party conducting
the investigation should be given full access to records and personnel to
facilitate their investigation, and all personnel should be directed to
cooperate fully with the investigators. The results of the investigation should
be reported to the FSE Holdings, Inc. Board. Based on the investigator's report
and other information as may be deemed appropriate, the FSE Board
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Ropes & Gray
should cause to be taken whatever remedial, disciplinary and/or other actions
may be appropriate under the circumstances.
D. Adoption of Policy Regarding Compliance With Environmental Laws
We recommend that several further steps be taken to improve Arcon's
environmental compliance efforts. First, we recommend that Arcon adopt a
corporate policy stating Arcon's intent to comply with all environmental, health
and safety laws. Second, an Arcon officer should be specifically assigned
responsibility for environmental, health and safety compliance. This officer
should be responsible for preparing the Operations Manual, identifying and
monitoring compliance with all applicable environmental, health and safety laws
and for developing and implementing employee education and training programs.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
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<PAGE>
Notice of Compliance Determination
<PAGE>
[ILLEGIBLE] Inspected 10/21/91 AT 3:00 PM
- --------------------------------
LOC FAC EP
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
DIVISION OF AIR RESOURCES
NOTICE OF COMPLIANCE DETERMINATION
WHITE - APPLICANT BUREAU OF
PINK - DATA ENTRY AIR QUALITY MANAGEMENT
YELLOW - REGIONAL NASSAU COUNTY
OFFICE DEPARTMENT OF HEALTH
240 OLD COUNTRY ROAD
MINEOLA, N.Y. 11501
________________________________________________________________________________
TO FOR
Name Arcon Coating Mills, Inc. Source
Description Surface Coating & Printing
Address 3067 New Street
|x| INSPECTION
City Oceanside, L.I., N.Y. ZIP 11572 |_| COMPLAINT TYPE
|_| OTHER
Contact Mr. David Kruft (516) 766-8800
________________________________________________________________________________
MULTIPLE EMISSION POINTS
LIST __________, __________, __________, __________, __________, __________,
IF __________, __________, __________, __________, __________, __________,
MORE __________, __________, __________, __________, __________, __________,
THAN __________, __________, __________, __________, __________, __________,
ONE __________, __________, __________, __________, __________, __________,
________________________________________________________________________________
INSPECTION COMMENTS (DESCRIBE VIOLATION, IF ANY)
Inspection of facility revealed that company was emitting VOC's at the
following locations without the required certificates to operate (1)
Flexographic-Rotogravure Press #1; (2) Flexographic-Rotogravure Press #2;
(3) Ink Mixing Area (Hood); (4) Ink Storage shed (outside of main
building)
Collected ink sample on 10/21/91 for Part 234 compliance determination.
________________________________________________________________________________
COMPLIANCE STATUS
_____________________________________________________
|x| NON COMPLIANCE PLEASE TAKE NOTICE THAT based upon |_| IN COMPLIANCE
this inspection, there is reason to believe that you
are in violation of Article 19 of the New York |_| SOURCE SHUT DOWN
Environmental Conservation Law and the regulation
promulgated thereunder 6NYCFIR Part(s) 201,______. |_| SOURCE REMOVED
PLEASE TAKE FURTHER NOTICE THAT the sanctions for |_| OTHER
such violations include a civil penalty of up to Type __________
$10,000 plus $500 per day the violation continues a
criminal fine of up to $10,000 per day of violation,
and/or imprisonment of up to one year per day of
violation.
YOU ARE HEREBY DIRECTED TO TAKE CORRECTIVE ACTION
_____________________________________________________
________________________________________________________________________________
DISPOSITION
|_| AGREEMENT FOR VOLUNTARY COMPLIANCE BY _/_/_ |_| REINSPECTION TO BE
MADE BY _/_/_
|x| OTHER Refer to DEC for enforcement
----------------------------
|_| FURTHER ACTION NOT REQUIRED 91-06-E |_| PRIOR ACTION(S) COMPLETE
________________________________________________________________________________
(print)
INSPECTION PERFORMED BY V.S. Insler/C.A. Poreta TITLE Public Health Eng II
----------------------- --------------------
DEC REPRESENTATIVE'S SIGNATURE [ILLEGIBLE] DATE 10/21/91
------------ ---------
DEC RESERVES THE RIGHT TO TAKE for further information please contact-
FURTHER ENFORCEMENT ACTION FOR ______________________________________
ANY VIOLATION NOTED IN THIS name
NOCD OR ANY OTHER VIOLATION OF ___________________________ __________
THE ENVIRONMENTAL CONSERVATION title phone no.
LAW
________________________________________________________________________________
<PAGE>
Thomas S. Gulotta [County Seal] George Pickford, M.D. MPH
County Executive Commissioner
NASSAU COUNTY
DEPARTMENT OF HEALTH
24O OLD COUNTRY ROAD
MINEOLA. NY 11501-4250
October 22. 1991
BAQM Ser. Ltr. #194-91
Mr. Robert Capp, P.C.
Regional Air Pollution Engineer
New York State Department of
Environmental Conservation Subject: Case Referral 91-06-E
SUNY - Building 40 Arcon Coating Mills, Inc.
Stony Brook, N.Y 11794 3067 New Street
Oceanside, L.I., N.Y. 11572
Dear Mr. Capp:
The subject facility was found to be constructed and operating without proper
certification and is in violation of 6NYCRR Part 201.
In accordance with the current Memo of Understanding we are referring this
matter to your office for litigation. Attached please find a copy of the Notice
of Compliance Determination (NOCD) issued on 10/21/91.
Please advise us of any action taken by NYS/DEC.
Very truly yours,
/s/ Victor S. Insler
----------------------------
Victor S. Insler, P.E.
Bureau of Air Quality Mgmt.
VSI:mf
Att.
cc: Arcon Coating Mills, Inc.
Attn: Mr. D. Kruft
<PAGE>
Order on Consent
<PAGE>
STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
x
In the Matter of the Violations of
Articles 19 and 72 or the New York State
Environmental Conservation Law ("ECL"),
& Parts 201, 231 and 234 of Title 6 of
the Official Compilation of Codes, Rules
and Regulations of the State of New ORDER ON CONSENT
York, by FILE #R1-4837-92-01
ARCON COATING MILLS, INC.
(Nassau County) Respondent
x
I. DEPARTMENT FINDINGS
WHEREAS, Article 19 of the New York State Environmental Conservation Law
("ECL") and the rules and regulations promulgated thereunder, provides for the
maintenance and safeguarding of the air resources of this State from pollution;
and
WHEREAS, Article 72 of the ECL and the rules and regulations promulgated
thereunder and Article 19, provide for air quality control regulatory program
fees and costs; and
WHEREAS, the New York State Department of Environmental Conservation
("NYSDEC," "DEC," or the "Department"), is authorized to enforce the rules and
regulations of the State of New York in order to abate and prevent air pollution
in the State; and
WHEREAS, Respondent operates four (4) emission points described in 6 NYCRR
Part 200, specifically, Respondent operates a manufacturing facility (the
"facility") which utilizes flexographic printing processes as defined in 6 NYCRR
ss.234.2(3). The facility houses two (2) packaging flexographic rotogravure
printing presses for use in the manufacturing of books and stationery items and
is located at 3067 New Street, Oceanside, New York, 11572.
WHEREAS, the Department has documented violations of ECL Article 19 and 6
NYCRR 201.2(a), 201.2(b), and 201.2(c) and ECL 72-0201 and 72-0302, in that
Respondent caused and/or permitted to be caused, the operation of four (4) air
contamination sources, specifically two (2) flexographic rotogravure printing
presses, one (1) ink mixing area and one (1) ink storage shed, without the
required Permits to Construct/Certificates to Operate, and without payment of
the required regulatory fees, documented on October 21, 1991; and
WHEREAS, according to information given by Respondent to the Nassau County
Department of Health, Respondent emits between 100 to 150 tons per year of
volatile organic compounds and, as such, Respondent's facility is a major
facility subject to the requirements of 6 NYCRR Part 231 in an area of
nonattainment for ozone; and
<PAGE>
WHEREAS, the Department has documented violations of ECL Article 19 and 6
NYCRR part 231 in that Respondent caused and/or permitted to be caused the
construction and operation of air contamination sources without having been
issued valid permits to construct and without meeting the requirements of part
231, in violation of 6 NYCRR ss.231.3(a); and
WHEREAS, the Department has documented violations of ECL Article 19 and 6
NYCRR part 234 in that Respondent caused and/or permitted to be caused, the use
and emission of surface coating inks with reactive VOC content greater than 25%,
specifically with 99% VOC content, documented on 10/21/91 and continuing
thereafter to the present, in violation of ss.234.3(a); and
WHEREAS, Respondent has submitted applications for Permits to
Construct/Certificates to Operate, on or about June 11, 1992; but review has
been suspended pending the outcome of these enforcement proceedings; and
WHEREAS, it is expected that the Department and/or its delegates will make
their best efforts to issue the certificates within 60 days after Respondent
submits approvable applications, provided that Respondent is in compliance with
all of the terms and conditions of this Order; and
WHEREAS, pursuant to ECL 71-2103, any person who violates any provision of
Article 19 or any regulation promulgated pursuant thereto shall be liable for a
penalty not to exceed Ten Thousand ($l0,000) Dollars for each violation and an
addition sum not to exceed Five Hundred ($500) Dollars for each day during which
said violation continues, and in addition, such person may be enjoined from
continuing such violation; and
WHEREAS, the facts set forth above constitute separate and distinct
violations by Respondent of Article 19 and of the ECL and 6 NYCRR 201, 231 and
234; and
WHEREAS, other than the aforementioned violations, the Department is
currently aware of no other violations of Article 19 by Respondent; and
WHEREAS, pursuant to ECL ss.7l-4l03, any person who violates any of the
provisions of Article 72 or the regulations promulgated pursuant thereto shall
be liable for a civil penalty of up to One Thousand ($1,000) Dollars in addition
to any amount assessed as a penalty pursuant to subdivision five of ECL SS.
72-0201; and
WHEREAS, the facts set forth above constitute separate and distinct
violations by Respondent of Article 72 of the ECL; and
WHEREAS, this Order is in full satisfaction of the Department's
enforcement for the violations specifically alleged herein, as long as
Respondent strictly complies with the terms and conditions of this Order; and
<PAGE>
WHEREAS, Respondent has affirmatively waived its right to a public hearing
in this matter in the manner provided by law and having consented to the
issuance and entry of this Order pursuant to ECL Articles 19 and 72 and agrees
to be bound by the terms and conditions contained herein.
II. ORDER
NOW, having considered this matter and being duly advised, it is
ORDERED, that with respect to the aforesaid violations, there is hereby
imposed upon Respondent, a civil penalty in the sum of Twenty Thousand ($20,000)
Dollars, Ten Thousand ($10,000) Dollars of which shall be made payable to the
Department by bank-certified check upon Respondent's execution of this Order,
and the remaining Ten Thousand ($10,000) Dollars to be suspended in the form of
a letter of credit, bond or other acceptable secured undertaking; provided
Respondent strictly complies with the terms and conditions of this Order; and it
is further
ORDERED, that Respondent shall pay environmental regulatory program fees
in the sum of One Hundred ($100) Dollars to the Department which shall be
payable to the Department by separate bank-certified check, upon Respondent's
execution of this Order; and it is further
ORDERED, that all Letters of Credit, Bonds or other secured undertakings,
pursuant to this Order be submitted to the Department upon execution of this
Order, and shall not expire for at least (6) months after the date for full
compliance to which they relate; and it is further
ORDERED, that Respondent shall pay a One Thousand ($l,000) Dollar penalty
for failure to submit approvable applications for Permit(s) to Construct and/or
Certificate(s) to Operate with any and all supporting documents within fifteen
(15) business days after notification by the Department that revisions are
necessary. "Approvable" within the context of this Order shall mean approvable
by the Department with minimal revision. "Minimal revision" shall mean that
Respondent incorporates the revisions required by the Department and resubmits
the application(s) for approval within fifteen (15) business days of receipt of
the Department's comments; and it is further
ORDERED, that failure to adhere to the terms of this Order shall result in
immediate revocation of all Permits and Certificates to Operate systems that are
the subject of this Order at Respondent's facility and refusal to issue future
Permits and Certificates to Operate until the violations which are the subject
of this Order are resolved; and it is further
3
<PAGE>
ORDERED, that upon any denial of the Part 201 Permit(s) to Construct
and/or Certificate(s) to Operate, Respondent shall immediately cease operation
of the air contaminant source for which the Permit(s) to Construct and/or
Certificate(s) to Operate has been denied; and, if the matter cannot be resolved
through good-faith discussions with the Department within 30 days of the date of
the denial, Respondent shall perform closure and clean-up in accordance with a
Department-approved plan; and it is further
ORDERED, that on or before December 31, 1992, Respondent shall submit to
the Department and to the Nassau County Department of Health, complete and
approvable applications for certificates to operate the air contamination
sources that are the subject of this Order. Approvable within the context of
this Order shall mean approvable by the Department with minimal revision.
Minimal revision shall mean that Respondent incorporates the revisions required
by the Department and resubmits the applications for approval within fifteen
(15) business days of receipt of the Department's comments.
ORDERED, that the failure of Respondent to be in full compliance with
Parts 201, 231 and 234 by March 1, l993 and/or Respondent's failure to strictly
comply with the terms and conditions of this Order shall subject the Respondent
to further enforcement action for the violations which are the subject of this
order, as well as any and all subsequent violations; and it is further
ORDERED, that Respondents shall strictly adhere to the terms and
conditions in this Order; and it is further
ORDERED, that on or before March 1, l993, Respondent shall be in receipt
of Part 201 Certificates to Operate its air contamination sources and be in full
compliance with part 231 and part 234, or shall cease operation and close down
its air contamination sources that do not have certificates or are otherwise in
noncompliance in accordance with a Department-approved plan; and it is further
ORDERED, that the issuance of certificates to operate the air
contamination sources that are the subject of this Order shall constitute the
final evidence of Respondent's compliance with this Order; and it is further
ORDERED, that Respondent shall not suffer any penalty under any of the
provisions, terms and conditions hereof, or be subject to any proceedings or
actions for any remedy or relief, if it cannot comply with any requirements of
the provisions hereof because of an Act of God, war, riot, strike, or other
catastrophe, provided however, that Respondent shall immediately notify the
Department in writing when it obtains knowledge of any such condition and
request an appropriate extension or modification of the provisions hereof; and
it is further
4
<PAGE>
ORDERED, that if Respondent finds that it must rely on the provisions of
the paragraph immediately above, Respondent shall give notice to the Department,
within a reasonable time after the occurrence, of the nature and extent of the
reason, happening, or event which prevented, hindered, or delayed Respondent's
performance; and shall request such additional time as may be required. If the
Department finds that the delay was caused by the reasons set forth in the
paragraph immediately above, the compliance schedule shall be adjusted as
necessary; and it is further
ORDERED, that the terms of this Order shall not be construed to prohibit
the Commissioner or his duly-authorized representative from exercising any
summary abatement powers, granted pursuant to statute or regulations; and it is
further
ORDERED, that the Department reserves the right to require that the
Respondent undertake any additional measures required to protect human health or
the environment and reserves its rights to exercise its authorities under the
law to protect human health and the environment or to otherwise require
compliance with the law, and that nothing contained in this Order shall be
construed as impairing these rights; and it is further
ORDERED, that for the purpose or ensuring compliance with this Order and
in accordance with ECL ss.l9-0305(2)(a), duly-authorized representatives of DEC
shall be permitted access to the Facility in question and to relevant records to
ensure compliance with the terms of this Order; and it is further
ORDERED, that the provisions of this Order shall not bind or prejudice
Respondents nor shall this Order be construed as an admission in any civil
action. Nothing, however, shall prevent the Department from using this Consent
Order and the terms and conditions contained herein, in a proceeding to enforce
the terms of this Order or in a proceeding by the Department to revoke or
suspend a license or registration or certification of Respondents, or in any
other future proceeding brought by or on behalf of the Department; and it is
further
ORDERED, that in those instances in which Respondent desires that any of
the provisions, terms or conditions of this Order be changed, it shall make
written application, setting forth the grounds for the relief sought to the
Commissioner of Environmental Conservation, c/o Lori J. Riley, Regional
Attorney, New York State Department of Environmental Conservation, Building 40,
State University of New York, Stony Brook, New York 11790-2356; and it is
further
ORDERED, that penalty payments herein required shall be sent by certified
mail to the New York State Department of Environmental Conservation, Building
40, S.U.N.Y. Campus, Stony Brook, New York 11790-2356, Attention: Lori J. Riley,
Regional Attorney; and it is
5
<PAGE>
further
ORDERED, that this Order on Consent is being entered into for the purposes
of settling the instant proceeding only and nothing contained herein shall be
construed as to relieve Respondent from its duties and obligations under any
laws, rules or regulations, that its operation would cause it to be subject to;
and it is further
ORDERED, that no change in this Order shall be made or become effective,
except as specifically set forth by written order of the Commissioner, such
written order being made either upon written application of the Respondent or
upon the Commissioner's own findings; and it is further
ORDERED, that the provisions of this Order shall be deemed to bind
Respondent and its respective officers, directors, agents, servants, successors
and assigns and all persons, firms and corporations acting under or for it
including, but not limited to those who may carry on any or all of the
operations now being conducted by Respondent, whether at the present location or
any other in New York State.
Dated: Stony Brook, New York
December 4, 1992
THOMAS C. JORLING
Commissioner of Environmental Conservation
By /s/ Ray E. Cowen
--------------------------
RAY E. COWEN, P.E.
Regional Director
Region One
To: Ropes and Gray
1 International Place
Boston, MA 02110-2624
Attention: Jack McElhiney, Esq.
6
<PAGE>
CONSENT BY RESPONDENT
Respondent acknowledges the authority and jurisdiction of the
Commissioner of Environmental Conservation of the State of New York to issue the
foregoing Order, waives public hearing or other proceedings in this matter,
accepts the terms and conditions set forth in the Order and consents to the
issuance thereof.
ARCON COATING MILLS, INC.
By /s/ David Kruft
---------------------------
STATE OF NEW YORK )
s.s.:
COUNTY OF NASSAU )
On the 23 day of November, 1992, before me personally came [illegible]
to me known, who being duly sworn, deposed and said that he resides at
[illegible] that he is the [illegible] of Respondent Corporation and that he
signed his name for and on behalf of said corporation, with full authority so to
do.
[illegible]
----------------------------
NOTARY PUBLIC
6
<PAGE>
CONSENT BY RESPONDENT
Respondent acknowledges the authority and jurisdiction of the
Commissioner of Environmental Conservation of the State of New York to issue the
foregoing Order, waives public hearing or other proceedings in this matter,
accepts the terms and conditions set forth in the Order and consents to the
issuance thereof.
ARCON COATING MILLS, INC.
By /s/ David Kruft
---------------------------
STATE OF NEW YORK )
s.s.:
COUNTY OF NASSAU )
On the 2 day of November, 1992, before me personally came David Kruft
to me known, who being duly sworn, deposed and said that he resides at
______________________ that he is the __________________ of Respondent
Corporation and that he signed his name for and on behalf of said corporation,
with full authority so to do.
[illegible]
---------------------------
NOTARY PUBLIC
7
<PAGE>
------
NUMBER
292495
------
[Logo] New York State Department of Environmental Conservation
RECEIPT
Region Number one Date 12-9-92
Location Stony Brook Division Legal
Received of ARCON COATING MILLS INC.
In the amount of Ten Thousand $ as Enforcement penalty & $ One Hundred as
Regulatory Program fee $ 10100.00
For an order on consent in case File No. 1-483
[_] Cash Department Representative [illegible]
[X] Check Number 8340, 8341 Title Clerk
[_] Money Order
ORIGINAL
<PAGE>
New York State Department of Environmental Conservation
Building 40--SUNY, Stony Brook, New York 11790-2356
TELEPHONE: (516) 751-7990
FACSIMILE: (516) 751-3839 [Logo]
Thomas C. Jorling
Commissioner
Apr 15 1993
John E. McElhinney, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Dear Mr. McElhinney:
This is in response to your request for a modification of Order on Consent
No. R1-4837-92-01 on behalf of Arcon Coating Mills, 3067 New Street, Oceanside.
The modification requested is for an extension of time from March 1, 1993, to
April 15, 1993, to come into compliance and to continue to operate under the
Order.
You have represented, and the Nassau County Department of Health has
confirmed, that it has been processing your application and needed some
additional information that had been submitted to the DEC, and that Certificates
to Operate are expected to be issued within six weeks. Based upon these
circumstances, your request is granted. Accordingly, the date in paragraph
number 5 on page 4 of said Order is hereby changed from "on or before March 1,
1993," to "On or before April 15, 1993." All other terms and conditions of the
Order remain in full force and effect.
Very truly yours,
[illegible]
Ray E. Cowen
Regional Director
REC/MEC/ls
cc: Arcon Coating Mills
3067 New Street
Oceanside, NY 11572
V. Insler
Nassau County Dept. of Health
<PAGE>
New York State Department of Environmental Conservation
Building 40--SUNY, Stony Brook, New York 11790-2356
TELEPHONE: (516) 751-7990
FACSIMILE: (516) 751-3839 [Logo]
Thomas C. Jorling
Commissioner
May 26 1993
John E. McElhinney, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Dear Mr. McElhinney:
This is in response to your request for a modification of Order on
Consent No. R1-4837-92-0l on behalf of Arcon Coating Mills, 3067 New Street,
Oceanside. The modification requested is for an extension of time from April 15,
1993, to June 1, 1993, to come into compliance and to continue to operate under
the Order.
You have represented, and the Nassau County Department of Health has
confirmed, that it has been processing your application and that Certificates to
Operate are expected to be issued within several weeks. Based upon these
circumstances, your request is granted. Accordingly, the date in paragraph
number 5 on page 4 of said Order is hereby changed from "on or before April 15,
1993," to "On or before June 1, 1993." All other terms and conditions of the
Order remain in full force and effect.
Very truly yours,
/s/ Ray E. Cowen
Ray E. Cowen, P.E.
Regional Director
REC/MEC/ls
cc.: Arcon Coating Mills
3067 New Street
Oceanside, NY 11572
Insler
V. Nassau County Dept. of Health
<PAGE>
[Letterhead of Ropes & Gray]
November 22, 1993
Mr. David Kruft
Vice President and General Manager
Arcon Coating Mills, Inc.
3O67 New Street
Oceanside, New York 11572
Dear David:
I am returning to you for your files the original Letter of Credit held by the
New York State Department of Environmental Conservation. The Regional Director
also granted our last request for an extension of the compliance dates so that
it coincided with the date of final issuance of permits on this matter. This
should completely resolve our dealings with the State. Congratulations. Please
give me a call should you have any questions.
Sincerely yours,
/s/ John E. McElhinney/db
John E. McElhinney
JEM/:JEMCEDK.FS
cc: Mr. Fred Shapiro
R. Newcomb Stillwell, Esq.
Colburn T. Cherney, Esq.
<PAGE>
New York State Department of Environmental Conservation
Building 40--SUNY, Stony Brook, New York 11790-2356
TELEPHONE: (516) 444-0345
FACSIMILE: (516) 444-0373 [Logo]
Thomas C. Jorling
Commissioner
SEP 29 1993
Ropes and Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: John E. McElhiney, Esq.
Dear Mr. McElhiney:
This is in response to your request, on behalf of Arcon Coating Mills,
3067 New Street, Oceanside, New York, for the New York State Department of
Environmental Conservation to return the $l0,000 Letter of Credit which was held
as security for the suspended penalty in connection with Order on Consent No.
R1-4837-92-0l.
Certificates to Operate were issued in July, 1993. In accordance with the
terms contained in Paragraph number 6 on Page 4 of the Consent Order, the Letter
of Credit is being returned. Your pending request for an extension of time to
come into compliance and continue to operate under the Order is granted. The
date in Paragraph number 5 on Page 4 of said Order is hereby changed from "On or
before April 15, 1993," to "On or before July 19, 1993."
All other terms and conditions of the Order remain in full force and effect.
Very truly yours,
/s/ Ray E. Cowen
Ray E. Cowen, P.E.
Regional Director
REC/MEC/cm
cc.: Arcon Coating Mills
V. Insler, NCDH
<PAGE>
NATIONAL WESTMINSTER BANK USA
TRADE SERVICES DEPARTMENT
80 PINE STREET - 11TH FLOOR
NEW YORK, NEW YORK 10005-1702
TEL.(212) 602-1240
DATE: NOVEMBER 06, 1992
IRREVOCABLE STANDBY LETTER OF CREDIT NO. S100863
BENEFICIARY: APPLICANT:
STATE OF NEW YORK DEPARTMENT ARCON COATING MILLS INC.
OF ENVIRONMENTAL CONSERVATION 3067 NEW STREET
BLDG. 40 STATE UNIV. OF N.Y. OCEANSIDE, NY 11572
STONYBROOK, NY 11794
ATTN: MARY E. CARPENTIERE
AMOUNT: USD 10,000.00
EXPIRY DATE: SEPTEMBER 01, 1993
EXPIRY PLACE: OUR COUNTERS
GENTLEMEN:
WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER S100863 IN YOUR
FAVOR FOR THE ACCOUNT OF ARCON COATING MILLS INC., FOR UP TO AN AGGREGATE AMOUNT
OF USD 10,000.00 (U.S. DOLLARS TEN THOUSAND AND 00/100), AVAILABLE BY YOUR DRAFT
DRAWN ON US AT SIGHT, ACCOMPANIED BY THE FOLLOWING:
1) BENEFICIARY'S SIGNED STATEMENT READING: "ARCON COATING MILLS INC. IS NOT IN
COMPLIANCE WITH OUR ORDER FILE NO. R.14837-92-01."
2) THE ORIGINAL OF THIS LETTER OF CREDIT AND AMENDMENT(S), IF ANY.
PARTIAL DRAWINGS ARE NOT PERMITTED.
DRAFT MUST STATE: "DRAWN UNDER NATIONAL WESTMINSTER BANK USA STANDBY L/C NO.
S100863 DATED NOVEMBER 6, 1992".
WE HEREBY AGREE WITH YOU THAT YOUR DRAFT DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED UPON DUE PRESENTATION TO
US.
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1983 REVISION), THE INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO.
400.
[illegible]
---------------------
AUTHORIZED SIGNATURE
-------------
RECEIVED
NOV 10 1992
LEGAL AFFAIRS
-------------
<PAGE>
Ropes & Gray Letter t/w Permits
<PAGE>
[Letterhead of Ropes & Gray]
August 5, 1993
Mary Carpentiere, Esq.
Assistant Regional Attorney
New York State Department of
Environmental Conservation
Building 40--SUNY
Stoneybrook, New York 11170-2356
Re: Acron Coating Mills, Inc. Case No. R1-4837-92-01
Dear Mary:
I am forwarding to you the final permit package received from the County
by Acron Coating Mills. This should satisfy any further obligations of Acron
under the Consent Order. Per our conversation, I would appreciate it if you
would forward to my attention the $10,000 Letter of Credit being held as
additional security for the performance of Arcon's obligations. I would also
appreciate it if you would include a note for my files indicating that these
permits were issued within the final deadlines of the Consent Order.
Thank you again for your assistance in this matter.
Sincerely yours,
/s/ John E. McElhinney
John E. McElhinney
JEM/:JEM85CAR.FS
Enclosure
cc: Mr. David Kruft
Mr. Frederick Shapiro
<PAGE>
Mary Carpentiere, Esq. -2- August 5, 1993
bcc: Jan Juran
Colburn T. Cherney, Esg.
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 142 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 143 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 144 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 145 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 146 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 147 ILLEGIBLE]
<PAGE>
NEW YORK STATE
DEPARTMENT OF ENVIRONMENTAL CONSERVATION
PROCESS, EXHAUST OR VENTILATION SYSTEM
APPLICATION FOR PERMIT TO CONSTRUCT OR CERTIFICATE TO OPERATE
[STAMP SHEET 148 ILLEGIBLE]
<PAGE>
Request for Clean-up Notification
<PAGE>
New York State Department of Environmental Conservation
Building 40--SUNY, Stony Brook, New York 11790-2356
(516) 444-0320
(516) 444-0373 FAX [Logo]
Langdon Marsh
Acting Commissioner
REQUEST FOR CLEANUP NOTIFICATION ----FIELD ISSUE
|X| IMMEDIATE CLEANUP REQUIRED
|_| WITHIN 10 DAY PERIOD (Unless otherwise specified, the 10 day period will
begin with the above date.)
SPILL #9516872 SPILL LOCATION: Arcon Coating Mills
RESPONSIBLE PARTY INFORMATION:
Address: 3067 New Street, Oceanside
Telephone: 516-766-8800
Contact Person(s): Mr. Dave Kruft
FINDINGS: Aquatite Tyvek Red (Ink) Placed in trash compactor. Ink leaked into
storm drain and discharged to East Rockaway canal.
WORK TO BE PERFORMED: Remove all Ink contaminated water from the storm drains
and dispose of in accordance with NYPPW discharge standards via sanitary sewer
system. Remove and properly dispose of remaining Ink from the trash compactor.
This letter serves as notice that you or your company has been directed to
proceed with a cleanup of the above referenced site within the time frame
indicated. You may either hire a contractor or do the work yourself. However,
the contaminated material generated can only be removed from the site with a 364
Permit.
If no response is received by you or a representative from your company within
the time frame noted above, this office will proceed with the cleanup of the
site, and the New York State Department of Law will seek reimbursement along
with an assessment of penalties from you according to Article 12 of the New York
State Navigation Law.
/s/ David R. Kruft 3/31/96 (Signature acknowledges receipt only)
- ----------------------- -------
Responsible Party/Agent Date
[illegible] 3/31/96 (Original copy to RP Back copy to DEC)
- --------------------------- -------
Spill Response Investigator Date
<PAGE>
Field Inspection Report
<PAGE>
- --------------------------------------------------------------------------------
NASSAU COUNTY DEPARTMENT OF PUBLIC WORKS
INDUSTRIAL PRETREATMENT PROGRAM
FIELD INSPECTION REPORT
- --------------------------------------------------------------------------------
PERMIT # DATE: 4/15/96
COMPANY NAME : Arcon Coating Mills Inc.
FACILITY ADDRESS : 3067 New Street, Oceanside
COMPANY OFFICIAL : David Kruft, Pres.
INSPECTOR(S): VEROLLA/MILITO
PRIOR INSPECTION: --/--/--
BUSINESS DESCRIPTION: Printing/Coating of papers
NO. OF EMPLOYEES : 38
HOURS PER DAY : 16
DAYS PER WEEK : 5
- --------------------------------------------------------------------------------
DESCRIPTION OF PROCESS: MIXING OF INKS; COATING PROCESS
CHEMICALS used: Water-based inks.
Were any CHANGES made in the process since the last inspection? Y[_] N[_]
If yes, describe:
Description of all WASTESTREAMS (source, volume, point of discharge):
No ink washwaters to sewer; used for reuse. Sanitary flow only to sewer.
Has the average INDUSTRIAL daily flow changed? Y[_] N[X]
If YES, how?
Has the total WASTEWATER discharge changed? Y[_] N[X]
If YES, how?
- --------------------------------------------------------------------------------
Description of PRETREATMENT: None.
Any CHANGES made in pretreatment since last inspection? Y[_] N[_]
If YES, describe:
Is PRETREATMENT adequate? Y[_] N[_]
None required
Has a COMPLIANCE SCHEDULE been completed? N/A[X] Y[_] N[_] If YES, list tasks
and date:
- --------------------------------------------------------------------------------
<PAGE>
HAZARDOUS WASTE hauled away during last year:
TYPE AMOUNT (lbs. or gal.)
1 Ink waste sludge (D001) 200 gal.
2
3
HAZARDOUS WASTE haulers:
NAME EPA ID#
1 S&W Waste NYD986984433
2
3
Are any TOXIC ORGANICS used at this facility? Y[_] N[X]
Are any TOXIC ORGANICS used in the process? Y[_] N[X]
If yes, list them: None.
- --------------------------------------------------------------------------------
Location of CHEMICAL STORAGE and condition: Palated area in warehouse.
Location of HAZARDOUS WASTE STORAGE and condition: Kept in drum in ink mix area.
Description of SPILL PREVENTION: Absorbent pillows.
Is SPILL PREVENTION and SOLVENTS MANAGEMENT adequate? Y[X] N[_]
Evaluation of HOUSEKEEPING in general: O.k.
- --------------------------------------------------------------------------------
SELF-MONITORING
Frequency: None Required? Y[_] N[X]
Analysis performed by:
Are self-monitoring equipment and methods adequate? Y[_] N[_]
If NO, explain:
Describe SAMPLING LOCATION(S):
(Note locatation on flow diagram)
Noted DEFICIENCIES: NONE
Proposed and/or suggested remedial actions: NONE
- --------------------------------------------------------------------------------
The above documentation is true, accurate, and has been validated by all County
Officials involved with this facility inspection.
COUNTY INSPECTOR: [illegible] DATE: 4/15/96
------------------- -------------
COMPANY OFFICIAL: /s/ David R. Kruft DATE: 4/15/96
------------------- -------------
TITLE: President
-------------------
CHIEF CHEMIST_________________ DATE:____________________
<PAGE>
Company Memorandum dated March 28, 1994
<PAGE>
MEMORANDUM
TO: Tom Ablum
FROM: David Kruft
DATE: March 28, 1994
SUBJECT: Woodward Clyde Thomas Tape Environmental Report
Further to the Woodward Clyde report of 3/17/94, please note the following:
. STORM WATER POLLUTION COMPLIANCE
The enclosed letter suggests the Springfield facility is in compliance and
additional reporting is not necessary. However, management will
investigate the necessity of state and federal filing.
. EYE PROTECTION
Thomas Tape management informed all employees that they are required to
wear eye protection (see enclosed company notice).
. LOCK OUT/TAG OUT PROCEDURE
Lock out/tag out procedures have been established and all employees have
been so informed (see enclosed company notice).
. NOISE
All employees operating machines which generate noise are required to wear
heavy duty ear protection. Appropriate testing will be scheduled.
. ACM INSULATION
The asbestos pipe insulation in the east building will be removed by a
firm which is certified by the appropriate authorities.
. ROLLING MOVING AND STORAGE
Thomas Tape management will conduct inspections of the subject site
quarterly and during periods of heavy rain.
Please advise if you feel additional activity is warranted.
DK:dv
cc: J. Juran, Butler Capital
P. Schiff, Northwood Ventures
H. Wilson, Northwood Ventures
<PAGE>
Schedule 3.22
Bank Accounts, Powers of Attorney
1. FLEET BANK
40 Main Street
East Rockaway, NY 11518
(a) Arcon Coating Mills, Inc.
Corporate Checking Account
Account No.: 2010 62 2548
Signatures*: David Kruft
Maida Harris
John Gregory
(b) Arcon Coating Mills, Inc.
Payroll Transfer Account
Account No.: 2010 62 2519
Signatures: David Kruft
Maida Harris
John Gregory
2. SOCIETY NATIONAL BANK
1 South Fountain Avenue
Springfield, OH 45501
(a) Arcon Coating Mills, Inc.
d/b/a The Thomas Tape Company
Corporate Checking
Account No.: 007 302 09445
Signatures :* David Kruft
Maida Harris
John Gregory
(b) Arcon Coating Mills, Inc.
d/b/a The Thomas Tape Company
Corporate Checking
Account No.: 73 021 3226
Signatures: Robert Schwar;z
Ellen Schwartz
- ----------
* Two signatures required on checks over $5,000
<PAGE>
Schedule 3.23
Compensation of Employees
1. See attached schedule of compensation.
2 Full bonuses for the fiscal year 1996 will be paid by the Company at or
prior to the Closing in accordance with the executive bonus program
referenced in item 9 of attached to Schedule 3.19.
3. Full bonuses for the fiscal year 1996 will be paid by the Company at or
prior to the Closing in accordance with items 7 and 8 of Schedule 3.19.
<PAGE>
ARCON COATING MILLS
COMPENSATION AS OF AUGUST 7, 1996
<TABLE>
<CAPTION>
95 BONUS TOT 96
96 YTD PAID IN 96 YTD 1995 95 BONUS TOT 95
================================================================================
<S> <C> <C> <C> <C> <C> <C>
SALARIED
- --------------------------------------------------------------------------------
KRUFT 107,692 84,000 191,692 164,558 16,500 181,058
- --------------------------------------------------------------------------------
DUNN 80,615 54,900 135,515 124,070 11,000 135,070
- --------------------------------------------------------------------------------
KELLY 64,000 0 64,000 98,467 68,000 166,467
- --------------------------------------------------------------------------------
SIARKOWICZ 48,428 0 48,428 84,295 5,496 89,791
- --------------------------------------------------------------------------------
HARRIS 45,880 0 45,880 69,645 5,500 75,145
- --------------------------------------------------------------------------------
HAUG 40,704 0 40,704 69,476 8,500 77,976
- --------------------------------------------------------------------------------
MUELLER 39,360 0 39,360 61,295 5,500 66,795
- --------------------------------------------------------------------------------
GREGORY 55,835 10,547 65,932 73,874 375 74,249
- --------------------------------------------------------------------------------
HOURLY
INCLUDES
OVERTIME
- --------------------------------------------------------------------------------
FISHER 32,210 0 32,210 53,227 1,500 54,727
- --------------------------------------------------------------------------------
GEORGES 30,757 0 30,757 58,273 1,500 59,773
- --------------------------------------------------------------------------------
PARSEKIAN 33,244 0 33,244 51,753 2,500 54,253
================================================================================
</TABLE>
<PAGE>
Schedule 3.24
Conduct of Business
1. Prior to the Closing, the Company may draw under its line of credit with
the Bank. Any amounts so drawn may be used to fund the purchase by Arcon
Holdings of the Warrants and the payment of the bonuses disclosed in items
8, 9 and 10 of Schedule 3.19.
2. Prior to the Closing, Arcon Holdings intends to purchase from the Bank the
Warrants.
<PAGE>
Schedule 3.25
Customer Relations
1. Each of Kruysman, Tab and Berryville have reduced or may in the future
reduce the volume or dollar amount of their respective purchases from the
Company, including due to the purchase by such customers of alternative or
substitute products from other sources.
2. The Purchaser has advised the Company that following the Closing Atapco may
in the future reduce the volume or dollar amount of its purchases from the
Company.
<PAGE>
Schedule 4.4
Consents
1. Pursuant to the Warrant Certificate, the Bank is entitled to 30 days prior
written notice of the transactions contemplated by this Agreement.
2. Pursuant to the Take-Along Rights Agreement, the Bank is entitled to 45
days prior written notice of the transactions contemplated by this
Agreement.
3. The Holdings Charter provides for certain contingent rights for the holders
of Preferred Stock with respect to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
<PAGE>
Schedule 5.6
Consents
1. The transactions contemplated by this Agreement require the prior consent
of certain of the Purchasers lenders.
<PAGE>
EX-2.3
AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated this 31st day of October, 1996, pursuant
to Section 251 of the General Corporation Law of the State of Delaware, between
CPG Investors Inc. ("CPG Investors"), a Delaware corporation and CPG Acquisition
Company ("Acquisition"), a Delaware corporation.
WITNESSETH that:
WHEREAS, all of the constituent corporations desire to merge into a
single corporation;
NOW, THEREFORE, the corporations, parties to this Agreement, in
consideration of the mutual covenants, agreements and provisions hereinafter
contained, do hereby prescribe the terms and conditions of said merger and mode
of carrying the same into effect as follows:
FIRST: CPG Investors hereby merges into itself Acquisition and said
Acquisition shall be and hereby is merged into CPG Investors, which shall be the
surviving corporation.
-1-
<PAGE>
SECOND: The Certificate of Incorporation of the surviving
corporation is hereby amended and restated as set forth in Exhibit A.
THIRD: At the effective time of the merger (the "Effective Time"),
by virtue of the merger and without any action on the part of CPG Investors and
Acquisition or their respective shareholders:
(a) Each share of common stock, par value $0.01 per share, of CPG
Investors (the "Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into the right to receive, in cash,
a pro rata share of the aggregate merger consideration of $53,000,000 less
outstanding indebtedness of CPG Investors to Crestar Bank at closing and
certain amounts to be held in escrow as mutually agreed by CPG Investors
and Acquisition and plus or minus certain other post-closing adjustments
to be made after the Effective Time.
(b) As of the Effective Time, all Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any shares
of Common Stock shall cease to have any rights with respect thereto,
except the right to receive such holder's appropriate portion of the
merger consideration upon surrender of its stock certificate.
-2-
<PAGE>
(c) Each share of Common Stock held in the treasury of the Company
immediately prior to the Effective Time shall be cancelled and
extinguished at the Effective Time without any conversion thereof and no
payment shall be made with respect thereto.
(d) At the Effective Time, each holder of an outstanding certificate
that prior thereto represented Common Stock shall be entitled, upon
surrender thereof to the Parent, to receive in exchange therefor such
holder's appropriate portion of the merger consideration.
(e) Each share of common stock, par value $.001 per share, of
Acquisition issued and outstanding immediately prior to the Effective Time
shall automatically without any action on the part of the holder thereof
be converted into one validly issued, fully paid and nonassessable share
of common stock of the surviving corporation.
FOURTH: The terms and conditions of the merger are as follows:
(a) The bylaws of Acquisition as they shall exist on the effective
date of this Agreement shall be the bylaws of the surviving corporation
until the same shall be altered, amended and repealed as therein provided.
-3-
<PAGE>
(b) The directors and committee members of the surviving corporation
shall be the directors and committee members of Acquisition on the
effective date, each holding the same directorship for the term elected
and until their successors are duly elected or appointed and qualified.
(c) This merger shall become effective on October 31, 1996.
(d) Upon the merger becoming effective, all the property, rights,
privileges, franchises, patents, trademarks, licenses, registrations and
other assets of every kind and description of the merged corporation shall
be transferred to, vested in and devolve upon the surviving corporation
without further act or deed and all property, rights, and every other
interest of the surviving corporation and the merged corporation shall be
as effectively the property of the surviving corporation as they were of
the surviving corporation and the merged corporation respectively. The
merged corporation hereby agrees from time to time, as and when requested
by the surviving corporation or by its successors or assigns, to execute
and deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other action
as the surviving corporation may
-4-
<PAGE>
deem necessary or desirable in order to vest in and confirm to the
surviving corporation title to and possession of any property of the
merged corporation acquired or to be acquired by reason of or as a result
of the merger herein provided for and otherwise to carry out the intent
and purposes hereof and the proper officers and directors of the merged
corporation and the proper officers and directors of the surviving
corporation are fully authorized in the name of the merged corporation or
otherwise to take any and all such action.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolution adopted by their respective
Boards of Directors have caused these presents to be executed by the respective
officer of each party hereto as the respective act, deed and agreement of each
of said corporations on this 31st day of October, 1996.
CPG INVESTORS INC.
By:/s/ James E. Rogers
----------------------------
Name: James E. Rogers
Title: Chairman
CPG ACQUISITION COMPANY
By:/s/ Alex Kwader
----------------------------
Name: Alex Kwader
Title: President
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolution adopted by their respective
Boards of Directors have caused these presents to be executed by the respective
officer of each party hereto as the respective act, deed and agreement of each
of said corporations on this 31st day of October, 1996.
CPG INVESTORS INC.
By:_____________________________
Name:
Title:
CPG ACQUISITION COMPANY
By:/s/ Alex Kwader
--------------------------------
Name: Alex Kwader
Title: President
<PAGE>
I, James, E. Rogers, Chairman of CPG Investors Inc. ("CPG
Investors"), a corporation organized and existing under the laws of the State of
Delaware, hereby certify, as such Chairman, that the Agreement of Merger to
which this Certificate is attached, after having been first duly signed on
behalf of the said corporation and having been signed on behalf of CPG
Acquisition Company, a corporation of the State of Delaware, was duly adopted
pursuant to Section 228 of Title 8 of the Delaware Code by the written consent
of a majority of the voting stockholders of CPG Investors, which Agreement of
Merger was thereby adopted as the act of the stockholders of said CPG Investors,
and the duly adopted agreement and act of the said corporation.
WITNESS my hand on this 31st day of October, 1996.
/s/ James E. Rogers
-------------------------
James E. Rogers, Chairman
<PAGE>
I, Bruce Moore, Vice President of CPG Acquisition Company
("Acquisition"), a corporation organized and existing under the laws of the
State of Delaware, hereby certify, as such Vice President, that the Agreement of
Merger to which this Certificate is attached, after having been first duly
signed on behalf of the said corporation and having been signed on behalf of CPG
Investors Inc., a corporation of the State of Delaware, was duly adopted
pursuant to Section 228 of Title 8 of the Delaware Code by the written consent
of a majority of the voting stockholders of Acquisition, which Agreement of
Merger was thereby adopted as the act of the stockholders of said Acquisition,
and the duly adopted agreement and act of the said corporation.
WITNESS my hand on this 31st day of October, 1996.
/s/ Bruce Moore
-----------------------------
Bruce Moore, Vice President
<PAGE>
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
CPG INVESTORS INC.
--------------
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, as from time to time amended, do
hereby certify as follows:
FIRST: The name of the Corporation is
CPG Investors Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent in the State of
Delaware at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage, directly or
indirectly, in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware as from
time to time in effect.
FOURTH: The total authorized capital stock of the Corporation shall
be 1,000 shares of Common Stock, par value $0.01 per share.
FIFTH: The business of the Corporation shall be managed under the
direction of the Board of Directors except as otherwise provided by law. The
number of Directors of the Corporation shall be fixed from time to time by, or
in the manner provided in, the By-Laws. Election of Directors need not be by
written ballot unless the By-Laws of the Corporation shall so provide.
<PAGE>
EXHIBIT A
Page 2
SIXTH: The Board of Directors may make, alter or repeal the By-Laws
of the Corporation except as otherwise provided in the By-Laws adopted by the
Corporation's stockholders.
SEVENTH: The Directors of the Corporation shall be protected from
personal liability, through indemnification or otherwise, to the fullest extent
permitted under the General Corporation Law of the State of Delaware as from
time to time in effect.
1. A Director of the Corporation shall under no circumstances have
any personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director except for those breaches and
acts or omissions with respect to which the General Corporation Law of the State
of Delaware, as from time to time amended, expressly provides that this
provision shall not eliminate or limit such personal liability of Directors.
Neither the modification or repeal of this paragraph 1 of Article SEVENTH nor
any amendment to said General Corporation Law that does not have retroactive
application shall limit the right of Directors hereunder to exculpation from
personal liability for any act or omission occurring prior to such amendment,
modification or repeal.
2. The Corporation shall indemnify each Director and Officer of the
Corporation to the fullest extent permitted by applicable law, except as may be
otherwise provided in the Corporation's By-Laws, and in furtherance hereof the
Board of Directors is expressly authorized to amend the Corporation's By-Laws
from time to time to give full effect hereto, notwithstanding possible self
interest of the Directors in the action being taken. Neither the modification or
repeal of this paragraph 2 of Article SEVENTH nor any amendment to the General
Corporation Law of the State of Delaware that does not have retroactive
application shall limit the right of Directors and Officers to indemnification
hereunder with respect to any act or omission occurring prior to such
modification, amendment or repeal.
EIGHTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE>
EX-4.3
- --------------------------------------------------------------------------------
SPECIALTY PAPERBOARD, INC.,
as Issuer,
SPECIALTY PAPERBOARD/ENDURA INC.
and
CPG ACQUISITION COMPANY,
as Guarantors,
AND
WILMINGTON TRUST COMPANY,
as Trustee
-----------------
INDENTURE
Dated as of October 15, 1996
----------------
$100,000,000
9 3/8% Senior Notes due 2006, Series A
9 3/8% Senior Notes due 2006, Series B
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section_
310(a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.08; 7.10
(b)............................................. 7.08; 7.10;
12.02
(c)............................................. N.A.
311(a)............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a)............................................. 2.05
(b)............................................. 12.03
(c)............................................. 12.03
313(a)............................................. 7.06
(b)(1).......................................... 7.06
(b)(2).......................................... 7.06
(c)............................................. 7.06; 12.02
(d)............................................. 7.06
314(a)............................................. 4.08; 4.10;
12.02
(b)............................................. N.A.
(c)(1).......................................... 7.02; 12.04;
12.05
(c)(2).......................................... 7.02; 12.04;
12.05
(c)(3).......................................... N.A.
(d)............................................. N.A.
(e)............................................. 12.05
(f)............................................. N.A.
315(a)............................................. 7.01(b); 7.02
(b)............................................. 7.05; 12.02
(c)............................................. 7.01
(d)............................................. 6.05; 7.01(c);
7.02
(e)............................................. 6.11
316(a)(last sentence).............................. 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... 9.02
(b)............................................. 6.07
317(a)(1).......................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318(a)............................................. 12.01
(c)............................................. 12.01
- ----------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions...................................... 1
Section 1.02 Incorporation by Reference of TIA................ 25
Section 1.03 Rules of Construction............................ 25
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating.................................. 26
Section 2.02 Execution and Authentication..................... 27
Section 2.03 Registrar and Paying Agent....................... 28
Section 2.04 Paying Agent To Hold Assets in
Trust.......................................... 28
Section 2.05 Securityholder Lists............................. 29
Section 2.06 Transfer and Exchange............................ 29
Section 2.07 Replacement Securities........................... 30
Section 2.08 Outstanding Securities........................... 30
Section 2.09 Treasury Securities.............................. 31
Section 2.10 Temporary Securities............................. 31
Section 2.11 Cancellation..................................... 31
Section 2.12 Defaulted Interest............................... 32
Section 2.13 CUSIP Number..................................... 32
Section 2.14 Deposit of Moneys................................ 32
Section 2.15 Book-Entry Provisions for Global
Securities..................................... 32
Section 2.16 Registration of Transfers and
Exchanges...................................... 34
Section 2.17 Designation...................................... 40
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee............................... 40
Section 3.02 Selection of Securities To Be
Redeemed....................................... 41
Section 3.03 Notice of Redemption............................. 41
Section 3.04 Effect of Notice of Redemption................... 42
-i-
<PAGE>
Page
----
Section 3.05 Deposit of Redemption Price...................... 43
Section 3.06 Securities Redeemed in Part...................... 43
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities............................ 43
Section 4.02 Maintenance of Office or Agency.................. 44
Section 4.03 Limitation on Restricted Payments................ 44
Section 4.04 Limitation on Incurrence of
Additional Indebtedness........................ 46
Section 4.05 Corporate Existence.............................. 47
Section 4.06 Payment of Taxes and Other Claims................ 47
Section 4.07 Maintenance of Properties and
Insurance...................................... 48
Section 4.08 Compliance Certificate; Notice of
Default........................................ 48
Section 4.09 Compliance with Laws............................. 49
Section 4.10 Commission Reports............................... 50
Section 4.11 Waiver of Stay, Extension or Usury
Laws........................................... 50
Section 4.12 Limitation on Transactions with
Affiliates..................................... 51
Section 4.13 [Intentionally Omitted].......................... 52
Section 4.14 Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries................................... 52
Section 4.15 Limitation on Liens.............................. 53
Section 4.16 Change of Control................................ 53
Section 4.17 Limitation on Asset Sales........................ 55
Section 4.18 Limitation on Preferred Stock of
Restricted Subsidiaries........................ 59
Section 4.19 [Intentionally Omitted].......................... 59
Section 4.20 Limitation on Designations of
Unrestricted Subsidiaries...................... 59
Section 4.21 Additional Guarantees............................ 61
Section 4.22 Deposit of Funds with Trustee
Pending Consummation of
Acquisitions................................... 61
-ii-
<PAGE>
Page
----
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 Mergers, Consolidations and Sale
of Assets...................................... 63
Section 5.02 Successor Corporation Substituted................ 65
ARTICLE SIX
DEFAULT AND REMEDIES
Section 6.01 Events of Default................................ 66
Section 6.02 Acceleration..................................... 68
Section 6.03 Other Remedies................................... 69
Section 6.04 Waiver of Past Defaults.......................... 69
Section 6.05 Control by Majority.............................. 69
Section 6.06 Limitation on Suits.............................. 70
Section 6.07 Rights of Holders To Receive
Payment........................................ 70
Section 6.08 Collection Suit by Trustee....................... 71
Section 6.09 Trustee May File Proofs of Claim................. 71
Section 6.10 Priorities....................................... 72
Section 6.11 Undertaking for Costs............................ 72
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee................................ 73
Section 7.02 Rights of Trustee................................ 74
Section 7.03 Individual Rights of Trustee..................... 75
Section 7.04 Trustee's Disclaimer............................. 75
Section 7.05 Notice of Default................................ 75
Section 7.06 Reports by Trustee to Holders.................... 76
Section 7.07 Compensation and Indemnity....................... 76
Section 7.08 Replacement of Trustee........................... 78
Section 7.09 Successor Trustee by Merger, Etc................. 79
Section 7.10 Eligibility; Disqualification.................... 79
Section 7.11 Preferential Collection of Claims
Against Company................................ 79
-iii-
<PAGE>
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Legal Defeasance and Covenant
Defeasance..................................... 80
Section 8.02 Satisfaction and Discharge....................... 84
Section 8.03 Survival of Certain Obligations.................. 84
Section 8.04 Acknowledgment of Discharge by
Trustee....................,................... 85
Section 8.05 Application of Trust Assets...................... 85
Section 8.06 Repayment to the Company or the
Guarantors; Unclaimed Money..,................. 85
Section 8.07 Reinstatement.................................... 86
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders....................... 87
Section 9.02 With Consent of Holders.......................... 87
Section 9.03 Compliance with TIA.............................. 89
Section 9.04 Revocation and Effect of Consents................ 89
Section 9.05 Notation on or Exchange of
Securities..................................... 90
Section 9.06 Trustee To Sign Amendments, Etc.................. 90
ARTICLE TEN
[INTENTIONALLY OMITTED]
ARTICLE ELEVEN
GUARANTEE
Section 11.01 Unconditional Guarantee.......................... 91
Section 11.02 Severability..................................... 92
Section 11.03 Limitation of Guarantor's
Liability...................................... 92
Section 11.04 Guarantors May Consolidate, etc.,
on Certain Terms............................... 93
Section 11.05 Contribution..................................... 93
Section 11.06 Waiver of Subrogation............................ 94
Section 11.07 Execution of Guarantee........................... 94
-iv-
<PAGE>
Page
----
Section 11.08 Waiver of Stay, Extension or Usury
Laws........................................... 95
ARTICLE TWELVE
MISCELLANEOUS
Section 12.01 TIA Controls..................................... 96
Section 12.02 Notices.......................................... 96
Section 12.03 Communications by Holders with
Other Holders.................................. 97
Section 12.04 Certificate and Opinion as to
Conditions Precedent........................... 98
Section 12.05 Statements Required in Certificate
or Opinion..................................... 98
Section 12.06 Rules by Trustee, Paying Agent,
Registrar...................................... 99
Section 12.07 Legal Holidays................................... 99
Section 12.08 Governing Law.................................... 99
Section 12.09 No Adverse Interpretation of Other
Agreements..................................... 99
Section 12.10 No Recourse Against Others....................... 99
Section 12.11 Successors....................................... 99
Section 12.12 Duplicate Originals.............................. 100
Section 12.13 Severability..................................... 100
Signatures......................................................... 101
Exhibit A - Form of Series A Security
Exhibit B - Form of Series B Security
Exhibit C - Form of Legend for Global
Securities
Exhibit D - Transfer Certificate
Exhibit E - Transferee Certificate for
Institutional Accredited
Investors
Exhibit F - Form of Transferee Certificate for
Regulation S Transfers
Note: This Table of Contents shall not, for any purpose, be
deemed to be part of the Indenture.
-v-
<PAGE>
INDENTURE dated as of October 15, 1996 among SPECIALTY PAPERBOARD,
INC., a Delaware corporation (the "Company"), as Issuer, SPECIALTY
PAPERBOARD/ENDURA INC., a Delaware corporation, and CPG ACQUISITION COMPANY, a
Delaware corporation, as Guarantors, and WILMINGTON TRUST COMPANY, a Delaware
banking corporation, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 9 3/8%
Senior Notes due 2006, Series A, and 9 3/8% Senior Notes due 2006, Series B, to
be issued in exchange for the 9 3/8% Senior Notes due 2006, Series A, pursuant
to the Registration Rights Agreement and, to provide therefor, the Company and
the Guarantors have duly authorized the execution and delivery of this
Indenture. All things necessary to make the Securities, when duly issued and
executed by the Company and authenticated and delivered hereunder, and the
Guarantees the valid and binding obligations of the Company and the Guarantors,
respectively, and to make this Indenture a valid and binding agreement of the
Company and each of the Guarantors, have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Acquisitions" means, collectively, (i) the acquisition of all of the
outstanding Capital Stock of Arcon Holding Corp. by the Company pursuant to that
certain Stock Purchase Agreement dated as of August 28, 1996 among the Company,
Arcon
<PAGE>
-2-
Coating Mills, Inc., Arcon Holding Corp., the stockholders of Arcon Holding
Corp. and various other parties and (ii) the merger of a Wholly Owned Subsidiary
of the Company with and into CPG Investors Inc. pursuant to that certain Merger
Agreement dated as of August 28, 1996 among the Company, CPG Acquisition Company
and CPG Investors Inc.
"Acquisition Date" has the meaning set forth in Section 4.22.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Affiliate Transaction" has the meaning set forth in Section 4.12.
"Agent" means any Registrar, Paying Agent or Co-Registrar.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction or any
disposition referred to in Section 4.22) to any Person other than the Company or
a Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary;
or (b) any other property or assets of the Company or any Restricted
<PAGE>
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Subsidiary other than in the ordinary course of business; provided, however,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or the Restricted Subsidiaries receive
aggregate consideration of less than $1,000,000, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under Article V of this Indenture, (iii)
disposals or replacements of obsolete equipment in the ordinary course of
business and (iv) the sale, lease, conveyance, disposition or other transfer by
the Company or any Restricted Subsidiary of assets or property to the Company or
one or more Restricted Subsidiaries.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in the City of New York or Wilmington,
Delaware, are required or authorized by law or other governmental action to be
closed.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect
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to any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture); (ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of this Indenture); (iii) any
Person or Group shall become the owner, directly or indirectly, beneficially or
of record, of shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding Capital
<PAGE>
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Stock of the Company; or (iv) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"Change of Control Date" has the meaning set forth in Section 4.16.
"Change of Control Offer" has the meaning set forth in Section 4.16.
"Change of Control Payment Date" has the meaning set forth in Section
4.16.
"Collateral" means (i) the Collateral Account and the Money Market
Account, (ii) the Special Redemption Amount and all other cash or Cash
Equivalents deposited in the Collateral Account and the Money Market Account
from time to time pursuant to Section 4.22 hereof, (iii) all rights and
privileges of the Company with respect to the Collateral Account, the Money
Market Account and such cash and Cash Equivalents, (iv) all dividends, interest
and other payments and distributions made on or with respect to such Cash
Equivalents, the Collateral Account or the Money Market Account and (v) all
proceeds of any of the foregoing.
"Collateral Account" has the meaning set forth in Section 4.22.
"Collateral Funds" has the meaning set forth in Section 4.22.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Commission" means the Securities and Exchange Commission.
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"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated
Net Income has been reduced thereby, (A) all income taxes of the Company and the
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges less any non-cash items increasing Consolidated
Net Income for such period, all as determined on a consolidated basis for the
Company and the Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of
Consolidated EBITDA during the four full fiscal quarters (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
Date") to Consolidated Fixed Charges for the Four Quarter Period. In addition to
and without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma (including any pro forma expense and cost
reductions calculated on a basis consistent with Regulation S-X under the
Securities Act) basis for the period of such calculation to (i) the incurrence
or repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a
<PAGE>
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Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the Company or any of the Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if the
Company or any such Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for
any period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of the Company (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state and
local tax rate of such Person, expressed as a decimal.
<PAGE>
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"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses, (c)
the net income (or loss) of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary, (d) the
net income (but not loss) of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary, except to the
extent of cash dividends or distributions paid to the Company or to a Restricted
Subsidiary by such Person, (f) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued) and (g)
in the case of a successor to the Company by consolidation or merger or as a
transferee of the Company's assets, any net income of the successor corporation
prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on
<PAGE>
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a consolidated basis in accordance with GAAP, less (without duplication) amounts
attributable to Disqualified Capital Stock of such Person; provided that the
Consolidated Net Worth of any Person shall exclude the effect of any non-cash
charges relating to the acceleration of stock options or similar securities of
such Person or another Person with which such Person is merged or consolidated.
"Consolidated Non-cash Charges" means, with respect to the Company,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of the Company and the Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Corporate Trust Office" means the principal office of the Trustee
where it conducts its corporate trust administrative functions which office is
currently located at 1100 North Market Street, Wilmington, Delaware.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Credit Agreement" means the Amended and Restated Financing Agreement
and Guaranty dated as of June 30, 1994, between the Company, the lenders party
thereto in their capacities as lenders thereunder and The CIT Group/Business
Credit, Inc., as agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by Section
4.04, or adding Subsidiaries as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
<PAGE>
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"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means, with respect to the Securities issued in the form
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designation" has the meaning set forth in Section 4.20.
"Designation Amount" has the meaning set forth in Section 4.20.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Securities.
"Event of Default" has the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"Final Maturity Date" means October 15, 2006.
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"Fund" has the meaning set forth in Section 4.22.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" means a security evidencing all or a portion of the
Securities issued to the Depository or its nominee in accordance with Section
2.01 and bearing the legend set forth in Exhibit C.
"Guarantee" has the meaning set forth in Section 11.01.
"Guarantor" means (i) each of the Company's domestic Subsidiaries as
of the Issue Date and (ii) each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of this Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of this Indenture.
"incur" has the meaning set forth in Section 4.04.
"Indebtedness" means with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 160 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii)
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all Obligations of any other Person of the type referred to in clauses (i)
through (vi) which are secured by any lien on any property or asset of such
Person, the amount of such Obligation being deemed to be the lesser of the fair
market value of such property or asset or the amount of the Obligation so
secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the Company.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (a) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Purchaser" means BT Securities Corporation.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by
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applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means the date of original issuance of the Securities
under this Indenture.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"MDC Entities" means, collectively, McCown De Leeuw & Co., MDC
Management Company, MDC/JAFCO Ventures and any of their respective Affiliates.
"Money Market Account" has the meaning set forth in Section 4.22.
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"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of the Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.17.
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.17.
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.17.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
4.17.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such Person.
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"Officers' Certificate" means a certificate signed by two Officers of
the Company.
"Opinion of Counsel" means a written opinion from legal counsel which
opinion is reasonably acceptable to the Trustee and which counsel may be counsel
to or employee of the Company or counsel to the Trustee.
"Participants" has the meaning set forth in Section 2.15.
"Paying Agent" has the meaning set forth in Section 2.03.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities, this Indenture and the
Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (x) $20.0 million and (y) the sum of (A) 85% of the net book
value of the accounts receivable of the Company and the Restricted
Subsidiaries and (B) 50% of the net book value of the inventory of the
Company and the Restricted Subsidiaries, less any required permanent
repayments under all revolving credit facilities (which are accompanied by
a corresponding permanent commitment reduction) thereunder;
(iii) other Indebtedness (including Capitalized Lease Obligations) of
the Company and the Restricted Subsidiaries outstanding on the Issue Date
reduced by the amount of any scheduled amortization payments or mandatory
prepayments when actually paid or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company or a Guarantor covering
Indebtedness of the Company or any of the Restricted Subsidiaries and
Interest Swap Obligations of any Restricted Subsidiary covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and the
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
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principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; provided that
if as of any date any Person other than the Company or a Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary for so
long as such Indebtedness is held by a Restricted Subsidiary, in each case
subject to no Lien; provided that (a) any Indebtedness of the Company to
any Restricted Subsidiary that is not a Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under this Indenture and the Securities and (b) if as of any date any
Person other than a Restricted Subsidiary owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit
<PAGE>
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for the account of the Company or such Restricted Subsidiary, as the case
may be, in order to provide security for workers' compensation claims,
payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Indebtedness of the Company or any of the Restricted Subsidiaries
incurred to finance the acquisition of all of the outstanding Capital Stock
of Arcon Holding Corp. not to exceed $33,000,000 at any one time
outstanding; provided that such Indebtedness shall not constitute Permitted
Indebtedness after the consummation of both of the Acquisitions; and
(xii) additional Indebtedness of the Company and the Guarantors in an
aggregate principal amount not to exceed $12,500,000 at any one time
outstanding (which Indebtedness may, but need not be, incurred under the
Credit Agreement).
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary, (ii) Investments in the Company by any
Restricted Subsidiary; provided that any Indebtedness evidencing such Investment
by any Restricted Subsidiary other than a Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Securities and this Indenture; (iii) investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and the Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $1,500,000 at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or a Restricted Subsidiary's businesses and otherwise in
compliance with this Indenture; (vi) Investments in Unrestricted Subsidiaries
not to exceed $2,000,000 at any one time outstanding; (vii) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (viii) Investments made by the Company or the
Restricted Subsidiaries as a result of consideration received in connection
<PAGE>
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with an Asset Sale made in compliance with Section 4.17; and (ix) the
Acquisitions.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
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(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired after the Issue Date;
provided, however, that (A) the related purchase money Indebtedness shall
not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary other
than the property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.04; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted
in connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens
do not extend to or cover any property or assets of the Company or of any
of the Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of
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the Company or a Restricted Subsidiary and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary; and
(xiv) Liens securing Indebtedness permitted to be outstanding under
clause (xi) of the definition of "Permitted Indebtedness".
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of the Company pursuant to a registration statement
filed with and declared effective by the Commission in accordance with the
Securities Act.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth on Exhibit A.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
"Purchase Agreement" means the purchase agreement dated as of October
4, 1996 by and among the Company, the Guarantors and the Initial Purchaser.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
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"Record Date" means the applicable Record Date specified in the
Securities; provided that if any such date is not a Business Day, the Record
Date shall be the first day immediately preceding such specified day that is a
Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"Reference Date" has the meaning set forth in Section 4.03.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with Section 4.04
(other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or
(xi) of the definition of Permitted Indebtedness), in each case that does not
(1) result in an increase in the aggregate principal amount of Indebtedness of
such Person as of the date of such proposed Refinancing (plus the amount of any
premium required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
or any Restricted Subsidiary in connection with such Refinancing) or (2) create
Indebtedness with (A) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a
final maturity earlier than the final maturity of the Indebtedness being
Refinanced; provided that (x) if such Indebtedness being Refinanced is
Indebtedness of the Company or a Guarantor, then such Refinancing Indebtedness
shall be Indebtedness solely of the Company and/or a Guarantor and (y) if such
Indebtedness being Refinanced is subordinate or junior to the Securities, then
such Refinancing Indebtedness shall be subordinate to the Securities at least to
the same
<PAGE>
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extent and in the same manner as the Indebtedness being Refinanced.
"Registered Exchange Offer" means the offer to exchange the Series B
Securities for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
"Registrar" has the meaning set forth in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date among the Company, the Guarantors and the
Initial Purchaser.
"Regulation S" means Regulation S under the Securities Act.
"Replacement Assets" has the meaning set forth in Section 4.17.
"Responsible Officer" means, when used with respect to the Trustee,
any officer in the Corporate Trust Office of the Trustee including any vice
president, assistant vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Restricted Payment" has the meaning set forth in Section 4.03.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; provided that the Trustee shall be entitled to request
and conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.20. Any such Designation may be revoked by a
Board Resolution of the Company delivered to the Trustee, subject to the
provisions of Section 4.20.
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"Revocation" has the meaning set forth in Section 4.20.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Securities" means the Series A Securities and the Series B Securities
treated as a single class of securities, as amended or supplemented from time to
time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto.
"Securityholder" or "Holder" means the Person in whose name a Security
is registered on the Registrar's books.
"Series A Securities" means the 9 3/8% Senior Notes due 2006, Series
A, of the Company issued pursuant to this Indenture and sold pursuant to the
Purchase Agreement.
"Series B Securities" means the 9 3/8% Senior Notes due 2006, Series
B, of the Company to be issued in exchange for the Series A Securities pursuant
to the Registered Exchange Offer and the Registration Rights Agreement.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(v) of Regulation S-X under the Securities Act.
"Special Redemption" has the meaning set forth in Section 3.01.
"Special Redemption Amount" has the meaning set forth in Section 4.22.
"Special Redemption Date" means February 13, 1997.
<PAGE>
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"Subsidiary", with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture act of 1939 (15 U.S.C.
ss.77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA, except as otherwise provided in Section 9.03.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"U.S. Government Obligations" shall have the meaning set forth in
Section 8.01.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.20. Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of Section 4.20.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
<PAGE>
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"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
of which all the outstanding voting securities (other than in the case of a
foreign Restricted Subsidiary, directors' qualifying shares or an immaterial
amount of shares required to be owned by other Persons pursuant to applicable
law) are owned by the Company or another Wholly Owned Restricted Subsidiary.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, any Guarantor
or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
<PAGE>
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(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Series A Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Series B Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements (including notations relating to the
Guarantees) required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Securities and any notation, legend or
endorsement (including notations relating to the Guarantees) on them. Each
Security shall be dated the date of its issuance and shall show the date of its
authentication.
Securities initially offered and sold by the Initial Purchaser (i) to
Qualified Institutional Buyers in reliance on Rule 144A, (ii) to Accredited
Investors or (iii) in offshore transactions in reliance on Regulation S shall,
unless the applicable Holder requests Securities in the form of Certificated
Securities in registered form ("Physical Securities") which shall be in
substantially the form set forth in Exhibit A), be issued initially in the form
of one or more permanent Global Securities in registered form, substantially in
the form set forth in Exhibit A, deposited with the Trustee, as custodian for
the Depository, and shall bear the legend set forth on Exhibit C. One or more
separate Global Securities shall be issued to represent Securities held by (i)
Qualified Institutional Buyers (a "QIB Global Security"), (ii) Accredited
Investors (an "Accredited Investor Global Security") and (iii) Persons acquiring
Securities in offshore transactions in reliance on Regulation S (a "Regulation S
Global Security").
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The Company shall cause the QIB Global Securities, Accredited Investor Global
Securities and Regulation S Global Securities to have separate CUSIP numbers.
The aggregate principal amount of any Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature. The Company's seal shall also be reproduced on the Securities.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless. Each
Guarantor shall execute a Guarantee in the manner set forth in Section 12.07.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original
issue in the aggregate principal amount not to exceed $100,000,000 and (ii)
Series B Securities from time to time only in exchange for a like principal
amount of Series A Securities, in each case upon a written order of the Company
in the form of an Officers' Certificate. The Officers' Certificate shall specify
the amount of Securities to be authenticated, the series of Securities and the
date on which the Securities are to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed $100,000,000, except
as provided in Section 2.07. Upon receipt of a written order of the Company in
the form of an Officers' Certificate, the Trustee shall authenticate Securities
in substitution for Securities originally issued to reflect any name change of
the Company.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities.
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Unless otherwise provided in the appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may have one or
more Co-Registrars and one or more additional Paying Agents reasonably
acceptable to the Trustee. The term "Paying Agent" includes any additional
Paying Agent. The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. Neither the Company nor any Affiliate of the Company may act as
Paying Agent.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying
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Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Record Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a Co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations of the same
series, the Registrar or Co-Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or Co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or Co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 3.07,
4.16, 4.17 or 9.05). The Registrar or Co-Registrar shall not be required to
register the transfer of or exchange of any Security (i) during a period
beginning at the opening of business 15 days before the mailing of a notice of
redemption of Securities and ending at the close of business on the day of such
mailing and (ii) selected for redemption in whole or in part pursuant to Article
Three, except the unredeemed portion of any Security being redeemed in part.
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Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Depository
(or its agent), and that ownership of a beneficial interest in a Global Security
shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
the Company, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee and any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge such Holder for its reasonable
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
Subject to Section 2.09, a Security does not cease to be outstanding because the
Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Final Maturity Date the Paying Agent
holds U.S. Legal Tender sufficient to pay all of the principal and interest due
on the Securities payable on
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that date, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that the Trustee knows are so owned shall be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company, the Guarantors or their respective Affiliates.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or any Guarantor shall acquire
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any of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal or interest on the
Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate of 2% per annum in excess of the rate shown
on the Security.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date
and the Final Maturity Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Final Maturity Date, as the case may
be, in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date or Final Maturity Date, as the case may
be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit C.
Members of, or participants in, the Depository ("Participants") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the
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Depository, or the Trustee as its custodian, or under the Global Security, and
the Depository may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of the Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and Participants, the
operation of customary practices governing the exercise of the rights of a
Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(d) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to paragraph (b) of
this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the
Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including
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Participants and Persons that may hold interests through Participants, to take
any action which a Holder is entitled to take under this Indenture or the
Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal number of
Physical Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or Co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar or
Co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (substantially in the form of Exhibit D hereto); or
(B) if such Physical Security is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a certification
to that effect (substantially in the form of Exhibit D hereto);
or
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(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and a
Transferee Certificate for Institutional Accredited Investors
substantially in the form of Exhibit E hereto; or
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a Transferee
Certificate for Regulation S Transfers substantially in the form
of Exhibit F hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and
an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and an Opinion of Counsel
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or Co-Registrar of a
Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or Co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
that such Physical Security is
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being transferred (I) to a Qualified Institutional Buyer, (II) to
an Accredited Investor or (III) in an offshore transaction in
reliance on Regulation S; and
(B) written instructions directing the Registrar or Co-Registrar to
make, or to direct the Depository to make, an endorsement on the
applicable Global Security to reflect an increase in the
aggregate amount of the Securities represented by the Global
Security,
then the Registrar or Co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
Co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no Global Security representing
Securities held by Qualified Institutional Buyers, Accredited Investors or
Persons acquiring Securities in offshore transactions in reliance on Regulation
S, as the case may be, is then outstanding, the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate such a Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
thought the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written instructions,
or such other instruction as is customary for the Depository, from the
Depository or its nominee, requesting the registration of transfer of an
interest in a QIB Global Security, an Accredited Investor Global Security or
Regulation S Global Security, as the case may be, to another type of Global
Security, together with the applicable Global Securities (or, if the applicable
type of Global Security required to represent the interest as requested to be
transferred is not then outstanding, only the Global Security representing the
interest being transferred), the Registrar or Co-Registrar shall cancel such
Global Securities (or Global Security) and the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate new Global Securities of the types so cancelled (or
the type so cancelled and applicable type
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required to represent the interest as requested to be transferred) reflecting
the applicable increase and decrease of the principal amount of Securities
represented by such types of Global Securities, giving effect to such transfer.
If the applicable type of Global Security required to represent the interest as
requested to be transferred is not outstanding at the time of such request, the
Company shall issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate a new Global Security of
such type in principal amount equal to the principal amount of the interest
requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Physical
Security. Upon receipt by the Registrar or Co-Registrar of
written instructions, or such other form of instructions as is
customary for the Depository, from the Depository or its nominee
on behalf of any Person having a beneficial interest in a Global
Security and upon receipt by the Trustee of a written order or
such other form of instructions as is customary for the
Depository or the Person designated by the Depository as having
such a beneficial interest containing registration instructions
and, in the case of any such transfer or exchange of a beneficial
interest in Securities the offer and sale of which have not been
registered under the Securities Act, the following additional
information and documents:
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification from such Person to that effect
(substantially in the form of Exhibit D hereto); or
(B) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule l44A,
a certification to that effect (substantially in the form of
Exhibit D hereto); or
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(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a Certificate for Institutional
Accredited Investors substantially in the form of Exhibit E
hereto; or
(D) if such beneficial interest is being transferred in reliance
on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
Transferee Certificate for Regulation S Transfers
Substantially in the form of Exhibit F hereto and an Opinion
of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(E) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act; or
(F) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act, a certification to that effect
(substantially in the form of Exhibit D hereto) and an
Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act,
then the Registrar or Co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository
and the Registrar or Co-Registrar, the aggregate principal amount of
the applicable Global Security to be reduced and, following such
reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate in
accordance with
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Section 2.02, the Trustee will authenticate and deliver to the
transferee a Physical Security.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered
in such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Registrar or Co-Registrar in writing.
The Registrar or Co-Registrar shall deliver such Physical Securities
to the Persons in whose names such Physical Securities are so
registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or Co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or Co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act.
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
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The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.17. Designation.
The Indebtedness evidenced by the Securities and the Guarantees is
hereby irrevocably designated as "senior indebtedness" or such other term
denoting seniority for the purposes of any future Indebtedness of the Company or
a Guarantor which the Company or a Guarantor makes subordinate to any senior
indebtedness or such other term denoting seniority.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5 or
Paragraph 6 of the Securities, it shall notify the Trustee in writing of the
Redemption Date, the Redemption Price and the principal amount of Securities to
be redeemed. The Company shall give notice of redemption to the Paying Agent and
Trustee at least 30 days but not more than 60 days before the Redemption Date
(unless a shorter notice shall be agreed to by the Trustee in writing), together
with an Officers' Certificate stating that such redemption will comply with the
conditions contained herein.
The Company shall give notice of a redemption pursuant to Paragraph 7
of the Securities ("Special Redemption") to the Paying Agent and the Trustee at
least three Business Days before the Redemption Date with respect to the Special
Redemption (unless a shorter notice period shall be agreed to by the Trustee in
writing), together with an Officers' Certificate stating that such redemption
will comply with the conditions contained herein.
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SECTION 3.02. Selection of Securities To Be Redeemed.
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Securities of a principal amount of $1,000 or less shall be
redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to the
procedures of the Depository), unless such method is otherwise prohibited.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 or less may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date
(other than with respect to a Special Redemption), the Company shall mail a
notice of redemption by first class mail, postage prepaid, to each Holder whose
Securities are to be redeemed at its registered address. At the Company's
request made at least 45 days before the Redemption Date (other than with
respect to a Special Redemption), the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In the event of a
Special Redemption, at least three Business Days before a Special Redemption
other than on the Special Redemption Date, the Company shall mail or cause to be
mailed a notice of redemption by first class mail, postage prepaid, to each
Holder at its registered address.
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Each notice for redemption shall identify the Securities to be redeemed and
shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if any,
to be paid;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest, if any;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the Securities
are to be redeemed.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Securities called for redemption shall be paid at
the Redemption Price (which shall include accrued
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interest thereon to the Redemption Date), but installments of interest, the
maturity of which is on or prior to the Redemption Date, shall be payable to
Holders of record at the close of business on the relevant Record Dates.
SECTION 3.05. Deposit of Redemption Price.
On or before 10:00 a.m. New York Time on the Redemption Date, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Securities to be redeemed will cease to accrue on and
after the applicable Redemption Date, whether or not such Securities are
presented for payment.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part only, the
Trustee shall upon written instruction from the Company authenticate for the
Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company will pay the principal of and interest on the Securities
in the manner provided in the Securities. An installment of principal of or
interest on the Securities shall be considered paid on the date it is due if the
Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and
sufficient to pay the installment.
The Company will pay, to the extent such payments are lawful, interest
on overdue principal and it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) from time to time on
demand at the
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rate borne by the Securities plus 2% per annum. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.02.
The Company hereby initially designates the office of Harris Trust Company of
New York, 77 Water Street, 4th Floor, New York, New York 10005, as its office or
agency in the Borough of Manhattan, The City of New York.
SECTION 4.03. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, or (c) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (a), (b) and (c) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the Section 4.04 or (iii) the aggregate amount
of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company
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earned subsequent to the Issue Date and on or prior to the date the Restricted
Payment occurs (the "Reference Date") (treating such period as a single
accounting period); plus (x) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (y) without duplication of
any amounts included in clause (iii)(x) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any
net cash proceeds from a Public Equity Offering to the extent used to redeem the
Securities); plus (z) an amount equal to the consolidated net Investments on the
date of Revocation made by the Company or any of the Restricted Subsidiaries in
any Subsidiary of the Company that has been designated an Unrestricted
Subsidiary after the Issue Date upon its redesignation as a Restricted
Subsidiary in accordance with Section 4.20.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or redemption payment within 60 days after the date of declaration of such
dividend if the dividend or redemption payment, as the case may be, would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Securities or such Guarantor's Guarantee, as the case
may be, either (i) solely in exchange for shares of Qualified Capital Stock of
the Company, or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of (A)
shares of Qualified Capital Stock of the Company or (B) Refinancing
Indebtedness; and (4) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases by the Company of Common Stock of the
Company or options to purchase Common Stock of the Company, stock appreciation
rights or any similar equity interest in the Company from directors and
employees of the Company or any of
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its Subsidiaries or their authorized representatives upon the death, disability
or termination of employment of such employees, in an aggregate amount not to
exceed $750,000 in any calendar year and (5) if no Default or Event of Default
shall have occurred and be continuing, the making of other Restricted Payments
not to exceed $3.0 million in the aggregate. In determining the aggregate amount
of Restricted Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, amounts expended pursuant
to clauses (1), (2), (4) and (5) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
SECTION 4.04. Limitation on Incurrence of
Additional Indebtedness.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness) and any Restricted Subsidiary may incur Acquired Indebtedness, in
each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of the Company is greater than 2.00 to 1.00.
(b) Indebtedness of a Person existing at the time such Person becomes
a Restricted Subsidiary or which is secured by a Lien on an asset acquired by
the Company or a Restricted Subsidiary (whether or not such Indebtedness is
assumed by the Acquiring Person) shall be deemed incurred at the time the Person
becomes a Restricted Subsidiary or at the time of the Asset Acquisition, as the
case may be.
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(c) The Company will not, and will not permit any Guarantor to, incur
any Indebtedness (other than Acquired Indebtedness which is subordinated in
right of payment to other Acquired Indebtedness which is incurred in connection
with the same Asset Acquisition as such subordinated Acquired Indebtedness)
which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated in right of payment to any other Indebtedness of
the Company or such Guarantor, unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinate in right of payment to the Securities or the Guarantee of such
Guarantor, as the case may be, pursuant to subordination provisions that are
substantively identical to the subordination provisions of such Indebtedness (or
such agreement) that are most favorable to the holders of any other Indebtedness
of the Company or such Guarantor, as the case may be.
SECTION 4.05. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of the Restricted Subsidiaries in accordance with the respective
organizational documents of each Restricted Subsidiary and the rights (charter
and statutory) and material franchises of the Company and each of the Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and each of the Restricted Subsidiaries, taken as a
whole, and that the loss thereof is not, and will not be, adverse in any
material respect to the Holders.
SECTION 4.06. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or any of the Restricted
Subsidiaries or upon the income, profits or property of it or any of the
Restricted Subsidiaries and (b) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability or Lien upon the property of it or any of
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the Restricted Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which appropriate
provision has been made.
SECTION 4.07. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or leased
by it or any of the Restricted Subsidiaries used or useful to the conduct of its
business or the business of any of the Restricted Subsidiaries to be improved or
maintained and kept in normal condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.07 shall prevent the Company or any of
the Restricted Subsidiaries from discontinuing the use, operation or maintenance
of any of such properties, or disposing of any of them, if such discontinuance
or disposal is, in the judgment of the Board of Directors of the Company or any
Restricted Subsidiary concerned, or of an officer (or other agent employed by
the Company or of any of the Restricted Subsidiaries) of the Company or any of
the Restricted Subsidiaries having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance.
SECTION 4.08. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 100 days after
the close of each fiscal year an Officers' Certificate stating that a review of
the activities of the Company has been made under the supervision of the signing
Officers
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with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such covenant and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
signers do know of such Default or Event of Default, the certificate shall
describe its status with particularity. The Officers' Certificate shall also
notify the Trustee should the Company elect to change the manner in which it
fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to Section 4.10
shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit of such financial statements nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four, Five or Six of this Indenture insofar as they relate
to accounting matters or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall deliver to the Trustee, forthwith upon becoming
aware of any Default or Event of Default in the performance of any covenant,
agreement or condition contained in this Indenture, an Officers' Certificate
specifying the Default or Event of Default and describing its status with
particularity.
SECTION 4.09. Compliance with Laws.
The Company will comply, and will cause each of the Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States, all states and municipalities thereof,
and of any governmental department, commission, board, regulatory authority,
bureau, agency and instrumentality of the foregoing, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as would not in the aggregate have a material
adverse effect on
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the financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
SECTION 4.10. Commission Reports.
(a) The Company will file with the Commission all information,
documents and reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act, whether or not the Company is subject
to such filing requirements so long as the Commission will accept such filings.
The Company will file with the Trustee within 15 days after it files them with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company files with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Upon
qualification of this Indenture under the TIA, the Company shall also comply
with the provisions of TIA ss.314(a).
(b) Regardless of whether the Company is required to furnish such
reports to its stockholders pursuant to the Exchange Act, the Company shall
cause its consolidated financial statements, comparable to that which would have
been required to appear in annual or quarterly reports, to be delivered to the
Trustee and the Holders. The Company will also make such reports available to
prospective purchasers of the Securities, securities analysts and broker-dealers
upon their request.
(c) For so long as any of the Securities remain outstanding, the
Company will make available to any prospective purchaser of the Securities or
beneficial owner of the Securities in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act during any
period when the Company is not subject to Section 13 or 15(d) under the Exchange
Act.
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of and/or interest on the Securities as contemplated
herein, wherever enacted, now or at any
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time hereafter in force, or which may affect the covenants or the performance of
this Indenture, and (to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
SECTION 4.12. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $1,000,000 shall be approved by the Board of Directors of the Company
or such Restricted Subsidiary, as the case may be, such approval to be evidenced
by a Board Resolution stating that such Board of Directors has determined that
such transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5,000,000, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain an opinion stating that such transaction or series of related
transactions are fair to the Company or the relevant Restricted Subsidiary, as
the case may be, from a financial point of view, from an Independent Financial
Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as
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determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of the Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by this Indenture; (iii)
Restricted Payments permitted by this Indenture; and (iv) advisory fees to MDC
Entities not to exceed $500,000 in any fiscal year.
SECTION 4.13. [Intentionally Omitted]
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) this
Indenture; (3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary; (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person or the properties or assets of the Person so acquired (including, but
not limited to, such Person's direct and indirect Subsidiaries); (5) agreements
existing on the Issue Date to the extent and in the manner such agreements are
in effect on the Issue Date; or (6) an agreement governing Indebtedness incurred
to Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4) or (5) above; provided, however, that
the provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5).
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SECTION 4.15. Limitation on Liens.
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of the Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Securities are equally
and ratably secured, except for (a) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (b) Liens
securing Indebtedness under the Credit Agreement; (c) Liens securing the
Securities and the Guarantees; (d) Liens of the Company or a Guarantor on assets
of any Restricted Subsidiary of the Company; (e) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; provided, however, that such
Liens (A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets of the Company or any of the Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (f) Permitted Liens.
SECTION 4.16. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase (the "Change of Control Offer"), and
shall purchase, on a Business Day (the "Change of Control Payment Date") not
more than 45 nor less than 30 days following the occurrence of the Change of
Control, all of the then outstanding Securities at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the Change of Control Payment Date. The Change of Control Offer shall
remain open for at least 20 Business Days and until the close of business on the
Change of Control Payment Date.
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(b) Within 15 days following the date upon which a Change of Control
occurs (the "Change of Control Date"), the Company shall send, by first class
mail, a notice to each Holder, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. The notice to the Holders shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Change of Control Offer. Such notice shall
state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.16 and that all Securities tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued interest) and
the Change of Control Payment Date;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Change of Control Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
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(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price plus accrued interest, if any, and the Trustee shall promptly authenticate
and mail to such Holders new Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.16, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities pursuant to a Change of Control Offer. To the extent the
provisions of any securities laws or regulations conflict with the provisions
under this Section 4.16, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under this Section 4.16 by virtue thereof.
SECTION 4.17. Limitation on Asset Sales.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 80% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form
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of cash or Cash Equivalents and is received at the time of such disposition; and
(iii) upon the consummation of an Asset Sale, the Company shall apply, or cause
such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 365 days of receipt thereof either (A) to prepay any
Indebtedness ranking at least pari passu with the Securities and, in the case of
any such Indebtedness under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit facility, (B) to make
an investment in properties and assets that replace the properties and assets
that were the subject of such Asset Sale or in properties and assets that will
be used in the business of the Company and the Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that amount of Securities equal to the Net Proceeds Offer Amount
at a price equal to 100% of the principal amount of the Securities to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5,000,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount,
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and not just the amount in excess of $5,000,000, shall be applied as required
pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and the Restricted Subsidiaries not so transferred for purposes of
this Section 4.17, and shall comply with the provisions of this Section 4.17
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.17.
Notwithstanding the two immediately preceding paragraphs, the Company
and the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (a) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (b) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of the Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer pursuant to this Section 4.17 shall
be mailed or caused to be mailed, by first class mail, by the Company within 15
days following the applicable Net Proceeds Offer Trigger Date to all Holders at
their last registered addresses, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to this Section
4.17 and that all Securities tendered will be accepted for payment;
provided, however, that if the principal amount of Securities tendered in
the Net Proceeds Offer exceeds the Net Proceeds Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis;
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(2) the Net Proceeds Offer price (including the amount of accrued
interest, if any) and the Net Proceeds Offer Payment Date;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to the
Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Net Proceeds Offer Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Net Proceeds Offer Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount at maturity equal to the
unpurchased portion of the Securities surrendered.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price, plus accrued interest, if any, of all
Securities to be purchased and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to the Holders of Securities so accepted payment in an amount equal to the
purchase price, plus accrued interest, if any, thereon. For purposes of this
Section 4.17, the Trustee shall act as the Paying Agent.
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Any Net Proceeds Offer shall remain open for at least 20 Business Days
and until the close of business on the Net Proceeds Offer Payment Date. The
Company shall comply with all tender offer rules under state and federal
securities laws, including, but not limited to, Section 14(e) under the Exchange
Act and Rule l4e-1 thereunder, to the extent applicable to such offer. To the
extent that the provisions of any securities laws or regulations conflict with
the foregoing provisions of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the foregoing provisions of this Indenture by
virtue thereof.
SECTION 4.18. Limitation on Preferred Stock
of Restricted Subsidiaries.
The Company will not permit any of the Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Wholly Owned
Restricted Subsidiary) or permit any Person (other than the Company or a Wholly
Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary.
SECTION 4.19. [Intentionally Omitted]
SECTION 4.20. Limitation on Designations
of Unrestricted Subsidiaries.
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under this Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
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(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to paragraph (a)
of Section 4.04 at the time of Designation (assuming the effectiveness of
such Designation).
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
4.03 for all purposes of this Indenture in the Designation Amount. The Company
shall not, and shall not permit any Restricted Subsidiary to, at any time (x)
provide direct or indirect credit support for or a guarantee of any Indebtedness
of any Unrestricted Subsidiary (including of any undertaking, agreement or
instrument evidencing such Indebtedness), (y) be directly or indirectly liable
for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebtedness which provides that the holder thereof
may (upon notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity upon the occurrence of a default with respect to any Indebtedness of
any Unrestricted Subsidiary (including any right to take enforcement action
against such Unrestricted Subsidiary), except, in the case of clause (x) or (y),
to the extent permitted under Section 4.03.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
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SECTION 4.21. Additional Guarantees.
If the Company or any of the Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of the Restricted Subsidiaries shall
organize, acquire or otherwise invest in or hold an investment in another
domestic Restricted Subsidiary having total consolidated assets with a book
value in excess of $1,000,000, then such transferee or acquired or other
Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Securities and this Indenture on the terms set
forth in Article Eleven and (ii) deliver to the Trustee an Opinion of Counsel
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture.
SECTION 4.22. Deposit of Funds with Trustee
Pending Consummation of Acquisitions.
(a) On the Issue Date, the Company shall deposit with the Trustee as
hereinafter provided $100,000,000 (the "Special Redemption Amount").
(b) In order to secure the full and punctual payment and performance
of the Company's obligation to redeem the Securities upon a Special Redemption,
the Company hereby grants to the Trustee, for the benefit of the holders, a
continuing security interest in and to the Collateral, whether now owned or
existing or hereafter acquired or arising. The Trustee shall have no obligation
to file any financing statement or otherwise take any action to maintain or
perfect any such security interest.
(c) At all times until the earlier to occur of receipt by the Trustee
of (i) an Officers' Certificate stating that the Acquisitions are to be
consummated on a date specified therein, which shall be on or before February
13, 1997 (the "Acquisition Date"), on the terms and conditions described in the
Offering Memorandum of the Company dated October 4, 1996 relating to the
Securities (the "Offering Memorandum") in all
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material respects (it being understood that the disposition of (or agreement to
divest) assets of the Company or CPG Investors, Inc. or any of their respective
Subsidiaries made to obtain termination of the waiting period related to the
Acquisition of CPG Investors, Inc. by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which divestitures do not (or
will not) have a material adverse effect on the business, condition (financial
or otherwise) or results of operations of the Company, CPG Investors, Inc. and
their respective Subsidiaries, taken as a whole, will be deemed not to be a
material variation from the terms and conditions described in the Offering
Memorandum; it being further understood that any such disposition, whether
consummated before or after the consummation of the Acquisition of CPG
Investors, Inc. by the Company, shall constitute an Asset Sale for all purposes
of this Indenture) and requesting the Trustee to release the Collateral to the
order of the Company for application in connection with the Acquisitions and
(ii) a request of the Company to deposit funds with the Paying Agent on the
Redemption Date pursuant to a Special Redemption, there shall be maintained with
the Trustee an account (the "Collateral Account") designated "Wilmington Trust
Co., Trustee (subject to a security interest in the name of Wilmington Trust Co.
as Trustee," which account shall be under the sole dominion and control of the
Trustee. On the Issue Date, the Company shall cause the Special Redemption
Amount to be deposited in the Collateral Account. Amounts on deposit in the
Collateral Account shall be invested and reinvested from time to time in shares
of common stock of the Bankers Trust Institutional Cash Reserves Fund (the
"Fund") (in an account at the Fund in the name of "Wilmington Trust Company,
Trustee (subject to a security interest in the name of Wilmington Trust Company,
as Trustee)" (the "Money Market Account")), which shares shall be held in the
Collateral Account. Any income received with respect to the balance from time to
time standing to the credit of the Collateral Account, including any interest or
capital gains on Cash Equivalents, shall remain, or be deposited, in the
Collateral Account. The Trustee shall not be liable or accountable for any
losses resulting without negligence on the part of the Trustee from the sale or
depreciation in the market value of any investment of amounts on deposit in the
Collateral Account. Subject to Article Seven hereof, the Trustee solely in its
individual capacity hereby waives any rights it may have in such individual
capacity to the Collateral Account and all funds and investments therein
including, without limitation, any such rights arising through any counterclaim,
defense, recoupment, charge, lien or right of set-off.
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(d) Upon notice from the Company to the Trustee pursuant to subsection
(c)(i) above, the security interests in the Collateral shall terminate as of the
Acquisition Date and all funds in the Collateral Account (the "Collateral
Funds") shall be released as of the Acquisition Date as follows: (i) $3,000,000
to BT Securities Corporation to its account at Bankers Trust Company, ABA No.:
021-001-033, account no.: 50-057-558, account name: BT Securities Corp., ref.:
Addt'l Fees - Specialty; (ii) $97,000,000 to the Company to an account
previously designated by it by wire transfer of immediately available funds; and
(iii) any remaining Collateral Funds (including income with respect to
Collateral Funds) shall be distributed to BT Securities Corporation and the
Company, as set forth in clauses (i) and (ii) above in proportion to the
respective amounts distributed to each such Person pursuant to such clauses as
set forth in an Officers' Certificate previously delivered to the Trustee;
provided, that the amount of Collateral Funds distributed pursuant to clause
(ii) shall be reduced to the extent that there are insufficient Collateral Funds
to make the distributions provided for in clauses (i) and (ii) of this paragraph
(d). Upon notice from the Company to the Trustee pursuant to subsection (c)(ii)
above, the Trustee shall apply Collateral Funds to fund the Special Redemption
and the Trustee shall pay any remaining amount in the Collateral Account in
excess of the amount needed to fund the Special Redemption to BT Securities
Corporation as provided in clause (i) above up to the amount specified in such
clause (i) and shall pay any remaining funds to BT Securities Corporation and
the Company in the proportions set forth in clause (iii) above. Section 314(d)
of the TIA shall not apply to the release of Collateral pursuant to this
provision if such release occurs prior to the filing of the registration
statement under the Securities Act pursuant to the Registration Rights
Agreement, after which time this sentence shall be deemed deleted from this
Indenture.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidations and Sale of Assets.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or
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otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Securities, this
Indenture and the Registration Rights Agreement on the part of the Company to be
performed or observed; (ii) immediately after giving effect to such transaction
and the assumption contemplated by clause (i)(2)(y) above (including giving
effect to any Indebtedness incurred or anticipated to be incurred in connection
with or in respect of such transaction), the Company or such Surviving Entity,
as the case may be, (1) shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction and (2) shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to paragraph (a) of
Section 4.04 hereof; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect to any Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction) no Default and no Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have been
satisfied.
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(b) For purposes of the foregoing paragraph (a), the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Restricted Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(c) Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of Article Eleven in connection with any
transaction complying with the provisions of Section 4.17) will not, and the
Company will not cause or permit any Guarantor to, consolidate with or merge
with or into any Person other than the Company or another Guarantor unless: (i)
the entity formed by or surviving any such consolidation or merger (if other
than the Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) such entity assumes by supplemental indenture all of the obligations of the
Guarantor under its Guarantee; (iii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (a)(ii) of this Section 5.01. Any merger or
consolidation of a Guarantor with and into the Company (with the Company being
the surviving entity) or another Guarantor need only comply with clause (a)(iv)
of this Section 5.01.
SECTION 5.02. Successor Corporation Substituted.
Upon any such consolidation, merger, conveyance, lease or transfer of
all or substantially all of the assets of the Company in accordance with the
foregoing provisions of this Article Five, in which the Company is not the
surviving Person, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, lease or transfer is
made will succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture and the Securities with the same
effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved of
all further obligations and covenants under
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this Indenture, the Securities and the Registration Rights Agreement; provided
that solely for purposes of computing amounts described in subclauses (w), (x)
and (y) of Section 4.03, any successor Person shall only be deemed to have
succeeded to and be substituted for the Company with respect to periods
subsequent to the effective time of such merger, consolidation or transfer of
assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company fails to pay interest on any Securities when the same
becomes due and payable and the default continues for a period of 30 days;
(b) the Company fails to pay the principal on any Securities, when
such principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(c) the Company or any Restricted Subsidiary defaults in the
observance or performance of any other covenant or agreement contained in
this Indenture, which default continues for a period of 30 days after the
Company receives written notice specifying the default (and demanding that
such default be remedied) from the Trustee or the Holders of at least 25%
of the outstanding principal amount of the Securities (except in the case
of a default with respect to Section 5.01, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(d) the Company or any Restricted Subsidiary fails to pay at final
maturity (giving effect to any applicable grace periods and any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Restricted Subsidiary, or the acceleration of the final stated maturity of
any such Indebtedness if the aggregate
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principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal at
final maturity or which has been accelerated, aggregates $5,000,000 or more
at any time;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 shall have been rendered against the Company or any of the
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(f) the Company or any of its Significant Subsidiaries (i) admits in
writing its inability to pay its debts generally as they become due, (ii)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (iii) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (iv) consents to the appointment of a Custodian of it or
for substantially all of its property, (v) consents to or acquiesces in the
institution of a bankruptcy or an insolvency proceeding against it, (vi)
makes a general assignment for the benefit of its creditors or (vii) takes
any partnership or corporate action, as the case may be, to authorize or
effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law,
which shall (i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any of its Significant Subsidiaries, (ii) appoint a Custodian of
the Company or any of its Significant Subsidiaries or for substantially all
of any of their property or (iii) order the winding-up or liquidation of
its affairs; and such judgment, decree or order shall remain unstayed and
in effect for a period of 60 consecutive days;
(h) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary is declared
to be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any Guarantor which is a
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Significant Subsidiary denies its liability under its Guarantee (other than
by reason of release of such Guarantor in accordance with the terms of this
Indenture; or
(i) the Company fails to either (x) consummate the Acquisitions on or
before the Special Redemption Date or (y) effect a Special Redemption
pursuant to Section 4.22 of this Indenture on or before the Special
Redemption Date.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above) shall occur and be continuing, the Trustee or the
Holders of at least 25% in principal amount of outstanding Securities may
declare the principal of, premium, if any, and accrued and unpaid interest on
all the Securities to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a "notice
of acceleration", and the same shall become immediately due and payable. If an
Event of Default specified in clause (f) or (g) above occurs and is continuing,
then all unpaid principal of, and premium, if any, and accrued and unpaid
interest on all of the outstanding Securities shall ipso facto become and be
immediately due and payable without any declaration or other at on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (e) in the event of the
cure or waiver of an Event of Default of the type described in clause (f) or (g)
of the description of Events of Default above, the Trustee shall have received
an Officers' Certificate and an Opinion of Counsel that such Event of Default
has been
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cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities, this Indenture or the
Guarantees.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than
a majority in principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default in the payment of principal of or interest on any Security as
specified in clauses (a) and (b) of Section 6.01. The Company shall deliver to
the Trustee an Officers' Certificate stating that the requisite percentage of
Holders have consented to such waiver and attaching copies of such consents.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
The Holders of not less than a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.01, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
that
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the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture, the Securities or any Guarantee unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 30-day period the Holder or Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective
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dates, shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest and fees remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
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SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company or the Guarantors, as their respective interests
may appear.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default actually known to the Trustee has occurred
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs. The Trustee will be under no
obligation to exercise any of its rights or powers under this Indenture at the
request of any of the holders of Securities, unless they shall have offered to
the Trustee security and indemnity satisfactory to it.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(1) The Trustee need perform only those duties as are specifically set
forth herein and no others and no implied covenants or obligations shall be
read into this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions and such
other documents delivered to it pursuant to Section 12.04 hereof furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
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(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive an indemnity satisfactory to it in
its sole discretion against such risk, liability, loss, fee or expense which
might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and an Opinion of Counsel, which shall conform to the
provisions of Section 12.05. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent (other than an
agent who is an employee of the Trustee) appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication. The
Trustee makes no representations with respect to the effectiveness or adequacy
of this Indenture or the validity or perfection, if any, of Liens granted under
this Indenture.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such
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event, the Trustee shall mail to each Securityholder, as their names and
addresses appear on the Securityholder list described in Section 2.05, notice of
the uncured Default or Event of Default within 60 days after the Trustee
receives such notice. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Security, including the failure to
make payment on (i) the Change of Control Payment Date pursuant to a Change of
Control Offer or (ii) the Net Proceeds Offer Payment Date pursuant to a Net
Proceeds Offer, the Trustee shall not be deemed to have actual knowledge or
actual notice of a Default or an Event of Default unless it received written
notice of such Default or Event of Default or the Trustee may withhold the
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors and/or Responsible Officers, of the Trustee in good
faith determines that withholding the notice is in the interest of the
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
This Section 7.06 shall not be operative as a part of this Indenture
until this Indenture is qualified under the TIA, and, until such qualification,
this Indenture shall be construed as if this Section 7.06 were not contained
herein.
Within 60 days after each May 15, the Trustee shall, to the extent
that any of the events described in TIA ss.313(a) occurred within the previous
twelve months, but not otherwise, mail to each Securityholder a brief report
dated as of such May 15 that complies with TIA ss.313(a). The Trustee also shall
comply with TIA ss.313(b) 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services hereunder (which shall be agreed to from time to
time by the Company and the Trustee). The Trustee's compensation shall not be
limited by any law on
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compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
(including reasonable fees and expenses of counsel) incurred or made by it in
addition to the compensation for its services, except any such disbursements,
expenses and advances as may be attributable to the Trustee's negligence or
willful misconduct. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
counsel and any taxes or other expenses incurred by a trust created pursuant to
Section 8.01 hereof.
The Company shall indemnify the Trustee and each predecessor trustee
for, and hold it harmless against, any loss, liability, claim, damage or expense
incurred by the Trustee without negligence or willful misconduct on its part
arising out of or in connection with the administration of this trust and its
duties under this Indenture, including the reasonable expenses and attorneys'
fees of defending itself against any claim of liability arising hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. However, the failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee shall cooperate in
the defense (and may employ its own counsel) at the Company's expense. The
Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee as a result of the violation of this Indenture
by the Trustee if such violation arose from the Trustee's negligence or willful
misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a senior claim prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (f) or (g) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the
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Company's obligations pursuant to Article Eight and any rejection or termination
under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any
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court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.310(a)(1) and 310(a)(5). The Trustee shall have a combined
capital and surplus of at least $100,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA
ss.310(b); provided, however, that there shall be excluded from the operation of
TIA ss.310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA
ss.310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Company.
The Trustee, in its capacity as Trustee hereunder shall comply with
TIA ss.311(a), excluding any creditor relationship listed in TIA ss.311(b). A
Trustee who has resigned or been removed shall be subject to TIA ss.311(a) to
the extent indicated.
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ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and the Guarantors shall be deemed
to have been released and discharged from their obligations with respect to the
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections and matters
under this Indenture referred to in (i) and (ii) below, and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of and interest on such Securities when such payments
are due and any Guarantor's obligations in respect thereof, and (ii) obligations
listed in Section 8.03, subject to compliance with this Section 8.01. The
Company may exercise its option under this paragraph (b) notwithstanding the
prior exercise of its option under paragraph (c) below with respect to the
Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article Five and in
Sections 4.03 through 4.21 with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any
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direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company, its Subsidiaries and any Guarantor may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01(c), nor shall any event referred to in Section 6.01(d), (e),
(h) or (i) thereafter constitute a Default or an Event of Default thereunder
but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(1) The Company shall have irrevocably deposited in trust with the
Trustee, pursuant to an irrevocable trust and security agreement in form
and substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which obligation or guarantee
the full faith and credit of the United States of America is pledged ("U.S.
Government Obligations") maturing as to principal and interest in such
amounts and at such times as are sufficient, without consideration of the
reinvestment of such interest and after payment of all Federal, state and
local taxes or other charges or assessments in respect thereof payable by
the Trustee, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof (in form
and substance reasonably satisfactory to the Trustee) delivered to the
Trustee, to pay the principal of, premium, if any, and interest on all the
outstanding Securities on the dates on which any such payments are due and
payable in accordance with the terms of this Indenture and of the
Securities;
(2) Such deposits shall not cause the Trustee to have a conflicting
interest as defined in and for purposes of the TIA;
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(3) The Trustee shall have received Officers' Certificates stating
that no Default or Event of Default or event which with notice or lapse of
time or both would become a Default or an Event of Default with respect to
the Securities shall have occurred and be continuing on the date of such
deposit or, insofar as Section 6.01(f) or (g) is concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period);
(4) The Trustee shall have received Officers' Certificates stating
that such deposit will not result in a Default under this Indenture or a
breach or violation of, or constitute a default under, any other material
instrument or agreement to which the Company or any of its Subsidiaries is
a party or by which it or its property is bound;
(5) (i) In the event the Company elects paragraph (b) hereof, the
Company shall deliver to the Trustee an Opinion of Counsel in the United
States, in form and substance reasonably satisfactory to the Trustee to the
effect that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
state that Holders of the Securities will not recognize income gain or loss
for Federal income tax purposes as a result of such deposit and the
defeasance contemplated hereby and will be subject to Federal income taxes
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred, or (ii) in the event the
Company elects paragraph (c) hereof, the Company shall deliver to the
Trustee an Opinion of Counsel in the United States, in form and substance
reasonably satisfactory to the Trustee, to the effect that Holders of the
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and the defeasance contemplated hereby
and will be subject to Federal income tax in the same amounts and in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred;
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(6) The Trustee shall have received an Opinion of Counsel stating that
the deposit shall not result in the Company, the Trustee or the trust
becoming or being deemed to be an "investment company" under the Investment
Company Act of 1940;
(7) The Company shall have delivered to the Trustee an Officer's
Certificate, in form and substance reasonably satisfactory to the Trustee,
stating that the deposit under clause (1) was not made by the Company or
any Subsidiary of the Company with the intent of preferring the Holders
over any other creditors of the Company defeating, hindering, delaying or
defrauding any other creditors of the Company or any Subsidiary of the
Company or others;
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to
the effect that (A) the trust funds will not be subject to the rights of
holders of Indebtedness of the Company or any Guarantor other than the
Securities and (B) assuming no intervening bankruptcy of the Company
between the date of deposit and the 91st day following the deposit and that
no Holder of Securities is an insider of the Company, after the passage of
90 days following the deposit, the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally; and
(9) The Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
specified herein relating to the defeasance contemplated by this Section
8.01 have been complied with; provided, however, that no deposit under
clause (1) above shall be effective to terminate the obligations of the
Company under the Securities or this Indenture prior to 90 days following
any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company.
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SECTION 8.02. Satisfaction and Discharge.
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Securities, as expressly provided for in this Indenture) as to all
outstanding Securities when:
(1) either (a) all the Securities, theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been
replaced or paid and Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Securities not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the
entire Indebtedness on the Securities not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest
on the Securities to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may be;
(2) the Company has paid all other sums payable under this Indenture
by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel stating that all conditions precedent under this
Indenture relating to the satisfaction and discharge of this Indenture have
been complied with.
SECTION 8.03. Survival of Certain Obligations.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Securities referred to in Section 8.01 or 8.02, the respective
obligations of the Company and the Trustee under Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.07, 2.10, 2.12, 2.13, 4.01, 4.02, 6.07, Article Seven, Sections
8.05, 8.06 and 8.07 shall survive until the Securities are no longer
outstanding, and thereafter the obligations of the Company and the Trustee under
Sections 7.07, 8.05, 8.06 and 8.07 shall survive. Nothing contained in this
Article Eight shall
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abrogate any of the obligations or duties of the Trustee under this Indenture.
SECTION 8.04. Acknowledgment of Discharge by Trustee.
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 have been satisfied, (ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company and (iii) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's and the Guarantors' obligations under this Indenture except for those
surviving obligations specified in Section 8.03.
SECTION 8.05. Application of Trust Assets.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it pursuant to this Article Eight in the irrevocable
trust established pursuant to Section 8.01. The Trustee shall apply the
deposited U.S. Legal Tender or the U.S. Government Obligations, together with
earnings thereon, through the Paying Agent, in accordance with this Indenture
and the terms of the irrevocable trust agreement established pursuant to Section
8.01, to the payment of principal of and interest on the Securities. The U.S.
Legal Tender or U.S. Government Obligations so held in trust and deposited with
the Trustee in compliance with Section 8.01 shall not be part of the trust
estate under this Indenture, but shall constitute a separate trust fund for the
benefit of all Holders entitled thereto.
SECTION 8.06. Repayment to the Company or the
Guarantors; Unclaimed Money.
Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to
the Company, or if deposited with the Trustee by any Guarantor, to such
Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess
money, determined in accordance with Section 8.01, held by it at any time. The
Trustee and the Paying Agent shall pay to the Company or any Guarantor, as the
case may be, upon receipt by the Trustee or the Paying Agent, as the case may
be, of an Officers' Certificate, any money held by it for the payment of
principal, premium, if any, or interest that remains unclaimed for one year
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after payment to the Holders is required; provided, however, that the Trustee
and the Paying Agent before being required to make any payment may, but need
not, at the expense of the Company cause to be published once in a newspaper of
general circulation in the City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that after a date
specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company or any Guarantor, as the
case may be, Securityholders entitled to money must look solely to the Company
and the Guarantors for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with this Indenture by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then and only then the Company's and each Guarantor's, if any,
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture until
such time as the Trustee is permitted to apply all such U.S. Legal Tender or
U.S. Government Obligations in accordance with this Indenture; provided,
however, that if the Company or the Guarantors, as the case may be, have made
any payment of principal of, premium, if any, or interest on any Securities
because of the reinstatement of its obligations, the Company or the Guarantors,
as the case may be, shall be, subrogated to the rights of the holders of such
Securities to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, the Guarantors and the Trustee, together, may amend or
supplement this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to evidence the succession in accordance with Article Five hereof
of another Person to the Company and the assumption by any such successor
of the covenants of the Company herein and in the Securities;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not materially adversely affect
the rights of any Securityholders hereunder; or
(5) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA; or
(6) to add or release any Guarantor pursuant to the terms of this
Indenture.
provided that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, the Guarantors and the Trustee,
together, with the written consent of the Holder or Holders of at least a
majority in aggregate principal amount of the outstanding Securities, may amend
or supplement this Indenture or the Securities, without notice to any other
Securityholders. Subject to Section 6.07, the Holder or Holders of a majority in
aggregate principal amount of the outstanding Securities may waive compliance by
the Company with
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any provision of this Indenture or the Securities without notice to any other
Securityholder. Without the consent of each Securityholder affected, however, no
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate or change the time for payment of interest,
including default interest, on any Security;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any Security, or change the date on which any
Securities may be subject to redemption or repurchase, or reduce the
redemption or purchase price therefor;
(4) make any Securities payable in money other than that stated in the
Securities;
(5) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Securities to waive Defaults or Events of Default;
(6) make any changes in Section 6.04, 6.07 or this Section 9.02;
(7) modify or change any provision of this Indenture or the related
definitions affecting the ranking of the Securities or any Guarantee, in a
manner which adversely affects the Holders;
(8) amend, modify or change in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate a Net Proceeds Offer with
respect to any Asset Sale that has been consummated or, modify any of the
provisions or definitions with respect thereto; or
(9) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms of
this Indenture.
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It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture, the Securities or the
Guarantees shall comply with the TIA as then in effect such compliance to be
evidenced by an Opinion of Counsel.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
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After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (10) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Company may require the Holder of the Security to deliver it to the Trustee.
The Company may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and constituted the legal, valid and binding obligations of the
Company enforceable in accordance with its terms. Such Opinion of Counsel shall
be at the expense of the Company, and the Trustee shall have a Lien under
Section 7.07 for any such expense.
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ARTICLE TEN
[INTENTIONALLY OMITTED]
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally guarantees (such guarantee to be
referred to herein as a "Guarantee"), on a senior basis jointly and severally,
to each Holder of a Security authenticated and delivered by the Trustee and to
the Trustee and its successors and assigns, the Securities or the Obligations of
the Company hereunder or thereunder, that: (i) the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise and interest on
the overdue principal, if any, and interest on any interest, to the extent
lawful, of the Securities and all other Obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (ii) in case
of any extension of time of payment or renewal of any Securities or of any such
other obligations, the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, subject to any
applicable grace period, whether at stated maturity, by acceleration or
otherwise, subject, however, in the case of clauses (i) and (ii) above, to the
limitations set forth in Section 11.03. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, and action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by
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complete performance of the obligations contained in the Securities, this
Indenture and in this Guarantee. If any Securityholder or the Trustee is
required by any court or otherwise to return to the Company, any Guarantor, or
any custodian, trustee, liquidator or other similar official acting in relation
to the Company or any Guarantor, any amount paid by the Company or any Guarantor
to the Trustee or such Securityholder, this Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor further
agrees that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article Six,
such obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.05, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
<PAGE>
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SECTION 11.04. Guarantors May Consolidate,
etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor or shall prevent any sale of assets or conveyance
of the property of a Guarantor as an entirety or substantially as an entirety,
to the Company or another Guarantor. Upon any such consolidation, merger, sale
or conveyance, the Guarantee given by such Guarantor shall no longer have any
force or effect.
(b) Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Guarantor (or all or substantially all its assets)
to a Person which is not a Subsidiary of the Company and which sale or
disposition is otherwise in compliance with Section 4.17 and the other terms of
this Indenture, such Guarantor shall be deemed released from all obligations
under this Article Eleven without any further action required on the part of the
Trustee or any Holder.
The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate and Opinion of Counsel certifying as to the compliance with this
Section 11.04. Any Guarantor not so released remains liable for the full amount
of principal of and interest on the Securities as provided in this Article
Eleven.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets (as
defined below) of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Company's obligations with respect to the Securities or any other
Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of
such Guarantor at any date shall mean the lesser of the amount by which (x) the
fair value of the property of such Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or
<PAGE>
-94-
assumed on such date), but excluding liabilities under the Guarantee, of such
Guarantor at such date and (y) the present fair salable value of the assets of
such Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities incurred or assumed on such date),
excluding debt in respect of the Guarantee of such Guarantor, as they become
absolute and matured.
SECTION 11.06. Waiver of Subrogation.
Until all Guarantee Obligations are paid in full, each Guarantor
hereby irrevocably waives any claims or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under the Guarantee
and this Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Holder of Securities against the Company, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of the preceding
sentence and the Securities shall not have been paid in full, such amount shall
have been deemed to have been paid to such Guarantor for the benefit of, and
held in trust for the benefit of, the Holders of the Securities, and shall,
forthwith be paid to the Trustee for the benefit of such Holders to be credited
and applied upon the Securities, whether matured or unmatured, in accordance
with the terms of this Indenture. Each Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated by this Indenture and that the waiver set forth in this Section
11.06 is knowingly made in contemplation of such benefits.
SECTION 11.07. Execution of Guarantee.
To evidence their guarantee to the Securityholders set forth in this
Article Eleven, the Guarantors hereby agree to execute the Guarantee in
substantially the form included in the Securities, which shall be endorsed on
each Security ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its Guarantee set forth in this
<PAGE>
-95-
Article Eleven shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee. Each such Guarantee
shall be signed on behalf of each Guarantor by two Officers, or an Officer and
an Assistant Secretary or one Officer shall sign and one Officer or an Assistant
Secretary (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to such Guarantee prior to the
authentication of the Security on which it is endorsed, and the delivery of such
Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Guarantee on behalf of such Guarantor. Such
signatures upon the Guarantee may be by manual or facsimile signature of such
officers and may be imprinted or otherwise reproduced on the Guarantee, and in
case any such officer who shall have signed the Guarantee shall cease to be such
officer before the Security on which such Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the Person who signed the Guarantee had not ceased to be such officer of
the Guarantor.
SECTION 11.08. Waiver of Stay, Extension or Usury Laws.
Each Guarantor convenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive each such Guarantor from
performing its Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each such
Guarantor hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
<PAGE>
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ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 318(c) of the TIA, the imposed
duties shall control.
SECTION 12.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company or a Guarantor:
Specialty Paperboard, Inc.
Brudies Road
Brattleboro, Vermont
Attention: Chief Financial Officer
Facsimile: (802) 257-5900
Telephone: (802) 257-0365
with copies to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Frank L. Schiff
Facsimile: (212) 819-8200
Telephone: (212) 354-8113
<PAGE>
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if to the Trustee:
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 10890
Attention: Corporate Trust Administration
Facsimile: (302) 651-8882
Telephone: (302) 651-1000
Each of the Company and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company and the Trustee, shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss.312(b) with other
Securityholders with respect to their rights under this Indenture, the
Securities or the Guarantees. The Company, the Trustee, the Registrar and any
other Person shall have the protection of TIA ss.312(c).
<PAGE>
-98-
SECTION 12.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
<PAGE>
-99-
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 12.07. Legal Holidays.
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day.
SECTION 12.08. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities, this Indenture or the Guarantees or for any claim based
on, in respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 12.11. Successors.
All agreements of the Company and the Guarantors in this Indenture,
the Securities and the Guarantees shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
<PAGE>
-100-
SECTION 12.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
represent the same agreement.
SECTION 12.13. Severability.
In case any one or more of the provisions in this Indenture, in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
<PAGE>
-101-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
THE COMPANY:
SPECIALTY PAPERBOARD, INC.
By: /s/ Bruce Moore
----------------------------
Name: Bruce Moore
Title: Vice President
Attest: /s/ Alex Kwader
-------------------
THE TRUSTEE:
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ Donald G. MacKelcan
----------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE>
-102-
THE GUARANTORS:
SPECIALTY PAPERBOARD/ENDURA, INC.
By: /s/ Bruce Moore
----------------------------
Name: Bruce Moore
Title: Vice President
Attest: /s/ Alex Kwader
-------------------
CPG ACQUISITION COMPANY
By: /s/ Bruce Moore
----------------------------
Name: Bruce Moore
Title: Vice President
Attest: /s/ Alex Kwader
-------------------
<PAGE>
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR")) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE
IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE ISSUER SUCH CERTIFICATES, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
-2-
9 3/8% Senior Note
due October 15, 2006, Series A
CUSIP No.:
No. [ ] $[ ]
SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to [ ] or registered assigns, the principal sum of $[ ] Dollars, on October
15, 2006.
Interest Payment Dates: April 15 and October 15, commencing April 15,
1997
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
SPECIALTY PAPERBOARD, INC.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
-3-
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 3/8% Senior Notes due 2006, Series A, described
in the within-mentioned Indenture.
Dated: WILMINGTON TRUST COMPANY,
as Trustee
By________________________________
Authorized Signatory
<PAGE>
-4-
(REVERSE OF SECURITY)
SPECIALTY PAPERBOARD, INC.
9 3/8% Senior Note
due October 15, 2006, Series A
1. Interest.
SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on April 15
and October 15 of each year (the "Interest Payment Date"), commencing April 15,
1997. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from October 16, 1996.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
<PAGE>
-5-
3. Paying Agent and Registrar.
Initially, Wilmington Trust Company (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
Co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar or
Co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
October 15, 1996 (the "Indenture"), among the Company, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss.77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and Holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$100,000,000. Payment on each Security is guaranteed on a senior basis, jointly
and severally, by the Guarantors pursuant to Article Eleven of the Indenture.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after October 15, 2001 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on October 15 of the years
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
Year Percentage
---- ----------
2001............................. 104.688%
2002............................. 103.125%
2003............................. 101.562%
2004 and thereafter.............. 100.000%
<PAGE>
-6-
6. Optional Redemption upon Public Equity Offering.
At any time, or from time to time, on or prior to October 15, 1999,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to $35,000,000 aggregate principal amount of
Securities at a redemption price equal to 109.375% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
redemption; provided that at least 65% of the principal amount of Securities
originally issued remains outstanding immediately after giving effect to any
such redemption. In order to effect the foregoing redemption with the net cash
proceeds of a Public Equity Offering, the Company shall make such redemption not
more than 60 days after the consummation of such Public Equity Offering.
7. Special Redemption.
On the Special Redemption Date, the Securities will be subject to
mandatory redemption at a redemption price equal to 101% of the principal amount
of the Notes, plus accrued interest to the date of redemption, if the
Acquisitions are not consummated on or prior to the Special Redemption Date. The
Company will also have the option to redeem the Securities, in whole but not in
part, at any time on or prior to the Special Redemption Date if the Acquisitions
have not been consummated on or prior to such date and the Company delivers an
Officers' Certificate to the Trustee stating that it does not believe that a
condition to the consummation of an Acquisition will be satisfied on or prior to
the Special Redemption Date at a redemption price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of redemption.
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date (other than with respect to a Special
Redemption) to each Holder of Securities to be redeemed at such Holder's
registered address. In the event of a Special Redemption other than on the
Special Redemption Date, the Company shall mail notice of redemption to each
Holder at least three Business Days before the Special Redemption. Securities in
denominations of $1,000 may be redeemed only in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
<PAGE>
-7-
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
9. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
10. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
<PAGE>
-8-
13. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without notice
to or consent of any Holder, the parties thereto may amend or supplement the
Indenture, the Securities and the Guarantees to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities or comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
16. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to issue preferred
or other capital stock of Restricted Subsidiaries, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries to the
Company, to consolidate, merge or sell all or substantially all of its assets,
to engage in transactions
<PAGE>
-9-
with affiliates or to engage in certain businesses. The limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
<PAGE>
-10-
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
23. Registration Rights.
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Series A Security for the Company's 9 3/8% Senior Notes due 2006, Series B,
which have been registered under the Securities Act, in like principal amount
and having terms identical in all material respects as the Series A Securities.
The Holders shall be entitled to receive certain additional interest payments in
the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the Registration
Rights Agreement.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture and the Registration Rights
Agreement. Requests may be made to: Specialty Paperboard, Inc., Brudies Road,
P.O. Box 498, Brattleboro, Vermont 05302, Attn: Chief Financial Officer.
<PAGE>
GUARANTEE
The Guarantors (as defined in the Indenture referred to in the
Security upon which this notation is endorsed and each hereinafter referred to
as a "Guarantor," which term includes any successor person under the Indenture)
have unconditionally guaranteed on a senior basis (such guarantee by each
Guarantor being referred to herein as the "Guarantee") (i) the due and punctual
payment of the principal of and interest on the Securities, whether at maturity,
by acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Securities, to the extent lawful,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven of the Indenture and (ii) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, that the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Guarantor shall have any liability under the Guarantee
by reason of his or its status as such stockholder, officer, director or
incorporator.
The Guarantees shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantees
are noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
GUARANTORS:
SPECIALTY PAPERBOARD/
ENDURA, INC.
Attest: _________________ By:_______________________________
Name:
Title:
<PAGE>
CPG ACQUISITION COMPANY
Attest: _________________ By:______________________
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee
or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: __________________ Signed: _________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ______________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ] Section 4.17 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $_________________
Date:___________________ Your Signature: ___________________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:_________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT B
[FORM OF SERIES B SECURITY]
SPECIALTY PAPERBOARD, INC.
9 3/8% Senior Note
due October 15, 2006, Series B
CUSIP No.: [ ]
No. [ ] $[ ]
SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to [ ] or registered assigns, the principal sum of $[ ] Dollars, on October
15, 2006.
Interest Payment Dates: April 15 and October 15, commencing October
15, 1997
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
SPECIALTY PAPERBOARD, INC.
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 3/8% Senior Notes due 2006, Series B, described
in the within-mentioned Indenture.
Dated: WILMINGTON TRUST COMPANY,
as Trustee
By______________________________
Authorized Signatory
<PAGE>
(REVERSE OF SECURITY)
SPECIALTY PAPERBOARD, INC.
9 3/8% Senior Note
due October 15, 2006, Series B
1. Interest.
SPECIALTY PAPERBOARD, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on April 15
and October 15 of each year (the "Interest Payment Date"), commencing April 15,
1997. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from October 16, 1996.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
Initially, Wilmington Trust Company (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
Co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar or
Co-Registrar.
<PAGE>
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
October 15, 1996 (the "Indenture"), among the Company, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss.77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and Holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$100,000,000. Payment on each Security is guaranteed on a senior basis, jointly
and severally, by the Guarantors pursuant to Article Eleven of the Indenture.
5. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after October 15, 2001 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on October 15 of the years
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
Year Percentage
---- ----------
2001............................. 104.688%
2002............................. 103.125%
2003............................. 101.562%
2004 and thereafter.............. 100.000%
6. Optional Redemption upon Public Equity Offering.
At any time, or from time to time, on or prior to October 15, 1999,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to $35,000,000 aggregate principal amount of
Securities, at a redemption price equal to 109.375% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
redemption; provided that at least 65% of the principal amount of Securities
originally issued remains outstanding immediately after giving effect to any
such redemption. In order to effect the foregoing redemption with the net cash
proceeds of a Public Equity Offering, the Company shall make such
<PAGE>
redemption not more than 60 days after the consummation of such Public Equity
Offering.
7. Special Redemption.
On the Special Redemption Date, the Securities will be subject to
mandatory redemption at a redemption price equal to 101% of the principal amount
of the Notes, plus accrued interest to the date of redemption, if the
Acquisitions are not consummated on or prior to the Special Redemption Date. The
Company will also have the option to redeem the Securities, in whole but not in
part, at any time on or prior to the Special Redemption Date if the Acquisitions
have not been consummated on or prior to such date and the Company delivers an
Officers Certificate to the Trustee stating that it does not believe that a
condition to the consummation of an Acquisition will be satisfied on or prior to
the Special Redemption Date at a redemption price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of redemption.
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date (other than with respect to a Special
Redemption) to each Holder of Securities to be redeemed at such Holder's
registered address. In the event of a Special Redemption other than on the
Special Redemption Date, the Company shall mail notice of redemption to each
Holder at least three Business Days before the Special Redemption. Securities in
denominations of $1,000 may be redeemed only in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
9. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
<PAGE>
10. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
11. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
13. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from their obligations to
comply with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority
<PAGE>
in aggregate principal amount of the Securities then outstanding, and any
existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture, the
Securities and the Guarantees to, among other things, cure any ambiguity, defect
or inconsistency, provide for uncertificated Securities in addition to or in
place of certificated Securities or comply with any requirements of the
Commission in connection with the qualification of the Indenture under the TIA,
or make any other change that does not materially adversely affect the rights of
any Holder of a Security.
16. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to issue preferred
or other capital stock of Restricted Subsidiaries, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries to the
Company, to consolidate, merge or sell all or substantially all of its assets,
to engage in transactions with affiliates or to engage in certain businesses.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
<PAGE>
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Specialty Paperboard, Inc., Brudies Road, P.O. Box 498, Brattleboro, Vermont
05302, Attn: Chief Financial Officer.
<PAGE>
GUARANTEE
The Guarantors (as defined in the Indenture referred to in the
Security upon which this notation is endorsed and each hereinafter referred to
as a "Guarantor," which term includes any successor person under the Indenture)
have unconditionally guaranteed on a senior basis (such guarantee by each
Guarantor being referred to herein as the "Guarantee") (i) the due and punctual
payment of the principal of and interest on the Securities, whether at maturity,
by acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Securities, to the extent lawful,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven of the Indenture and (ii) in case of any extension of time of payment or
renewal of any Securities or any of such other obligations, that the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Guarantor shall have any liability under the Guarantee
by reason of his or its status as such stockholder, officer, director or
incorporator.
The Guarantees shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantees
are noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
GUARANTORS:
SPECIALTY PAPERBOARD/ENDURA, INC.
Attest: _________________ By:________________________________
Name:
Title:
<PAGE>
CPG ACQUISITION COMPANY
Attest: _________________ By:________________________________
Name:
Title:
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee
or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: __________________ Signed: _________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ______________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ] Section 4.17 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $_________________
Date:___________________ Your Signature: ___________________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:_________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSTARY OR A
NOMINEE OF A DEPOSTARY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSTARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSTARY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSTARY TO THE DEPOSTARY OR ANOTHER
NOMINEE OF THE DEPOSTARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSTARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9 3/8% Senior Notes due 2006, Series A and 9 3/8% Senior Notes due
2006, Series B (the "Securities"), of Specialty Paperboard, Inc.
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Physical Securities by ______ (the "Transferor").
The Transferor:*
|_| has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
|_| has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.16 of such Indenture, and that the
transfer of this Securities does not require registration under the Securities
Act of 1933, as amended (the "Act") because*:
|_| Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16(a)(II)(A) or Section
2.16(d)(i)(A) of the Indenture).
|_| Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
|_| Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act.
|_| Such Security is being transferred in reliance on Regulation S
under the Act
|_| Such Security is being transferred in reliance on Rule 144 under the
Act.
|_| Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
_______________________________
[INSERT NAME OF TRANSFEROR]
By: _________________________
[Authorized Signatory]
Date: _____________
*Check applicable box.
<PAGE>
EXHIBIT E
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
_______________, ____
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 10890
Attention: Corporate Trust Administration
Re: Specialty Paperboard, Inc. (the "Company")
Indenture (the "Indenture") relating to
9 3/8% Senior Notes due 2006, Series A,
or 9 3/8% Senior Notes due 2006, Series B
Ladies and Gentlemen:
In connection with our proposed purchase of 9 3/8% Senior Notes due
2006, Series A, or 9 3/8% Series Notes due 2006, Series B (the "Securities"), of
Specialty Paperboard, Inc. (the "Company"), we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) inside the United States in accordance
with Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (C) inside the United States to an institutional "accredited
investor" (as
<PAGE>
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to the Trustee a signed letter substantially in
the form hereof, (D) outside the United States in accordance with Regulations S
under the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F) pursuant to
an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing Securities from us a notice advising
such purchaser that resales of the Securities are restricted as stated herein.
4. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company, such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Transferor]
By:____________________________
[Authorized Signatory]
<PAGE>
EXHIBIT F
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
________________, ____
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 10890
Attention: Corporate Trust Administration
Re: Specialty Paperboard, Inc. (the "Company")
9 3/8% Senior Notes due 2006, Series A,
and 9 3/8% Senior Notes due 2006,
Series B (the "Securities")
Dear Sirs:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
<PAGE>
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:_____________________________
[Authorized Signature]
<PAGE>
EX-4.7
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of October 16, 1996
by and among
SPECIALTY PAPERBOARD, INC.,
THE GUARANTORS NAMED HEREIN
and
BT SECURITIES CORPORATION
(as Initial Purchaser)
================================================================================
$100,000,000
9-3/8% SENIOR NOTES DUE 2006
<PAGE>
This Registration Rights Agreement is dated as of October 16, 1996,
by and among Specialty Paperboard, Inc., a Delaware corporation (the "Company"),
each of the subsidiaries of the Company listed on the signature pages hereto as
a Guarantor (collectively, the "Guarantors" and, together with the Company, the
"Issuers") and BT Securities Corporation (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated
October 4, 1996, among the Company, the Guarantors and Initial Purchaser (the
"Purchase Agreement"). In order to induce the Initial Purchaser to enter into
the Purchase Agreement, the Issuers have agreed to provide the registration
rights provided for in this Agreement to the Initial Purchaser and its direct
and indirect transferees and assigns. The execution and delivery of this
Agreement is a condition to the closing of the transactions contemplated by the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: As defined in Section 4(a) hereof.
Affiliate: With respect to any specified person, "Affiliate" shall
mean any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
Business Day: Any day except a Saturday, a Sunday or a day on which
banking institutions in New York,
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New York generally are required or authorized by law or other government action
to be closed.
Company: As defined in the preamble hereof.
Consummate or consummate: When used to qualify the term "Exchange
Offer", shall mean validly and lawfully to issue and deliver the Exchange Notes
pursuant to the Exchange Offer for all Notes validly tendered and not validly
withdrawn pursuant thereto in accordance with the terms of this Agreement.
Consummation Date: The date that is 20 Business Days immediately
following the date that the Exchange Registration Statement shall have been
declared effective by the SEC.
Effectiveness Period: As defined in Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC pursuant thereto.
Exchange Date: As defined in Section 2(d) hereof.
Exchange Notes: The 9-3/8% Senior Notes due 2006 of the Company,
guaranteed on a senior basis by each of the Guarantors, that are identical to
the Notes in all material respects, except that the provisions regarding
restrictions on transfer shall be modified, as provided in the Indenture (or the
indenture pursuant to which the Exchange Notes are issued), and the issuance
thereof pursuant to the Exchange Offer shall have been registered pursuant to an
effective Registration Statement in compliance with the Securities Act.
Exchange Offer: An offer to issue, in exchange for any and all of
the Notes, a like aggregate principal amount of Exchange Notes, which offer
shall be made by the Company pursuant to Section 2 hereof.
Exchange Offer Filing Date: As defined in Section 2(a).
Exchange Registration Statement: As defined in Section 2(a) hereof.
Guarantors: As defined in the preamble hereof.
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Indemnified Person: As defined in Section 7(a) hereof.
Indenture: The Indenture, dated as of October 15, 1996, among the
Issuers and Wilmington Trust Company, as trustee thereunder, pursuant to which
the Notes are issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchaser: As defined in the preamble hereof.
Issue Date: As defined in Section 2(a).
Issuers: As defined in the preamble hereof.
Notes: The 9-3/8% Senior Notes due 2006 of the Company, guaranteed
on a senior basis by each of the Guarantors, issued pursuant to the Indenture.
Participating Broker-Dealer: As defined in Section 2(e) hereof.
Private Exchange: As defined in Section 2(c) hereof.
Private Exchange Notes: As defined in Section 2(c) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Notes, Exchange Notes or Private
Exchange Notes covered by such Registration Statement, and all other amendments
and supplements to any such prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference, if any, in such prospectus.
Registration Default: As defined in Section 4(a) hereof.
Registration Statement: Any registration statement of the Company
and the Guarantors that covers any of the Notes, Exchange Notes or Private
Exchange Notes pursuant to the
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provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference, if any, in such
registration statement.
Rule 144(k): Rule 144(k) promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
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Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Shelf Filing Event: As defined in Section 3(a) hereof.
Shelf Registration: As defined in Section 3(a) hereof.
Shelf Registration Statement: As defined in Section 3(a) hereof.
Special Counsel: Cahill Gordon & Reindel, special counsel to the
holders of Transfer Restricted Notes, or such other counsel as shall be agreed
upon by the Issuers and holders of a majority in aggregate principal amount of
Transfer Restricted Notes, the reasonable expenses of which holders of Transfer
Restricted Notes will be reimbursed by the Issuers pursuant to Section 6 hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Transfer Restricted Note: Each Note, upon original issuance thereof,
and at all times subsequent thereto, each Exchange Note as to which Section
3(a)(ii) hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until in the case of any such Note, Exchange Note or
Private Exchange Note, as the case may be, the earliest to occur of (i) the date
on which any such Note has been exchanged by a person other than a Participating
Broker-Dealer for an Exchange Note (other than with respect to an Exchange Note
as to which Section 3(a)(ii) hereof applies) pursuant to the Exchange Offer,
(ii) with respect to Exchange Notes received by Participating Broker-Dealers in
the Exchange Offer, the earlier of (x) the date on which such Exchange Note has
been sold by such Participating Broker-Dealer by means of the Prospectus
contained in the Exchange Registration Statement and (y) the date on which the
Exchange Registration Statement has been effective under the Securities Act for
a period of six months after the Consummation Date, (iii) a Shelf Registration
Statement covering such Note, Exchange Note or Private Exchange Note has been
declared effective by the SEC and such Note, Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Shelf Registration Statement, (iv) the date on which such Note, Exchange
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Note or Private Exchange Note, as the case may be, is eligible for distribution
to the public without volume or manner of sale restrictions pursuant to Rule
144(k) or (v) the date on which such Note, Exchange Note or Private Exchange
Note, as the case may be, ceases to be outstanding for purposes of the Indenture
or any other indenture under which such Exchange Note or Private Exchange Note
was issued.
Trustee: The trustee under the Indenture.
underwritten registration or underwritten offering: A registration
in connection with which securities are sold to an underwriter for reoffering to
the public pursuant to an effective Registration Statement.
2. Exchange Offer
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Issuers shall (A) prepare and, on or
prior to the later of (x) 60 days after the date of original issuance of the
Notes (the "Issue Date") and (y) 30 days after the closing of both of the
Acquisitions (as defined in the Indenture) (the "Exchange Offer Filing Date"),
file with the SEC a Registration Statement under the Securities Act with respect
to an offer by the Company to the holders of the Notes to issue and deliver to
such holders, in exchange for Notes, a like principal amount of Exchange Notes,
(B) use their best efforts to cause the Registration Statement relating to the
Exchange Offer to be declared effective by the SEC under the Securities Act on
or prior to the later of (x) 150 days after the Issue Date and (y) 90 days after
the Exchange Offer Filing Date, and (C) commence the Exchange Offer and use
their best efforts to issue, on or prior to the Consummation Date, the Exchange
Notes. The offer and sale of the Exchange Notes pursuant to the Exchange Offer
shall be registered pursuant to the Securities Act on an appropriate form (the
"Exchange Registration Statement") and duly registered or qualified under all
applicable state securities or Blue Sky laws and will comply with all applicable
tender offer rules and regulations under the Exchange Act and state securities
or Blue Sky laws. The Exchange Offer shall not be subject to any condition,
other than that the Exchange Offer does not violate any applicable law or
interpretation of the staff of the SEC. Upon consummation of the Exchange Offer
in accordance with this Section 2, the Issuers shall have no further
registration obligations other than with respect to (i) Private Exchange Notes,
(ii) Exchange Notes held by Participating
<PAGE>
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Broker-Dealers and (iii) Notes or Exchange Notes as to which Section 3(a)(iii)
hereof applies. No securities shall be included in the Exchange Registration
Statement other than the Exchange Notes.
(b) The Issuers may require each holder of Notes, as a condition to
its participation in the Exchange Offer, to represent to the Issuers and their
counsel in writing (which may be contained in the applicable letter of
transmittal) that at the time of the consummation of the Exchange Offer (i) any
Exchange Notes received by such holder will be acquired in the ordinary course
of its business, (ii) such holder will have no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) such holder is not an Affiliate
of an Issuer, or if it is an Affiliate of an Issuer, it will comply with the
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable.
(c) If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by them and having, or which are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, or any other holder of Notes is not entitled to
participate in the Exchange Offer, the Company, upon the request of the Initial
Purchaser or any such holder, shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to such Initial
Purchaser and any such holder, in exchange (the "Private Exchange") for such
Notes held by the Initial Purchaser and any such holder, a like principal amount
of debt securities of the Company, guaranteed by each of the Guarantors on a
senior basis, that are identical in all material respects to the Exchange Notes
(the "Private Exchange Notes") (and which are issued pursuant to the same
indenture as the Exchange Notes). The Private Exchange Notes shall bear the same
CUSIP number as the Exchange Notes.
(d) Unless the Exchange Offer would not be permitted by any
applicable law or interpretation of the staff of the SEC, the Company shall mail
the Exchange Offer Prospectus and appropriate accompanying documents, including
appropriate letters of transmittal, to each holder of Notes providing, in
addition to such other disclosures as are required by applicable law:
<PAGE>
-8-
(i) that the Exchange Offer is being made pursuant to this Agreement
and that all Notes validly tendered will be accepted for exchange;
(ii) the date of acceptance for exchange (the "Exchange Date"),
which date shall in no event be later than the Consummation Date (unless
otherwise required by applicable law);
(iii) that a holder of a Note electing to have a Note exchanged
pursuant to the Exchange Offer will be required to surrender such Note,
together with the enclosed letters of transmittal, to the institution and
at the address (located in the Borough of Manhattan, The City of New York)
specified in the notice prior to the close of business on the Exchange
Date; and
(iv) that holders of Notes that do not tender all such securities
pursuant to the Exchange Offer may no longer have any registration rights
hereunder with respect to Notes not tendered.
Promptly after the Exchange Date, the Company shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by the
Company, and issue, cause the Trustee under the Indenture (or the
indenture pursuant to which the Exchange Notes are issued) to
authenticate, and mail to each holder of Notes, Exchange Notes equal in
principal amount to the principal amount of the Notes surrendered by such
holder.
(e) The Issuers and the Initial Purchaser acknowledge that the staff
of the SEC has taken the position that any broker-dealer that owns Exchange
Notes that were received by such broker-dealer for its own account in the
Exchange Offer (a "Participating Broker-Dealer") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes (other than a resale of an unsold allotment
resulting from the original offering of the Notes).
<PAGE>
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The Issuers and the Initial Purchaser also acknowledge that it is
the SEC staff's position that if the Prospectus contained in the Exchange
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which Participating Broker-Dealers may resell
the Exchange Notes, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act.
In light of the foregoing, if requested by a Participating
Broker-Dealer, the Issuers agree (x) to use their best efforts to keep the
Exchange Registration Statement continuously effective for a period of up to six
months after the Consummation Date or such earlier date as each Participating
Broker-Dealer shall have notified the Company in writing that such Participating
Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer, (y)
to comply with the provisions of Section 5 of this Agreement, as they relate to
the Exchange Offer and the Exchange Registration Statement, and (z) to deliver
to such Participating Broker-Dealer a "cold comfort" letter of the independent
public accountants of the Issuers and a legal opinion as to matters reasonably
requested by such Participating Broker-Dealer relating to the Exchange
Registration Statement and the related Prospectus and any amendments or
supplements thereto.
(f) The Initial Purchaser shall have no liability to any
Participating Broker-Dealer with respect to any request made pursuant to Section
2(e).
(g) Interest on the Exchange Notes and the Private Exchange Notes
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the date of the original issuance of the Notes.
(h) The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall
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vote and consent together on all matters as one class and that neither the
Exchange Notes, the Private Exchange Notes nor the Notes will have the right to
vote or consent as a separate class on any matter.
3. Shelf Registration
(a) If (i) the Company is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by any applicable law or applicable interpretation of the
staff of the SEC or (ii) any holder of a Note notifies the Company on or prior
to the 30th day following the Issue Date that (A) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (B) due to a
change in law or policy it may not resell Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Registration Statement is not appropriate or available
for such resales by such holder or (C) it owns Notes (including the Initial
Purchaser that holds Notes as part of an unsold allotment from the original
offering of the Notes) acquired directly from an Issuer or an Affiliate of an
Issuer or (iii) any holder of Private Exchange Notes so requests after the
consummation of the Private Exchange or (iv) the Company has not consummated the
Exchange Offer within the later of (A) 150 days after the Issue Date and (B) 90
days after the Exchange Offer Filing Date (each such event referred to in
clauses (i) through (iv), a "Shelf Filing Event"), the Issuers shall cause to be
filed with the SEC pursuant to Rule 415 a shelf registration statement (the
"Shelf Registration Statement") prior to the later of (x) 60 days after the
Issue Date or (y) 30 days after the occurrence of such Shelf Filing Event,
relating to all Transfer Restricted Notes (the "Shelf Registration") the holders
of which have provided the information required pursuant to Section 3(b) hereof
(provided that if the Shelf Filing Event arises pursuant to clause (iv) above,
the Issuers shall file the Shelf Registration Statement on or prior to the later
of (I) the 151st day after the Issue Date and (II) the 91st day after the
Exchange Offer Filing Date), and shall use their best efforts to have the Shelf
Registration Statement declared effective by the SEC on or prior to 90 days
after the filing of such Shelf Filing Event. In such circumstances, the Issuers
shall use their best efforts to keep the Shelf Registration Statement
continuously effective under the Securities Act, until (A) 36 months following
the Issue Date or (B) if sooner, the date immediately following the date that
all Transfer Restricted Notes covered by the Shelf
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Registration Statement have been sold pursuant thereto or otherwise cease to be
Transfer Restricted Notes (the "Effectiveness Period"); provided that the
Effectiveness Period shall be extended to the extent required to permit dealers
to comply with the applicable prospectus delivery requirements of Rule 174.
(b) No holder of Transfer Restricted Notes may include any of its
Transfer Restricted Notes in any Shelf Registration Statement pursuant to this
Agreement unless and until such holder furnishes to the Company in writing,
within 30 days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein. No holder of
Transfer Restricted Notes shall be entitled to Additional Interest pursuant to
Section 4 hereof unless and until such holder shall have provided all such
reasonably requested information. Each holder of Transfer Restricted Notes as to
which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such holder not
materially misleading.
4. Additional Interest
(a) The parties hereto agree that the holders of Transfer Restricted
Notes will suffer damages if the Issuers fail to fulfill their obligations
pursuant to Section 2 or Section 3, as applicable, and that it would not be
feasible to ascertain the extent of such damages. Accordingly, in the event that
(i) the applicable Registration Statement is not filed with the SEC on or prior
to the date specified herein for such filing, (ii) the applicable Registration
Statement has not been declared effective by the SEC on or prior to the date
specified herein for such effectiveness after such obligation arises, (iii) if
the Exchange Offer is required to be Consummated hereunder, the Company has not
exchanged Exchange Notes for all Notes validly tendered and not validly
withdrawn in accordance with the terms of the Exchange Offer by the Consummation
Date or (iv) the applicable Registration Statement is filed and declared
effective but shall thereafter cease to be effective or usable in connection
with the Exchange Offer or resales of Transfer Restricted Notes during a period
in which it is required to be effective hereunder without being succeeded
immediately by any additional Registration Statement covering the Notes, the
Exchange Notes or the Private Exchange
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Notes, as the case may be, which has been filed and declared effective (each
such event referred to in clauses (i) through (iv), a "Registration Default"),
then the interest rate on Transfer Restricted Notes will increase ("Additional
Interest"), with respect to the first 90-day period immediately following the
occurrence of such Registration Default, by 0.5% per annum and will increase by
an additional 0.5% per annum with respect to each subsequent 90-day period until
such Registration Default has been cured, up to a maximum amount of 1.0% per
annum with respect to all Registration Defaults. Following the cure of a
Registration Default, the accrual of Additional Interest with respect to such
Registration Default will cease and upon the cure of all Registration Defaults
the interest rate will revert to the original rate.
(b) The Company shall notify the Trustee and paying agent under the
Indenture (or the trustee and paying agent under such other indenture under
which any Transfer Restricted Notes are issued) immediately upon the happening
of each and every Registration Default. The Company shall pay the Additional
Interest due on the Transfer Restricted Notes by depositing with the paying
agent (which shall not be the Company for these purposes) for the Transfer
Restricted Notes, in trust, for the benefit of the holders thereof, prior to
11:00 A.M. on the next interest payment date specified by the Indenture (or such
other indenture), sums sufficient to pay the Additional Interest then due. The
Additional Interest due shall be payable on each interest payment date specified
by the Indenture (or such other indenture) to the record holders entitled to
receive the interest payment to be made on such date. Each obligation to pay
Additional Interest shall be deemed to accrue from and including the applicable
Registration Default.
(c) The parties hereto agree that the Additional Interest provided
for in this Section 4 constitutes a reasonable estimate of the damages that will
be suffered by holders of Transfer Restricted Notes by reason of the happening
of any Registration Default.
5. Registration Procedures
In connection with the Issuers' registration obligations hereunder,
the Issuers shall effect such registrations on the appropriate form available
for the sale of the Notes, the Exchange Notes or Private Exchange Notes, as
applicable, to (i) in the case of the Exchange Offer, permit the exchange of
Exchange Notes for Notes in the Exchange Offer and, if
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applicable, resales of Exchange Notes by Participating Broker-Dealers and (ii)
in the case of a Shelf Registration, permit the sale of the applicable Transfer
Restricted Notes in accordance with the method or methods of disposition thereof
specified by the holders of such Transfer Restricted Notes, and pursuant thereto
the Issuers shall as expeditiously as possible:
(a) In the case of a Shelf Registration, a reasonable period of time
prior to the initial filing of a Shelf Registration Statement or
Prospectus and a reasonable period of time prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish
to the holders of the Transfer Restricted Notes included in such Shelf
Registration Statement, their Special Counsel and the managing
underwriters, if any, copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such holders,
their Special Counsel and such underwriters, if any, and cause the
officers and directors of the Issuers, counsel to the Issuers and
independent certified public accountants to the Issuers to respond to such
reasonable inquiries as shall be necessary, in the opinion of respective
counsel to such holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act; provided that the
foregoing inspection and information gathering shall be coordinated on
behalf of any other persons, by one counsel designated by and on behalf of
such other persons; provided, however, that the Issuers shall not be
deemed to have kept a Shelf Registration Statement effective during the
applicable period if any of them voluntarily takes any unreasonable action
or voluntarily fails to take any reasonable action that results in holders
of the Transfer Restricted Notes covered thereby not being able to sell
such Transfer Restricted Notes pursuant to Federal securities laws during
that period. The Issuers shall not file any such Shelf Registration
Statement or related Prospectus or any amendments or supplements thereto
which the holders of a majority in principal amount of the Transfer
Restricted Notes included in such Shelf Registration Statement shall
reasonably object on a timely basis;
(b) Prepare and file with the SEC such amendments, including
post-effective amendments, to each Registration Statement as may be
necessary to keep such Registration
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Statement continuously effective for the applicable time period required
hereunder; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424; and comply with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented;
(c) Notify the holders of Transfer Restricted Notes to be sold or,
in the case of an Exchange Offer, tendered for, their Special Counsel and
the managing underwriters, if any, promptly, and (if requested by any such
person), confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any
stop order or injunction suspending or enjoining the use of a Prospectus
or the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Notes, Exchange Notes or
Private Exchange Notes for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (v) of the happening
of any event or information becoming known to any Issuer that makes any
statement made in a Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes
in such Registration Statement, Prospectus or documents so that it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading, and that in the case of a Prospectus,
it will not contain any untrue statement of a material fact or omit to
state any material fact
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required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(d) Use their best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting
of any suspension of the qualification (or exemption from qualification)
of any of the Notes, Exchange Notes or Private Exchange Notes for sale in
any jurisdiction, at the earliest practicable moment;
(e) If a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold pursuant to such Shelf Registration Statement,
(i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, and such
holders reasonably believe should be included therein, and (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment under the Securities Act as soon as practicable after the
Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided, however,
that the Issuers shall not be required to take any action pursuant to this
Section 5(e) that would, in the opinion of counsel for the Issuers,
violate applicable law;
(f) Upon written request to the Company by a holder of Notes,
Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant
to a Registration Statement, their Special Counsel and each managing
underwriter, if any, without charge, furnish at least one conformed copy
of such Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed
to be incorporated therein by reference, and all exhibits to the extent
requested (including those previously furnished or incorporated by
reference) as soon as practicable after the filing of such documents with
the SEC;
(g) Deliver to each holder of Notes, Exchange Notes or Private
Exchange Notes to be exchanged or sold pursuant to a Registration
Statement, their Special Counsel, and
<PAGE>
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the underwriters, if any, without charge, as many copies of the Prospectus
(including each form of prospectus) and each amendment or supplement
thereto as such persons reasonably request; and the Issuers hereby consent
to the use of such Prospectus and each amendment or supplement thereto by
each of the selling holders of Transfer Restricted Notes and the
underwriters, if any, in connection with the offering and sale of the
Transfer Restricted Notes in accordance with the terms thereof and with
U.S. Federal securities laws and Blue Sky laws covered by such Prospectus
and any amendment or supplement thereto;
(h) Prior to any public offering of Notes, Exchange Notes or Private
Exchange Notes, use their best efforts to register or qualify or cooperate
with the holders of Notes, Exchange Notes or Private Exchange Notes to be
sold or tendered for, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption
from such registration or qualification) of such Notes, Exchange Notes or
Private Exchange Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any such holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective hereunder and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Notes, Exchange Notes or Private
Exchange Notes covered by the applicable Registration Statement; provided,
however, that the Issuers shall not be required to (i) qualify generally
to do business in any jurisdiction where they are not then so qualified or
(ii) take any action which would subject them to general service of
process or to taxation in any jurisdiction where they are not so subject;
(i) In connection with any sale or transfer of Transfer Restricted
Notes that will result in such securities no longer being Transfer
Restricted Notes, cooperate with the holders thereof and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and to enable such
Transfer Restricted Notes to be in such denominations and
<PAGE>
-17-
registered in such names as the managing underwriters, if any, or such
holders may request at least two Business Days prior to any sale of
Transfer Restricted Notes;
(j) Upon the occurrence of any event contemplated by Section
5(c)(v), as promptly as practicable, prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered,
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(k) Prior to the effective date of the Exchange Registration
Statement, to provide a CUSIP number for the Exchange Notes (and Private
Exchange Notes, if applicable);
(l) If a Shelf Registration Statement is filed pursuant to Section 3
hereof, enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold) in order to expedite or facilitate the
disposition of such Transfer Restricted Notes, and, whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration, (i) make such representations and
warranties to the holders of such Transfer Restricted Notes and the
underwriters, if any, with respect to the business of the Issuers and
their subsidiaries (including with respect to businesses or assets
acquired or to be acquired by any of them), and the Shelf Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when customarily requested; (ii)
obtain opinions of counsel to the Issuers and updates thereof (which
counsel and opinions (in form, scope and
<PAGE>
-18-
substance) shall be reasonably satisfactory to the managing underwriters,
if any, and Special Counsel to the holders of the Transfer Restricted
Notes being sold), addressed to each selling holder of Transfer Restricted
Notes and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Special Counsel
and the managing underwriters, in any; (iii) use their best efforts to
obtain customary "cold comfort" letters and updates thereof from the
independent certified public accountants of the Issuers (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Issuers or of any business acquired by an Issuer or any
such subsidiary for which financial statements and financial data is, or
is required to be, included in the Shelf Registration Statement),
addressed (where reasonably possible) to each selling holder of Transfer
Restricted Notes and each of the underwriters, if any, such letters to be
in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings; (iv) if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to holders of a
majority in aggregate principal amount of Transfer Restricted Notes
covered by such Shelf Registration Statement and the managing
underwriters, if any); and (v) deliver such documents and certificates as
may be reasonably requested by the holders of a majority in aggregate
principal amount of the Transfer Restricted Notes being sold, their
Special Counsel and the managing underwriters, if any, to evidence the
continued validity of the representations and warranties made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Issuers;
(m) In the case of a Shelf Registration, make available for
inspection by a representative of the holders of Transfer Restricted Notes
being sold, any underwriter participating in any such disposition of
Transfer Restricted Notes, and any attorney, consultant or accountant
retained by such selling holders or underwriter, at the offices where
normally kept, during reasonable business hours, all relevant financial
and other records, pertinent corporate
<PAGE>
-19-
documents and properties of the Issuers and their subsidiaries (including
with respect to businesses and assets acquired or to be acquired to the
extent that such information is available to the Issuers), and cause the
officers, directors, agents and employees of the Issuers and their
subsidiaries (including with respect to businesses and assets acquired or
to be acquired to the extent that such information is available to the
Issuers) to supply all information in each case reasonably requested by
any such representative, underwriter, attorney, consultant or accountant
in connection with such Shelf Registration; provided, however, that such
persons shall first agree in writing with the Company that any information
that is reasonably and in good faith designated by the Company in writing
as confidential at the time of delivery of such information shall be kept
confidential by such persons, unless and to the extent that (i) disclosure
of such information is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, (ii)
disclosure of such information is required by law (including any
disclosure requirements pursuant to Federal securities laws in connection
with the filing of the Shelf Registration Statement or the use of any
Prospectus), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such person or (iv) such information becomes available to
such person from a source other than the Issuers and their subsidiaries
and such source is not bound by a confidentiality agreement; and provided,
further, that the foregoing inspection and information gathering shall be
coordinated on behalf of any other persons, by one counsel designated by
and on behalf of such other persons;
(n) Provide an indenture trustee for the Notes and/or the Exchange
Notes and Private Exchange Notes, as the case may be, and cause an
indenture to be qualified under the TIA not later than the effective date
of the first Registration Statement relating to the Notes and/or the
Exchange Notes and Private Exchange Notes, as the case may be; and if such
indenture shall be the Indenture, in connection therewith, cooperate with
the Trustee and the holders of the Notes and/or the Exchange Notes and
Private Exchange Notes, to effect such changes to the Indenture, if any,
as may be required for the Indenture to be so qualified in accordance with
the terms of the TIA; and execute, and use its reasonable efforts to cause
the
<PAGE>
-20-
Trustee to execute, all customary documents as may be required to effect
such changes, and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158, no later than 45 days after the end of any 12- month period (or 90
days after the end of any 12-month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Transfer
Restricted Notes are sold to underwriters in a firm commitment or
reasonable efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of
Rule 158;
(p) Cooperate with each seller of Transfer Restricted Notes covered
by any Registration Statement and each underwriter, if any, participating
in the disposition of such Transfer Restricted Notes and their respective
counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; and
(q) Use their best efforts to take all other steps reasonably
necessary to effect the registration of the Transfer Restricted Notes
covered by a Registration Statement contemplated hereby.
The Issuers may require a holder of Transfer Restricted Notes to be
included in a Registration Statement to furnish to the Issuers such information
regarding the distribution of such Transfer Restricted Notes as is required by
law to be disclosed in such Registration Statement and the Issuers may exclude
from such Registration Statement the Transfer Restricted Notes of any holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any holder by name or
otherwise as the holder of any securities of an Issuer, then such holder shall
have the right to require (i) the insertion therein of language, in form and
substance
<PAGE>
-21-
reasonably satisfactory to such holder, to the effect that the holding by such
holder of such securities is not to be construed as a recommendation by such
holder of the investment quality of the Issuers' securities covered thereby and
that such holding does not imply that such holder will assist in meeting any
future financial requirements of the Issuers, or (ii) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act, the deletion of the reference to such holder in any amendment or supplement
to the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
In the case of a Shelf Registration pursuant to Section 3 hereof,
each holder of Transfer Restricted Notes agrees by acquisition of such Transfer
Restricted Notes that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(iv) or 5(c)(v) hereof, such holder will forthwith discontinue disposition
of such Transfer Restricted Notes covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(j) hereof, or until it is advised
in writing by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
6. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuers shall be borne by the Issuers whether or not
any Registration Statement is filed or becomes effective and whether or not any
Notes, Exchange Notes or Private Exchange Notes are issued or sold pursuant to
any Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for Notes,
Exchange Notes and Private Exchange Notes in a form eligible for deposit with
The Depository Trust Company and of printing Prospectuses), (iii) reasonable
fees and disbursements of counsel for the Issuers and the Special Counsel (not
to exceed one firm of counsel), (iv) fees and disbursements of all
<PAGE>
-22-
independent certified public accountants referred to in Section 2(e) and Section
5(l)(iii) hereof (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(v) if required, the reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules and regulations of
the National Association of Securities Dealers, Inc., and (vi) fees and expenses
of all other persons retained by the Issuers. In addition, the Issuers shall pay
their internal expenses (including, without limitation, all salaries and
expenses of their respective officers and employees performing legal or
accounting duties), the expense of any annual audit, and the fees and expenses
incurred in connection with the listing of the Notes, Exchange Notes or Private
Exchange Notes to be registered on any securities exchange. Notwithstanding the
foregoing or anything in this Agreement to the contrary, each holder of Transfer
Restricted Notes shall pay all underwriting discounts and commissions of any
underwriters with respect to any Notes, Exchange Notes or Private Exchange Notes
sold by or on behalf of it.
7. Indemnification
(a) The Issuers agree, jointly and severally, to indemnify and hold
harmless (i) the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes and each Participating Broker-Dealer, (ii) each person,
if any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) any of the foregoing (any of the persons referred to in
this clause (ii) being hereinafter referred to as a "controlling person"), and
(iii) the respective officers, directors, partners, employees, representatives
and agents of the Initial Purchaser, each holder of Notes, Exchange Notes and
Private Exchange Notes, each Participating Broker-Dealer and any controlling
person (any person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "Indemnified Person"), from and against any and all losses,
claims, damages, liabilities and judgments arising out of or relating to any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or in any amendment
or supplement thereto, or arising out of or relating to any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
preliminary prospectus or supplement thereto, in light of the circumstances
<PAGE>
-23-
under which they were made) not misleading, except insofar as such losses,
claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Indemnified Person furnished in writing to the
Issuers by or on behalf of such Indemnified Person expressly for use therein;
provided that the foregoing indemnity with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Person from whom the person
asserting such losses, claims, damages, liabilities and judgments purchased
securities if such untrue statement or omission or alleged untrue statement or
omission made in such preliminary prospectus is eliminated or remedied in the
Prospectus and a copy of the Prospectus shall not have been furnished to such
person in a timely manner due to the wrongful action or wrongful inaction of
such Indemnified Person.
(b) In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any such Prospectus or
preliminary prospectus or any amendment or supplement thereto and with respect
to which indemnity may be sought against the Issuers hereunder, such Indemnified
Person shall promptly notify the Issuers in writing and the Company shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to such Indemnified Person and payment of all fees and expenses. Any Indemnified
Person shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person, unless (i) the employment of
such counsel shall have been specifically authorized in writing by the Issuers,
(ii) the Company shall have failed to assume the defense and employ counsel or
pay all such fees and expenses or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnified Person and an
Issuer and such Indemnified Person shall have been advised by counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to any such Issuer (in which case the Company
shall not have the right to assume the defense of such action on behalf of such
Indemnified Person, it being understood, however, that the Issuers shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such Indemnified Persons, which firm shall be
<PAGE>
-24-
designated in writing by such Indemnified Persons, and that all such reasonable
fees and expenses shall be reimbursed as they are incurred). The Issuers shall
not be liable for any settlement of any such action effected without their
written consent but if settled with the written consent of the Issuers, the
Issuers agree, jointly and severally, to indemnify and hold harmless each
Indemnified Person from and against any loss or liability by reason of such
settlement. No Issuer shall, without the prior written consent of each
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding.
(c) In connection with any Registration Statement pursuant to which
a holder of Transfer Restricted Notes offers or sells Transfer Restricted Notes,
such holder agrees, severally and not jointly, to indemnify and hold harmless
the Issuers, their respective directors and officers and any person controlling
an Issuer within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, to the same extent as the foregoing indemnity from the
Issuers to each Indemnified Person but only with respect to information relating
to such holder furnished in writing by or on behalf of such holder expressly for
use in such Registration Statement. In any such case in which any action shall
be brought against an Issuer, any director or officer of an Issuer or any person
controlling an Issuer based on such Registration Statement and in respect of
which indemnity may be sought against a holder of Transfer Restricted Notes,
such holder shall have the rights and duties given to the Issuers (except that
if an Issuer shall have assumed the defense thereof, such holder shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at the
expense of such holder), and the Issuers, their respective directors and
officers and any person controlling an Issuer shall have the rights and duties
given to the Indemnified Persons by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such
<PAGE>
-25-
losses, claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by each indemnifying party
on the one hand and the indemnified party on the other hand from the offering of
the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be
(it being expressly understood and agreed that the relative benefits received by
the Issuers from the offering of the Notes, Exchange Notes or Private Exchange
Notes, as the case may be, shall be the amount of the net proceeds received by
the Company from the sale of the Notes to the Initial Purchaser), or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each indemnifying
party on the one hand and the indemnified party on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the each indemnifying party on the one
hand the indemnified party on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by an indemnifying party or such indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuers and the Initial Purchaser agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were determined
by pro rata allocation (even if all Indemnified Persons were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the net proceeds received by it in connection with the sale of
the Notes, Exchange Notes or Private Exchange Notes contemplated by this
Agreement (or, in the case of an underwriter that is an Indemnified Person, the
total
<PAGE>
-26-
underwriting discounts received by such underwriter) exceeds the amount of any
damages which such Indemnified Person has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Indemnified Person's obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective amount of Notes, Exchange Notes or
Private Exchange Notes included in any such Registration Statement by each
Indemnified Person and not joint.
8. Rule 144A
Each of Issuers shall use its best efforts to file the reports
required to be filed by it under the Securities Act and the Exchange Act in a
timely manner and, if at any time it is not required to file such reports but in
the past had been required to or did file such reports, it will, upon the
request of any holder of Transfer Restricted Notes, make available other
information as required by, and so long as necessary to permit sales of Transfer
Restricted Notes pursuant to Rule 144A. Notwithstanding the foregoing, nothing
in this Section 8 shall be deemed to require an Issuer to register any of its
securities pursuant to the Exchange Act.
9. Underwritten Registrations
If any of the Transfer Restricted Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority in aggregate principal amount of
the Transfer Restricted Notes included in such offering, subject to the consent
of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such Transfer Restricted Notes on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
<PAGE>
-27-
10. Miscellaneous
(a) Remedies. In the event of a breach by an Issuer or by a holder
of Notes, Exchange Notes or Private Exchange Notes of any of its obligations
under this Agreement, each holder of Notes, Exchange Notes or Private Exchange
Notes and each Issuer, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Notwithstanding the provisions
of Section 4 hereof, the Issuers and each holder of Notes, Exchange Notes and
Private Exchange Notes agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach of any of the
provisions of this Agreement and each hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Issuers will not enter into any
agreement with respect to their securities that is inconsistent with the rights
granted to the holders of Notes, Exchange Notes and Private Exchange Notes and
Indemnified Persons in this Agreement or otherwise conflicts with the provisions
hereof. Without the written consent of the holders of a majority in aggregate
principal amount of the outstanding Transfer Restricted Notes, the Issuers shall
not grant to any person any rights which conflict with or are inconsistent with
the provisions of this Agreement.
(c) No Piggyback on Registrations. The Issuers shall not grant to
any of their securityholders (other than the holders of Transfer Restricted
Notes in such capacity) the right to include any of their securities in any
Registration Statement other than Transfer Restricted Notes.
(d) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the holders
of not less than a majority of the then outstanding aggregate principal amount
of Transfer Restricted Notes; provided, however, that, for the purposes of this
Agreement, Transfer Restricted Notes that are owned, directly or indirectly, by
the Issuers or any of their Affiliates are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that
<PAGE>
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relates exclusively to the rights of holders of Transfer Restricted Notes whose
securities are being sold or tendered pursuant to a Registration Statement and
that does not directly or indirectly affect the rights of other holders of
Transfer Restricted Notes may be given by holders of a majority in aggregate
principal amount of the Transfer Restricted Notes being sold or tendered by such
holders pursuant to such Registration Statement; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
Notwithstanding the foregoing, no amendment, modification, supplement, waiver or
consent with respect to Section 7 shall be made or given otherwise than with the
prior written consent of each Indemnified Person affected thereby.
(e) Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopier:
(i) if to the Issuers, as provided in the Purchase Agreement,
(ii) if to the Initial Purchaser, as provided in the Purchase
Agreement, or
(iii) if to any other person who is then the registered holder of
Notes, Exchange Notes or Private Exchange Notes, to the address of such
holder as it appears in the register therefor of the Company.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; and when receipt is
acknowledged by the recipient's telecopier machine, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each holder of Notes, Exchange
Notes and Private Exchange Notes and each Indemnified Person. The Issuers may
not assign any of their rights or obligations hereunder without
<PAGE>
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the prior written consent of each holder of Transfer Restricted Notes and each
Indemnified Person. Notwithstanding the foregoing, no successor or assignee of
an Issuer shall have any of the rights granted under this Agreement until such
person shall acknowledge its rights and obligations hereunder by a signed
written statement of such person's acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(h) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK.
THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
(i) Severability. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(j) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this
<PAGE>
-30-
Agreement to "Section" and "paragraph" refer to such Section or paragraph of
this Agreement, unless expressly stated otherwise.
(k) This Agreement is intended by the parties as a final expression
of their agreement and is intended to be a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Issuers with respect to the Notes, the
Exchange Notes and the Private Exchange Notes. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(l) CPG Subsidiaries, Arcon and Arcon Subsidiaries a Party.
Immediately upon (a) consummation of the Merger (as defined in the Purchase
Agreement) pursuant to the Merger Agreement (as defined in the Purchase
Agreement), the Company shall cause each of the CPG Subsidiaries (as defined in
the Purchase Agreement) to become a party hereto as a Guarantor by executing and
delivering to the Initial Purchaser a counterpart hereof and (b) the acquisition
of all of the outstanding capital stock of Arcon pursuant to the Stock Purchase
Agreement (as defined in the Purchase Agreement), the Company shall cause each
of Arcon and the Arcon Subsidiaries (as defined in the Purchase Agreement) to
become a party hereto as a Guarantor by executing and delivering to the Initial
Purchaser a counterpart hereof.
<PAGE>
-31-
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
THE COMPANY:
SPECIALTY PAPERBOARD, INC.
By: /s/ Bruce Moore
---------------------------------
Name: Bruce Moore
Title: Vice President
THE GUARANTORS:
SPECIALTY PAPERBOARD/ENDURA, INC.
By: /s/ Bruce Moore
---------------------------------
Name: Bruce Moore
Title: Vice President
CPG ACQUISITION COMPANY
By: /s/ Bruce Moore
---------------------------------
Name: Bruce Moore
Title: Vice President
THE INITIAL PURCHASER:
BT SECURITIES CORPORATION
By: /s/ Joseph E. Lipscomb
-----------------------------
Name: Joseph E. Lipscomb
Title: Vice President
<PAGE>
-32-
Each of the undersigned by its execution hereof agrees to become a
party to this Agreement as a Guarantor as of the date set forth opposite its
name:
Date: CPG INVESTORS, INC.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
Date: CPG HOLDINGS, INC.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
Date: CUSTOM PAPERS GROUP, INC.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
Date: CPG WARREN GLEN INC.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
Date: ARCON COATING MILLS, INC.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
<PAGE>
-33-
Date: ARCON HOLDING CORP.
By: /s/ Bruce Moore
----------------------------------
Name: Bruce Moore
Title: Vice President
<PAGE>
Exhibit 5.1
December 5, 1996
Specialty Paperboard, Inc.
Specialty Paperboard/Endura, Inc.
CPG Investors Inc.
CPG Holdings Inc.
Custom Papers Group Inc.
CPG-Warren Glen Inc.
Arcon Holdings Corp.
Arcon Coating Mills, Inc.
c/o Specialty Paperboard, Inc.
161 Brudies Road
Brattleboro, Vermont 05302
Gentlemen:
We have acted as special counsel to each of Specialty Paperboard, Inc.
(the "Company"), Specialty Paperboard/Endura, Inc. ("Endura"), CPG Investors
Inc. ("Investors"), CPG Holdings Inc. ("CPG Holdings"), Custom Papers Group
Inc. ("Custom Papers"), CPG-Warren Glen Inc. ("Warren Glen"), Arcon Holdings
Corp. ("Arcon Holdings") and Arcon Coating Mills, Inc. ("Arcon Mills"), in
connection with the Registration Statement on Form S-4 (the "Registration
Statement"), to be filed with the Securities and Exchange Commission (the
"Commission") in connection with the registration under the Securities Act of
1933 (the "Securities Act"), as amended, of $100 million in aggregate
principal amount of 9 3/8% Series B Senior Notes due 2006 of the Company (the
"New Notes"), and the guarantees of the New Notes (the "New Guarantees") by
Endura, Investors, CPG Holdings, Custom Papers, Warren Glen, Arcon Holdings
and Arcon Mills (the "Guarantors"), to be offered and issued by the Company
and the Guarantors under an Indenture dated as of October 15, 1996 (the
<PAGE>
[Letterhead]
White & Case
Page 2
"Indenture") among the Company, the Guarantors and Wilmington Trust Company,
as Trustee.
In so acting, we have examined the Indenture, a specimen copy of
the New Notes, a specimen copy of the New Guarantees, such certificates of
public officials, such certificates of officers of the Company and the
Guarantors and originals or copies certified to our satisfaction of all such
corporate documents and records of the Company and the Guarantors and of all
such other documents as we have deemed relevant and necessary as a basis for
our opinion hereinafter set forth. We have relied upon such certificates of
public officials and such certificates of officers of the Company and the
Guarantors and statements and information furnished by officers of the
Company and the Guarantors with respect to the accuracy of factual matters
contained therein which were not independently established by us.
Specifically, we have assumed the accuracy and completeness of all corporate
records and information made available to us by the Company and the
Guarantors upon which we have relied.
Upon the basis of the foregoing, we are of the opinion that, upon
issuance thereof in the manner described in the Registration Statement, (a)
the New Notes will be legally issued, fully paid, nonassesable and binding
obligations of the Company, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law) and (b) the New Guarantees
will be legally issued, fully paid, nonassesable and binding obligations of
the Guarantors, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (regardless of whether the issue of enforceability is considered
in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm under the
heading "Legal Matters" in the Prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
WHITE & CASE
TG:FLS:SWA:JMC:DJK
<PAGE>
EXHIBIT 8.1
December 5, 1996
Specialty Paperboard, Inc.
161 Brudies Road
Brattleboro, VT 05302
Ladies and Gentlemen:
We have acted as your special counsel in connection with the transactions
described in the Registration Statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), on
December 5, 1996 by Specialty Paperboard, Inc., a Delaware corporation (the
"Company"), and described in the Company's Offer to Exchange 9-3/8% Senior Notes
due 2006, Series B (the "New Notes") for all outstanding 9-3/8% Senior Notes due
2006, Series A (the "Old Notes") set forth in the Prospectus (the "Prospectus")
contained within the Registration Statement. Capitalized terms used but not
otherwise defined herein shall have the meaning ascribed thereto in the
Registration Statement.
Our opinion is based on an examination of the Registration Statement, the
Prospectus, and such other documents, corporate records and materials as we have
deemed necessary or appropriate for the purposes of this opinion. We assume
that all transactions relating to the exchange pursuant to the Exchange Offer
will be carried out in accordance with the terms of the governing documents
without any amendments thereto or waiver of any terms thereof, and that such
documents represent the entire agreement of the parties thereto. We understand
the relevant facts to be as follows:
The Old Notes were originally issued and sold on October 16, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemptions provided in Rule 144A and Regulation D under the Securities Act.
Accordingly, the Old Notes are generally subject to substantial transfer
restrictions unless such notes are registered or unless an applicable exemption
<PAGE>
White & Case
Specialty Paperboard, Inc.
Page 2
from the registration requirements of the Securities Act is available. Pursuant
to a Registration Rights Agreement dated October 16, 1996 (the "Registration
Rights Agreement") by and among the Company, the Guarantors and the initial
purchaser of the Old Notes with respect to the Old Notes, the Company agreed to
use its best efforts to consummate the registered Exchange Offer pursuant to
which holders of the Old Notes would be offered an opportunity to exchange their
Old Notes for the New Notes which would be issued without legends restricting
the transfer thereof. Alternatively, under certain circumstances, the Company
agreed to file a Shelf Registration statement covering resales of the Old Notes
and to cause such Shelf Registration statement to be declared effective under
the Securities Act. Failure of the Company to comply with the requirements of
the Registration Rights Agreement could result in additional interest of up to
1% becoming payable with respect to the Old Notes; the New Notes will not be
subject to such contingent additional interest. In general, the New Notes will
be freely transferable after the Exchange Offer without further registration
under the Securities Act. Except as noted above, the terms of the New Notes are
identical to those of the Old Notes.
Based on the foregoing and subject to the assumptions, qualifications and
limitations contained herein, we hereby confirm that the statements set forth in
the Prospectus under the heading "Certain U.S. Federal Income Tax Consequences"
constitute our opinion with respect to the material United States Federal income
tax consequences of the exchange pursuant to the Exchange Offer, and the
ownership and disposition of the Old Notes or the New Notes by holders who hold
such notes as capital assets. The possibility exists that contrary positions
may be taken by the Internal Revenue Service and that a court may agree with
such contrary position.
The foregoing opinion is specific to the transactions and the documents
referred to herein, and is based upon the facts known to us as of the date
hereof.
The foregoing opinion is predicated upon the Code, the regulations
thereunder, the administrative and judicial interpretations of the Code and
regulations, in each case as in effect on the date hereof. Any change in
applicable law or in any of the facts or other assumptions upon which we have
relied, may adversely affect such opinion.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Company's Registration Statement on Form
S-4 relating to the exchange of the Old Notes for the New Notes and to the
reference to our firm under the heading
<PAGE>
White & Case
Specialty Paperboard, Inc.
Page 3
"Certain U.S. Federal Income Tax Consequences" in the Prospectus. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
White & Case
JTL:WNW
<PAGE>
EXHIBIT 10.24
AMENDMENT
TO
SPECIALTY PAPERBOARD, INC.
1994 DIRECTORS STOCK OPTION PLAN
RECITALS:
A. Specialty Paperboard, Inc. (the "Company") adopted on February
28, 1994, the 1994 Directors Stock Option Plan (the "Plan") to provide a
means to retain the services of persons serving as Non-Employee Directors of
the Company and to provide incentives for such Directors to exert maximum
efforts for the success of the Company.
B. Pursuant to Section 11 of the Plan, the Board of Directors (the
"Board") has authority to amend the Plan and the Board desires to amend the
Plan to add additional shares to be awarded pursuant to the Plan subject to
shareholder approval.
NOW, THEREFORE, the Plan is hereby amended as follows.
1. In addition to the fifty thousand (50,000) shares of the
Company's common stock already subject to the Plan, an additional one hundred
thousand (100,000) shares of the Company's common stock shall be added to
the Plan to be awarded thereunder. All of the provisions of the Plan shall
apply to the award of these one hundred thousand (100,000) shares, except as
otherwise specifically modified by this amendment, but only these one hundred
thousand (100,000) shares shall be subject to the additional provisions
contained in this amendment.
2. Subject to approval by the Stockholders of the amendments to
the Plan, on May 9, 1996, each person who is then a Non-Employee Director
automatically shall be granted an option to purchase ten thousand (10,000)
shares of common stock of the Company on the terms and conditions set forth
in this amendment, and as otherwise set forth in the Plan. Each person who is
initially elected as a Non-Employee Director after May 9, 1996, shall
automatically be granted, upon the date of such election, an option to
purchase ten thousand (10,000) shares of common stock of the Company on the
terms and conditions set forth in this amendment and as otherwise set forth
in the Plan.
3. The term of each option shall commence on the date it is
granted and, unless terminated as set forth in the Plan, shall expire on the
date ("Expiration Date") ten (10) years from the date of grant. If the
optionee's service as a Director terminates for any reason or for no reason,
the option shall terminate on the earlier of the Expiration Date or the date
one (1) year following the date of termination of service; provided, however,
that if such termination of service is due to the optionee's death, the
option shall terminate on the earlier of the Expiration Date or eighteen (18)
months following the date of the optionee's death.
4. One hundred percent (100%) of the shares subject to an option
granted under the Plan pursuant to this amendment shall vest and the option
shall become fully exercisable eight
AMENDMENT - 1
<PAGE>
(8) years from the option grant date. Notwithstanding the foregoing, the time
of vesting of each such option shall be accelerated to the extent and upon
the occurrence of the events described below; provided, however, that such
acceleration shall take place only during the five-year period beginning on
the option grant date and ending on the fifth anniversary thereof:
a. Fifty percent (50%) of the shares subject to each such option
shall become exercisable either:
(i) at such time as the fair market value of the Company's
common stock reaches a level of at least Eighteen Dollars ($18) for a period
of at least twenty (20) consecutive trading days, as reported on any
established stock exchange or national market system identified in Section
6(b) of the Plan at close; or
(ii) in the event of a merger or consolidation in which the
stockholders prior to such event do not hold at least a majority ownership of
the surviving or acquiring corporation following such event, or of the sale
of substantially all of the assets or a similar arrangement where the shares
of the Company are assigned a value (or reasonably can be determined to have
a value) of Eighteen Dollars ($18) or more immediately prior to the closing
of such merger, consolidation or asset sale.
b. An additional twenty-five percent (25%) of the shares subject
to each such option shall become exercisable at such time as the fair market
value of the Company's common stock (as described in subparagraph 4(a)(i)
above) reaches Twenty-two Dollars ($22) for at least twenty (20) consecutive
trading days or is valued at $22 in a merger, consolidation or asset sale (as
described in subparagraph 4(a)(ii) above).
c. The remaining twenty-five percent (25%) of the shares subject
to each such option shall become exercisable at such time as the fair market
value of the Company's common stock (as described in subparagraph 4(a)(i)
above) reaches Twenty-six Dollars ($26) for at least twenty (20) consecutive
trading days or is valued at $26 in a merger, consolidation or asset sale (as
described in subparagraph 4(a)(ii) above).
5. All capitalized terms used herein unless otherwise defined
herein, shall have the same meaning as assigned thereto under the Plan.
AMENDMENT - 2
<PAGE>
EX-10.26
JAMES RIVER PAPER COMPANY, INC.
Landlord
AND
CPG - VIRGINIA INC.,
Tenant
------------------------
DEED OF LEASE
------------------------
Dated as of October 31, 1993
Property Located in Richmond, Virginia
================================================================================
<PAGE>
ARTICLE 1
DEMISE OF PREMISES AND EQUIPMENT;
LANDLORD REPRESENTATIONS
1.1...................................................................... 1
1.2...................................................................... 3
ARTICLE 2
CERTAIN DEFINITIONS
2.1...................................................................... 4
ARTICLE 3
USE OF DEMISED PREMISES AND EQUIPMENT
3.1...................................................................... 11
ARTICLE 4
TERM OF LEASE
4.1. .................................................................... 12
ARTICLE 5
BASIC RENT AND ADDITIONAL RENT
5.1...................................................................... 13
5.2...................................................................... 13
5.3...................................................................... 15
5.4...................................................................... 15
5.5...................................................................... 16
ARTICLE 6
PAYMENT OF IMPOSITIONS
6.1...................................................................... 17
6.2...................................................................... 17
6.3...................................................................... 19
6.4...................................................................... 20
6.5...................................................................... 21
6.6...................................................................... 22
6.7...................................................................... 23
6.8...................................................................... 25
6.9...................................................................... 26
2.10..................................................................... 26
ARTICLE 7
SERVICES AND UTILITIES
7.1...................................................................... 27
7.2...................................................................... 28
7.3...................................................................... 28
ARTICLE 8
INSURANCE
8.1...................................................................... 29
8.2...................................................................... 30
8.3...................................................................... 31
<PAGE>
8.4...................................................................... 31
8.5...................................................................... 33
8.6...................................................................... 34
3.7...................................................................... 35
8.8...................................................................... 36
8.9...................................................................... 36
8.10..................................................................... 37
8.11..................................................................... 37
ARTICLE 9
DAMAGE OR DESTRUCTION
9.1...................................................................... 38
9.2...................................................................... 39
9.3...................................................................... 41
ARTICLE 10
CONDEMNATION
10.1..................................................................... 42
10.2..................................................................... 42
10.3..................................................................... 45
10.4..................................................................... 46
ARTICLE 11
MAINTENANCE AND REPAIRS
11.1..................................................................... 47
11.2..................................................................... 49
11.3..................................................................... 50
ARTICLE 12
ALTERATIONS
12.1..................................................................... 50
12.3..................................................................... 53
ARTICLE 13
COMPLIANCE WITH LAW
13.1..................................................................... 54
13.2..................................................................... 54
13.3..................................................................... 55
ARTICLE 14
DISCHARGE OF LIENS
14.1..................................................................... 55
14.2..................................................................... 56
14.3..................................................................... 57
ARTICLE 15
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
15.1..................................................................... 58
15.2..................................................................... 58
ii
<PAGE>
ARTICLE 16
ENTRY ON PREMISES BY THE LANDLORD
16.1..................................................................... 59
16.2..................................................................... 60
16.3..................................................................... 60
ARTICLE 17
ASSIGNMENT AND TRANSFERS OF
TENANT'S INTEREST; SUBLETTING
17.1..................................................................... 61
17.2..................................................................... 64
17.3..................................................................... 64
17.4..................................................................... 65
ARTICLE 18
ADDITIONAL UNDERTAKING OF THE TENANT
18.1..................................................................... 69
ARTICLE 19
CONDITION OF AND TITLE TO DEMISED PREMISES
19.1..................................................................... 70
ARTICLE 20
INDEMNIFICATION OF THE LANDLORD AND THE TENANT
20.1..................................................................... 70
20.2..................................................................... 72
20.3..................................................................... 73
20.4..................................................................... 73
20.5..................................................................... 73
ARTICLE 21
EXCAVATIONS ON ADJOINING PROPERTY
21.1..................................................................... 74
ARTICLE 22
DEFAULT
22.1..................................................................... 74
22.2..................................................................... 79
22.3..................................................................... 79
22.4..................................................................... 80
22.5..................................................................... 81
ARTICLE 23
ADDITIONAL RIGHTS OF THE LANDLORD AND TENANT
23.1..................................................................... 82
ARTICLE 24
SURRENDER AND HOLDING OVER
24.1..................................................................... 83
24.2..................................................................... 86
24.3..................................................................... 86
24.4..................................................................... 86
iii
<PAGE>
24.5..................................................................... 86
24.6..................................................................... 87
ARTICLE 25
REMOVAL OF ALTERATIONS AND EQUIPMENT
25.1..................................................................... 87
25.2..................................................................... 88
25.3..................................................................... 89
25.4..................................................................... 89
ARTICLE 26
ESTOPPEL CERTIFICATES
26.1..................................................................... 89
ARTICLE 27
ASSIGNMENT OF THE LANDLORD'S INTEREST
27.1..................................................................... 90
27.2..................................................................... 90
ARTICLE 28
LIMITATION OF LANDLORD'S LIABILITY
28.1..................................................................... 91
ARTICLE 29
SEPARATE COVENENTS; INVALIDITY
OF PARTICULAR PROVISIONS
29.1..................................................................... 92
ARTICLE 30
CUMULATIVE REMEDIES; NO WAIVER
30.1..................................................................... 92
30.2..................................................................... 93
ARTICLE 31
RECORDING; LABELING OF EQUIPMENT;
FINANCING STATEMENTS
31.1..................................................................... 93
31.2..................................................................... 93
31.3..................................................................... 93
31.4..................................................................... 94
ARTICLE 32
RIGHT OF FIRST OFFER; RIGHT OF TERMINATION
32.1..................................................................... 94
32.2..................................................................... 96
32.3..................................................................... 97
32.4..................................................................... 97
32.5..................................................................... 100
32.6..................................................................... 101
32.7..................................................................... 102
iv
<PAGE>
ARTICLE 33
FORCE MAJEURE
33.1..................................................................... 105
ARTICLE 34
LAWS APPLICABLE AND CONSTRUCTION
34.1..................................................................... 106
ARTICLE 35
COUNTERPARTS
35.1..................................................................... 106
ARTICLE 36
NO ORAL MODIFICATION; SUCCESSORS AND ASSIGNS
36.1..................................................................... 107
ARTICLE 37
NOTICES
37.1..................................................................... 107
ARTICLE 38
HEADINGS AND TABLE OF CONTENTS
38.1..................................................................... 109
ARTICLE 39
NO MODIFICATION OF ASSET PURCHASE AGREEMENT
39.1..................................................................... 109
ARTICLE 40
SIGNS
40.1..................................................................... 109
ARTICLE 41
ARBITRATION
41.1..................................................................... 110
41.2..................................................................... 110
ARTICLE 42
COMMON AREAS
42.1..................................................................... 114
42.2..................................................................... 114
42.3..................................................................... 115
42.4..................................................................... 116
42.5..................................................................... 116
42.6..................................................................... 116
42.7..................................................................... 117
42.8..................................................................... 118
42.9..................................................................... 119
v
<PAGE>
ARTICLE 43
SERVICES PROVIDED BY LANDLORD
43.1..................................................................... 119
ARTICLE 44
SERVICES PROVIDED BY TENANT
44.1..................................................................... 119
44.2..................................................................... 120
44.3..................................................................... 120
ARTICLE 45
MISCELLANEOUS PROVISIONS WITH
RESPECT TO SERVICES AND COMMON AREA COSTS
45.1..................................................................... 122
45.2..................................................................... 122
45.3..................................................................... 123
45.4..................................................................... 123
45.5..................................................................... 123
45.6..................................................................... 124
45.7..................................................................... 124
45.8..................................................................... 127
45.9..................................................................... 127
vi
<PAGE>
THIS DEED OF LEASE is made as of October 31, 1993, between JAMES RIVER
PAPER COMPANY, INC., a Virginia corporation having an office at Tredegar
Street, Richmond, Virginia, (hereinafter called the "Landlord"), and
CPG-VIRGINIA INC., a Virginia corporation (hereinafter called the "Tenant"),
having an office at c/o SCI Investors Inc., First National Bank Building,
Suite 1200, 823 East Main Street, Richmond, Virginia 23219. Tenant is a
wholly owned subsidiary of CPG Holdings Inc., a Delaware corporation ("CPG") .
The Landlord desires to lease and demise to the Tenant, and the Tenant
desires to lease, hire and take from the Landlord, the Demised Premises and the
Equipment (both as hereinafter defined) upon the terms and conditions
hereinafter set forth. Accordingly, the parties hereto hereby agree as follows:
ARTICLE 1
DEMISE OF PREMISES AND EQUIPMENT;
LANDLORD REPRESENTATIONS
1.1. The Landlord, for and in consideration of the rents to be paid and of
the covenants and agreements herein contained to be kept and performed by the
Tenant, hereby demises and leases to the Tenant, and the Tenant, for and in
consideration of the covenants and agreements herein contained to be kept and
performed by the Landlord, hereby leases, hires and takes from the Landlord, in
each case upon the terms and conditions herein contained, the Demised Premises
and the Equipment, for the Term:
SUBJECT, HOWEVER, only to the following:
<PAGE>
(a) Any state of facts which an inspection or an accurate survey would
show;
(b) Impositions (as defined in Section 6.2), accrued or unaccrued,
fixed or not fixed;
(c) Grants, licenses or consents, if any, with respect to public
utility lines and equipment;
(d) Present and future zoning laws, ordinances, regulations and orders
of the Governmental Authorities;
(e) The effect of all present and future municipal, county, state and
federal laws, orders and regulations relating to subtenants, their rights and
rentals to be charged by Tenant for the use of the Demised Premises and the
Equipment or any portion or portions thereof;
(f) Violations of laws, ordinances, orders or requirements that might
be disclosed by an examination and inspection or search of the Demised Premises
and the Equipment by any of the Governmental Authorities, as the same may exist
on the date of the commencement of the Term;
(g) The condition and state of repair of the Demised Premises and the
Equipment, without warranty or representation by the Landlord, as the same may
exist on the date of the commencement of the Term and the Landlord makes no
warranty or representation of any kind with respect thereto including, in
respect of the Equipment, no express or implied warranty whatsoever of
merchantability or fitness for purpose;
2
<PAGE>
(h) Covenants, conditions, restrictions, easements, rights, licenses,
or any other matters affecting title;
(i) Any defects of title or encumbrances or encroachments, existing at
the date of the commencement of the Term;
(j) Assessments or installments of assessments becoming a lien against
the Demised Premises or the Equipment on or after the date of this Lease;
(k) With respect to any Leased Equipment, the rights of any owner or
lessor thereof and the terms and provisions of any lease pursuant to which such
Leased Equipment is leased;
TO HAVE AND TO HOLD the same, subject as aforesaid, unto the Tenant, and,
subject to the provisions hereof, its permitted successors and assigns, for the
Term.
1.2. Landlord covenants and agrees that Tenant, upon paying the Basic Rent,
Additional Rent, and all other charges provided for in this Lease and upon
observing and keeping all of the covenants, agreements, and provisions of this
Lease on its part to be observed and kept, shall lawfully and quietly hold,
occupy, and enjoy the Demised Premises and the Equipment during the Term without
hindrance or molestation by Landlord, or by any party claiming by, through or
under Landlord (except for those claiming by, through or under Tenant) under
claim of right arising from any event, act or omission occurring after the date
hereof, including, without limitation, any failure of Landlord to comply with
its obligations under Section 6.1.
3
<PAGE>
ARTICLE 2
CERTAIN DEFINITIONS
2.1. Unless the context otherwise requires, the terms defined below shall
have the respective meanings set forth below:
(a) "Additional Rent" shall have the meaning given to it in Section
5.3;
(b) "Affiliate", with respect to any party, means a party, person or
entity that directly controls, is controlled by or is under common control with
such party, whether through the ownership of voting securities, by contract or
otherwise;
(c) "Allowed Price" shall have the meaning given to it in Section
32.1;
(d) "Alteration" and "Alterations" shall have the respective meanings
given to them in Section 12.1;
(e) "Asset Purchase Agreement" shall mean that certain Asset Purchase
Agreement dated as of March 15, 1991 among James River Corporation of Virginia
and certain of its subsidiaries, (referred to therein collectively as the
"Transferors") and Specialty Coatings Group Inc. ("SCG") and certain of its
subsidiaries (referred to therein collectively as the "Transferees") as the same
may have been heretofore amended, modified or supplemented;
(f) "Basic Rent" shall have the meaning given to it in Section 5.1;
(g) "Business" shall have the meaning given to it in Section 3.1;
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(h) "Closing Date" shall have the meaning given to it in Section 32.2;
(i) "Common Areas" shall have the meaning given to it in Section 42.1;
(j) "Common Area Costs" shall have the meaning given to it in Section
42.6;
(k) "Business Value" shall have the meaning given to it in Section
32.4;
(1) "Default" shall mean any event which would constitute an Event of
Default if any requirement in connection therewith for the giving of notice, or
the lapse of time or the happening of any further condition, event or action had
been satisfied or any event that has constituted an Event of Default;
(m) "Default Rate" shall mean an annual rate of interest equal to the
"prime rate" of the Bank of Nova Scotia plus 3%;
(n) "Demised Premises" shall mean the real property described on
Schedule 2.1 attached hereto and the Improvements (as hereinafter defined);
(o) "East Parcel" shall have the meaning given to it in Section 6.3;
(p) "Environmental Expenditures" shall have the meaning given to it in
Section 22.1;
(q) "Equipment" shall mean all personal property including machinery,
equipment and fixed assets not included within the definition of Demised
Premises owned by Landlord and
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ordinarily located on the Demised Premises, and any replacements, alterations,
and substitutions therefor; provided, however, that the term "Equipment" shall
include neither "Inventory" nor "Excluded Assets", as such terms are defined in
the Asset Purchase Agreement, other than as described in Section 2.2(iii) of the
Asset Purchase Agreement; the major items of which Equipment are, to the best
knowledge of the each of the parties, listed on Schedule B, the parties
recognizing, however, that Schedule B does not constitute an all-inclusive list
of the Equipment;
(r) "Event of Default" shall have the meaning given to it in Section
22.1;
(s) "Fully Loaded Costs" shall have the meaning given to it in Section
45.2;
(t) "Governmental Authorities" shall mean any local, state or federal
governmental bodies, units, authorities, both public and quasi-public, courts,
boards, bureaus, commissions and officers, or any agent or representative
thereof, having or purporting to have jurisdiction or authority over Tenant, the
Demised Premises, the Equipment or the Business;
(u) "Guarantor" shall mean CPG;
(v) "Guaranty" shall mean a guaranty by Guarantor of Tenant's
obligations under this Lease in the form attached to the Asset Purchase
Agreement;
(w) "Headquarters" shall mean all areas within the Tredegar Complex
other than the Demised Premises;
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(x) "Headquarters Services" shall have the meaning given to it in
Section 44.1;
(y) "Imposition" and "Impositions" shall have the respective meanings
given to them in Section 6.2;
(z) "Improvements" shall mean all buildings, structures,
appurtenances, parking facilities, walkways, utilities, landscaping and other
improvements now or hereafter located on or under the Demised Premises
(including any rights to support thereof, to the extent owned by Landlord) and
any restoration, addition to or replacement thereof (including all machinery,
equipment, fixtures and fixed assets to the extent they constitute real property
under applicable law);
(aa) "Interest Rate" shall mean an annual rate of interest equal to
the "prime rate" of the Bank of Nova Scotia plus 1%;
(ab) "Landlord Facilities" shall have the meaning given to it in
Section 44.3;
(ac) "Leased Equipment" shall mean all personal property, (including
machinery, equipment and fixed assets) ordinarily located on the Demised
Premises that Landlord leases as lessee immediately prior to the commencement of
the Term pursuant to any lease that has been assigned to and assumed by SCG or
one of its Affiliates pursuant to the Asset Purchase Agreement, and any
replacements, alterations, and substitutions therefor made pursuant to any
applicable lease (provided,
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however, that the term "Leased Equipment" shall not include "Inventory" as
defined in the Asset Purchase Agreement);
(ad) "Leasehold Value" shall mean the net present value, applying a
discount rate of 12 1/2% per annum, at the time the calculation of such
leasehold value is made, of all Basic Rent that would be required to be paid
after such date if this Lease were to continue in full force and effect until
the date set forth in Article 4 for the natural expiration of the Term;
(ae) "Liability" and "Liabilities" shall have the respective meanings
given to them in Section 20.1;
(af) "Note Guaranty" shall mean a guaranty by Guarantor of the
promissory note referred to in Sections 10.2, 17.1.(b) and Article 32 under
this Lease in the form attached to the Asset Purchase Agreement;
(ag) "Mill Services" shall have the meaning given to it in Section
43.1;
(ah) "Mill Services Costs" shall have the meaning given to it in
Section 43.1;
(ai) "Parking Deck" shall have the meaning given to it in Section
42.3;
(aj) "Parking Deck Charges" shall have the meaning given to it in
Section 42.8;
(ak) "Paying Party" shall have the meaning given to it in Section
45.4;
(al) "Premium Amount" shall mean 42.73% of the Leasehold Value;
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(am) "Proceeding" shall mean the taking of real or personal property
by virtue of condemnation or eminent domain for any public or quasi-public
purpose (or by deed in lieu thereof, if the transfer by such deed is made with
the consent of Tenant, which shall not be unreasonably withheld or delayed)
pursuant to any law, general or special, or by reason of the temporary
requisition of the use or occupancy of such property;
(an) "Providing Party" shall have the meaning given to it in Section
45.7;
(ao) "Qualified Assignee" shall have the meaning given to it in
Section 32.4;
(ap) "Real Estate Taxes" shall have the meaning given to it in Section
6.1;
(aq) "Receiving Party" shall have the meaning given to it in Section
45.7;
(ar) "Related Lease Process Technology" shall mean all letters patent,
patent rights, copyrights, licenses and unpatented technology, inventions, trade
secrets, processes and formulae and other industrial and intellectual property
necessary to operate any of the Equipment or Improvements;
(as) "Road Charges" shall have the meaning given to it in Section
42.7;
(at) "Security Charges" shall have the meaning given to it in Section
42.9;
(au) "Services" shall have the meaning given to it in Section 45.1;
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(av) "Service Termination Notice" shall have the meaning given to it
in Section 45.5;
(aw) "Tax Fraction" shall have the meaning given to it in Section 6.3;
(ax) "Term" shall have the meaning given to it in Article 4;
(ay) "Tenant" shall mean, at any given time, the then tenant under
this Lease; provided that such definition, in and of itself, shall in no event
be construed to effect the release of the Guarantor or of any assigning or
subletting tenant from any obligations it may otherwise have under the
provisions of this Lease;
(az) "Tenant's Real Estate Taxes" shall have the meaning given to it
in Section 6.2;
(ba) "Termination Fee" shall have the meaning given to it in Section
32.7;
(bb) "Total Taking" shall have the meaning given to it in Section
10.2; and
(bc) "Tredegar Complex" shall mean all of the real property, including
all improvements located thereon and all appurtenances thereto, and all other
property owned or leased by Landlord and located at or used in connection with
such real property, located at Tredegar Street between the railroad tracks and
the James River in Richmond, Virginia.
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ARTICLE 3
USE OF DEMISED PREMISES AND EQUIPMENT
3.1. The Tenant covenants and agrees that it will use and occupy the
Demised Premises and the Equipment for the manufacture, coating, conversion,
packaging, distribution and sale of paper, film and related products and
services and any purpose ancillary to all or any of the foregoing (the uses
described in the foregoing provisions being collectively referred to as the
"Business") and for no other purpose without the prior consent of the Landlord;
provided that Tenant may use the Demised Premises for offices used in connection
with the Business, and, in the case of any assignment or subletting pursuant to
Section 17.1(c), the assignee or subtenant pursuant to such assignment or
sublease may use the Demised Premises for offices used in connection with the
business of such assignee or subtenant. The Tenant shall not at any time during
the Term use or occupy, nor permit to be used or occupied, the Demised Premises
or the Equipment (i) in violation of any certificate of occupancy or certificate
of compliance covering or affecting the Demised Premises or any part thereof,
(ii) in a manner to cause a reduction in the coverage or a termination of any
insurance policy or policies relating to the Demised Premises or the Equipment
and required under Article 8, (iii) in a manner that constitutes a public or
private nuisance or in connection with any dangerous, noxious or offensive
business, (iv) in any manner constituting waste of the Demised Premises, the
Equipment, or any portion of either, or (v) subject to the provisions of Section
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13.3 in any manner that constitutes a violation of, or renders the Demised
Premises or the Equipment, or any portion of either in violation of, any law,
rule, regulation or ordinance applicable to the Demised Premises or the
Equipment relating to the protection of, or prohibiting or limiting the
contamination of, the environment. In furtherance of the foregoing, the Tenant
shall indemnify and hold the Landlord harmless against all costs, expenses,
liabilities, losses, damages, injunctions, suits, fines, penalties, claims and
demands, including reasonable fees of counsel, accountants, appraisers and
others arising out of any violation of or default in the covenants and
agreements contained in this Article 3 with respect to facts, events, actions or
omissions occurring after the date hereof, but expressly excluding any such
violations or defaults that are attributable to facts, events, actions or
omissions that occurred prior to the date hereof.
ARTICLE 4
TERM OF LEASE
4.1. The term of this Lease (the "Term") shall commence on the date hereof
and shall expire, unless sooner terminated or unless automatically extended as
hereinafter provided, at midnight on April 30, 2006.
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ARTICLE 5
BASIC RENT AND ADDITIONAL RENT
5.1. The Tenant shall pay to the Landlord during the Term in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, at the address of the
Landlord for notices as specified in Article 37, a net basic rental (hereinafter
called the "Basic Rent") over and above the other additional payments to be made
by the Tenant as hereinafter provided, equal to TWO HUNDRED THOUSAND AND NO/100
Dollars ($200,000) per annum. Basic Rent shall be payable in arrears in equal
semiannual payments of ONE HUNDRED THOUSAND AND NO/100 Dollars ($100,000) on the
first days of June and December during the Term. If the Term of the Lease shall
begin other than on the first day of the month of June or December, the Basic
Rent period shall be prorated on a per diem basis, and Tenant shall promptly pay
to Landlord on December 1, 1993, the amount thereof for such partial semiannual
period. If the Term of the Lease shall expire or terminate other than on the
last day of the month of June or December, the Basic Annual Rent shall be
prorated on a per diem basis, and Tenant shall promptly pay to Landlord the
amount thereof for such partial semiannual period.
5.2. The liability and obligation of the Tenant to pay the Basic Rent is a
separate, absolute, unconditional and independent covenant. The Tenant shall pay
the Basic Rent without notice, demand, set-off, counterclaim, deduction,
defense, abatement, suspension, deferment, recoupment, diminution or reduction
and,
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except as otherwise expressly provided in this Lease, the Tenant shall have no
right to terminate this Lease or to be released, relieved or discharged from any
obligations or liabilities hereunder (which notice, demand, set-off,
counterclaim, deduction, defense, abatement, suspension, deferment, recoupment,
diminution, reduction, termination, release, relief and discharge are
hereinafter referred to collectively as "Remedies") for any reason whatsoever,
including without limitation:
(a) any damage to or destruction of the Demised Premises or the
Equipment or any part thereof;
(b) any limitation, restriction, deprivation or prevention of, or any
interference with, any use of the Demised Premises or the Equipment or any part
thereof;
(c) any taking of the Demised Premises or any part thereof by
condemnation or otherwise;
(d) any occurrence or circumstance constituting eviction from the
Demised Premises or the Equipment or any part thereof;
(e) any action, omission or breach on the part of the Landlord under
this Lease or under any other agreement at the time existing between the
Landlord and the Tenant;
(f) any claim as a result of any other business dealings of the
Landlord or the Tenant; or
(g) any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution, winding up or similar proceeding
involving or affecting the Landlord.
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Basic Rent payments by the Tenant hereunder shall be final, and the Tenant will
not seek to recover any such payment or any part thereof for any reason
whatsoever. Except as may be otherwise provided in this Lease, the Tenant waives
any right it might otherwise have had, howsoever arising, to any abatement,
suspension, deferment, diminution or reduction of the Basic Rent. Nothing
contained in this Section 5.2 shall limit any rights or remedies that Tenant may
have against Landlord in the event of a breach of Landlord's covenant in Section
1.2 except that the Remedies, as defined above, are unavailable to Tenant.
5.3. The Tenant shall also pay, as additional rent, all sums, costs,
expenses and other payments which the Tenant under any of the provisions of this
Lease assumes or agrees to pay and all Impositions (which sums, costs, expenses
and other payments, including, without limitation, any payments required to be
made at the termination of this lease in accordance with the provisions of
Article 22 or Article 32, and Impositions are hereinafter collectively called
the "Additional Rent"), and, in the event of any nonpayment of the Additional
Rent, the Landlord shall have all the rights and remedies provided herein or by
law.
5.4. This Lease is a net lease and the Basic Rent shall be absolutely net
to the Landlord, so that this Lease shall yield, net, to the Landlord, the Basic
Rent during the Term, and, except as is otherwise specifically provided for in
this Lease (including, without limiting the generality of the foregoing
provision, the provisions of Section 6.4), all costs, expenses
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and obligations of every kind and nature whatsoever relating to the Demised
Premises or the Equipment which may arise and be attributable to the ownership,
use or occupancy of the Demised Premises or the Equipment during the Term shall
be paid by the Tenant and, except with respect to facts, events, actions, or
omissions arising or occurring prior to the date hereof, Landlord shall be
indemnified and saved harmless by Tenant against the same. Nothing contained in
this Section 5.4 shall be deemed to modify the obligations of Landlord as
described in Articles 42 through 45, inclusive.
5.5. Tenant shall make all payments of rent hereunder by wire transfer into
Landlord's account number 031-97-858 at Morgan Guaranty Trust, 23 Wall Street,
New York, New York, (ABA Routing No. 021000238) the denomination of which
account is "James River Corporation." Tenant shall advise Wayne Ball by
telephone at 804-343-4680 of each transfer of funds. Landlord may, by notice to
Tenant given in accordance with the provisions of Section 37.1, change any of
the bank, account name or account number into which funds are to be transferred
hereunder or the identity or the telephone number of the party Tenant is
required to contact upon any such transfer, each which change shall be effective
as of the sixth day after the date upon which notice of such change is deemed
given under Section 37.1.
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ARTICLE 6
PAYMENT OF IMPOSITIONS
6.1. Subject to the provisions of Section 6.4 Landlord shall pay, in the
first instance, during the Term all (a) taxes and governmental assessments, (b)
water and sewer rents, rates and charges, whether governmental or
non-governmental, (c) excises, levies, license and permit fees and other
governmental charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of any kind and nature whatsoever which at any time in respect
of any period during the Term may be assessed, levied, confirmed, imposed upon,
or become due and payable out of or in respect of, or become a lien on, the
Demised Premises or any part thereof or any appurtenances thereto (all such
rent, taxes, assessments, water and sewer rents, rates and charges, excises,
levies, licenses and permit fees and other governmental charges and any other
amounts referred to in this Section 6.1 are hereinafter referred to as "Real
Estate Taxes").
6.2. Subject to the provisions of Section 6.4 the Tenant shall pay as
Additional Rent all (a) taxes and governmental assessments, (b) rents, rates and
charges, whether governmental or non-governmental, (c) excises, levies, license
and permit fees and other governmental charges, general and special, ordinary
and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever
which at any time in respect of any period during the Term may be assessed,
levied, confirmed, imposed upon, or become due and payable out of or in respect
of, or become a lien on, (i) the Equipment or any part thereof, (ii) the rent,
income or other
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payments received by Tenant or anyone claiming by, through or under Tenant for
which the Landlord may become liable, (iii) upon or against this Lease or the
leasehold estate hereby created or any document to which Tenant is a party
creating or transferring any interest or estate in the Demised Premises or the
Equipment, (iv) any use or occupation of the Demised Premises or the Equipment,
or (v) such franchises as may be appurtenant to the use of the Demised Premises
or the Equipment, and, as Additional Rent, shall reimburse Landlord for all Real
Estate Taxes assessed or levied against the Demised Premises (which Real Estate
Taxes shall be hereinafter referred to as "Tenant's Real Estate Taxes," and all
such rent, taxes, assessments, water and sewer rents, rates and charges,
excises, levies, licenses and permit fees and other governmental charges and any
other amounts referred to in this Section 6.2, together with Tenant's Real
Estate Taxes, are hereinafter referred to as "Impositions" and any of the same
are hereinafter referred to as an "Imposition"), together with any penalty,
interest or cost payable to third parties which may be imposed thereon or added
for late payment thereof (except to the extent imposed or added as a result of
Landlord's failure to timely pay the Real Estate Taxes); provided, however, that
if, by law, any Imposition is payable or at the option of the taxpayer may be
paid in installments (whether or not interest shall accrue on the unpaid balance
thereof), Tenant may pay the same (and any accrued interest on the unpaid
balance) in installments and shall be required to pay only such installments as
may become due in
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respect of periods during the Term as the same respectively become due and
before any fine, penalty, interest, or cost may be added thereto for non-payment
thereof; and provided further, that any Imposition relating to a fiscal period
of a taxing authority, a part of which period is included within the Term and a
part of which is included in a period of time before the commencement of the
Term or after the termination of this Lease, shall (whether or not such
Imposition shall be assessed, levied, confirmed, imposed, or become a lien upon
the Demised Premises or the Equipment, or shall become payable, during the Term)
be appropriately prorated between Landlord and Tenant. The Landlord shall
promptly provide the Tenant with copies of notices of Impositions which are
received by the Landlord, and, notwithstanding any provision contained in this
Lease to the contrary, Tenant shall have no obligation to reimburse Landlord for
any Real Estate Tax as required hereby before the twentieth day after Landlord
provides Tenant with a copy of the notice of such tax.
6.3. For purposes of determining the amount of Tenant's Real Estate Taxes,
(a) all Real Estate Taxes assessed or levied against the real estate tax parcel
containing the building within the Demised Premises known as the "Hollywood Mill
Building" shall be deemed assessed against the Demised Premises, and (b) subject
to adjustment as set forth below, the product of (i) the "Tax Fraction," as
defined below, and (ii) the amount of the Real Estate Taxes assessed against or
levied against the real estate
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tax parcel (the "East Parcel") containing the Parking Deck and the building
within the Demised Premises known as the "Saturating Plant" shall be deemed to
be a portion of Tenant's Real Estate Taxes. The "Tax Fraction" shall be a
fraction the numerator of which is the value of the portion of the Demised
Premises contained within the East Parcel and the denominator of which is the
value of the East Parcel. The Tax Fraction shall initially be 1/2. Upon the
construction or removal of any improvements constituting real property upon the
East Parcel, the parties shall, at the request of either party, change the Tax
Fraction by modification of this Lease as may be fairly and reasonably required
to provide for Tenant's reimbursement of all Real Estate Taxes assessed against
the portion of the Demised Premises located within the East Parcel, but to
prevent Tenant's being required to reimburse, pursuant to this Article 6, Real
Estate Taxes assessed against any portion of the Tredegar Complex not
constituting a portion of the Demised Premises.
6.4. Nothing herein contained shall require the Tenant to pay any income
and/or excess profits, capital levy, corporate franchise, payroll, estate,
succession, inheritance or transfer, or similar taxes levied or assessed against
the Landlord or any income, excess profits, revenue or similar tax upon the
Basic Rent, the Additional Rent or any other amounts payable under this Lease;
provided, however, that if at any time during the Term (a) the methods of
taxation prevailing at the commencement of the Term shall be altered so as to
cause the whole or any part of
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such taxes, assessments, rates, levies, fees, impositions or charges now or
hereafter levied, assessed or imposed on, real estate and the improvements
thereon or machinery and equipment to be levied, assessed and imposed wholly or
partially as a capital levy, or otherwise, directly on the rents received
therefrom, or (b) as the result of the alteration of the current method of
taxation, any such tax, assessment, rate, levy, fee, imposition or charge, or
any part thereof, shall be measured by or based, in whole or in part, upon the
Demised Premises or the Equipment, the Basic Rent or the Additional Rent and
shall be imposed upon the Landlord and if in the case of (a) or (b) above it is
shown by demonstrable evidence that any such tax, assessment, rate, levy, fee
imposition or charge is in substitution of, or in lieu of an increase in, any
Imposition that Tenant is otherwise required hereunder to pay then all such
taxes, assessments, rates, levies, fees, impositions or charges or the part
thereof so measured or based shall be deemed to be included within the term
"Impositions" for the purposes hereof to the extent that such Impositions would
be payable if the Demised Premises and the Equipment were the only property of
the Landlord subject to such Impositions; and Tenant shall pay and discharge the
same.
6.5. Each party required hereunder to pay any Imposition or Real Estate
Tax, upon request of the other designating the specific Imposition or Real
Estate Tax involved and the period to which it relates, will furnish to or as
directed by the requesting party, within 15 days after the date when such
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Imposition or Real Estate Tax would become delinquent, official receipts of the
appropriate taxing authority, or other evidence reasonably satisfactory to the
requesting party, evidencing the payment thereof. If such official receipts are
not available within 15 days after the date such Imposition or Real Estate Tax
would become delinquent, the party to whom such request is made will furnish the
same within 15 days after they are available.
6.6. Tenant shall have the right to contest the amount or validity
(including the accuracy or propriety of any assessed valuation of property
upon which the amount of an Imposition is based), in whole or in part, of any
Imposition by appropriate proceedings diligently conducted in good faith;
provided, however, that any contest relating to the amount or validity of any
Real Estate Tax (including the accuracy or propriety of any assessed
valuation of property upon which the amount of any Real Estate Tax is based)
shall be governed by the provisions of Section 6.7. Tenant shall keep
Landlord informed, and consult in good faith with Landlord, with respect to
any such contest of Tenant prosecuted hereunder. In the event of any such
contest, notwithstanding any of the provisions of this Lease, including
without limitation Sections 6.2 and 6.5, Tenant may postpone or defer payment
of such Imposition pursuant to appropriate contest procedures that operate
during the pendency thereof to prevent the collection of or other realization
upon such Imposition and which also prevent the sale, forfeiture or loss of
the Demised Premises or any portion thereof or any other property of
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Landlord, or any Basic Rent or other Additional Rent, and which shall not affect
the payment of any Basic Rent or Additional Rent, provided that (i) such
postponement or deferment shall not subject Landlord or any assignee of its
interests in the Demised Premises including, without limitation, its interests
in this Lease (including any person or entity having a beneficial interest in
such interests) to the risk of any civil or criminal liability, (ii) such
postponement or deferment does not prevent or interfere with Landlord's ability
to sell or refinance the Demised Premises and (iii) such postponement or
deferment is not prohibited or objected to by any mortgagee of Landlord. In the
event of any such postponement or deferment Tenant shall give such security as
may be reasonably required by Landlord to insure the ultimate payment and
discharge of such Impositions and to prevent any sale, forfeiture or loss
referred to above by reason of such nonpayment or noncompliance.
6.7. With respect to the East Parcel, Landlord shall have the right to
contest the amount or validity of any Real Estate Tax (including the accuracy or
propriety of any assessed valuation of property upon which the amount of any
Real Estate Tax is based), by appropriate proceedings diligently conducted in
good faith. Landlord shall keep Tenant informed, and consult in good faith with
Tenant with respect to any such contest of Landlord prosecuted under this
Section 6.7. In the event of any such contest, notwithstanding any of the
provisions of this Lease, Landlord may postpone or defer payment of such Real
Estate
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Tax pursuant to appropriate contest procedures that operate during the pendency
thereof to prevent the collection of or other realization upon such Real Estate
Tax and which also prevent the sale, forfeiture or loss of the Demised Premises
or any portion thereof, provided that (i) such postponement or deferment shall
not subject Tenant or any assignee of its interests in the Demised Premises
including, without limitation, its interests in this Lease (including any person
or entity having a beneficial interest in such interests) to the risk of any
civil or criminal liability, and (ii) such postponement or deferment does not
prevent or interfere with Tenant's ability to assign or mortgage its interest in
the Demised Premises. Landlord shall give Tenant notice of Landlord's election
to seek a reduction in the valuation of the Demised Premises for tax purposes
promptly upon Landlord's decision to seek such reduction, and shall give Tenant
notice of Landlord's filing of any application, pleading or other document, or
taking of any other action, constituting the initiation of any proceeding to
seek such reduction promptly upon such filing or taking such action. If, but
only if, Tenant has not received notice from Landlord that Landlord has so
initiated a proceeding to seek such a reduction in value before the earliest of
(a) the first day of the second half of the period during which such proceeding
may be initiated, (b) the day that is 15 days before the last day that such
proceeding may be initiated, and (c) 30 days after Tenant notifies Landlord that
Landlord intends to initiate such a proceeding, Tenant shall have
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the right at its own expense to seek a reduction in the valuation of the Demised
Premises assessed for tax purposes and, in any event, Tenant shall have the
right at Tenant's expense to participate in any action or proceeding theretofore
commenced by Landlord. With respect to that portion of the Demised Premises not
constituting any portion of the East Parcel, Tenant shall have the same contest
rights and obligations that the Landlord has with respect to the East Parcel,
and Landlord shall have the same contest rights and obligations that the Tenant
has with respect to the East Parcel, all upon the terms set forth in the
preceding provisions of this Section 6.7, mutatis mutandis.
6.8. Any "net tax refund," as hereinafter defined, shall be paid to and
belong to Tenant except that any net tax refund payable as a result of any
proceeding with respect to any tax year a portion of which begins before the
commencement, or extends beyond the expiration or other termination, of the
Terms shall be apportioned between Landlord and Tenant. For purposes of this
Section 6.8, the term "net tax refund" shall mean the tax refund actually
received by Tenant or Landlord in contesting the assessed valuation of the
Demised Premises and/or the Equipment less the expenses incurred by Tenant or
Landlord, as the case may be, in connection with such proceeding. Any right or
obligation to have apportioned or apportion any net tax refund as set forth in
this Section 6.8 shall survive any expiration or termination of the Term.
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6.9. Landlord shall not be required to join in any proceedings referred to
in Section 6.7 unless the provisions of any law, rule or regulation at the time
in effect shall require that such proceedings be brought by or in the name of
Landlord, in which event Landlord shall join in such proceedings or permit the
same to be brought in its name. Landlord shall not be subjected to any liability
for the payment of any costs or expenses in connection with any such
proceedings, and Tenant will indemnify and save Landlord harmless from any such
costs and expenses including reasonable attorneys' fees incurred at any stage of
such proceedings or on appeal therefrom. Except as otherwise provided in this
Lease, Tenant shall be entitled to any refund of any Imposition and penalties or
interest thereon received by Landlord which have been paid by Tenant, or which
have been paid by Landlord but previously reimbursed in full by Tenant.
6.10. Landlord hereby authorizes Tenant to make, in Landlord's name if
necessary, all payments to be made by Tenant pursuant to any of the provisions
of this Lease to persons or entities other than Landlord. In case any person or
entity to whom any sum is directly payable by Tenant under any of the provisions
of this Lease shall refuse to accept payment of such sum from Tenant, Tenant
shall thereupon give written notice of such fact to Landlord and shall pay such
sum directly to Landlord at the address of Landlord specified pursuant to
Article 37 or at such other place as Landlord may from time to time specify by
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notice given pursuant to Article 37 and to the attention of such officer or
other person as Landlord may by like notice from time to time designate to
Tenant, and Landlord shall thereupon promptly pay such sum or cause such sum to
be paid to such person or entity and Tenant shall be deemed to have paid such
sum.
ARTICLE 7
SERVICES AND UTILITIES
7.1. The Tenant shall pay or cause to be paid all charges for (i) utilities
for the Demised Premises, including but not limited to electricity, steam,
water, gas, sewer, telephone and other communication service, and (ii) new and
further installations and equipment to supply the same, and the Tenant shall
indemnify and hold the Landlord harmless against any liability, loss, expense or
damage incurred in connection therewith arising or accruing after the date
hereof. In furtherance of the foregoing, the Tenant shall procure any and all
necessary permits, licenses or other authorizations required for the lawful and
proper installation and maintenance upon the Demised Premises of wires, pipes,
conduits, tubes and other equipment and appliances for use in supplying any such
service to and upon the Demised Premises. Except as expressly provided in this
Lease, the Landlord shall not be required to furnish to the Tenant or provide
any facilities or services of any kind, nor shall the Landlord be liable for any
failure of water supply, electric current or other utilities. Nothing contained
in this
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Section 7.1 shall be deemed to modify the obligations of Landlord as described
in Articles 42 through 45, inclusive.
7.2. Landlord shall not unreasonably withhold or delay its consent to a
request by Tenant to enter into agreements with utility companies which may
create easements on the Demised Premises which are required by the utility
companies in order to provide utility service to the Demised Premises for the
Business. Landlord shall execute and deliver such documents and take such
actions as may be reasonably required in connection therewith. Tenant shall pay
(or reimburse) Landlord for Landlord's reasonable attorney's fees and other
reasonable out-of-pocket expenses incurred in connection with the foregoing
promptly upon Landlord's request to Tenant for such reimbursement.
7.3. Landlord hereby reserves the right at any time during the Term to
encumber the Demised Premises with easements for utility facilities, if and when
such easements are necessary in Landlord's reasonable judgment to provide
utility service to Tredegar Complex, or any portion thereof; provided, however,
that the installation and operation of utility facilities within the areas
encumbered by such easements will not materially interfere with Tenant's
operation of the Business. Before granting any such easement, Landlord shall
serve notice upon Tenant of Landlord's intention to grant such easement, which
notice shall set forth reasonable details of the location, nature and purpose of
such proposed easement as well as a description of the utility facilities to be
located therein. If within 20 days of
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Landlord's service of such notice, Tenant, in its reasonable judgment determines
that either (a) the granting of such easement is not necessary to serve the
Tredegar Complex with any utility, or (b) that the existence of such easement
will materially interfere with Tenant's operation of the Business, and within
such 20-day period serves notice of its determination upon Landlord, the matter
shall be submitted to arbitration in accordance with Article 41, and the
easement shall be granted or not granted in accordance with the decision
rendered in such arbitration. Upon Landlord's granting of any easement in
accordance with this Section 7.3, Tenant's leasehold interest in the Demised
Premises shall, without any further act on the part of any party, become subject
and subordinate to such easement and the beneficiaries thereof in accordance
with the terms thereof, and, upon the request of either party, the other party
shall promptly execute an agreement modifying this Lease to reflect such
subjugation and subordination.
ARTICLE 8
INSURANCE
8.1. Tenant, at its sole cost and expense, shall keep the Improvements and
the Equipment insured, during the term of the Lease, against loss or damage
under an all risk policy, without exclusion of any of the perils covered by a
standard form fire and extended coverage policy and including, without
limitation, to the fullest extent obtainable (with any exception to be subject
to Landlord's consent, which shall not be unreasonably
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withheld), coverage for damage caused by earthquake, earth movement, flood,
collapse and freeze, in an amount not less than the full repair and replacement
cost of the Improvements and the Equipment under a policy of insurance
containing no provisions whereby the insured thereunder could be deemed a
"co-insurer" to any extent whatsoever. Such all risk policy shall include (i)
boiler and machinery insurance, under "comprehensive form" endorsement, of the
type currently carried by Landlord, provided the Improvements contain equipment
of the nature ordinarily covered by such insurance in such limits as may
reasonably be required by Landlord from time to time, and (ii) business
interruption insurance sufficient to provide not less than 12 months' coverage
of all Rent and Additional Rent payable hereunder .
8.2. Tenant, at its sole cost and expense, shall maintain:
(a) comprehensive general liability insurance or commercial general
liability insurance, in either case written standard forms, including, without
limitation, contractual liability insurance, on an "occurrence basis", against
claims for bodily injury (including death), personal injury and property damage,
occurring on, in or about the Common Areas, the Demised Premises or any elevator
or any escalator therein and on, in or about the adjoining sidewalks, streets
and passageways, or in connection with operations thereon, such insurance (which
may be effected under a policy affording excess liability coverage (i.e., an
"umbrella" policy) with respect to one or more
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properties other than the Demised Premises owned by the Tenant or any other
Affiliate of CPG, and which excess liability insurance policy shall not be
deemed to be a blanket policy for purposes of Section 8.8) to afford minimum
protection, during the Term of annual aggregate limits of not less than
$20,000,000 in respect of (x) bodily injury (including death) or personal injury
to any one person and property damage and (y) any one "occurrence" involving any
one or more persons or properties;
(b) workers' compensation insurance which provides for the applicable
statutory benefits, including Employer's Liability insurance in an amount not
less than $1,000,000, covering all persons employed by the Tenant in connection
with the Demised Premises;
8.3. Tenant, at its sole cost and expense, shall also maintain such other
insurance, in such amounts as may from time to time be reasonably required by
Landlord against other insurable hazards and risks, due regard being given to
what is customary in the paper industry, the height and type of buildings which
are part of the Improvements, their construction, use and occupancy and the type
and use of Equipment.
8.4. Tenant shall not violate or permit to be violated any of the
conditions or provisions of any policy provided for in Sections 8.1, 8.2, or
8.3. For all purposes of this Lease, "full repair and replacement cost" means
the actual replacement cost of the Improvements and the Equipment without
physical depreciation. Tenant shall determine annually and submit to its
insurance
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carrier and to Landlord a schedule of values for the Demised Premises and the
Equipment. If Landlord and Tenant cannot agree, in their respective
reasonable judgments, as to the adequacy of such values, then Tenant shall
cause the Demised Premises and the Equipment to be appraised by one of the
insurers or by an architect, appraiser or appraisal company, selected and
paid by Tenant and reasonably acceptable to Landlord and such appraisal shall
be used to determine the values mutually agreeable to Landlord, Tenant and
Tenant's insurers in their respective reasonable judgments, but Landlord
shall not arbitrarily or unreasonably require such appraisal to be made, nor
shall such appraisal be required to be made more frequently than once every
36 months. If a dispute between Landlord and Tenant arises in the application
of Sections 8.1 or 8.3 or this Section 8.4, such dispute shall be determined
by arbitration in the manner provided in Article 41, except that Landlord's
requirements with respect to the amounts of any insurance in Section 8.3
shall be deemed reasonable if the amounts required do not exceed the amounts
then customarily maintained by prudent operators of buildings and equipment
of similar construction, use and class in the area in which the Demised
Premises is located. Until the resolution of any such dispute Tenant shall
carry the insurance that Tenant agrees to be required under this Article 8 and
shall also carry insurance as required by Landlord, subject to reimbursement
from Landlord of excess insurance premiums, plus interest at the
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Default Rate if the decision in the arbitration is in favor of Tenant
8.5. All insurance provided for under this Lease shall be effected under
valid and enforceable policies in such forms and amounts as may, from time to
time, be required as herein and elsewhere specified in this Lease, issued by
insurers mutually acceptable to the parties or insurers of recognized
responsibility that are licensed to do business as admitted carriers in the
state in which the Demised Premises are located, are rated "A" or better by
Best's Key Rating Guide or, if there is no Best's Key Rating Guide, a comparable
rating by another national rating organization mutually acceptable to the
Landlord and Tenant. Upon execution of this Lease, and thereafter on or before
the expiration dates of the expiring policies theretofore furnished pursuant to
this Article, certificates, or copies of binders, of insurance reasonably
satisfactory to Landlord and, upon request, true and complete copies of the
policies involved, shall be delivered by Tenant to or as directed by Landlord.
Landlord agrees that, on any copy of an insurance policy Tenant delivers to
Landlord, any information disclosing the amount of the premium paid by Tenant
for the insurance evidenced by such policy and other information specific to
properties other than, and which does not relate to, the Demised Premises or the
Equipment, may be deleted or rendered illegible. Each policy of insurance
procured pursuant to this Article 8 shall contain either (i) a waiver by the
insurer of any right of subrogation
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against Landlord or (ii) a statement that the insurance shall not be invalidated
should any insured waive in writing prior to a loss any or all right of recovery
against any party for loss occurring to the property described in the insurance
policy and the insurer will be bound by such waiver. Tenant hereby waives all
claims against Landlord for damages to goods, inventory, equipment and other
property of Tenant in, upon or about the Demised Premises or the Common Areas or
in connection with the operations conducted on either and for injury to Tenant,
its agents or third persons in or about the Demised Premises or the Common Areas
from any cause arising at any time. Tenant shall not carry separate or
additional insurance, concurrent in form or contributing, in the event of any
loss or damage, with any insurance required to be obtained by Tenant under this
Lease without the prior consent of the Landlord which consent shall not be
unreasonably withheld or delayed.
8.6. All policies of insurance provided for in Sections 8.1, 8.2 and 8.3
(except for the insurance provided for in Section 8.2.(b)) shall insure
Landlord as an additional named insured and loss payee. All policies of
insurance provided for in Sections 8.1, 8.2 (except for the insurance provided
for in Section 8.2.(b), which may contain deductible clauses allowing
deductibles and self-insured retentions in such amounts selected by Tenant in
its sole discretion) and 8.3 may contain deductible clauses allowing deductibles
and self-insured retentions in the case of each type of coverage required (i.e.
property insurance
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and liability insurance), in the aggregate amount of not more than the
"Deductible Amount" as defined in Section 8.11. The proceeds of any property
insurance covering the Demised Premises and the Equipment, shall be payable (i)
to the Tenant in the case of any particular casualty resulting in damage or
destruction not exceeding the Deductible Amount in the aggregate, or (ii) to
Landlord or, at Tenant's option, to a bank or trust company designated under
Section 8.10 as insurance trustee for the purpose set forth in Section 8.10 in
the case of any particular casualty resulting in damage or destruction exceeding
the Deductible Amount in the aggregate. All such policies shall provide that the
loss, if any, thereunder shall be adjusted and paid as hereinabove provided.
Each such policy shall contain (a) a provision that no act or omission of Tenant
which would otherwise result in a forfeiture or reduction of the insurance
therein provided shall affect or limit the obligation of the insurance company
so to pay in accordance with this Section 8.6 the amount of any loss sustained
to the interests of Landlord and (b) an agreement by the insurer that such
policy shall not be cancelled without at least thirty (30) days prior written
notice to Landlord.
8.7. The proceeds of any property insurance provided for in Sections 8.1
and 8.3 shall be adjusted with the insurance companies (i) by Tenant in the case
of any particular casualty resulting in damage or destruction not exceeding
twice the Deductible Amount in the aggregate, or (ii) by Landlord and
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Tenant in the case of any particular casualty resulting in damage or destruction
exceeding twice the Deductible Amount in the aggregate.
8.8. Nothing in this Article 8 shall prevent Tenant from taking out
insurance of the kind and in the amounts and with companies as otherwise
provided for in this Article 8 under a policy or policies of blanket insurance
which can cover other properties as well as the Common Areas, the Demised
Premises and the Equipment; provided, however, that the total amount of the
insurance shall be such as to furnish in protection the equivalent of separate
policies in the amounts herein required; and provided, further, that any such
policy of insurance provided for under this Article 8 shall specify therein, or
Tenant shall furnish Landlord with a written certification from the insurers
under such policies or the authorized representative of such insurers
specifying, the total amount of the insurance allocated to the Common Areas, the
Demised Premises and the Equipment, which amount shall not be less than the
amount required by Sections 8.1, 8.2 and 8.3 to be carried.
8.9. Tenant shall furnish Landlord annually a certificate signed by an
authorized officer of Tenant containing a summary of the insurance coverages
then outstanding and in force on the Common Areas, the Demised Premises or the
Equipment prepared for Tenant by its insurance broker and stating that such
insurance complies with the requirements of this Article 8.
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8.10. Any monies, or the equivalent thereof, to be paid to or deposited
with Landlord pursuant to this Article 8, shall, at the option of Tenant, be
deposited for the benefit of Landlord and Tenant, as their respective interests
may appear, with a bank or trust company with offices in the state in which the
Demised Premises are located selected by Tenant and approved by Landlord, which
approval shall not be unreasonably withheld or delayed, to act as an insurance
trustee or depositary, as the case may be, for the purposes set forth in this
Lease, to be disbursed in accordance with the provisions of Section 9.2. Tenant
shall pay all charges and fees, including fees of attorneys, engineers and
architects, of the bank or trust company that performs the functions of such
insurance trustee or depositary.
8.11. The "Deductible Amount" for any calendar year shall be the product of
(a) $250,000, times (b) a fraction the numerator of which shall be the "PPI", as
defined below, last published before the end of the calendar year in which the
determination of the Deductible Amount is being made and the denominator of
which shall be the PPI last published before the last day of the 1990 calendar
year. "PPI" shall be the U.S. Department of Labor, Bureau of Labor Statistics,
Producer's Price Index for Capital Equipment, Paper Industries Machinery (June
1982=100), or, in the event such index is no longer published, a similar index
mutually acceptable to the parties.
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ARTICLE 9
DAMAGE OR DESTRUCTION
9.1. (a) In the case of any particular casualty to the Improvements or
the Equipment (including any such casualty occurring after the date of the Asset
Purchase Agreement but prior to the date of this Lease), resulting in damage or
destruction exceeding $100,000 in the aggregate, the Tenant shall promptly give
written notice thereof to Landlord. Without limiting Tenant's right to terminate
this Lease in accordance with Section 32.7 and regardless of the amount of any
damage or destruction, Tenant shall, except as may be hereinafter expressly
provided, at its sole cost and expense, and whether or not the insurance
proceeds, if any, shall be sufficient for the purpose, restore, repair, replace,
rebuild or alter (including any necessary demolition) the Improvements and the
Equipment as nearly as possible to their quality, condition and character
immediately prior to such damage or destruction, with such Alterations as Tenant
may elect to make in accordance with Article 12. Such restoration, repairs,
replacements, rebuilding or alterations shall be commenced with reasonable
promptness and prosecuted with reasonable diligence.
(b) Notwithstanding anything to the contrary contained in this
Lease, including without limitation, the provisions of this Article 9, if Tenant
exercises its right to terminate this Lease as provided in Section 32.7, Tenant
shall not be obligated to restore, repair, replace, rebuild or alter the
Improvements and the Equipment if Tenant pays to Landlord, at or before
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Tenant's termination of this Lease, an amount equal to all insurance proceeds
that are or would be payable as a result of such casualty under property
insurance policies required to be maintained by Tenant under Sections 8.1 and
8.3, together with an amount equal to the aggregate applicable deductible
amounts carried by Tenant under the policies evidencing such insurance coverage.
9.2. All insurance proceeds received by Landlord or any insurance
trustee selected by Tenant pursuant to Section 8.10, on account of such damage
or destruction, less the actual third party costs, fees and expenses, if any,
incurred in connection with adjustment of the loss, shall be applied to pay or
reimburse Tenant for the payment of the costs of the aforesaid restoration,
repairs, replacements, rebuilding or alterations (all of which are hereinafter
collectively referred to as the "restoration"), and shall be paid out from time
to time as such restoration progresses upon the written request of Tenant which
shall be accompanied by reasonable evidence of the incurrence of the costs
involved. Any such restoration shall be made in accordance with plans and
specifications prepared by architects and/or engineers approved by Landlord,
which approval shall not be unreasonably withheld or delayed. If such
restoration will result in any material change to the Improvements or Equipment
being restored from the condition of such Improvement or Equipment immediately
before the casualty, such restoration shall be made substantially in accordance
with plans and specifications approved in writing
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by Landlord, which approval shall not be unreasonably withheld or delayed,
except that, with respect to the exterior surfaces and treatments of the
Improvements, Landlord in its sole discretion may withhold its approval of any
repair to or restoration of such exterior that would not result in such
exterior's being restored to substantially the same condition and configuration
(including being constructed of the same types of materials) existing before the
occurrence of such casualty damage. Landlord's review of any such plans and
specifications shall be at its sole cost and expense. If Landlord receives any
insurance proceeds on account of such damage or destruction, Landlord shall
during the Term hold such proceeds in trust for the purposes set forth in
Sections 9.l.(b) and 9.2. If the insurance money at the time available for the
purpose, less the actual third party costs, fees and expenses, if any, incurred
in connection with the adjustment of the loss, shall be insufficient to pay the
entire cost of such restoration, Tenant will pay the deficiency; provided,
however, that if and to the extent that Tenant shows by demonstrable evidence
that the sum of the insurance proceeds under the property insurance coverage
required to be maintained under Article 8, together with the amount of the
deductible allowed hereunder in respect of such coverage, will not or would not
be sufficient to repair or restore the exterior surfaces and treatments of the
Improvements to the condition in which such surfaces and treatments are required
to be maintained hereunder as a result of the scarcity or unique characteristics
of the
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materials and/or labor required to be incorporated in such restoration or
repair, and if Landlord nonetheless requires that such surfaces and treatments
be so restored or repaired, Landlord shall reimburse Tenant for the additional
costs of such restoration or repair over the costs of the restoration and repair
of such surfaces and treatments that are or would be covered by the proceeds of
such insurance together with such deductible amount. Upon receipt by the
Landlord or such insurance trustee of reasonable evidence that the restoration
has been completed, any balance of the insurance money held by Landlord or such
insurance trustee selected by Tenant hereunder shall be paid to Tenant.
9.3. No destruction of or damage to the Demised Premises or any part
thereof by fire or any other casualty shall terminate or permit Tenant to
surrender this Lease or shall relieve Tenant from its liability to pay the Basic
Rent and Additional Rent and other charges payable under this Lease or from any
of its other obligations under this Lease, and Tenant waives any rights now or
hereafter conferred upon it by statute or otherwise to quit or surrender this
Lease or the Demised Premises or any part thereof, or to any suspension,
diminution, abatement or reduction of rent, on account of any such destruction
or damage. The provisions of this Section are not intended to, and shall not,
limit or restrict Tenant's right to exercise its right to terminate this Lease
in accordance with the provisions of this Section 9.3.
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ARTICLE 10
CONDEMNATION
10.1. The Tenant hereby assigns to the Landlord any award, payment or
compensation to which it may be or become entitled during the Term by reason of
any taking of the Demised Premises or a part thereof, or such items of the
Equipment as may constitute a part of the Demised Premises because such items
are fixtures or for some other reason or a part thereof, in or by a Proceeding
by any governmental authority, civil or military, whether the same shall be paid
or payable in respect of the Tenant's leasehold interest hereunder or otherwise,
provided that such award, payment or compensation and any interest or income
earned thereon shall be held in trust by Landlord and shall be applied as
hereinafter provided for in this Article 10. Tenant shall have the right at its
sole cost and expense to assert a claim for its equipment, trade fixtures and
other personal property and for its relocation expenses. Landlord and Tenant
shall be entitled to participate in any such Proceeding and each shall pay its
own costs and expenses in connection therewith. Landlord and Tenant shall each
notify the other of any such Proceeding.
10.2. If during the Term the Demised Premises shall be taken in its
entirety, taken in substantially its entirety, or such portion is taken that
Tenant, in its reasonable judgment, determines that it can no longer conduct its
business at the Demised Premises with economic feasibility (any of which
occurrences shall be a "Total Taking") in or by a Proceeding,
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then this Lease shall terminate as of the effective date of such taking, and
Tenant shall, on or before the date of such termination, pay to Landlord an
amount equal to the Premium Amount, which, at Tenant's election may be paid by
Tenant's delivery to Landlord of Tenant's non interest bearing promissory note
in the original principal amount of the Premium Amount, made upon the terms
described in Section 32.7, mutatis mutandis, and guaranteed under the Note
Guaranty. Upon the occurrence of a Total Taking, Landlord shall pay to Tenant
the portion of any award received by Landlord in respect of such Total Taking
that is attributable to Tenant's leasehold interest in the Demised Premises and
the Equipment. If any order, or similar decision, of any Governmental Authority
rendered in connection with such Total Taking allocates a portion of such award
to such leasehold interest, such order or decision shall be controlling upon the
parties as to the issue of such allocation. If no such allocation is made on any
such order or decision, and the parties fail to agree upon such allocation
within a reasonable period of time after the occurrence of such Total Taking,
such allocation shall be determined by arbitration in accordance with Article
41. If during the Term a portion of the Demised Premises, but less than the
entire Demised Premises, shall be taken in or by any Proceeding, but no Total
Taking has occurred, then this Lease shall continue in full force and effect,
and the Tenant's obligation to pay the Basic Rent, Additional Rent and all other
charges on the part of the Tenant to be paid and to perform all
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other covenants and agreements on the part of the Tenant to be performed shall
not be affected by any such taking of the Demised Premises and/or the Equipment,
and the Tenant hereby waives the provisions of any statutes or laws now or
hereafter in effect contrary to such obligation of the Tenant as herein set
forth or which relieves the Tenant therefrom. In such event, any portion of such
award or awards collected by the Landlord and necessary to pay costs of
demolition, repair and restoration required as a result of the taking in any
such proceeding, shall be delivered by the Landlord to the Tenant and shall be
applied and paid over by the Tenant toward the cost of any demolition, repair
and restoration required as a result of the taking in any such Proceeding, which
demolition, repair and restoration shall be undertaken by Tenant in
substantially the same manner specified in Section 9.1 (and Tenant's obligations
with respect to repair or restoration of the exterior surfaces and treatments of
the Improvements shall be as specified in Section 9.1, mutatis mutandis). Any
balance of the award remaining after payment of such costs of demolition, repair
and restoration shall be retained by the Landlord. The provisions of this
Section are not intended to, and shall not, limit or restrict Tenant's right to
exercise its right to terminate this Lease in accordance with the provisions of
Section 32.7; and, notwithstanding the preceding provisions of this Section
10.2, if (x) Tenant exercises such right of termination within 60 days of the
date Tenant receives notice of any such condemnation Tenant shall not be
obligated to
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repair or restore the damage caused by such condemnation except to the extent
required under Article 13; provided, however that if Tenant terminates this
Lease pursuant to Section 32.7, Tenant shall return to the Landlord upon such
termination any portion of the award payable with respect to such taking that
Tenant shall have theretofore received to the extent not applied by Tenant to
the repair or restoration of such damage.
10.3. If the whole or any part of the Demised Premises, or of Tenant's
leasehold estate under this Lease, shall be taken in or by a Proceeding for
temporary use or occupancy, the foregoing provisions of this Article 10 shall
not apply and Tenant shall continue to pay, in the manner and at the times
specified in this Lease, the full amounts of the Basic Rent and Additional Rent
and other charges payable by Tenant under this Lease, and Tenant shall perform
and observe all of the other terms, covenants, conditions, and obligations of
this Lease upon the part of Tenant to be performed and observed, as though such
taking had not occurred. Tenant shall be entitled to receive the entire amount
of the award with respect to such temporary taking, whether paid by way of
damages, rent, or otherwise, unless such period of temporary use or occupancy
shall extend beyond the termination of this Lease, in which case such award, if
paid in a lump sum, shall be apportioned between Landlord and Tenant upon
receipt thereof as of the date of termination of this Lease. If such award is
paid in installments, Tenant shall be entitled to those installments covering
any period prior to the termination of this
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Lease and Landlord shall be entitled to the remaining installments (any
installments covering a period both before and after the termination of this
Lease shall be apportioned between Landlord and Tenant as of the date of the
termination of this Lease). Tenant shall, upon the expiration of any such
period of temporary use or occupancy during the Term, restore the Improvements
and/or the Equipment to the condition in which the same are required to be
maintained hereunder, subject to Tenant's rights to make changes or alterations
pursuant to Article 12. Any portion of the award received by Tenant as
compensation for the cost of restoration of the Improvements and/or the
Equipment shall, if such period of temporary use or occupancy shall extend
beyond the Term, be paid to Landlord on the date of termination of this Lease to
the extent not theretofore disbursed by Tenant in connection with restoration of
the Improvements and/or the Equipment.
10.4. Any award, payment or compensation in excess of $25,000 received
by Landlord by reason of any taking of the Demised Premises or any part thereof
shall be held in trust for the purposes set forth in this Article 10 and shall
be invested, pending disbursement in accordance with this Article 10, through
the bond department of any money center bank whose deposits are insured by the
Federal Deposit Insurance Corporation as follows:
(a) U.S. treasury bills; or
(b) money market funds, to the extent mutually agreed by Landlord
and Tenant.
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ARTICLE 11
MAINTENANCE AND REPAIRS
11.1. Throughout the Term the Tenant shall, at its sole cost and
expense, take good care of the Demised Premises and of the Equipment, and keep
the same (regardless whether any portion of the Demised Premises or the
Equipment has been retired, temporarily or permanently, from use in Tenant's
operation of the business) in at least as good order, condition and repair,
ordinary wear and tear and obsolescence excepted, as the condition and repair in
which the Demised Premises and the Equipment are delivered to Tenant by Landlord
at the commencement of the Term, and shall make all necessary repairs, renewals,
replacements and alterations thereto, interior and exterior (except to the
extent that Landlord's consent to any exterior repair, renewal, replacement or
alteration is withheld), structural and nonstructural, ordinary and
extraordinary, foreseen and unforeseen including, in respect of the Equipment,
supplying all service and parts and other items required for operation and
maintenance thereof; provided, however, that (except to the extent necessary to
comply with the provisions of Article 13) Tenant shall make no repairs,
renewals, replacements or alterations to the exterior surfaces or treatments of
the Improvements without the consent of the Landlord, which may be withheld in
the sole discretion of the Landlord. Except as expressly set forth in Section
9.2, Section 10.2 or in the next succeeding sentence, the Landlord shall not be
required to make
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or pay for any repairs or alterations in or to the Demised Premises or the
Equipment, the Tenant hereby assuming the full and sole responsibility for the
condition, operation, repair, replacement, maintenance and management of the
Demised Premises and the Equipment during the Term. Landlord agrees that if
repairs to any of the surfaces or treatments of the exterior of the Improvements
are necessary, and such repairs or restoration are not covered by the property
insurance required to be maintained under Article 8, and to the extent that
Tenant shows by demonstrable evidence that the sum of the insurance proceeds
under the property insurance coverage required to be maintained under Article 8,
together with the amount of the deductible allowed hereunder in respect of such
coverage, would have been (if such repairs or restoration had resulted from
events or occurrences that are or would have been covered under such insurance)
insufficient to repair or restore the exterior surfaces and treatments of the
Improvements to the condition in which such surfaces and treatments are required
to be maintained hereunder as a result of the scarcity or unique characteristics
of the materials and/or labor required to be incorporated in such restoration or
repair, and if Landlord nonetheless requires that such surfaces and treatments
be so restored or repaired, Landlord shall reimburse Tenant for the additional
costs of such restoration or repair over the costs of the restoration and repair
of such surfaces and treatments that would have been covered by the proceeds of
such insurance together with such
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deductible amount had such repairs or restoration resulted from events or
occurrences that would have been covered by such insurance. The necessity for
and adequacy of repairs to the Improvements and the Equipment pursuant to this
Article 11 shall be measured by the standards which are generally appropriate
for equipment and improvements of the same kind and character used in the
Business, except that Landlord may require that the surfaces and treatments
constituting the exterior of the Improvements be maintained in substantially the
same condition and configuration as existing at the commencement of the Term.
Nothing contained in this Section 11.1 shall modify the provisions of Articles
42 through 45, inclusive.
11.2. With respect to any lease of Leased Equipment pursuant to which
Tenant has any option to extend or renew the term thereof, purchase any or all
of the property leased thereunder, or exercise any other option, election or
right with respect to such equipment, Tenant agrees to give notice to Landlord,
not later than 60 days before the last day (the "Buy-Out Date") upon which such
right, election or option may be exercised, of Tenant's decision with respect to
each such option, election or right available to it. Tenant hereby acknowledges
that Landlord will rely upon such notice from Tenant with respect to Tenant's
exercise of any such election, option or right, and Tenant agrees to exercise,
or refrain from exercising, as the case may be, each such election, option or
right in accordance with Tenant's notice served upon Landlord. Tenant shall have
the
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right at its sole cost and expense, to exercise any such option, election or
right. Upon Tenant's obtaining clear title to any Leased Equipment pursuant to
the exercise of any such election, option or right, such Leased Equipment shall
become solely the property of Tenant and Tenant may thereafter remove any such
Leased Equipment from the Demised Premises at any time. If Tenant elects not to
exercise any such option, election or right with respect to any Leased
Equipment, Landlord shall have the right to exercise any such option, election
or right, and, upon Landlord's obtaining clear title to such Leased Equipment,
Landlord may remove such Leased Equipment from the Demised Premises without any
payment to Tenant.
11.3. The Tenant covenants not to alter or add new equipment or
machinery to the Demised Premises so as to cause any overloading of the floors
of any buildings contained in the Demised Premises or the electrical equipment
therein contrary to the applicable Certificate of Occupancy, Board of Fire
Underwriters certificate or law.
ARTICLE 12
ALTERATIONS
12.1. Except as provided in Article 12.l.(b), Tenant shall make no
changes, replacements, alterations, additions, enlargements or expansions in, of
or to the Improvements or the Equipment nor shall Tenant construct additional
buildings or improvements on the Demised Premises (all of the foregoing
hereinafter collectively called "Alterations" and each
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individually called an "Alteration"), except for any Equipment or Improvement
that Tenant is entitled to remove without Landlord's consent pursuant to Article
25, without Landlord's written consent; provided, however that the provisions of
this Section 12.1 shall not apply to the removal of any moveable Equipment for
which Equipment of no less value and utility in the Business is substituted.
(a) No particular Alteration involving an estimated cost of more
than $250,000 shall be undertaken except after twenty (20) days prior written
notice to Landlord.
(b) There shall be no consent required from Landlord for any
non-structural Alteration if the Alteration (i) does not involve any change to
the exterior of any Improvement, (ii) does not require the removal of any
Equipment or Improvement that Tenant is otherwise prohibited under the terms of
this Lease from removing, and (iii) either (A) does not result in the
reconfiguration or change in purpose of any major functional unit of Equipment,
or (B) requires the expenditure of less than $250,000. There shall be no consent
required from Landlord for any structural Alteration that requires the
expenditure of less than $25,000. Any Alterations will be made substantially in
accordance with plans and specifications approved in writing by Landlord, such
approval not to be unreasonably withheld, the failure of Landlord to disapprove
of such plans and specifications within 30 days after receipt being deemed
approval. A copy of plans and specifications in such reasonable
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detail as will permit Landlord to exercise its judgment shall be submitted to
Landlord in connection with Alterations under this Section 12.1.(b).
Landlord's failure to serve notice upon Tenant of Landlord's election to
withhold consent for any Alteration within 30 days after Landlord's receipt of
the plans and specifications for such Alteration required to be delivered as set
forth in the preceding sentence shall be deemed Landlord's consent to such
Alteration.
(c) No Alteration shall be undertaken until Tenant shall have
procured and paid for, so far as the same may be required from time to time, all
permits and authorizations of the Governmental Authorities. Landlord shall join
in the application for such permits or authorizations whenever such action is
necessary, but without any liability or expense to Landlord.
(d) Any Alteration allowed hereunder shall be made promptly and in
a good and workmanlike manner, and, if such Alteration requires the consent of
the Landlord, it shall be made substantially in accordance with plans and
specifications approved by the Landlord. Any Alteration shall be made in
compliance with all applicable permits and authorizations and building and
zoning laws and with all other applicable laws, ordinances, orders, rules,
regulations and requirements of all the Governmental Authorities, any national
or local Board of Fire Underwriters (if required by law or Tenant's insurance
carrier), or any other body hereafter exercising functions similar to those of
any of the foregoing.
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(e) The cost of any such Alterations shall be paid by Tenant to
the extent required to prevent any lien or other interest from attaching to or
arising on any portion of the Demised Premises or the Equipment.
(f) Tenant shall cause workers' compensation insurance including
Employer's Liability insurance in an amount not less than $1,000,000, covering
all persons employed in connection with the installation or construction of the
Alteration and with respect to whom death or bodily injury claims could be
asserted against Landlord, Tenant, the Demised Premises or the Equipment, to be
maintained at all times when any work is in process in connection with any
Alteration.
(g) All Equipment, whether originally leased hereunder, replaced
or restored by the Tenant or added by the Tenant to the Equipment as an
Alteration, shall be and shall remain a part of the Equipment and shall not be
removed by the Tenant except as may be specifically provided in Article 25.
(h) Upon completion of any Alteration for which plans and
specifications are required to be delivered to Landlord, Tenant shall deliver to
Landlord three copies of "as-built" plans for such Alteration if Tenant
otherwise prepares such plans. Tenant shall prepare such plans if Landlord prior
to the date hereof would ordinarily have prepared such plans for a similar
Alteration.
12.2. No approval of plans or specifications by Landlord or consent by
Landlord allowing Tenant to make Alterations to the
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Demised Premises or the Equipment shall in any way be deemed to be an agreement
by Landlord that the contemplated Alterations comply with requirements of the
Governmental Authorities or any insurance policy affecting the Demised Premises,
the Equipment or any certificates of occupancy for the Improvements nor shall it
be deemed to be a waiver by Landlord of the compliance by Tenant of any of the
terms of this Lease.
ARTICLE 13
COMPLIANCE WITH LAW
13.1. The Tenant shall during the Term, at its sole cost and expense,
promptly comply with all laws, ordinances, orders, rules, regulations and
requirements of the Governmental Authorities, any national or local Board of
Fire Underwriters (to the extent also required by any Governmental Authorities
or any of Tenant's insurance policies), any insurer of the Demised Premises or
the Equipment or any other body exercising functions similar to those of any of
the foregoing, foreseen or unforeseen, ordinary as well as extraordinary, which
may be applicable to the Demised Premises or to the use, manner of use or
occupancy thereof whether or not the same shall necessitate structural repairs
or alterations or interfere with the use or occupancy of the Demised Premises
and to the Equipment and the use and manner of use thereof, whether or not the
same shall interfere with the use of the Equipment.
13.2. The Tenant shall not cause, maintain or permit any nuisance in or
upon the Demised Premises. The Tenant shall not
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suffer or permit the Demised Premises, or any portion thereof, to be used by the
public, as such, in any way as to impair the Landlord's title thereto.
13.3. Tenant shall have the right to contest by appropriate legal
proceedings, in the name of Tenant or Landlord or both, without cost or expense
to Landlord, the validity or application of any law, ordinance, order, rule,
regulation, or requirement referred to, and if, by the terms of any such law,
ordinance, order, rule, regulation, or requirement, compliance therewith pending
the prosecution of any such proceeding may legally be held in abeyance without
the incurrence of a lien, charge, or liability against the Demised Premises or
the Equipment and without subjecting Landlord to any civil or criminal liability
for failure so to comply, Tenant may postpone compliance until the final
determination of any proceedings, provided that all such proceedings shall be
prosecuted with reasonable diligence and dispatch. Landlord agrees, upon
reimbursement for any associated expense, to execute and deliver any papers
which may be reasonably necessary to permit Tenant to contest the validity or
application of any such law, ordinance, order, rule, regulation, or requirement
in accordance with this Section 13.3.
ARTICLE 14
DISCHARGE OF LIENS
14.1. Tenant will not create or permit to remain, and will discharge,
any lien, encumbrance or charge levied on account of any Imposition or any
mechanic's, laborer's or materialman's lien
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or any security interest, conditional sale, title retention agreement or chattel
mortgage, or otherwise (but not including any lien, encumbrance, or charge
created by Landlord or any mortgage lien, mechanics lien or materialman's lien
existing on the date hereof), upon the Demised Premises, the Equipment or any
part thereof, having any priority or preference over or ranking on a parity with
the estate, rights and interest of Landlord in the Demised Premises, the
Equipment or any part thereof or the income therefrom, and Tenant will not
suffer any other matter or thing to be done (other than by Landlord) whereby the
estate, rights and interest of Landlord in the Demised Premises, the Equipment
or any part thereof might be impaired; provided that any Imposition may, after
the same becomes a lien on the Demised Premises or the Equipment, be paid or
contested in accordance with Article 6, and any mechanic's, laborer's or
materialman's lien may be discharged in accordance with Section 14.2.
14.2. If any mechanic's, laborer's or materialman's lien that Tenant is
required to remove pursuant to Section 14.1 shall at any time be filed against
the Demised Premises, the Equipment or any part thereof, Tenant, within 20 days
of service of process on Tenant (or Landlord's notice to Tenant of such service
of process upon Landlord) by the lienor to foreclose such lien or 10 days before
the time for the first court appearance in response to such service, whichever
is earlier, shall cause the same to be discharged of record by payment, deposit,
bond, order of a court of competent jurisdiction or otherwise. If Tenant shall
fail to
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cause such lien to be discharged within the period aforesaid, then, in addition
to any other right or remedy of Landlord, Landlord may, but shall not be
obligated to, discharge the same either by paying the amount claimed to be due
or by procuring the discharge of such lien by deposit or by bonding proceedings,
and in any such event Landlord shall be entitled, if Landlord so elects, to
compel the prosecution of an action for the foreclosure of such lien by the
lienor, provided that Landlord pays the amount of the judgment in favor of the
lienor with interest costs and allowances in a manner as to prevent any loss of
title to the Demised Premises or the Equipment. Any amount so paid by Landlord
and all costs and expenses incurred by Landlord in connection therewith,
together with interest thereon at the Default Rate from the respective dates of
the making of the payment or incurring of the cost and expense by Landlord shall
constitute Additional Rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand.
14.3. Nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of Landlord or Tenant, express or
implied by inference or otherwise, to any contractor, subcontractor, laborer or
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, or alteration to or repair of the Demised
Premises, the Equipment or any part thereof.
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ARTICLE 15
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
15.1. In case of emergency or in case any fine, penalty, interest or
cost may otherwise be imposed on or incurred by Landlord, the Landlord shall
have the right at any time, with such notice as may be reasonable under the
circumstances, to make any payment or perform any act required of the Tenant
under this Lease. Furthermore, if Tenant has failed to make any payment or
perform any act required to be made or performed by Tenant under this Lease and,
as a result of such failure, there has occurred an Event of Default and any
period of time allowed under this Lease for Tenant to cure such failure has
expired, the Landlord shall have the right at any time to make any such payment
or perform any such act. In exercising any right described in the preceding two
sentences, Landlord may incur necessary and incidental costs and expenses,
including reasonable fees and expenses of third party counsel, accountants,
appraisers, architects and engineers. Nothing herein shall imply any obligation
on the part of the Landlord to make any payment or perform any act required of
the Tenant, and the exercise of the right so to do shall not constitute a
release of any obligation or a waiver of any Default.
15.2. All payments made by the Landlord and all costs and expenses
incurred by the Landlord in connection with any exercise of the rights described
in Section 15.1, together with interest at the Default Rate from the respective
dates of the making of such payments or the incurring of such costs and
expenses, shall
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be payable to the Landlord by the Tenant within 10 days after demand therefor
accompanied by evidence reasonably establishing that the expenditure has been
made. All sums which may become payable to Landlord by Tenant pursuant to this
Article shall be deemed Additional Rent hereunder.
ARTICLE 16
ENTRY ON PREMISES BY THE LANDLORD
16.1. The Tenant shall permit the Landlord and the authorized
representatives of the Landlord to enter the Demised Premises at all reasonable
times during usual business hours for the purpose of (a) inspecting the same and
(b) making any necessary repairs to the Demised Premises and performing any work
therein that may be necessary by reason of the Tenant's failure to make any such
repairs or perform any such work after an Event of Default has occurred. Tenant
shall be entitled to have its representative accompany each such visitor.
Nothing herein shall imply any duty upon the part of the Landlord to do any such
work which under any provision of this Lease the Tenant may be required to
perform and the performance thereof by the Landlord shall not constitute a
waiver of the Tenant's Default in performing the same. Landlord may, during the
progress of any such work in the Demised Premises, keep and store therein or
elsewhere upon the Demised Premises all necessary materials, tools, supplies and
equipment. To the extent that Landlord exercises its right of entry under this
Article 16 in a manner designed to minimize interference with the normal
business
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operations of Tenant, the Landlord shall not be liable for inconvenience,
annoyance, disturbance, loss of business or other damage of Tenant or any
subtenant by reason of making such repairs or the performance of any such work,
or on account of bringing materials, tools, supplies and equipment into or
through the Demised Premises during the course thereof and the obligations of
Tenant under this Lease shall not be affected thereby.
16.2. The Landlord shall have the right at all reasonable times to enter
upon the Demised Premises for the purpose of exhibiting the same to bona fide
prospective purchasers and tenants. Tenant shall be entitled to have its
representative accompany each such visitor.
16.3. In the exercise of its rights under Section 16.1 or Section 16.2,
Landlord shall disclose to Tenant either (a) the identity and business
affiliation of any party, other than any employee of James River Corporation of
Virginia or any Affiliate thereof, accompanying Landlord or its representative
upon any visit to the Demised Premises, or (b) the fact that such party has
declined to have such information disclosed to Tenant. Tenant shall have the
right to take reasonable precautions, during any such visit, to safeguard
against the disclosure of Tenant's trade secrets to any (i) third party in whose
hands such trade secrets may, in Tenant's reasonable judgment, be used in a
manner injurious to Tenant or the Business or (ii) any party described in clause
(b) of this Section 16.3.
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ARTICLE 17
ASSIGNMENT AND TRANSFERS OF
TENANT'S INTEREST; SUBLETTING
17.1. (a) Except as expressly allowed under Section 17.l.(b), Section
17.l.(c) or Section 17.4 below, Tenant shall not assign to any party any of its
rights under this Lease, nor shall Tenant sublease to any party any portion of
the Demised Premises without the consent of Landlord, which consent may be
withheld in the sole discretion of Landlord.
(b) Tenant may assign the interest of the Tenant under this Lease
to any Qualified Assignee in connection with Tenant's sale of the Business to
such Qualified Assignee, or to any Appraisal Sale Buyer in connection with
Tenant's sale of the Business to such Appraisal Sale Buyer in accordance with
the provisions of Section 32.1. If Tenant assigns this Lease to a Qualified
Assignee or an Appraisal Sale Buyer in accordance with this Section 17.l.(b),
then upon delivery to Landlord of an agreement whereby such assignee assumes and
agrees to keep, observe and perform the obligations to be kept, observed and
performed by Tenant hereunder from and after the date of such assignment, the
assigning Tenant shall be released from the performance of any and all such
assumed obligations to be performed hereunder. Upon the assignment of the
interest of Tenant under this Lease in accordance with the provisions of this
Section 17.l.(b), Landlord shall elect either (x) to reduce the Basic Rent by
42.73%, whereupon the assigning Tenant shall make and deliver to Landlord its
non interest bearing promissory note
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in the original principal amount of the Premium Amount, made upon the terms
described in Section 32.7, mutatis mutandis, and guaranteed under the Note
Guaranty, and Tenant and Landlord shall enter into a modification of this Lease
effecting such reduction, or (y) not to reduce the Basic Rent hereunder, in
which case, the assigning Tenant shall have no obligation to make and deliver
any promissory note to Landlord. Notwithstanding the above, if this Lease is
assigned as a result of the transfer of the stock of the Tenant, and the
Landlord elects to reduce the Basic Rent as set forth above, the Tenant whose
stock is transferred shall have no obligation to deliver a promissory note, but
CPG shall deliver its non interest bearing promissory note in the original
principal amount of the Premium Amount, made upon the terms described in Section
32.2, mutatis mutandis; provided, however, that CPG's obligations under such
promissory note shall be subordinated on substantially the same terms as the
Guarantor's obligations are subordinated under the Note Guaranty.
(c) In addition to the rights hereinabove provided to the Tenant,
the Tenant may at any time and from time to time without the prior consent of
Landlord, assign the Lease and the interest of the Tenant under this Lease to
CPG or any subsidiary of CPG, and may from time to time sublease all or any
portion of the Demised Premises and the Equipment to CPG or any subsidiary of
CPG.
(d) The acceptance of an assignment or subletting of the Demised
Premises by any assignee or subtenant shall be
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construed as a promise on the part of such assignee or subtenant to be bound by
and to perform all of the terms, conditions and covenants by which Tenant herein
is bound. Notwithstanding any provision of this Lease to the contrary, no
subtenant of all or any portion of the Demised Premises shall have the right to
further sublease to any other party all or any portion of the Demised Premises.
Any sublease pursuant to which any party subleases any portion of the Demised
Premises shall require the sublessee thereunder to attorn to Landlord upon the
expiration or termination of this Lease in the event this Lease expires or is
terminated before the expiration or termination of such sublease. Except as may
be otherwise expressly provided in Section 17.1.(b), no assignment or
subletting shall be construed to constitute a novation or a release of any claim
Landlord may then or thereafter have against Tenant hereunder. Landlord's
consent to any assignment or subletting shall not be deemed a consent to any
subsequent assignment or subletting and no assignee of this Lease or subtenant
of the Demised Premises shall further assign this Lease or further sublease the
Demised Premises without first obtaining the express consent of Landlord in the
manner provided in this Article 17. Tenant shall furnish Landlord with a fully
executed counterpart of any assignment or sublease of all or any part of the
Demised Premises with reasonable promptness after the time such instrument is
executed. Tenant hereby irrevocably assigns to Landlord, as additional security
for Tenant's obligations under this Lease, all rent or other income from any
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subletting of all or part of the Demised Premises. Notwithstanding the
foregoing, until the occurrence of an Event of Default, Tenant shall have the
right to collect such rent and other income. Neither the collection of rent by
Landlord from any assignee, subtenant or occupant of the Demised Premises nor
the application thereof toward Tenant's obligations under this Lease shall be
deemed an acceptance of any such assignee, subtenant or occupant as the Tenant
under this Lease or a release of Tenant from the performance of the covenants
herein contained on the part of Tenant to be performed. Nothing in the preceding
sentence shall be deemed to modify any release of Tenant provided for in Section
17.l.(b).
17.2. If Tenant requests Landlord to consent to a proposed assignment or
sublease, Tenant shall pay to Landlord, whether or not such consent shall be
ultimately granted, Landlord's reasonable attorneys' fees and expenses and any
other costs incurred in connection with such request. Any assignment (by
operation of law, as a result of merger, consolidation, reorganization,
liquidation or otherwise) or other attempted disposition or encumbering of this
Lease or any sublease hereof, or of the interest of Tenant hereunder, in
violation of the provisions of, or not specifically permitted by, this Article
17 shall be invalid and of no effect against Landlord.
17.3. For purposes of this Lease, the sale of substantially all of the
assets of Tenant or any transfer of any interest in Tenant after which Tenant is
no longer controlled by CPG shall be
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considered an "assignment," and the buyer in such sale or the transferee in such
transfer shall be considered an "assignee" and shall be subject to the
provisions of this Article 17. Notwithstanding the foregoing sentence, neither
the pledge of the capital stock of Tenant to an institutional lender as security
for the repayment of indebtedness nor the acquisition by such lender of such
stock in accordance with the arrangements by which such stock is pledged shall
constitute an "assignment" hereunder, but any transfer of such stock to a third
party, including without limitation any such transfer pursuant or subsequent to
any transaction in the nature of a foreclosure or creditor's sale, shall
constitute an "assignment" hereunder.
17.4. (a) Notwithstanding the foregoing provisions of this Article 17,
Tenant may, at any time and from time to time during the Term, mortgage the
interest of Tenant under this Lease under one or more leasehold mortgages (any
of which being a "Leasehold Mortgage") in favor of an institutional lender, and
assign its interest in this Lease as collateral security for such Leasehold
Mortgage, upon the condition that all rights acquired under such Leasehold
Mortgage shall be subject to each and all of the covenants, conditions and
restrictions set forth in this Lease, and to all rights and interests of
Landlord herein, none of which covenants, conditions or restrictions is or shall
be waived by Landlord by reason of the right given to so mortgage such interest
in this Lease except as may be expressly provided herein. Neither any such
Lender's purchase at foreclosure of
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the interest of Tenant under this Lease nor the transfer of such rights by deed
in lieu of foreclosure shall constitute an "assignment" hereunder, but any
transfer of such rights to a third party, including without limitation any such
transfer pursuant or subsequent to any foreclosure or delivery of a deed in lieu
thereof shall constitute an "assignment" hereunder.
(b) If Tenant shall mortgage its leasehold and if the holder of
such Leasehold Mortgage (the "Leasehold Mortgagee") shall, within 30 days of
execution of such Leasehold Mortgage send to Landlord a true and complete copy
thereof, together with a written notice specifying the name and address of the
Leasehold Mortgagee and the pertinent recording data with respect to such
Leasehold Mortgage, Landlord agrees that after receiving such notice and so long
as any such Leasehold Mortgage shall remain unsatisfied of record or until
written notice of satisfaction is given by the Leasehold Mortgagee to Landlord,
the following provisions shall apply:
(i) There shall be no cancellation, surrender or material
modification of this Lease by joint action of Landlord and Tenant without the
prior consent in writing of the Leasehold Mortgagee, unless Tenant has become
contractually bound, before Landlord is given notice of the existence of such
Leasehold Mortgage as provided above, to cancel, surrender or modify the Lease.
(ii) Landlord shall, upon serving Tenant with any notice
of Default or with notice of any election by Landlord to
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initiate arbitration pursuant to the terms of this Lease, simultaneously serve a
copy of such notice upon the Leasehold Mortgagee.
(iii) Landlord shall accept the cure of any Default, or the
performance of any of Tenant's other obligations hereunder, from the Leasehold
Mortgagee to the same extent that Landlord is required to accept such cure or
performance from Tenant hereunder, and any such cure or other performance made
by the Leasehold Mortgagee shall be deemed hereunder to be performance by Tenant
for purposes of determining whether Tenant has fulfilled its obligations under
this Lease.
(iv) Landlord agrees that, at the sole cost and expense of
Tenant, the name of the Leasehold Mortgagee may be added to the "loss payable"
endorsement of any and all insurance policies required to be carried by Tenant
under this Lease on the condition that the insurance proceeds under any such
policy shall be applied in the manner specified in this Lease and that the
Leasehold Mortgage shall so provide.
(v) Nothing contained herein shall require any Leasehold
Mortgagee to cure any default of Tenant under this Lease. Furthermore, nothing
contained in this Section 17.4 shall require any Leasehold Mortgagee, (a) as a
condition to either (1) the exercise by any such Leasehold Mortgagee of any of
its rights under this Section 17.4 or (2) the rights and protections provided
for in this Section 17.4 for the benefit of each Leasehold Mortgagee, or (b)
otherwise, to cure any Non-Curable
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Default, as defined below, and Landlord's right to terminate this Lease by
reason of a Non-Curable Default, as long as no other Event of Default has
occurred and is continuing, and so long as the Lease otherwise remains in full
force and effect, shall be of no force and effect as against a Leasehold
Mortgagee, or (to the extent such Non-Curable Default existed at the time such
purchaser purchased the Leasehold estate) any purchaser of the leasehold estate
under this Lease at a foreclosure sale. As used above the term "Non-Curable
Default" means a default or breach by Tenant described in either Section 22.1.
(d) or Section 22.1.(e).
(vi) If Landlord has been supplied with a copy of any contract
to which Tenant, Guarantor and any Leasehold Mortgagee are parties pursuant to
which Tenant, with the Guarantor's consent, has (a) assigned any right of Tenant
to participate in any arbitration proceeding under this Lease, or (b) granted to
such Leasehold Mortgagee the right to prevent, or withhold its consent to, any
act or agreement of Tenant in any such arbitration proceeding, Landlord shall
allow such Leasehold Mortgagee to participate in any such arbitration proceeding
to the extent necessary for such Leasehold Mortgagee to exercise any such right
and, if, but only if, such Leasehold Mortgagee actually does participate in any
such arbitration proceeding within the time limits specified in Article 41,
Landlord shall consider, and shall be entitled to treat, any act or decision of
such Leasehold Mortgagee with respect to such arbitration proceeding to be the
act or decision of Tenant to the extent
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required by such contractual arrangement between Tenant, Guarantor and the
Leasehold Mortgagee.
ARTICLE 18
ADDITIONAL UNDERTAKING OF THE TENANT
18.1. If for any reason (a) the Basic Rent payable by the Tenant to the
Landlord pursuant to this Lease shall during the Term hereof (i) be diminished
or subject to diminution through attachment, claim, demand, charge, lien, levy,
process, encumbrance or by law, order or regulation of the Governmental
Authorities; or (ii) be subject to withholding or diminution at the source, in
either case by reason of any taxes, assessments, expenses, indebtedness,
obligation or liabilities of any character, foreseen or unforeseen, and required
to be paid by Tenant under this Lease, so that the Basic Rent or any part
thereof would be unavailable to the Landlord, when due; or
(b) if the Demised Premises or the Equipment shall be or become
subject to or burdened by any lien, charge or encumbrance of any kind other than
as permitted in this Lease and other than such created by Landlord;
then and in any such event, the Tenant promptly shall take, at any time and
from time to time after notice by the Landlord, such action (including the
payment of money to the Landlord) as may be necessary to (i) pay fully and
discharge such taxes, assessments, expenses, indebtedness, obligations and
liabilities, and to eliminate or nullify the cause of such attachment, claim,
demand, charge, lien, levy, order, process, encumbrance, withholding or
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diminution, and (ii) eliminate or prevent any such diminution in the payment in
full of the Basic Rent when the same is due and payable under this Lease.
Nothing contained in this Section 18.1 is intended to modify any of the
provisions of Section 6.4.
ARTICLE 19
CONDITION OF AND TITLE TO DEMISED PREMISES
19.1. Tenant acknowledges that the Demised Premises, the Equipment, the
title thereto, and the present uses and non-uses thereof, have been examined by
Tenant and that Tenant accepts the same in the condition or state in which they
or any of them now are, without representation or warranty express or implied in
fact or by law, and, except as provided in Section 1.2, without recourse to
Landlord, as to the title thereto, the nature, condition or usability thereof or
the use or uses to which the Demised Premises, the Equipment or any part thereof
may be put.
ARTICLE 20
INDEMNIFICATION OF THE LANDLORD AND THE TENANT
20.1. The Tenant will indemnify and save harmless the Landlord from and
against any and all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including reasonable engineers', reasonable architects'
and reasonable attorneys' fees and expenses (collectively "Liabilities" and
individually, a "Liability"), which may be imposed upon or asserted against the
Landlord by reason of any of the following occurring during the Term, provided
that the
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Liability in question was not based upon, and did not arise out of, any facts,
events, actions or omissions that existed or occurred prior to the date hereof:
(a) any work or thing done in, on or about the Demised Premises,
the Equipment or any part thereof;
(b) any use, non-use, possession, occupation, condition,
operation, maintenance or management of the Business, the Demised Premises, the
Equipment or any part thereof or any street, alley, sidewalk, curb, passageway,
or street adjacent thereto;
(c) any negligence or willful misconduct of the Tenant or any
agent, contractor, employee, licensee or invitee of the Tenant;
(d) any accident or injury to any person (including death) or
damage to property occurring in, on or about the Demised Premises or any part
thereof or any street, alley, sidewalk, curb, passageway or space adjacent
thereto;
(e) any failure on the part of the Tenant to perform or comply
with any of the agreements, terms or conditions contained in this Lease on its
part to be performed or complied with;
(f) any material interruption of, material interference with, or
material adverse effect upon, the business or operation of the Landlord at the
Headquarters to the extent resulting from the act or omission of the Tenant, or
any agent, contractor, employee, licensee or invitee of the Tenant which act
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or omission is in breach of the Tenant's obligations under this Lease; or
(g) any acts or omissions of Tenant, its employees, agents or
contractors related to Tenant's use, operation, maintenance or repair of the
water pumping and filtration system located in the basement of the building
known as the "Riverside Building" located at the Headquarters.
Subparagraph (f) above shall be applicable only to Articles 42
through 45, inclusive.
Landlord shall notify Tenant of any claim asserted against Landlord for which
Landlord claims Tenant may have to indemnify Landlord hereunder. In the event
that any action or proceeding shall be brought against the Landlord by reason of
any matter covered by this Section 20.1, the Tenant, upon written notice from
the Landlord will, at the Tenant's sole cost and expense, resist or defend the
same.
20.2. The Landlord will indemnify and save harmless the Tenant from and
against any and all Liabilities incurred by Tenant by reason of any failure on
the part of Landlord to perform and comply with any of the agreements, terms or
conditions contained in this Lease on its part to be performed or complied with,
including, without limitation, liabilities incurred as a result of (a)
Landlord's negligence or willful misconduct in exercising Landlord's rights
under Section 15.1 or Section 16.1, or (b) Landlord's material breach of its
obligations described in Articles 42 through 45, inclusive.
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20.3. Each party shall indemnify and hold harmless the other party from
and against all Liabilities which may be imposed upon the indemnified party as a
result of the acts or omissions of the indemnifying party in or on the Common
Areas to the extent such acts or omissions (a) result from the indemnifying
party's negligence or willful misconduct, or (b) constitute a breach of the
obligations of the indemnifying party under the terms of this Lease.
20.4. The Tenant shall indemnify the Landlord against all reasonable
legal costs and charges, including reasonable attorneys' fees and expenses,
lawfully and reasonably incurred in obtaining possession of the Demised Premises
and the Equipment after the occurrence of an Event of Default or after the
Tenant's Default in surrendering possession upon expiration or earlier
termination of the Term or enforcing any covenant or agreement of the Tenant
herein contained.
20.5. To the extent of the proceeds received by the indemnified party
under any insurance furnished or supplied to the indemnified party, the
indemnifying party's obligation to indemnify and save harmless the indemnified
party against the hazard which is the subject of such insurance shall be deemed
to be satisfied. The indemnification obligations set forth in this Article 20
shall survive any termination of this Lease or expiration of the Term.
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ARTICLE 21
EXCAVATIONS ON ADJOINING PROPERTY
21.1. If any excavation or other building operation shall be about to be
made or shall be made upon any premises or streets adjoining the Demised
Premises, the Tenant shall at the direction of Landlord permit the owner or
lessee of such adjoining premises and their respective representatives to enter
the Demised Premises and to shore the foundations and walls thereof, and to do
any other act or thing necessary for the safety or preservation of the Demised
Premises. The Landlord shall not be liable for any inconvenience, annoyance,
disturbance, loss of business or other damage arising therefrom and the Tenant's
obligations hereunder shall not thereby be affected. Nothing in this Article 21
shall be construed as a waiver of any rights of the Tenant against persons other
than Landlord.
ARTICLE 22
DEFAULT
22.1. This Lease and the Term and estate hereby granted are subject to
the limitations that if during the Term any one or more of the following acts or
occurrences (any one of such occurrences or acts being hereinafter called an
"Event of Default") shall happen:
(a) The Tenant shall default in making the payment of any
installment of (i) Basic Rent, or (ii) Additional Rent other than Additional
Rent described in Section 22.1, and such payment
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shall not have been made within 5 business days after written notice from
Landlord that any such payment is overdue; or
(b) The Tenant shall default in making payment of any installment
of Additional Rent becoming due under Section 6.4, and such payment shall not
have been made within 10 business days after written notice from Landlord that
such payment is owing; provided, however, that if Tenant within 10 days after
receipt of such notice shall give written notice to Landlord that it disputes
the obligation to make such payment, the matter shall be determined by
arbitration as provided in Article 41 and if it shall be determined in such
arbitration that such payment of Additional Rent is owing, the time within which
Tenant shall have to pay the same shall be computed from the date of receipt by
Tenant of notice of such determination (but the extension of such time shall not
affect any obligation of Tenant to pay interest, or the determination of the
date from which interest shall accrue, as the same may be required under Section
41.2.(g)).
(c) The Tenant shall default in the performance of any other
covenant or agreement on the part of Tenant to be performed under this Lease,
and such default shall continue for a period of 40 days after notice thereof,
specifying such default, shall have been given to Tenant; provided, however, in
the case of a default which cannot with reasonable diligence be remedied by
Tenant within a period of 40 days, if Tenant shall commence within such period
of 40 days to remedy the default and thereafter shall prosecute the remedying of
such default with all reasonable
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diligence, the period of time after the giving of such notice within which to
remedy the default shall be extended for such period as may be necessary to
remedy the same with all reasonable diligence and without limiting the
generality of the foregoing, the period of time within which Tenant shall remedy
any default shall be extended for delays resulting from any Force Majeure; and,
provided further, that if Tenant within 15 days after Tenant's receipt of such
notice of default shall dispute the existence of a default the matter shall be
determined by arbitration as provided in Article 41 and if it shall be
determined in such arbitration that Tenant is so in default, the time within
which Tenant shall have to remedy the same shall be computed from the date of
receipt by Tenant of notice of such determination;
(d) The Tenant shall file a voluntary petition in bankruptcy or
shall be adjudicated a bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, composition, readjustment or similar relief
under any present or future bankruptcy or other applicable law, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Tenant or of all or any substantial part of its properties or of
all or any substantial part of the Demised Premises or the Equipment; or
(e) Within 90 days after the filing of an involuntary petition in
bankruptcy against the Tenant or the commencement of any proceeding against
Tenant seeking any reorganization,
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composition, readjustment or similar relief under any law, such proceeding
shall not have been dismissed, or if, within 90 days after the appointment,
without the consent or acquiescence of Tenant, of any trustee, receiver or
liquidator of Tenant or of all or any substantial part of the properties of
Tenant of all or any substantial part of the Demised Premises or the
Equipment, such appointment shall not have been vacated or stayed on appeal
or otherwise, or if, within 90 days after the expiration of any such stay,
such appointment shall not have been vacated, or if within 90 days after the
taking possession, without the consent or acquiescence of the Tenant, of the
property of Tenant by any Governmental Authority pursuant to statutory
authority for the dissolution or liquidation of Tenant, such taking shall not
have been vacated or stayed on appeal or otherwise; then, and in such event,
the Landlord may at its option, then or thereafter while any such Event of
Default shall continue and notwithstanding the fact that the Landlord may
have any other remedy hereunder or at law or in equity, by notice to the
Tenant, designate a date, not less than 10 days after the giving of such
notice, on which the Term shall terminate; and thereupon, on such date Tenant
shall pay the Termination Fee and the Term and the estate hereby granted
shall expire and terminate upon the date specified in such notice with the
same force and effect as if the date specified in such notice were the date
hereinbefore fixed for the natural expiration of the Term under Article 4,
and all rights of the Tenant hereunder shall expire and terminate. If
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Landlord terminates this Lease in accordance with the provisions of this Section
22.1, Landlord shall, provided all payments due to Landlord from Tenant have
then been received by Landlord, reimburse Tenant for the "Environmental
Expenditures," as defined below, made by Tenant after the date hereof and before
such termination. "Environmental Expenditures" shall mean the aggregate
expenditures made by Tenant in respect of the Demised Premises that, if the same
had been made by Custom Papers-Richmond, Inc. during the term of its April 20,
1991, lease from Landlord, would have constituted Losses subject to
indemnification from James River Corporation of Virginia under Section 11.3
(without regard to any basket amounts) of the Asset Purchase Agreement less any
portion of such expenditures for which Tenant has been reimbursed by James River
Corporation of Virginia, any of its Affiliates or any other party, or for which
Tenant has been reimbursed by any party (an "Environmental Indemnitee") having a
right to recover any of such expenses from Landlord or James River Corporation
of Virginia. Tenant agrees not to make a claim against any Environmental
Indemnitee for any Environmental Expenditures for which Tenant makes a claim
against Landlord hereunder, and Tenant agrees not to make a claim against
Landlord hereunder for any Environmental Expenditures for which Tenant makes a
claim against any Environmental Indemnitee; provided, however, that Tenant may
make such duplicative claim in either case if (x) Tenant reasonably deems it
necessary in order to preserve its right to make a claim against the second
party
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upon which the claim is made, and (y) Landlord's reimbursement to Tenant (alone,
or in conjunction with any termination of Tenant's claim against the
Environmental Indemnitee) of the amount of such duplicative claim will prevent
the Environmental Indemnitee from being entitled to any indemnity from Landlord
or James River Corporation of Virginia in respect of the claim made by Tenant
against such Environmental Indemnitee or Tenant has made other arrangements
reasonably satisfactory to Landlord and Tenant to prevent such recovery by the
Environmental Indemnitee after Landlord's reimbursement to Tenant, its having
been agreed by the parties hereto that Landlord and James River Corporation of
Virginia, taken together, shall not be required to indemnify and reimburse any
Environmental Indemnitee and Tenant, respectively, in respect of the same
Environmental Expenditure.
22.2. Nothing contained in this Lease shall be deemed to prevent
Landlord from maintaining any summary proceeding for the non-payment of rent or
any plenary action for recovery of rent; provided, however, that Landlord shall
not commence any such action before the occurrence of an Event of Default under
Section 22.1.
22.3. If the Term is terminated as provided in Section 22.1, or as
permitted by law, then the Tenant shall peaceably quit and surrender possession
of the Demised Premises and the Equipment to the Landlord, and the Landlord may,
without further notice enter upon, re-enter, possess and repossess the same by
summary proceedings, ejectment or other judicial proceeding, and
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again have, possess and enjoy the same, and in any such event neither the Tenant
nor any person claiming by, through or under the Tenant (by virtue of any law or
an order of any court or otherwise) shall be entitled to possession or to remain
in possession of the Demised Premises and the Equipment but shall forthwith quit
and surrender the Demised Premises and the Equipment. Upon the termination of
this Lease in accordance with Section 22.1, Landlord's only remedies against
Tenant shall be (a) Landlord's right to have Tenant removed from the Demised
Premises in accordance with any legal means available to Landlord, and (b)
Landlord's right to recover any damages it sustains as a result of Tenant's
failure to so remove from the Demised Premises or any failure of Tenant to pay
the Termination Fee or perform any of its obligations accruing hereunder before
the date of such termination; provided, however, that nothing herein contained
shall limit or prejudice the right of the Landlord, in any bankruptcy or
reorganization or insolvency proceeding, in the event Landlord is unable to
avail itself of the remedies set forth above in this sentence, to prove for and
obtain as liquidated damages by reason of such termination an amount equal to
the maximum allowed by any bankruptcy or reorganization or insolvency
proceedings, or to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law.
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22.4. Tenant hereby expressly waives, so far as permitted by law, the
service of any notice to terminate or of intention to re-enter provided for in
any statute, and Tenant, for and on behalf of itself and all persons claiming
through or under Tenant, also waives any and all right of redemption or re-entry
or re-possession or right to restore the operation of this Lease in case Tenant
shall be dispossessed by a judgment or by warrant of any court or judge or in
case of re-entry or repossession by Landlord or in case of any expiration or
termination of this Lease. The foregoing shall not be deemed a waiver by Tenant
of notices provided for in Section 22.1. Tenant, so far as permitted by law,
waives and will waive the benefits of any present or future constitution,
statute or rule of law that exempts property from liability for debt or for
distress for rent and trial by jury in any action, proceeding or counterclaim
brought by Landlord against Tenant on any matters whatsoever arising out of or
in any way connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of said premises, the Equipment, or any claim of
injury or damage. The terms "enter", "re-enter", "entry" or "re-entry", as used
in this Lease, are not restricted to their respective technical legal meanings.
22.5. Interest at the Default Rate shall accrue upon any Termination
Fee, Basic Rent or Additional Rent payable under this Lease directly to Landlord
during any period while the payment thereof by Tenant to Landlord may be
overdue.
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ARTICLE 23
ADDITIONAL RIGHTS OF THE LANDLORD AND TENANT
23.1. If Landlord shall claim that Tenant is in default in the
performance of any of its obligations under this Lease and an action shall be
brought for the enforcement thereof in which it shall be finally determined
(including any appeal process) that the Tenant was in default, the Tenant shall
pay to the Landlord the expenses of Landlord incurred in connection therewith,
including reasonable attorneys' fees and reasonable attorneys' fees incurred on
appeal, if any. If Landlord shall claim that Tenant is in default in the
performance of any of its obligations under this Lease and an action shall be
brought for the enforcement thereof in which it shall be finally determined
(including any appeal process) that the Tenant was not in default, the Landlord
shall pay to the Tenant the expenses of Tenant incurred in connection therewith,
including reasonable attorneys' fees and reasonable attorneys' fees incurred on
appeal, if any. If Tenant shall claim that Landlord is in default in the
performance of any of its obligations under this Lease and an action shall be
brought for the enforcement thereof in which it shall be finally determined
(including any appeal process) that the Landlord was in default, the Landlord
shall pay to the Tenant the expenses of Tenant incurred in connection therewith,
including reasonable attorneys' fees and reasonable attorneys' fees incurred on
appeal, if any. If Tenant shall claim that Landlord is in default in the
performance of any of its obligations under this Lease and an action shall be
brought for
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the enforcement thereof in which it shall be finally determined (including any
appeal process) that the Landlord was not in default, the Tenant shall pay to
the Landlord the expenses of Landlord incurred in connection therewith,
including reasonable attorneys' fees and reasonable attorneys' fees incurred on
appeal, if any. If the Tenant shall, without legal liability on its part, be
made a party to any litigation commenced against the Landlord, and if the
Landlord shall not provide the Tenant with counsel reasonable satisfactory to
the Tenant, the Landlord shall pay all costs and reasonable attorneys' fees
incurred or paid by the Tenant in connection with such litigation (including
appeal thereof). If the Landlord shall, without legal liability on its part, be
made a party to any litigation commenced against the Tenant, and if the Tenant
shall not provide the Landlord with counsel reasonably satisfactory to the
Landlord, the Tenant shall pay all costs and reasonable attorneys' fees incurred
or paid by the Landlord in connection with such litigation (including appeal
thereof).
ARTICLE 24
SURRENDER AND HOLDING OVER
24.1. On the last day of the Term, or upon any earlier termination of
this Lease, or upon any re-entry by Landlord upon the Demised Premises or
repossession by the Landlord of the Equipment pursuant hereto, Tenant shall
surrender the Demised Premises and the Equipment into the possession and use of
Landlord without delay and, except as otherwise specifically
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provided in Article 9 or Article 10, in at least as good order, condition and
repair, ordinary wear and tear and obsolescence excepted, as the condition and
repair in which the Demised Premises and the Equipment are delivered to Tenant
by Landlord at the commencement of the Term, free and clear of all letting and
occupancies and free and clear of all liens and encumbrances other than those,
if any, existing on the date of this Lease and those created by Landlord after
the date of this Lease without the consent of the Tenant. Nothing contained in
this Lease shall require Tenant to deliver to Landlord at the expiration or
other termination of this Lease any Equipment that Tenant has theretofore
removed in accordance with the provisions of this Lease. At or prior to the
expiration or earlier termination of the Term, Tenant shall (a) pay to Landlord
any amounts required to modify, to the extent necessary to render such
Improvements or Equipment operable by Landlord, any Improvement or Equipment
that cannot be operated, or the products produced by which cannot be sold, as a
result of Landlord's lack of any Related Lease Process Technology (after taking
into account any Related Lease Process Technology offered by Tenant for
immediate transfer or license to Landlord at no cost to Landlord), or (b) in
lieu of the payment of such amounts, (i) make in accordance with Article 12 any
Alteration necessary to restore the Demised Premises and the Equipment, or any
portion of either, to substantially the same configuration and condition that
existed as of the date of the commencement of the Term, and to render the
Demised Premises and
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the Equipment operable by Landlord to the extent the same were operable
immediately before the commencement of the Term, and (ii) transfer or
perpetually license to Landlord, (A) without cost to Landlord, any intellectual
property necessary to operate the Demised Premises and the Equipment, as so
restored, to the extent that such intellectual property was transferred or
licensed to SCG or any of its Affiliates pursuant to the Asset Purchase
Agreement, and (B) at Landlord's election and for a reasonable royalty
negotiated in good faith by Landlord and Tenant, a license to use improvements
and enhancements to such intellectual property. At or prior to the expiration or
earlier termination of the Term, Tenant shall, upon Landlord's request with
respect to each such agreement or contract, Landlord's assumption of the
obligations of Tenant accruing thereunder after the date of such transfer and
Landlord's indemnification of Tenant against such obligations assumed, transfer
to Landlord Tenant's interest in each then valid and binding contract or other
agreement (to the extent assignable) relating to the Demised Premises or the
Equipment the lack of which would materially adversely affect Landlord's ability
to operate the physical facilities at the Demised Premises in the manner in
which they are being used at the time of such expiration or termination. Tenant
shall indemnify Landlord for any claims, loss, damages or expense incurred by
Landlord as a result of Tenant's breach of any such contract or agreement
arising before Tenant so transfers its interest in such contract or agreement.
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Landlord shall reimburse Tenant for the reasonable costs incurred by Tenant in
the transfer of such agreements and contracts.
24.2. Any personal property of Tenant or any subtenant which shall
remain at the Demised Premises for more than 20 days after the termination of
this Lease or any sublease may, at the option of Landlord, be deemed to have
been abandoned by Tenant or any such subtenant and either may be retained by
Landlord as its property or be disposed of without accountability in such manner
as Landlord may see fit.
24.3. With respect to the events referred to in Section 24.2, Landlord
shall not be responsible for any loss or damage occurring to any property owned
by Tenant or any subtenant.
24.4. Any subrents shall be apportioned between Landlord and Tenant as
of the last day of the Term hereof or as of the effective date of any earlier
termination of this Lease to the extent necessary to provide Landlord with the
benefits of any sublease arrangement that extends beyond the expiration or
termination of the Term to the extent such benefits relate to any period after
such expiration or termination. Nothing in this Section 24.4 shall be deemed to
confer upon Tenant any right to sublease all or a portion of the Demised
Premises.
24.5. (a) In the event of a termination of the Term and a holding over
by the Tenant thereafter, there shall be no renewal or extension of this Lease
by operation of law, but the Tenant shall continue to pay to the Landlord a sum
equal to twice the Basic Rent installment then payable, plus all other amounts
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payable by Tenant to Landlord hereunder, the Basic Rent to be calculated on a
per diem basis for each day or fraction thereof that the Tenant remains in
occupancy of the Demised Premises after expiration of the Term.
(b) Nothing contained in this Section 24.5 shall be deemed to
grant Tenant any right to occupy the Demised Premises at any time after the
termination of this Lease, whether as a result of the expiration of the Term or
otherwise.
24.6. The provisions of this Article 24 shall survive any termination of
this Lease.
ARTICLE 25
REMOVAL OF ALTERATIONS AND EQUIPMENT
25.1. If such removal will result in the diminution of the value of the
Demised Premises and the Equipment, taken as a whole, Tenant shall not (except
to the extent specifically allowed under this Article 25) remove or permit
removal of any Equipment, buildings, structures or improvements on the Demised
Premises or any appurtenances thereto or fixtures thereon or any Alterations
thereof (including, without limitation, any structural Alterations not requiring
Landlord's consent under Section 12.1) without Landlord's prior written consent.
Any determination of whether a removal will result in the diminution of the
value of the Demised Premises and the Equipment taken as a whole shall take into
account, for purposes of establishing any such diminution in value after the
removal at issue, any Improvement or Equipment then, or promptly thereafter,
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constructed, installed or placed in service in replacement of the Improvement or
Equipment removed. An Improvement or piece of Equipment shall, for purposes of
this Section 25.1, be deemed constructed, installed or placed in service in
replacement of an asset removed if the new Improvement or Equipment, once
constructed, installed or placed in service, is of equal or greater value and
utility as the asset removed.
25.2. Notwithstanding anything contained in this Lease to the contrary,
Tenant may remove or permit removal from the Demised Premises of any
Improvement, Alteration or Equipment, without Landlord's consent, if (x) (a) the
Improvement, Alteration or Equipment was not originally leased hereunder, and
(b) the installation or construction of such Improvement, Alteration or
Equipment did not require the modification or removal of any Improvement,
Alteration or Equipment (other than any Improvement, Alteration or Equipment
that Tenant, under this Section 25.2, was entitled to modify or remove without
Landlord's consent) or (y) (a) such removal does not constitute a structural
Alteration the value of which is over $25,000 or Alteration to the exterior of
any Improvement, and (b) such Improvement, Alteration or Equipment is replaced,
promptly after such removal, by an Improvement, Alteration or Equipment, as the
case may be, of no less value and utility in the Business as the Improvement,
Alteration or Equipment removed. Upon removal in accordance with this Section
25.2, the property so removed shall no longer be
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deemed an Improvement, Alteration or Equipment, as the case may be, hereunder.
25.3. Upon removal of any Improvement, Alteration or Equipment, Tenant
shall restore the Demised Premises and the Improvements and Equipment, to the
extent of any physical damage thereto caused by the removal.
25.4. Notwithstanding the foregoing provisions of this Article 25,
Landlord shall grant its consent for the removal of any Alteration, Equipment or
machinery and equipment in connection with damage or destruction thereof so long
as the other preconditions to such removal, as set forth above, are satisfied.
ARTICLE 26
ESTOPPEL CERTIFICATES
26.1. Each of the Tenant and the Landlord shall, from time to time upon
not less than 10 business days' prior request by the other, execute, acknowledge
and deliver to the requesting party a statement in writing, executed by an
authorized officer of the Tenant or the Landlord, as the case may be, certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that this Lease is in full force and effect as modified, and
setting forth such modifications) and the dates to which the Basic Rent and the
Additional Rent have been paid, and either stating that to the knowledge of the
Tenant or the Landlord, as the case may be, no default exists in the performance
of any covenant, agreement or condition contained in
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this Lease or specifying each such default of which the Tenant or the Landlord,
as the case may be, may have knowledge, it being intended that any such
statement delivered pursuant to this Section 26.1 may be relied upon by the
other party or any purchaser, assignee, subtenant or mortgagee of its estate in
the Demised Premises or the Equipment.
ARTICLE 27
ASSIGNMENT OF THE LANDLORD'S INTEREST
27.1. Any and all future mortgages or other liens on the interest of the
Landlord in the Demised Premises and the Equipment shall be subject and
subordinate to this Lease and to the rights of Tenant under this Lease.
27.2. The Landlord may at any time and from time to time assign to any
person, firm or corporation (herein called the "Landlord's Assignee"), by way of
pledge or otherwise, any or all of the rights (in whole or in part) of the
Landlord under this Lease. The Landlord's Assignee may enforce any and all of
the terms of this Lease, to the extent so assigned, as though the Landlord's
Assignee had been a party hereto. The Landlord shall notify the Tenant of any
such assignment and shall deliver a true copy thereof to Tenant. Landlord's
Assignee shall have no greater rights against Tenant and Tenant shall have no
greater obligations to Landlord's Assignee than in each case are provided for
under this Lease. Nothing in this Section 27.2 is intended to affect or modify
the provisions of Section 27.1.
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ARTICLE 28
LIMITATION OF THE LANDLORD'S LIABILITY
28.1. The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of the Landlord are concerned, shall be limited to mean
and include only the owner or owners of the Landlord's interest in this Lease at
the time in question, and in the event of any transfer or transfers of such
interest, except a transfer by way of security, the Landlord herein named (and
in case of any subsequent transfer, the then transferor) shall be automatically
freed and relieved from and after the date of such transfer of all personal
liability as respects the performance of any covenants or agreements on the part
of the Landlord contained in this Lease thereafter to be performed; provided,
however, that;
(a) any funds in the hands of such Landlord or the then transferor
at the time of such transfer, in which the Tenant has an interest shall be
turned over to the transferee and any amount then due and payable to the Tenant
by the Landlord or the then transferor under any provision of this Lease, shall
be paid to the Tenant; and
(b) upon any such transfer, the transferee shall be deemed to have
assumed, subject to the limitations of this Article 28, all of the covenants,
agreements and conditions in this Lease to be performed on the part of the
Landlord, it being intended hereby that the covenants and agreements contained
in this Lease on the part of the Landlord shall, subject as aforesaid, be
binding on the Landlord, its successors and
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assigns, only during and in respect of their respective successive periods of
ownership.
ARTICLE 29
SEPARATE COVENANTS; INVALIDITY
OF PARTICULAR PROVISIONS
29.1. Each covenant and agreement contained in this Lease shall be
construed to be a separate and independent covenant and agreement, and the
breach of any such covenant or agreement by the Landlord shall not discharge or
relieve the Tenant from the Tenant's obligation to perform each and every
covenant and agreement of this Lease to be performed by the Tenant. If any term
or provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid and unenforceable, the remainder of
this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected, and each term and provision of this Lease shall be valid and
shall be enforced to the extent permitted by law.
ARTICLE 30
CUMULATIVE REMEDIES; NO WAIVER
30.1. Except as otherwise expressly stated in this Lease, the remedies
to which Landlord or Tenant may resort under the terms of this Lease are
cumulative and are not intended to be exclusive of any other remedies or means
of redress, including, without limitation, the right to specific performance, to
which
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the party may be lawfully entitled in case of any breach by the other party of
any provision of this Lease.
30.2. The failure of the Landlord to insist in any one or more cases
upon the strict performances of any of the covenants of this Lease, or to
exercise any option herein contained, shall not be construed as a waiver or
relinquishment for the future of such covenants or option. A receipt by the
Landlord of Basic Rent or Additional Rent with knowledge of the breach of any
covenant hereof shall not be deemed a waiver of such breach.
ARTICLE 31
RECORDING; LABELING OF EQUIPMENT;
FINANCING STATEMENTS
31.1. Each of Landlord and the Tenant, at the request of the other, and
at the sole expense of the party so requesting, shall execute and deliver in
recordable form a Memorandum of Lease for the purpose of recording and giving
notice of this Lease.
31.2. At the request of the Landlord, the Tenant shall permit the
Landlord to place and maintain on each item of Equipment designated by the
Landlord a notice conspicuously disclosing the Landlord's ownership of such item
of Equipment, and the Tenant shall also maintain on each item of Equipment any
serial or other identifying numbers existing on such Equipment at the
commencement of the Term.
31.3. The Tenant shall execute and deliver to the Landlord financing
statements under the Uniform Commercial Code (as
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codified in the states the laws of which govern the filing of financing
statements for the purpose of disclosing Landlord's interest in the Equipment)
and amendments and substitutes therefor and continuations thereof as the
Landlord may from time to time require in order to reflect the Landlord's
ownership of the Equipment. In the event that the Tenant fails to execute and
deliver such financing statements and continuations thereof, the Tenant hereby
appoints the Landlord the attorney-in-fact of the Tenant for the purpose of
executing such financing statements, amendments and substitutes therefor and
continuations pursuant to the provisions of this Section 31.3. Such appointment
is coupled with an interest and shall be irrevocable. Landlord agrees to execute
appropriate termination statements relating to all such financing statements
upon the termination or expiration of this Lease.
31.4. The cost of filing the financing statements, amendments and
substitutes and continuation statements referred to in Section 31.3 shall be
paid by the Tenant.
ARTICLE 32
RIGHT OF FIRST OFFER; RIGHT OF TERMINATION
32.1. In the event Tenant desires to sell, assign or otherwise transfer,
including, without limitation by means of a sale of stock, all of the Business
as a going concern, including, without limitation, Tenant's leasehold interest
in the Demised Premises and the Equipment, Tenant shall give a notice (the
"First Offer Notice") to Landlord; provided, Tenant shall have no
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right to give a First Offer Notice unless, in accordance with the provisions of
Section 32.4, either (a) a list of Qualified Assignees has been approved by
Landlord or (b) Tenant has caused an appraisal to be made as provided in Section
32.4. The First Offer Notice shall constitute an offer by Tenant to sell the
Business to Landlord (i) on the terms and conditions set forth in such notice if
a list of Qualified Assignees has been approved by Landlord, or (ii) on the
terms and conditions set forth in such notice, but at the price set forth in the
second sentence preceding the last sentence of Section 32.4 if Tenant has caused
an appraisal to be made as described in Section 32.4. Landlord, if it desires to
accept such offer shall, within 60 days after its receipt of the First Offer
Notice, give Tenant written notice to such effect (the "Acceptance Notice"),
provided, however, that, if the First Offer Notice sets forth a consideration
(the "Non-Cash Consideration") for the proposed sale other than cash, Landlord
nevertheless shall have the right to substitute for the Non-Cash Consideration,
cash in an amount equal to the fair market value of such Non-Cash Consideration.
If the parties cannot agree as to the cash amount to be paid by Landlord in
respect of the Non-Cash Consideration, the dispute shall be determined by
appraisal of the Non-Cash Consideration, in accordance with the terms of Section
32.6. If Landlord shall fail to give the Acceptance Notice within the time
period provided, Landlord shall be deemed to have consented to the proposed sale
to any Qualified Assignee or to an Appraisal Sale
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Buyer, as the case may be, and Tenant may sell the Business to such Qualified
Assignee or Appraisal Sale Buyer upon the terms and conditions set forth in the
First Offer Notice provided Tenant has entered into a binding contract to so
sell the Business within six months of the expiration of the time period for the
giving of the Acceptance Notice and the sale is consummated within twelve months
of the expiration of such time period; and provided further, that as to the
price to be paid for the Business, Tenant may sell only at a price greater than
90% of the "Allowed Price," as defined below. The "Allowed Price" shall be (x)
the price stated in the First Offer Notice if Landlord elects to reduce the
Basic Rent in accordance with Section 17.1. (a) upon the assignment of this
Lease to the purchaser, and (y) the sum of the amount stated in the First Offer
Notice plus the Premium Amount if Landlord elects not to reduce the Basic Rent
in accordance with Section 17.1. (a) upon the assignment of this Lease to the
purchaser.
32.2. In the event that Landlord shall give the Acceptance Notice, then,
on such business day (the "Closing Date") not less than 60 days nor more than
180 days after the giving of the Acceptance Notice as Landlord shall set forth
in the Acceptance Notice, Landlord shall purchase the Business upon the terms
and conditions constituting the offer of Tenant to sell made by the delivery of
said First Offer Notice. The closing of the sale shall be held at the offices of
McGuire, Woods, Battle & Boothe, or any other place that is mutually acceptable
to the parties, on
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the Closing Date selected as provided above; provided, however, that, if a
cash equivalent amount for Non-Cash Consideration must be determined by
appraisal, the Closing Date shall be postponed to a business day selected by
Landlord upon the conclusion of the appraisal process which day shall not be
less than 20 days nor more than 60 days after the conclusion of the appraisal
process. At the closing, Tenant shall deliver to Landlord any documents of
transfer necessary or appropriate to accomplish the transfer of the Business
to Landlord, together with any other documents reasonably requested by
Landlord.
32.3. Upon the sale of the Business to Landlord pursuant to the
provisions of this Article 32, Tenant shall be deemed to have exercised its
right to terminate this Lease in accordance with the terms of Section 32.7
whereupon Tenant shall, in addition to fulfilling any other obligations set
forth in such Section, pay the Premium Amount as required under such Section.
The effective date of such termination shall be the date upon which the Business
is transferred to Landlord. Tenant shall be responsible for the payment of Basic
Rent and Additional Rent (including Impositions) to the Closing Date. Each party
shall bear all costs incurred by it in connection with such transfer and share
equally any transfer taxes incurred in connection with such transfer.
32.4. Prior to giving a First Offer Notice, Tenant shall submit in
writing to Landlord a list of proposed buyers of the Business. Upon request,
Tenant shall supply to Landlord such
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information with respect to any such proposed buyer which is reasonably
requested by Landlord. Landlord may disapprove any one or more of such proposed
buyers in its reasonable judgment. Without limiting the generality of the
foregoing, Landlord may disapprove any such party based upon Landlord's
reasonable assessment of such party's reputation, integrity or financial
condition or upon the fact that such party is then, or is reasonably likely to
be in the future, engaged in competition with Landlord. Within 20 days after
receipt of such list, Landlord shall notify Tenant of any such proposed buyer
which Landlord has disapproved and all such parties shall be deemed deleted from
the list of proposed buyers submitted by Tenant. All proposed buyers remaining
on such list after the expiration of such 20-day period, together with any one
or more parties with whom Tenant does not compete in the Business that are
identified in writing by Landlord to Tenant shall then be "Qualified Assignees."
Any additional parties so identified by Landlord to Tenant shall be deemed to
have been approved by Landlord as parties that, in Landlord's reasonable
judgment, are not then, or reasonably likely to be in the future, engaged in
competition with Landlord and parties that have sufficient reputation, integrity
and financial condition to qualify such parties as Qualified Assignees. If
Tenant fails to notify Landlord in writing, within seven business days after the
date that Landlord identifies to Tenant in writing any party that Landlord seeks
to have considered a Qualified Assignee, that Tenant considers such
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party to be engaged in competition with Tenant's Business, Tenant shall be
deemed to have agreed that such party is not engaged in competition with
Tenant's Business. Except that Tenant may negotiate with any potential Appraisal
Sale Buyer if Tenant becomes entitled to have the Business appraised in
accordance with this Section 32.4, Tenant shall not negotiate with any person
for the sale of the Business if such sale includes an assignment or other
transfer of Tenant's interest in this Lease unless such person is a Qualified
Assignee. In the event that the number of Qualified Assignees is less than 3,
Tenant may cause the Business to be appraised in accordance with the provisions
of Section 32.6. If, at any time after which Tenant may sell the Business to a
third party as a result of Landlord's failure to give an Acceptance Notice,
Tenant requests in writing that Landlord elect, with respect to any proposed
Qualified Assignee or proposed Appraisal Sale Buyer, whether to reduce the Basic
Rent under Section 17.1.(a) should such proposed Qualified Assignee or Appraisal
Sale Buyer become the Tenant hereunder, Landlord shall make such election and
serve written notice thereof upon Tenant within 10 days of Tenant's request.
Upon Landlord's failure to make such election within such 10-day period,
Landlord shall make such election with respect to such proposed Qualified
Assignee or Appraisal Sale Buyer in accordance with Tenant's direction. The fair
market value of the Business so appraised (the "Business Value") shall be
determined on a going concern basis, shall include the fair market value of the
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leasehold interest of Tenant in the Demised Premises and the Equipment but shall
be based upon the assumption that Landlord will, upon the sale of the Business,
elect to reduce the Basic Rent as described in Section 17.1.(a). Within 30 days
of the completion of any such appraisal, Tenant may serve upon Landlord a First
Offer Notice offering to sell the Business so appraised at a price equal to or
less than the Business Value so established by such appraisal. Any person or
entity to whom Tenant sells such interest in accordance with the provisions of
Section 32.1 after Landlord's failure to give an Acceptance Notice as therein
provided shall be an "Appraisal Sale Buyer". Landlord agrees that Tenant may
initiate the appraisal of the Business as described above either before or after
Tenant serves upon Landlord a First Offer Notice and notwithstanding such
initiation or the determination of any fair market value, Tenant shall not be
obligated to serve any such First Offer Notice, but, if Tenant does not become
entitled, as a result of there existing less than three Qualified Assignees as
described above, to have the Business appraised, Tenant shall reimburse Landlord
for all costs and expenses (including reasonable attorneys' fees) incurred by
Landlord as a result of Tenant's having initiated such appraisal procedures.
32.5. On the Closing Date Landlord shall release to Tenant any monies
held by it pursuant to this Lease for the account of or owing to Tenant (and if
monies are held by an insurance
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trustee for the benefit of Tenant, Landlord shall direct such insurance trustee
to pay the same to Tenant).
32.6. The fair market value of any asset or interest required to be
established pursuant to this Section 32.6 shall be established as follows:
(a) Each of Tenant and Landlord shall, within 10 days of notice
from the other to do so, appoint an appraiser experienced in appraising the
types of such assets or interests and who has been conducting appraisals in the
county or city in which the Demised Premises are located (or, if such an
appraiser cannot be found, an appraiser who has been conducting appraisals in
the geographical area in which the Demised Premises are located) for a period of
at least 15 years. The two appraisers shall afford each party a hearing and
shall, within 30 days after the appointment of the last of the two to be
appointed, make their determination in writing and give notice thereof to both
parties;
(b) If the fair market values so determined by the two appraisers
differ by less than 5% from the arithmetic average of such two values, then such
average shall be the fair market value of the asset or assets appraised; if such
difference is more than 5%, then, upon request of either party, the appraisers
shall, within ten days after notice to do so, select and appoint in writing a
third appraiser having the same minimum qualifications as the other two
appraisers and give written notice of such appointment to each of the parties;
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(c) In the event the two appraisers shall fail to so appoint or
agree, such third appraiser may be selected by the parties if they so agree upon
such third appraiser within a further period of 10 days and otherwise, either
party may apply to any appropriate court for appointment of the third appraiser;
(d) The third appraiser so appointed shall have access to the
first two appraisers' appraisals and shall, with all possible speed, select one
or the other of such appraisals, and the appraisal selected shall be deemed to
be the fair market value of the asset or interest being appraised and binding on
both parties, and if neither party requires the selection of or selects a third
appraiser, the average of the two appraisals shall be deemed to be the fair
market value of the asset or assets being appraised and shall be conclusive and
binding on both parties; and
(e) In the event there are two appraisers, each of the parties
shall pay the fees and expenses of the appraiser selected by it and any fees and
expenses of a third appraiser shall be divided equally between the parties.
32.7. Tenant may, by notice in writing given to Landlord, terminate this
Lease at any time upon Tenant's (a) payment to Landlord of Basic Rent and
Additional Rent payable with respect to and apportioned as of the date of
termination, (b) performance of any other of its obligations hereunder then
accrued but unperformed, and (c) payment of a fee (the "Termination Fee") in an
amount equal to the sum of (i) any amounts required to modify,
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to the extent necessary to render such Improvements or Equipment operable by
Landlord, any Improvement or Equipment that cannot be operated, or the products
produced by which cannot be sold, as a result of Landlord's lack of any Related
Lease Process Technology (after taking into account any Related Lease Process
Technology offered by Tenant for immediate transfer or perpetual license to
Landlord at no cost to Landlord) and (ii) an amount equal to the Leasehold
Value, were such amount calculated as of the effective date of such termination.
If, but only if, the termination right granted hereunder is exercised by the
original Tenant named on the first page of this Lease, or an Affiliate of Tenant
to whom this Lease has been assigned pursuant to Section 17.1.(c), as Tenant, a
portion of the Termination Fee may be paid, at the original Tenant's or such
Affiliate's election, by delivery of Tenant's non-interest bearing negotiable
promissory note made in the principal amount of the Premium Amount, payable
until all amounts due thereunder are paid in equal semi-annual installments on
the dates that Basic Rent would have otherwise been due, and each in the amount
of 42.73% of the amount of the semi-annual installment of Basic Rent required to
be paid and guaranteed under the Note Guaranty. The payment obligations under
such note shall be neither more senior nor more junior than the payment
obligations under this Lease. Tenant shall inform Landlord of its decision to
exercise its right to terminate this Lease as soon as possible after such
decision has been made. The date upon which any termination resulting from
Tenant's exercise of
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its rights under this Section 32.7 shall be effective shall be the later of (x)
the date (if any) specified as the effective date in Tenant's notice of such
election, and (y) the earlier of (i) the date of the natural expiration of the
Term, and (ii) the first business day that is at least 90 days after Landlord's
receipt of such notice. In lieu of payment of any amounts required to be paid
pursuant to Section 32.7(c)(i), Tenant may, at its option, (xx) make in
accordance with Article 12 any Alteration necessary to restore the Demised
Premises and the Equipment, or any portion of either, to substantially the same
configuration and condition that existed as of the date of the commencement of
the Term, or, in the case of any such assets damaged after the date of the Asset
Purchase Agreement and prior to the commencement of the Term, the condition and
repair thereof immediately prior to such damage and to render the Demised
Premises and the Equipment operable by Landlord to the extent the same were
operable immediately before the commencement of the Term, or, in the case of any
such assets rendered wholly or partially inoperable due to damage occurring
after the date of the Asset Purchase Agreement and prior to the commencement of
the Term, to the extent operable immediately prior to such damage and (yy)
transfer or perpetually license to Landlord, (1) without cost to Landlord, any
intellectual property necessary to operate the Demised Premises and the
Equipment, as so restored, to the extent that such intellectual property was
transferred or licensed to SCG or any of its Affiliates pursuant to the Asset
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Purchase Agreement, and (2) at Landlord's election and for a reasonable royalty
negotiated in good faith by Landlord and Tenant, a license to use improvements
and enhancements to such intellectual property. At or prior to the termination
of the Lease in accordance with this Section, Tenant shall, upon Landlord's
request with respect to each such agreement or contract, Landlord's assumption
of the obligations of Tenant accruing thereunder after the date of such transfer
and Landlord's indemnification of Tenant against such obligations assumed,
transfer to Landlord Tenant's interest in each then valid and binding contract
or other agreement (to the extent assignable) relating to the Demised Premises
or the Equipment the lack of which would materially adversely affect Landlord's
ability to operate the physical facilities at the Demised Premises in the manner
in which they are being used at the time of such termination. Tenant shall
indemnify Landlord for any claims, loss, damages or expense incurred by Landlord
as a result of Tenant's breach of any such contract or agreement arising before
Tenant so transfers its interest in such contract or agreement. Landlord shall
reimburse Tenant for the reasonable costs incurred by Tenant in the transfer of
such agreements and contracts
ARTICLE 33
FORCE MAJEURE
33.1. In the event that Landlord or Tenant shall be delayed or prevented
from performing any act (not including payment of money) required hereunder by
reason of any of the following
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(collectively and individually, a "Force Majeure"): strikes or lock-outs,
inability to procure labor or materials, failure of power, laws or regulations
of Governmental Authorities, riots or civil commotion, insurrection, enemy
action or war, acts of God, fires, casualties, or other causes beyond the
reasonable control of Tenant or Landlord, as the case may be, whether similar or
dissimilar to those causes enumerated in this Section 33.1, then performance of
such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay.
ARTICLE 34
LAWS APPLICABLE AND CONSTRUCTION
34.1. This Lease shall be construed and enforced in accordance with the
substantive (as opposed to procedural) laws of the State of Virginia.
ARTICLE 35
COUNTERPARTS
35.1. This Lease may be executed and delivered, for the convenience of
the Landlord and the Tenant, in several counterparts, but all counterparts shall
constitute only one Lease.
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ARTICLE 36
NO ORAL MODIFICATION; SUCCESSORS AND ASSIGNS
36.1. This Lease may not be amended, changed, modified or discharged
except by a writing signed by the Landlord and the Tenant. All covenants,
conditions and obligations contained in this Lease shall be binding upon and
inure to the benefit of the respective successors and assigns of the Landlord
and the Tenant to the same extent as if each such successor and assign were
named as a party to this Lease.
ARTICLE 37
NOTICES
37.1. All notices and other communications (each, a "Notice") required
or permitted hereunder shall be in writing (including telex, telefax or similar
writing) and shall be given by (a) mail, postage prepaid for registered or
certified mail with return receipt requested, (b) by Federal Express or similar
generally recognized overnight carrier regularly providing proof of delivery or
(c) personal delivery, in each case to the parties hereto at the following
addresses or at such other address as any party hereto shall hereafter specify
by 10 days' prior Notice given in the manner specified in this Section 37.1 to
the other parties described in this Section 37.1:
(a) If to Landlord, to:
c/o James River Corporation of Virginia
Tredegar Street
Richmond, Virginia 23217
Attention: Steven Hare
Telefax: (804) 649-4317
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with copies to:
McGuire, Woods, Battle & Boothe
One James Center
Richmond, Virginia 23219
Attention: Marshall H. Earl, Jr., Esq.
Telefax: (804) 775-1061
(b) If to Tenant:
c/o Custom Papers Group, Inc.
110 Tredegar Street
Richmond, Virginia 23219
Attention: J. Eubanks
with a copy to:
SCI Investors, Inc.
823 East Main Street
Richmond, Virginia 23219
Telefax: (804) 697-3434
CPG-Richmond Inc.
110 Tredegar Street
Richmond, Virginia 23219
Attention: Resident Manager
A notice shall be deemed to have been duly given (x) if mailed or sent by
overnight courier, on the date set forth on the return receipt, or on the
overnight courier's proof of delivery, as applicable, or (y) if personally
delivered, on the date of such delivery. The inability to make delivery because
of changed address of which no Notice was given, or rejection or refusal to
accept any Notice offered for delivery, shall be deemed the giving of the Notice
as of the date of such inability to deliver or rejection or refusal to accept.
Any notice may be given by counsel for the party giving same.
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ARTICLE 38
HEADINGS AND TABLE OF CONTENTS
38.1. The headings of the Articles of this Lease and the table of
contents preceding this Lease are for convenience of reference only and in no
way define, limit or describe the scope or intent of this Lease or in any way
modify, amend or change the express terms and provisions of this Lease.
ARTICLE 39
NO MODIFICATION OF ASSET PURCHASE AGREEMENT
39.1. No provision of this Lease is intended to, nor shall any such
provision, modify, diminish or increase the rights or obligations of any party
(whether or not a party to this Lease) under the Asset Purchase Agreement.
Without limiting the generality of the foregoing, no provision of this Lease is
intended to, nor shall the same, limit, amend or modify in any respect any of
the warranties, representations, covenants, guarantees or indemnities of any
party to the Asset Purchase Agreement under such Asset Purchase Agreement,
subject, however, to the provisions of such Asset Purchase Agreement, including,
without limitation, provisions relating to, or limiting, the survival of the
same.
ARTICLE 40
SIGNS
40.1. The Tenant shall have the right to erect and place signs, notices
and advertisements of any kind on or over the
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Demised Premises and on the walls or roof of any of the Improvements, subject to
the prior written consent of Landlord (which consent shall not be unreasonably
withheld or delayed) and any applicable laws, ordinances, orders, rules,
regulations and requirements of the Governmental Authorities.
ARTICLE 41
ARBITRATION
41.1. When this Lease provides for the determination of any matter by
arbitration, the same shall be settled and finally determined by arbitration
conducted in the City of Richmond, Virginia, State of Virginia, in accordance
with the Rules of the American Arbitration Association, or its successor, except
that the arbitrators shall be selected as provided in Section 41.2, and the
judgment upon the award rendered may be entered in any court having
jurisdiction. However, such award shall be final and binding notwithstanding
failure of such entry. The persons conducting the arbitration shall not have the
right to modify the provisions of this Lease.
41.2. (a) Whenever under this Lease it shall become necessary to resort
to arbitration, such arbitration shall be conducted as follows: the party
desiring arbitration shall give notice to that effect to the other party,
specifying the name and address of the person designated to act as arbitrator on
its behalf. Within 10 days after the service of such notice, the other party
shall give notice to the first party specifying the name and address of the
person designated to act as arbitrator on
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its behalf. If either party fails to notify the other party of the appointment
of its arbitrator, as stated above, within or by the time above specified, then
the appointment of the second arbitrator shall be made in the same manner as
provided for the appointment of a third arbitrator in a case where the two
arbitrators have been appointed and the parties are unable to agree upon such
appointment.
(b) The arbitrators so chosen shall meet within 10 days after the
second arbitrator is appointed and if, within 30 days after that first meeting,
the two arbitrators shall be unable to agree upon the decision as to the
question being arbitrated, they shall appoint a third arbitrator who shall be a
competent and impartial person; and in the event of their being unable to agree
upon such appointment within 15 days after the 30-day time limit such third
arbitrator shall be selected by the parties if they can agree within a further
period of 15 days.
(c) If the parties do not so agree, then either party, on behalf
of both, may request such appointment by the then president of the Richmond Bar
Association, or in his absence or failure, refusal or inability to act within 15
days, then either party, on behalf of both, may apply to the Presiding Justice
of the highest court of record in the city and/or county in which the Demised
Premises are located, for the appointment of such third arbitrator, and the
other party shall not raise any question as to the court's full power and
jurisdiction to entertain the application and make the appointment.
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(d) In the event of the failure, refusal, or inability of any
arbitrator to act, his successor shall be appointed within 10 days by the party
who originally appointed him or if that party shall fail so to appoint such
successor, or in case of the third arbitrator, his successor shall be appointed
as hereinbefore provided. If a valuation of property is involved in the matter
being arbitrated any arbitrator selected or appointed pursuant to this Article
shall be a member of the American Institute of Real Estate Appraisers (or a
successor organization), shall be an appraiser, and shall have been doing
business as such in the county in which the Demised Premises are located (or, if
such person cannot be found, in the geographical area in which the Demised
Premises are located) for a period of at least 15 years before the date of his
appointment.
(e) Any arbitrator acting under this section shall be qualified in
the field in which the arbitration is involved and shall have been actively
engaged in such field in the county in which the Demised Premises are located
(or, if such person cannot be found, in the geographical area in which the
Demised Premises are located) for a period of at least 15 years before the date
of his appointment as arbitrator.
(f) All arbitrators chosen or appointed pursuant to this section
shall be sworn fairly and impartially to perform their duties.
(g) Within 15 days after the appointment of the third arbitrator
each of the first two arbitrators shall submit their
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valuation or determination, as the case may be, to the third arbitrator who must
select one or the other of such valuations or determinations, and the decision
so made shall in all cases be binding upon the parties, and judgment thereon may
be entered in any court of competent jurisdiction. Unless the decision rendered
in the arbitration determines otherwise, each party shall pay the fees and
expenses of its respective arbitrator and both shall share the fee and expenses
of the third arbitrator, if any. The decision rendered in any arbitration shall
include a determination of whether one or the other of the parties prevailed
upon each issue upon which a decision is rendered. In each case where a party is
identified as the prevailing party, the other party shall reimburse the
reasonable fees, costs and expenses (including reasonable attorneys' fees) of
such prevailing party incurred in connection with the arbitration of each issue
as to which the prevailing party is identified as having prevailed. In the case
of any decision by the arbitrators that any sum of money is owed by one party to
the other, the arbitrators shall determine the date upon which such payment
obligation occurred, and the party owing such payment obligation shall pay to
the other party interest at the Default Rate from the date of such accrual until
the date such payment is made.
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ARTICLE 42
COMMON AREAS
42.1. The areas delineated by crosshatching on the survey attached
hereto as Exhibit A, which areas include certain paved parking areas, parking
facilities, drainage facilities, sidewalks, lighting, and landscaped areas, are
hereafter referred to as the Common Areas." For the benefit of Tenant and its
employees, agents and business invitees, Landlord hereby grants as an
appurtenance to the Demised Premises a non-exclusive temporary easement, the
duration of which shall be coextensive with the Term, for pedestrian and
vehicular ingress to and egress from the Demised Premises across that portion of
the Common Areas intended for use as and used for pedestrian and vehicular
access ways.
42.2. For the benefit of Tenant and its employees, agents and business
invitees, Landlord hereby grants as an appurtenance to the Demised Premises a
non-exclusive temporary easement, the duration of which shall be coextensive
with the Term, for the use, for the purposes for which such areas are intended
to be used, of all driveways, sidewalks, walkways, parking areas and parking
deck areas constituting a portion of the Common Areas. Landlord also grants to
Tenant as an appurtenance to the Demised Premises a temporary easement, the
duration of which shall be coextensive with the Term, over that portion of the
Common Areas into which portions of the Improvements (including, without
limitation, eaves, windowsills and overhangs) encroach, for the
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purpose of maintaining such encroaching portions of the Improvements.
42.3. The use of the Common Areas by Tenant and its employees, agents
and business invitees shall be in accordance with practices prevailing as of the
date hereof subject to, and as may be modified by, all reasonable rules and
regulations promulgated by Landlord from time to time and delivered in writing
to Tenant, which rules and regulations may be changed from time to time at
Landlord's discretion, reasonably exercised. Without limiting the generality of
the foregoing, Tenant acknowledges that Landlord has now promulgated rules and
regulations (a) limiting to 75 the number of spaces available to Tenant in the
parking deck (the "Parking Deck") constituting a portion of the Common Areas;
(b) requiring Tenant to cause its employees to park only in the Parking Deck,
(c) limiting the use of certain areas designated by Landlord on the ground floor
of the Parking Deck to parking for handicapped persons, visitors of Landlord or
Tenant, or other special purposes and (d) providing for sanctions against those
violating the rules and regulations promulgated by Landlord, including, without
limitation, barring such violators from using the Parking Deck. Except with
respect to (a) and (b) above, Landlord agrees that all existing practices and
all existing rules and regulations, and all changes to such rules and
regulations, shall be enforced by Landlord in a uniform manner with respect to
Landlord, Tenant and their respective agents, employees and business invitees
(i.e., without
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discrimination to Tenant, Tenant's agents, employees or business invitees).
42.4. Each party shall repair any damage to or destruction of any
portion of the Common Areas or any improvement or equipment located thereon
caused by such party, its employees, agents, licensees, successors or assignees.
Neither party shall use the Common Areas in any manner that results in the
interference with, or interruption of, the operations of the other party at the
Tredegar Complex.
42.5. Landlord shall (except to the extent Tenant is required to
maintain or repair any portion of the Common Areas as specifically provided in
this Lease) operate, manage, equip, police, repair, keep free of snow and ice,
and maintain the Common Areas in accordance with practices existing prior to the
date hereof. Landlord shall have the right at any time to delegate the
responsibility for maintenance and operating the Common Areas to such persons or
entities as it may in its sole discretion deem desirable or appropriate, but
Landlord agrees to cause such persons or entities to comply with the preceding
sentence.
42.6. Tenant shall pay to Landlord during the Term as Additional Rent
the "Parking Deck Charges" and the "Security Charges," as defined in Sections
42.8 and 42.9 respectively. The Parking Deck Charges and the Security Charges
(together, the "Common Area Costs") shall be annual charges to be paid by Tenant
in monthly installments on the first day of each calendar month
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in advance in an amount estimated by Landlord but not greater than one-twelfth
of the sum of the Common Area Costs for the preceding calendar year and any
amount by which Landlord has reasonably ascertained (as a result of entering
into contracts, executing purchase orders, or finalizing other arrangements,
with respect to the maintenance or operation of the facilities with respect to
which Common Area Costs are payable hereunder) that Common Area Costs for the
calendar year with respect to which Landlord has calculated its estimate for
purposes of this Section 42.6 will be increased over the sum of the Common Area
Costs for the calendar year preceding such calendar year. Within 90 days after
the end of each calendar year, Landlord shall furnish to Tenant a statement in
reasonable detail of the Common Area Costs incurred with respect to such period,
and there shall be an adjustment between Landlord and Tenant, with payment to
Landlord by Tenant or repayment by Landlord to Tenant, as the case may require.
42.7. The "Road Charges" for any calendar year shall be the lesser of
(a) all costs incurred by Landlord during such year for the structural repair
and maintenance (which term shall not include any repair, maintenance or
improvement performed for aesthetic or cosmetic purposes only) of the private
road separating the Headquarters from the Demised Premises beginning at the east
end of the Parking Deck and ending at the west end of the building within the
Headquarters commonly referred to as the "Riverside Building," and (b) the
excess of (i) the sum of (A)
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$7,500.00, and (B) the product of $7,500.00 times the number of the preceding
four calendar years ending within the Term, over (ii) the sum of the Road
Charges paid by Tenant for the four calendar years preceding the year in respect
of which such charges are being calculated. Tenant shall pay the "Road Charges"
from time to time to Landlord upon receipt of statements of Landlord therefor
with invoices for costs incurred by Landlord under (a) above attached thereto,
subject, however, to the calculations and limitations set forth above in this
Section 42.7.
42.8. The "Parking Deck Charges" for any calendar year shall be the
product of (a) Landlord's Fully Loaded Costs for such year for operating,
equipping, policing, repairing and maintaining the facilities (the "Parking
Facilities") designated from time to time by Landlord, including without
limitation, the Parking Deck, for parking for employees at the Tredegar Complex
as deemed desirable for the Tredegar Complex as a whole in the reasonable
judgment of Landlord, times (b) a fraction the numerator of which is the number
of parking spaces available to Tenant in the Parking Facilities and the
denominator of which is the aggregate number of parking spaces available to
Landlord and Tenant and their respective agents, employees and business invitees
in the Parking Facilities. Landlord's Fully Loaded Costs described in this
Section 42.8 shall not include any costs for "Security Charges" described in
Section 42.9.
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42.9. The "Security Charges" for any calendar year shall be the product
of (a) Landlord's Fully Loaded Costs in supplying security services to the
Tredegar Complex for such year, times (b) a fraction the numerator of which is
the average number of Tenant's full time employees assigned at the Demised
Premises during such year, and the denominator of which is the average aggregate
number of full time employees of both Tenant and Landlord assigned at the
Tredegar Complex during such year.
ARTICLE 43
SERVICES PROVIDED BY LANDLORD
43.1. Subject to the terms and conditions of this Article 43, Landlord
shall supply to Tenant during the Term long distance telephone service and
telephone equipment maintenance and purchasing services (the "Mill Services") at
levels consistent with those at which such services are presently supplied to
Landlord's mill operation at the Demised Premises. Tenant agrees to pay to
Landlord Landlord's Fully Loaded Costs for supplying such services to the
Demised Premises (the "Mill Service Costs").
ARTICLE 44
SERVICES PROVIDED BY TENANT
44.1. Subject to the terms and conditions of this Lease, Tenant hereby
agrees to furnish to Landlord during the Term the "Headquarters Services," as
defined below. The "Headquarters Services" shall consist of (a) Tenant's
supplying to Landlord steam for purposes of Landlord's heating the buildings
located at
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the Headquarters (including the buildings known as the "Riverside" building and
the "Pump House" building, the latter of which is under construction as of the
commencement of the Term), (b) Tenant's furnishing Landlord with trash-hauling
and disposal services to the extent necessary to remove daily trash from the
Headquarters, (c) Tenant's furnishing auxiliary municipal water, or the
availability of such water, to the fire suppression system serving the Tredegar
Complex, and (d) Tenant's supplying electric power (i) to the Parking Deck for
lighting as may be required to keep the Parking Deck lit, and (ii) to the
Headquarters for all purposes. The parties agree that such services are to be
provided at levels consistent with those heretofore maintained by Landlord's
employees at the Demised Premises in providing such services to the
Headquarters. Landlord hereby agrees to cooperate with Tenant with respect to
the provision of the "Headquarters Services."
44.2. Landlord shall pay to Tenant Tenant's Fully Loaded Costs incurred
in supplying the Headquarters Services described in Sections 44.1(a), 44.1(b)
and 44.1(d). Landlord shall reimburse Tenant for one-half of all charges and
fees paid by Tenant to the provider of the auxiliary municipal water described
in Section 44.1(c) in respect of the provision of such water.
44.3. Tenant recognizes that certain utility facilities (the "Landlord's
Facilities") owned by Landlord are, or are contemplated to be, located within
the Demised Premises. Among the Landlord's Facilities are (a) Landlord's air
conditioning
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chiller units and (b) Landlord's standby electrical generation system, each
located, or to be located on the roof of the buildings constituting portions of
the Demised Premises. The Landlord's Facilities described in (a) and (b) in the
preceding sentence are hereby specifically reserved from the demise hereunder of
the Demised Premises. At all reasonable times during the Term upon reasonable
advance notice to Tenant (except in the case of emergency), Tenant shall provide
Landlord and its employees and agents with access to those portions of the
Demised Premises with respect to which access is reasonably necessary for
Landlord, its employees and agents to inspect the Landlord Facilities, to make
any alterations, repairs, improvements and additions, or to remove or maintain
the Landlord Facilities as Landlord may deem necessary or desirable. Landlord
hereby grants to Tenant the right and license, irrevocable during the Term, to
enter upon the building known as the "Riverside Building" at the Headquarters to
the extent necessary, and in accordance with reasonable rules and regulations
promulgated by Landlord from time to time, to operate and maintain the water
pump and filtration system used to supply process water to the Demised Premises.
Tenant agrees that all obligations of Tenant under this Lease relating to the
repair and maintenance of Equipment shall apply as well to the repair and
maintenance of such pumping and filtration system, and Tenant agrees to use all
reasonable efforts to operate and maintain such system in a manner that does
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not interfere with or interrupt Landlord's operation at the Headquarters.
ARTICLE 45
MISCELLANEOUS PROVISIONS WITH
RESPECT TO SERVICES AND COMMON AREA COSTS
45.1. During any period in which any of the Mill Services or the
Headquarters Services (collectively, the "Services") are reduced or suspended by
a party as a result of any Force Majeure, the party to whom such Services are
required to be provided shall not be obligated to make payment with respect to
the reduced, suspended or terminated portion of the Services.
45.2. For purposes of calculating amounts to be paid in respect of
services supplied under this Lease, "Fully Loaded Costs" shall mean the
allocable portions of any direct variable costs (including, without limitation,
costs such as fuel and maintenance costs) and fixed operating costs (including,
without limitation, depreciation) incurred by the party providing such Service
in supplying the Service including, without limitation, the wages, employee
benefits, incentives and other payments to employees who provide such Service.
Without limiting the generality of the foregoing, Tenant's "Fully Loaded Costs"
of supplying electricity to the Headquarters shall include only those "demand
charges" or similar charges or fees assessed by the provider of electricity that
result from the fluctuation in the demand for electricity to serve the
Headquarters. If the parties disagree as to the source of any fluctuation in
demands for
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electrical power, as between the Demised Premises and the Headquarters, such
disagreement shall be settled by an electrical engineer mutually acceptable to
the parties.
45.3. It is intended that the Services to be supplied hereunder shall be
supplied pursuant to this Lease substantially in the same manner and to the
extent services were provided prior to the date hereof at the Tredegar Complex
by Landlord's operation at the Headquarters or its operation at the Demised
Premises, as the case may be.
45.4. Each party supplying Services under this Lease shall bill the
party (the "Paying Party") to whom such Services are supplied for such Services
no less often than once per calendar quarter after the date hereof. Each bill
rendered for Services hereunder shall contain an itemized (by Service) breakdown
of costs incurred in supplying such Services, together with supporting
documentation, each in detail sufficient for determination, by the Paying Party,
whether the Paying Party is, pursuant to the provisions of this Lease, required
to pay the charges set forth in such bill. The Paying Party shall remit to the
other party all amounts required to be paid by the Paying Party in respect of
any Service rendered for which it has received a bill as set forth above within
30 days after its receipt of the bill for such Service.
45.5. Any party receiving Mill Services or Headquarters Services under
this Lease may at any time elect to discontinue the receipt of such Services.
Upon 30 days' notice (a "Service
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Termination Notice") from any party entitled to receive any Mill Service or
Headquarters Service hereunder to the party obligated hereunder to provide such
Service, the party entitled to receive such service may terminate its obligation
to pay for such Service. The termination of such receiving party's obligation to
pay for such service, together with the providing party's obligation to supply
such service, shall terminate on the later of (a) the date that is 30 days after
the service of the Service Termination Notice, and (b) the date set forth in the
Service Termination Notice as the effective date of the termination of such
obligations.
45.6. If the Term of this Lease shall begin other than on the first day
of the calendar year, the charges calculated under Articles 42, 43, 44 or 45 of
this Lease which are calculated on a calendar year basis shall be prorated on a
partial calendar year basis for the first calendar year of the Term. If the Term
of this Lease shall expire or terminate other than on the last day of the
calendar year, the charges calculated under Articles 42, 43, 44 or 45 of this
Lease which are calculated on a calendar year basis, shall be prorated on a
partial calendar year basis.
45.7. Promptly upon request therefor, the party obligated to provide any
of the services described in Articles 42, 43, 44 or 45 of this Lease (the
"Providing Party") shall provide to the party entitled to receive any of such
services (the "Receiving Party") with such records, documents and other evidence
reasonably sufficient to enable the Receiving Party to review the
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Providing Party's calculations of any costs billed to the Receiving Party under
Articles 42, 43, 44 and 45 of this Lease (individually and collectively "Costs")
together with a statement of Costs (a "Providing Party Statement") for the
calendar year or partial year in question for which the Providing Party has
requested a payment from the Receiving Party, setting forth each category of
expense in reasonable detail and any explanation thereof (if not readily
ascertainable) and a computation of the payment for such period. Each Providing
Party Statement shall be certified correct by the chief financial officer of the
Providing Party or his designee. If the Providing Party Statement for any such
period shall require a payment for such period in excess of the payment actually
due from the Receiving Party for such period, the Providing Party shall refund
to the Receiving Party, promptly after delivery to the Receiving Party of such
Providing Party Statement, the amount of such excess (or, in the case of any
dispute that is submitted to the Accounting Firm for settlement as described
below, promptly after such dispute is finally settled). If the Providing Party
Statement for any period shall require sums to be paid by the Receiving Party
less than the payment due for any such period, the Receiving Party shall pay the
amount of such deficiency promptly after delivery to the Receiving Party of such
Providing Party Statement (or, in the case of any dispute that is submitted to
the Accounting Firm for settlement as described below, promptly after such
dispute is finally settled). The Providing Party shall keep and maintain
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accurate books and records of the Costs for each calendar year or partial year
during the Term, and the Receiving Party and the Receiving Party's agents and
accountants shall have the right, at the Receiving Party's sole cost and
expense, to examine the same during business hours in the Providing Party's
office in Richmond, Virginia, for the purpose of checking and verifying any
Providing Party Statement and any computation of Costs thereunder. The Receiving
Party, its agents and accountants, shall be entitled to photocopy from such
books and records such information as the Receiving Party reasonably requires in
order to check or verify any Providing Party Statement or computation
thereunder. If the Receiving Party objects to any Providing Party Statement or
any computations therein, the Receiving Party shall promptly notify the
Providing Party of such objection (specifying in reasonable detail the nature of
such objection and the basis therefor). Notwithstanding any such objection, the
Receiving Party shall pay any invoice in full when due. Upon receipt of such
objection, the Providing Party and the Receiving Party shall negotiate in good
faith in an effort to resolve such dispute. If such objection cannot be resolved
between the Providing Party and the Receiving Party within 10 business days
after receipt of such notice by the Providing Party, then either party shall
have the right to have such objection submitted, as soon as practicable, to the
"Accounting Firm," as defined below, the decision of which shall be final and
binding on the parties. Without limiting the generality of the last sentence of
Section
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42.6, if the amount in question as finally determined by the Accounting Firm is
less than the amount in question paid by the Receiving Party, the Providing
Party shall refund to the Receiving Party, within 10 days after such
determination the amount of such difference. If the amount in question as
finally determined by the Accounting Firm is more than the amount in question
paid by the Providing Party, the Receiving Party shall pay to the Providing
Party, within 10 days after such determination, the amount of such difference.
The Accounting Firm's fees incurred in making such determination shall be borne
equally by the Providing Party and the Receiving Party. The Providing Party
shall be obligated to retain the books and records required to be kept under
this Section 45.7 for not less than 4 years after the period to which same
relate. The "Accounting Firm" shall be a public accounting firm of recognized
international reputation mutually acceptable to the parties.
45.8. Notwithstanding anything in this Lease to the contrary, there
shall be no duplication of costs assessed to Tenant for Mill Services Costs,
Common Area Costs and Road Charges.
45.9. While it is the desire of the Landlord and Tenant to enumerate all
services and facilities which need to be provided by one or the other, both
Landlord and Tenant recognize the close relationship of the Headquarters and the
Demised Premises and the need to delegate to local management thereof the
furnishing of other necessary services not herein provided for and hereby
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covenant to negotiate in good faith to reach agreement with respect to the
furnishing of any such services.
IN WITNESS WHEREOF, the Landlord and the Tenant respectively have caused
this Lease to be executed by their duly authorized officers as of the day and
year first above written.
LANDLORD:
JAMES RIVER PAPER COMPANY, INC.
[corporate Seal]
By: /s/ J. Norman Bush
--------------------------
Its: Vice President
ATTEST:
/s/ [ILLEGIBLE]
- --------------------------------
Secretary
TENANT:
[Corporate Seal] CPG - VIRGINIA INC
By: /s/ [ILLEGIBLE]
--------------------------
Its: President
ATTEST:
/s/ A. William Hamill
- --------------------------------
Secretary
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EX-10.27
================================================================================
ARNOLD BARSKY
DOING BUSINESS AS
A & C REALTY
Lessor
and
ARCON COATING MILLS, INC.
Lessee
-----------------------------
AMENDED AND RESTATED
AGREEMENT OF LEASE
-----------------------------
Premises: 3067 New Street
Oceanside, New York
Dated: June 1, 1988
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1 Leased Property; Fixed Term ..................................... 1
2 Representations of Lessor ........................................ 2
3 Basic Rent, etc. ................................................. 2
3.1 Basic Rent ................................................. 2
3.2 Basic Rent Net; Manner of Payment ......................... 2
4 Additional Rent .................................................. 3
5 Net Lease; No Counterclaim, Abatement, etc. ..................... 3
6 Condition and Use of Property .................................... 3
7 Maintenance and Repairs; Shoring, etc. ........................... 4
8 Alterations and Additions, etc. .................................. 5
9 Lessee's Equipment ............................................... 6
10 Utility Services ................................................. 7
11 No Claims Against Lessor, etc. ................................... 7
12.1 Indemnification by Lessee ................................. 7
12.2 Indemnification by Lessor ................................. 8
12.3 General Indemnity Provision ............................... 8
13 Inspection, etc. ................................................. 8
14 Payment of Taxes, etc. ........................................... 9
14.1 Definition of Taxes ....................................... 10
14.2 Apportionment of Taxes .................................... 10
15 Compliance with Legal and Insurance
Requirements, Instruments ........................................ 10
16 Liens, Easements, etc. ........................................... 10
17 Permitted Contests ............................................... 11
18 Insurance ........................................................ 12
18.1 Risks to be Insured ....................................... 12
18.2 Policy Provisions ......................................... 13
18.3 Delivery of Policies; Insurance
Certificates .............................................. 13
19 Damage to or Destruction of Property ............................. 13
19.1 Lessee to Give Notice ..................................... 13
19.2 Restoration ............................................... 13
-i-
<PAGE>
Section Page
- ------- ----
19.3 Right to Terminate ........................................ 14
19.4 Application of Insurance Proceeds ......................... 14
20 Taking of Property ............................................... 15
20.1 Lessee to Give Notice; Assignment
of Awards, etc. ........................................... 15
20.2 Partial Taking ............................................ 16
20.3 Total Taking .............................................. 16
20.4 Application of Awards, etc. ............................... 16
21 Certificate of Lessee as to
No Event of Default, etc. ........................................ 17
22 Right of Lessor to Perform
Lessee's Covenants, etc. ......................................... 18
23 Assignments, Subleases, Mortgages, etc. .......................... 18
23.1 Assignments, Subleases, etc. by Lessee .................... 18
23.2 Assignments, Mortgages, etc. by Lessor .................... 20
23.3 Subordination ............................................. 21
23.4 Attornment ................................................ 21
23.5 Non-disturbance of Lessee ................................. 21
23.6 Notices to Mortgagees by Lessee ........................... 22
24 Events of Default; Termination .................................. 22
25 Repossession, etc. ............................................... 24
26 Reletting ........................................................ 24
27 Damages .......................................................... 24
27.1 Termination of Lease Not to Relieve
Lessee of Obligations ..................................... 24
27.2 Current Damages ........................................... 24
27.3 Final Damages ............................................. 25
28 Default by Lessor ................................................ 25
29 Lessee's Waiver of Statutory Rights .............................. 26
30 No Waiver ........................................................ 26
31 Remedies Cumulative .............................................. 26
32 Modification, Acceptance of Surrender ............................ 27
33 No Merger of Title ............................................... 27
-ii-
<PAGE>
Section Page
- ------- ----
34 Options to Extend ................................................ 27
34.1 Extension ................................................. 27
34.2 Rent During the Extended Term ............................. 28
34.3 Determination of Fair Market Rental Value ................. 28
35 End of Lease Term ................................................ 29
36 Notices, etc. .................................................... 29
37 Quiet Enjoyment .................................................. 30
38 Limitation of Liability of Lessor ................................ 30
39 Miscellaneous .................................................... 31
40 Unavoidable Delays ............................................... 31
41 Consent .......................................................... 31
42 Rights of Butler Funds ........................................... 31
42.1 Notices ................................................... 31
42.2 Notice of an Event of Default ............................. 32
42.3 Right to Cure Lessee's Default ............................ 32
42.4 No Termination, Amendment or Waiver ....................... 32
42.5 Acceptance of Butler's Performance ........................ 32
43 Definitions ...................................................... 32
44 Broker ........................................................... 36
45 Right of First Refusal ........................................... 36
Schedule A -- DESCRIPTION OF THE LAND
Schedule B -- TITLE EXCEPTIONS
Schedule C -- BASIC RENT SCHEDULE
-iii-
<PAGE>
THIS AMENDED AND RESTATED AGREEMENT OF LEASE (this "Lease"), dated as of
the 1st day of June, 1988, by and between ARNOLD BARSKY doing business as A & C
REALTY, with offices at 211 Causeway, Lawrence, New York 11559 (hereinafter
referred to as "Lessor") and ARCON COATING MILLS, INC., a New York corporation
having an office at 3067 New Street, Oceanside, New York 11572 (hereinafter
referred to as "Lessee").
WITNESSETH:
WHEREAS, the Lessor and the Lessee are now the landlord and tenant,
respectively, under a lease agreement dated April 1, 1986 (the "Old Lease")
demising certain premises (herein the "Property"); and
WHEREAS, the Lessee desires to sell and transfer all of the business and
assets of the Lessee, including its interests under the Old Lease, as amended
and restated by this Agreement, and Lessor has agreed to consent to the transfer
of such interests provided the Old Lease is amended and restated in its entirety
as hereinafter set forth;
NOW THEREFORE, in consideration of the mutual agreements hereinafter set
forth, Lessor and Lessee hereby agree to amend, restate and supersede the Old
Lease in its entirety, as follows:
1. Leased Property; Fixed Term. Upon and subject to the conditions
and limitations set forth below, Lessor leases to Lessee, and Lessee leases and
rents from Lessor, the following property having a street address and commonly
known as 3067 New Street, Oceanside, New York 11572 (the "Property"):
(a) The tract of land (the "Land") situate lying and being in
the Town of Hempstead, County of Nassau, State of New York, more particularly
described on Schedule A hereto.
(b) All buildings, improvements and structures now or
hereafter located on the Land (or any portion thereof) and all facilities,
fixtures, installations and equipment (including, without limitation, all
private roadways, private sidewalks, parking facilities, heating, ventilating,
air conditioning, plumbing and electrical equipment, lighting equipment,
elevators, fire control and sprinkler systems, generators, security systems and
waste removal systems) now or hereafter installed in or attached to any such
buildings, improvements or structures; provided, however, the foregoing property
demised hereunder does not include (i) any equipment, machinery, apparatus or
other personal proper-
<PAGE>
ty of any kind or (ii) any Lessee's Equipment (defined hereinafter) located on
or in such buildings, improvements or structures, all of such personal property
and Lessee's Equipment being owned by Lessee (such of the Property as is demised
under this clause (b) being hereinafter collectively referred to as the
"Improvements"); and
(c) all rights of way or use, servitudes, licenses, easements,
tenements, hereditaments and appurtenances now or hereafter belonging or
pertaining to any of the foregoing.
TO HAVE AND TO HOLD the Property for a fixed term of approximately ten
(10) years (the "Fixed Term") commencing on June 1, 1988, (the "Commencement
Date") and expiring at midnight on the last day of the month in which the tenth
anniversary of the date hereof occurs, unless sooner terminated as herein
expressly provided or extended as provided in Section 34 of this Lease.
2. Representations of Lessor. Lessor represents and warrants to the
Lessee as follows, as of the date hereof: (i) Lessor has the right and authority
to enter into this Lease and to perform the obligations on Lessor's part to be
performed hereunder; (ii) Lessor's fee simple title to the Property is subject
only to the matters set forth in Schedule B attached hereto and made a part
hereof; (iii) a true and accurate copy of the Certificate of Occupancy for the
Improvements is attached hereto as Exhibit A and such certificate is in full
force and effect; (iv) Lessor has received no notice and has no knowledge of any
violation of any Legal Requirement affecting the Property; and (v) the Property
and its present use by Lessee does not violate or conflict with any covenants,
conditions or restrictions applicable thereto or the Certificate of Occupancy. A
material breach of any representation by Lessor shall be a default by Lessor
hereunder.
3. Basic Rent, etc.
3.1 Basic Rent. Net basic rental ("Basic Rent") shall be
payable monthly on the first day of each month during the term of the Lease in
the amounts specified on Schedule C annexed hereto. If this Lease shall commence
on a day other than the first day of a month, the first monthly installment of
Basic Rent shall be appropriately pro rated on a per diem basis.
3.2 Basic Rent Net; Manner of Payment. The Basic Rent and all
other sums payable to Lessor hereunder shall be payable in such currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts and shall be paid to Lessor at Lessor's
address set forth above or to such other person or address as Lessor from time
to time may designate. The Basic Rent shall be net to Lessor so that this Lease
shall yield to Lessor the full amount of the installments of Basic Rent
throughout the term of this Lease without deduction or setoff, except as
provided in this Lease.
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4. Additional Rent. Lessee will also pay, from time to time as
provided in this Lease or on demand of Lessor, as additional rent (the
"Additional Rent") (a) all amounts, liabilities, charges and obligations that
Lessee herein assumes or agrees to pay other than Basic Rent, and (b) interest
at the rate of twelve (12%) percent per annum on such of the foregoing amounts,
liabilities and obligations as are payable by Lessee that are not paid when due
and that Lessor shall have paid on behalf of Lessee, from the date of payment
thereof by Lessor until paid by Lessee and on all overdue installments of Basic
Rent and other sums payable under this Lease, from the due date thereof until
payment. No interest on the foregoing amounts, however, shall be computed and
applied to such amounts, except for installments of Basic Rent, unless and until
(i) Lessee shall have received a written notice from Lessor describing the
nature and the extent of the payment due hereunder and (ii) a period of five (5)
Business Days from the receipt of such notice shall have elapsed. In the event
of any failure on the part of Lessee to pay any Additional Rent within five (5)
Business Days of said Notice, Lessor shall have all the rights, powers and
remedies provided for in this Lease or at law or in equity or otherwise in the
case of nonpayment of the Basic Rent. Lessor authorizes Lessee to make all
payments of Additional Rent required by Lessor to be paid to persons other than
Lessor. Upon payment in full of all sums payable as Additional Rent to persons
other than Lessor, such payment shall be deemed to be the payment of Additional
Rent to Lessor. On request, Lessee shall provide to Lessor such proof as Lessor
shall reasonably require that the aforesaid payments as Additional Rent to
persons other than Lessor shall have been paid. In case such person shall refuse
to accept payment of such Additional Rent from Lessee, Lessee shall pay such
Additional Rent directly to Lessor or its designee at the place where the Basic
Rent is then payable and Lessee shall not be in Default if such person to whom
payment by Lessee has been attempted fails or refuses to accept payment from
Lessee. Notwithstanding anything set forth herein to the contrary, the term
"Additional Rent" shall in no event be deemed to include any liquidated damages
payable to Lessor by Lessee in the event of a default by Lessee of its
obligations hereunder.
5. Net Lease; No Counterclaim, Abatement, etc. This Lease is an
absolutely net lease, and the Basic Rent, Additional Rent and all other sums
payable hereunder shall be paid without notice, demand, counterclaim, setoff or
deduction and without abatement, suspension, deferment, diminution or reduction
except, with respect to all of the foregoing, as may be allowed by express
provision of this Lease.
6. Condition and Use of Property. Lessor represents and warrants to
Lessee that, subject only to exceptions set forth in Schedule B, the Property is
in good and clean order and in working condition suitable for Lessee's intended
use. Lessee may use and occupy the Property only for any lawful purpose and will
not do or, permit any act or thing that, subject to Sec-
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tion 17 hereof, is contrary to any Legal Requirement, Insurance Requirement or
any Certificate of Occupancy now or hereafter applicable or issued with respect
to the Improvements, or that may materially impair the value or utility of the
Property or any part thereof, or that constitutes a public or private nuisance
or waste of the Property or any part thereof.
7. Maintenance and Repairs; Shoring, etc.
7.1 Except to the extent the responsibility of the Lessor
under Section 7.2 hereof, Lessee at its sole expense will keep and maintain the
Improvements, including, without limitation, all windows, doors, loading bay
doors and shelters, trash compactors, plumbing, mechanical and electrical
systems, heating, ventilating and air conditioning systems ("HVAC"), toilet and
sanitary systems, and the adjoining sidewalks, curbs, driveways, parking areas
and (to the extent located on the Land) streets and ways and all means of access
to the Property and all Lessee's Equipment and the property of Lessee referred
to in Section 1(b) (whether deemed realty or personal property under applicable
law) in good and clean order and condition, and will promptly, at its own
expense, make all necessary repairs, replacements and renewals, and all
painting, thereof, whether interior or exterior, ordinary or extraordinary,
foreseen or unforeseen and whether or not necessitated by wear, tear,
obsolescence or defects. Notwithstanding Section 7.2 hereof, Lessee shall be
responsible for all repairs or replacements interior and exterior, structural
and nonstructural, ordinary and extraordinary, in and to the Property, including
the Improvements and Land and the facilities and systems thereof, the need for
which arises out of (a) the performance or existence of any work or alterations
made by Lessee after the Commencement Date, (b) the installation, use or
operation of any Lessee's Equipment or any other property of Lessee in the
Improvements, (c) the moving of any Lessee's Equipment or any other property of
Lessee in or out of the Improvements, or (d) the act, omission, misuse or
neglect of Lessee or any of its subtenants or its or their employees, agents,
contractors or invitees. All repairs, replacements and renewals shall be at
least equal in quality, utility and class to the original condition of the
Property. Lessee at its expense will do or cause others to do all shoring of
foundations and walls of any buildings or other improvements on the Property or
of the ground adjacent thereto, and every other act, necessary or appropriate
for the preservation and safety thereof, in each case if required in connection
with any excavation or other building operation required of or undertaken by
Lessee upon the Property or any adjoining property, whether or not the owner of
the Property or any other Person shall, by any Legal Requirement or otherwise,
be required to take such action or be liable for failure to do so.
7.2 Except to the extent the responsibility of Lessee as
provided in the second sentence of Section 7.1, Lessor shall, within a
reasonable period after receipt of notice from Lessee, make or cause to be made
necessary repairs to or replace-
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ments of the foundation, the roof, outer walls, structural supports and other
structural elements of the Improvements. The cost of such repairs or
replacements paid for by Lessor shall be amortized over the useful life of the
repair or replacements in accordance with generally accepted accounting
practices consistently applied and shall be charged to Lessee as Additional Rent
on an annual basis (in the event of disagreement, the amount of such annual
charge shall be conclusively determined and certified to Lessor and Lessee by an
independent certified public accountant consented to by Lessor and Lessee) for
each year of the Fixed Term or any Extended Term of this Lease (if applicable)
that falls within such useful life. Lessee shall pay any such charge within
thirty (30) days of demand by Lessor.
7.3 Except as otherwise expressly provided in this Lease,
Lessor shall have no liability to Lessee, nor shall Lessee's covenants and
obligations under this Lease be reduced or abated in any manner whatsoever, by
reason of any inconvenience, annoyance, interruption or injury to business
arising from Lessor's doing any repairs, maintenance, or changes which Lessor
is required or permitted by this Lease, or required by Legal Requirements or
Insurance Requirements, to make in or to any portion of the Property.
8. Alterations and Additions, etc. Lessee at its sole expense may
make reasonable alterations of and additions to the Improvements or any part
thereof; provided, however, that Lessee obtains Lessor's prior written consent,
which consent shall not be unreasonably withheld, and any such alteration or
addition (a) shall not impair the general character of the Improvements or
reduce the fair market value of any such Improvements below the fair market
value of such Improvements immediately before such alteration or addition
(assuming the Property was then being maintained in accordance with the terms of
this Lease), (b) shall be effected with due diligence, in a good and workmanlike
manner and in compliance with all Legal Requirements, Insurance Requirements and
the provisions of Section 16 hereof, and (c) shall be fully paid for by Lessee
upon its construction or installation on the Property, provided Lessee may
contest, by appropriate legal proceedings conducted in good faith and with due
diligence, any claims by contractors or subcontractors arising from any such
alterations or additions, provided that Lessee shall have furnished to Lessor
such security as Lessor may reasonably deem necessary to assure the ultimate
payment of the contested amount. Lessee agrees to carry and will cause Lessee's
contractors and subcontractors to carry such workman's compensation, general
liability, personal and property damage insurance as Lessor may reasonably
require. Lessee agrees to obtain and deliver to Lessor, to the extent available
pursuant to law and current construction industry practices, written and
unconditional waivers of mechanic's liens upon the Property for all work, labor
and services to be performed and materials to be furnished in connection with
such work, signed by all contractors, subcontractors, materialmen and laborers
involved in such work. Without limiting the generality of the foregoing, any
alteration or addition to
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the Improvements which is reasonably estimated to cost more than $250,000 (or
which, when aggregated with the cost of all alterations and additions performed
in respect of such Improvements during the immediately preceding twelve-month
period, would require an aggregate expenditure of more than $250,000, shall be
performed under the supervision of an engineer or architect reasonably
acceptable to Lessor (but who may be, in either case, an employee of Lessee),
pursuant to, and in accordance with, plans, specifications and cost estimates
reviewed by, and reasonably acceptable to, Lessor, and, in addition, Lessee
shall furnish to Lessor, prior to the commencement of each such alteration or
addition, such security for the payment and performance of such work (including,
but not limited to, payment and performance bonds) as Lessor or any Mortgagee
shall reasonably require. In any event in which Lessee shall, or shall be
required to, furnish Lessor with plans and specifications for any such
alteration or addition, Lessor may engage, at Lessee's expense (which expense
chargeable to Lessee shall not exceed five (5%) percent of the total cost of the
proposed work), an architect or engineer to review such plans and specifications
on Lessor's or any Mortgagee's behalf and, unless Lessor or any Mortgagee shall
have sooner notified Lessee of its disapproval and its reasons therefor in
reasonable detail, each such party shall be deemed to have approved such plans
and specifications thirty (30) days after its receipt thereof. Without limiting
the generality of the foregoing, any payment or performance bonds which may be
required by Lessor (or any Mortgagee) in compliance with this Lease in
connection with any such alteration or addition must be required by Lessor (or
such Mortgagee) within (30) days after its receipt of the plans and
specifications for such alteration or addition or such bonds shall be deemed
waived. All alterations of and additions to the Improvements, other than
Lessee's Equipment, shall immediately become the property of Lessor and shall
constitute a part of the Property. Upon completion of any alteration or addition
requiring the participation of a supervisory engineer or architect hereunder,
Lessee shall deliver to Lessor a certificate of such supervising engineer and/or
architect stating that, without material exception or condition, such
alterations and additions were made substantially in accordance with the plans
and specifications previously approved by Lessor (subject to reasonable change
orders which, if substantial, shall have been approved previously by Lessor,
such approval not to be unreasonably withheld). Upon termination of this Lease,
Lessor will accept the Property as altered pursuant to the provisions hereof
without any obligation upon Lessee to restore the Property to its former
condition.
9. Lessee's Equipment.
9.1 All moveable partitions, business and trade fixtures,
machinery and equipment, communications equipment and office equipment, and the
property of Lessee referred to in Section 1(b) (whether deemed realty or
personal property under applicable law), whether or not attached to or built
into the Proper-
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ty, which is now located on or installed in the Property or is hereafter placed
on or installed in the Property by or for the account of Lessee without expense
to Lessor and can be removed without structural damage to the Property, and all
furniture, furnishings, and other movable personal property owned by Lessee and
located now or hereafter in the Property (collectively, "Lessee's Equipment")
shall be and shall remain the property of Lessee and may be removed by Lessee at
any time during the Term; provided that if any of the Lessee's Equipment is
removed, Lessee shall repair or pay the cost of repairing any damage to the
Property resulting from the installation and/or removal thereof.
9.2 At or before the expiration of the Term of this Lease or
within fifteen (15) days after the date of earlier termination of this Lease,
Lessee shall remove from the Property all of the Lessee's Equipment (except such
items thereof as Lessor shall have expressly permitted to remain, which property
shall become the property of Lessor if not removed, and Lessee shall repair any
damage to the Property resulting from any installation and/or removal of the
Lessee's Equipment. Any items of the Lessee's Equipment which shall remain in
the Property after the expiration of the Term of this Lease, or after a period
of fifteen (15) days following an earlier termination date, may, at the option
of Lessor, be deemed to have been abandoned, and in such case such items may be
retained by Lessor as its property or disposed of by Landlord, without liability
to Lessee, in such manner as Lessor shall determine at Lessee's expense.
10. Utility Services. Lessee will pay or cause to be paid all
charges of any nature for utilities, communications and other services rendered
at the Property. Lessor shall not be required to furnish any services, utilities
or facilities whatsoever to the Property.
11. No Claims Against Lessor, etc. Nothing contained in this Lease
shall constitute any consent or request by Lessor or any Mortgagee, express or
implied, for the performance of any labor or services or the furnishing of any
materials or other property in respect of the Property or any part thereof, nor
as giving Lessee any right, power or authority to contract for or permit the
performance of any labor or service or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
or any Mortgagee in respect thereof.
12.1 Indemnification by Lessee. Lessee will (to the full
extent permitted by applicable law) protect, indemnify, defend and save harmless
Lessor, any partner in Lessor, any partner in any partner in Lessor, and any
officer, director or shareholder, beneficiary, employee, agent or representative
of any of the foregoing and any Mortgagee of the Property from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred
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by or asserted against any of them or against the Property or any interest of
them therein by reason of the occurrence or existence of any of the following
arising during the term of this Lease (but excluding any of the foregoing
arising out of any condition existing or event occurring prior to the
Commencement Date), except to the extent caused by the willful misconduct or
gross negligence of any of them: (a) the use, occupancy or possession of the
Property or any part thereof by the Lessee, its employees, invitees, subtenants,
any assignee of this Lease, and any other lawfully claiming thereunder, provided
that nothing contained herein shall require Lessee to pay any Taxes not required
to be paid by Lessee under Section 14 hereof, (b) any accident, injury to or
death of any person or persons or loss of or damage to property occurring on or
about the Property, the Land or any part thereof or the adjoining sidewalks,
curbs, driveways, streets or ways, if any, caused by the negligence or wrongful
act or omission of Lessee or Lessee's agents, employees, assigns, subtenants, or
contractors, (c) any failure on the part of Lessee to perform or comply with any
of the material provisions of this Lease, or (d) performance of any labor or
services or the furnishing of any materials or other property in respect of the
Property or any part thereof for or on behalf of Lessee (and excluding repairs
or replacements required of Lessor hereunder).
12.2 Indemnification by Lessor. Lessor will (to the full
extent permitted by applicable law) protect, indemnify, defend and save harmless
Lessee, any partner in Lessee, any partner in any partner in Lessee, any
officer, director or shareholder of Lessee, any officer, director or shareholder
of a shareholder of Lessee, and any beneficiary, employee, agent, representative
or partner of any of the foregoing for any and all injury, loss or damage or
claims for injury, loss or damage, of whatever nature, to any person or property
caused by or resulting from any omission, wrongful act, gross negligence or
negligence of Lessor or any failure of Lessor to perform its obligations
hereunder.
12.3 General Indemnity Provision. Any party entitled to
indemnification hereunder (an "Indemnified Party") shall give notice to the
indemnifying party of the existence of any claim giving rise to the need for
such indemnification within ten (10) Business Days after the date on which such
Indemnified Party shall have obtained actual knowledge of such claim.
13. Inspection, etc. Lessor and any Mortgagee and their respective
authorized representatives may enter the Property or any part thereof at all
reasonable times provided that no such entry shall be made without reasonable
advance notice or shall unreasonably interfere with the conduct of Lessee's
business, for the purpose of (a) inspecting the same or for the purpose of doing
any work under Sections 7.2, 19, 20 and 22 hereof, and taking all such action
thereon as may be reasonably necessary or appropriate for any such purpose (but
nothing contained in this Section 13 shall create or imply any duty on the part
of Lessor or any Mortgagee to do any such work), (b) posting notices
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of nonresponsibility for liens of mechanics, materialmen, suppliers or vendors,
(c) exhibiting the Property for the purpose of sale or mortgage or other
financing, (d) at any time within eighteen (18) months prior to the expiration
of the term of this Lease, exhibiting the Property for the purpose of lease,
and (e) at any time after Lessee shall have abandoned the Property, displaying
thereon advertisements for sale or letting. Lessor shall not have any duty to
make any such inspection and shall not incur any liability or obligation for not
making any such inspection. No such entry in and of itself shall constitute an
eviction of Lessee.
14. Payment of Taxes, etc.
14.1 Definition of Taxes. Subject to the provisions of Section
17 hereof, Lessee will pay, as Additional Rent, throughout the Fixed Term and
any Extended Term, directly to the appropriate taxing or other governmental
authorities having jurisdiction, at least ten (10) days before any fine,
penalty, interest or cost may be added for nonpayment, all taxes (including,
without limitation, real estate taxes, or other property taxes and all sales,
value added, use and similar taxes), assessments (including, without limitation,
all assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
term hereof) installments of which become due during the term hereof, water,
sewer or other rents, rates and charges, excises, levies, license fees, permit
fees, inspection fees and other authorization fees and other charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character (including all interest, additions to tax and
penalties thereon), that may be assessed, levied, confirmed or imposed on or in
respect of or be a lien upon (a) the Property or any part thereof or any rent
therefrom or any estate, right or interest therein, or (b) any occupancy, use,
leasing, or possession of or activity conducted on, the Property or any part
thereof or any gross receipts thereof or of the rent therefrom, but only to the
extent that any such tax or assessment is of a nature that nonpayment thereof
would result in a lien against the Land, the Property or any rent therefrom (all
of the foregoing being hereinafter collectively referred to as "Taxes").
Notwithstanding the foregoing or any other provision of this Lease, Lessee shall
not be required to pay any income, profits or revenue tax upon the income, gains
or revenues of Lessor, nor any franchise, excise, corporate, estate,
inheritance, succession, capital levy or transfer tax of Lessor, nor any
interest, additions to tax or penalties in respect thereof. Upon request made by
Lessor or any Mortgagee, Lessee shall furnish to Lessor official receipts or
other proof reasonably satisfactory to Lessor evidencing payment of any Taxes in
accordance with the requirements of this Section 14. If Lessor shall receive any
notice of nonpayment of any Taxes, Lessor shall give prompt written notice
thereof to Lessee; provided, however, that Lessor's failure to provide
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any such notice shall not reduce or otherwise affect any obligation of Lessee
hereunder.
14.2 Apportionment of Taxes. Taxes relating to a fiscal period
of the taxing authority, a part of which period is included within the term of
this Lease and a part of which is included in a period of time before the
commencement of, or after the expiration of, the term of this Lease (whether or
not such Taxes shall be assessed, levied, confirmed, imposed upon or in respect
of or become a lien upon the Property, or shall become payable, during the term
of this Lease) shall be apportioned upon execution of this Lease and at the
expiration of the term of this Lease, so that Lessee shall pay Taxes only with
respect to the term of this Lease.
15. Compliance with Legal and Insurance Requirements, Instruments.
Subject to the provisions of Section 17 hereof, Lessee at its expense will
promptly (a) comply in all material respects with all Legal Requirements and
Insurance Requirements, whether or not compliance therewith shall interfere with
the use and enjoyment of the Property or any part thereof, and (b) procure,
maintain and comply with all permits, licenses and other authorizations required
for any use of the Property or any part thereof then being made, and for the
proper erection, installation, operation and maintenance of the Improvements and
Lessee's Equipment or any part thereof. If any structural changes or additions
are required to be made to the Property due to a change in Legal Requirements
after the Commencement Date, Lessor shall perform same, and the cost thereof
shall be amortized over the useful life of the change or addition in accordance
with generally accepted accounting practices consistently applied and charged to
Lessee as Additional Rent on an annual basis (in the event of disagreement the
amount of such annual charge shall be conclusively determined and certified to
Lessor and Lessee by an independent certified public accountant consented to by
Lessor and Lessee) for each year of the Fixed Term or any Extended Term of this
Lease (if applicable) that falls within such useful life. Lessee shall pay such
charge within thirty (30) days of demand by Lessor.
16. Liens, Easements, etc. (a) Subject to the provisions of Section
17 hereof, Lessee will not directly or indirectly create or permit to be created
or to remain, and will discharge or provide suitable bond for, any mortgage,
lien, encumbrance or charge on, pledge of, or conditional sale or other title
retention agreement with respect to, the Property or any part thereof or
Lessee's interest therein, or the Basic Rent, Additional Rent or any other sum
payable under this Lease, other than (i) this Lease and any assignment, sublease
or mortgage permitted hereby, (ii) any lien affecting the Property resulting
from any act or failure to act by Lessor or any Mortgagee (and no act or failure
to act of Lessee or any Person claiming thereunder) or any liability or
obligation on the part of Lessor or any Person claiming by, through or under
Lessor, and (iii) any lien or encum-
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brance of record as of the date hereof. NOTICE IS HEREBY GIVEN THAT NEITHER
LESSOR NOR ANY MORTGAGEE SHALL BE LIABLE FOR ANY LABOR, SERVICE OR MATERIALS
FURNISHED OR TO BE FURNISHED TO LESSEE OR THE PROPERTY, OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF, AND THAT NO MECHANIC'S LIEN OR OTHER LIEN SHALL BE
ATTACHED TO OR AFFECT THE INTEREST OF LESSOR OR ANY MORTGAGEE IN AND TO THE
PROPERTY OR ANY PART THEREOF.
(b) So long as no Event of Default has occurred and is
continuing, Lessee may request from time to time and Lessor shall grant
easements over the Property to utility companies for the purpose of providing
utility services to existing or planned Improvements; provided, however, that no
such utility easements shall materially lessen the value of such Property or
materially impair the use thereof; and provided further, that the granting of
such easements shall impose no cost or expense whatsoever upon Lessor or any
Mortgagee.
17. Permitted Contests. Lessee at its expense may contest by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount or validity or application, in whole or in part, of any Taxes or lien
therefor or any Legal Requirement or Insurance Requirement or the application of
any instrument of record affecting the Property or any part thereof or any
claims of mechanics, materialmen, suppliers or vendors or lien therefor, and may
withhold payment of amounts due with respect to the foregoing pending such
contest; provided, however, that (a) such proceedings shall suspend the
collection of such amount (b) neither the Property nor any part thereof or
interest therein (or any sums payable hereunder) would be in any danger of being
sold, forfeited or lost, nor would the use or occupancy of the Property (or any
part thereof) be adversely affected, (c) Lessor shall not be in any danger of
any civil or criminal liability by reason thereof and neither the Property nor
any part thereof or interest therein (or any sums payable hereunder) would be
subject to the imposition of any lien as a result of such failure, and (d)
Lessee shall have either (i) paid the disputed amount under protest, or (ii) if
the disputed amount exceeds $50,000, furnished to Lessor, a court of competent
jurisdiction or other appropriate party such security as Lessor may deem
reasonably necessary to insure the ultimate payment of the contested amount and
to prevent the forfeiture of any sums payable to Lessor or any Mortgagee
hereunder. Lessee shall give prompt written notice to Lessor of the commencement
of any contest referred to in the preceding sentence, providing a reasonably
detailed description thereof, and Lessor shall, at Lessee's expense, cooperate
with Lessee with respect to any such contest. Lessee agrees that each such
contest shall be promptly prosecuted to final conclusion, and Lessee shall
indemnify, defend and save Lessor and any Mortgagee harmless from and against
any and all losses, judgments, decrees and costs (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection therewith.
Lessee agrees that it will, promptly after final determination of each such
contest, fully pay and discharge the amounts which
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shall finally be levied, assessed, charged or imposed or determined to be
payable, together with all penalties, fines, interests, costs and expenses
incurred in connection therewith, and perform all acts the performance of which
shall be finally ordered or decreed as a result thereof.
18. Insurance.
18.1 Risks to be Insured. Lessee, at its sole expense, will
maintain throughout the Term of this Lease with insurers authorized to issue
insurance in the State of New York and having an A.M. Best rating of "B+" or
better or otherwise approved, in writing, by Lessor and any Mortgagee (a)
insurance with respect to the Improvements against loss or damage by fire,
lightning and other risks from time to time included under "all-risk" policies
and against loss or damage by sprinkler leakage, water damage, collapse,
vandalism and malicious mischief, in amounts sufficient to prevent Lessor and
Lessee from becoming coinsurers of any loss under the applicable policies, and
in any event in amounts not less than 100% of the actual replacement cost of the
Improvements (initially determined as of the date on which such insurance is
originally issued, and subsequently redetermined on the basis of an annual
review of the actual replacement cost of the Improvements), as reasonably
determined at the request of Lessor, and, at Lessee's expense, by the insurer or
insurers issuing such insurance (the "Improvements Insurance"); (b)
comprehensive general liability insurance against claims arising out of or
connected with the possession, use, leasing, operation or condition of the
Property in such amounts as are usually carried by persons operating similar
properties in the same general locality but in any event with a combined single
limit of not less than $1,000,000 for any single injury to a person and
$3,000,000 for all claims with respect to property damage and personal injury
and death with respect to any one occurrence; (c) insurance with respect to
Lessee's Equipment, the other properties and business of Lessee against loss or
damage of the kinds and in amounts from time to time customarily insured against
by persons owning or using similar property; (d) workers' compensation insurance
and (e) loss of rentals insurance in an amount equal to the aggregate of
one-year's (i) Basic Rent, (ii) Taxes, and (iii) Premiums for all required
insurance (the "Rent Insurance"). In addition, during any period of repair,
alteration or addition to the Property such that existing insurance is
inadequate or inappropriate, Lessee shall obtain and keep in effect Builder's
Risk insurance in such amounts as shall be reasonably recommended by such
insurance expert, or as Lessor shall reasonably request. The insurance required
under this Section 18.1 may be subject to a deductible (the amount of which
Lessee shall pay in the event of loss) and may be effected under a blanket
policy or policies covering the Property and other property and assets not
constituting part of the Property; provided, however, that, any such policy
shall specify the portion of the total coverage of such policy or policies that
is allocated to the Property and
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shall, in all other respects, comply with the requirements of this Section 18.
18.2 Policy Provisions. All insurance maintained by Lessee
pursuant to Section 18.1 hereof shall (a) name Lessor, Lessee and any Mortgagee
as insured parties to the extent of their insureable interests, (b) provide that
all insurance proceeds for losses of less than $50,000 shall be adjusted by and
be payable to Lessee to be used by Lessee, to the extent necessary, for
Restoration, (c) provide, in the case of Improvements Insurance, that all
insurance proceeds for losses of at least $50,000 shall be adjusted by Lessor
and Lessee jointly and shall be payable to a Depository to be held in trust
pursuant to the terms of this Lease, (d) include effective waivers by the
insurer of all claims for insurance premiums against all loss payees and named
insured parties (other than Lessee) and all rights of subrogation against any
named insured party, (e) in the case of Rent Insurance, provide that all
proceeds for losses shall be payable to Lessor, (f) provide that any losses
shall be payable notwithstanding (i) any foreclosure or other proceeding or
notice of sale relating to the Property or this Lease, or (ii) any change in the
title to or ownership of the Property or any interest therein, (g) provide that
if all or any part of such policy is cancelled, terminated or expires, the
insurer will forthwith give written notice thereof to each named insured party
and loss payee and that no cancellation, reduction in amount or material change
in coverage thereof shall be effective until at least thirty (30) days after
delivery to each named insured party and loss payee of written notice thereof,
and (h) be reasonably satisfactory in all other respects to Lessor and any
Mortgagee.
18.3 Delivery of Policies; Insurance Certificates. Lessee will
deliver to Lessor and any Mortgagee promptly upon request, and in any event
within thirty (30) days after the issuance of any renewal or substitute policies
or any policy amendments or supplements, certificates of all insurance policies
and any amendments or supplements thereto with respect to the Property that
Lessee is required to maintain pursuant to this Section 18, together with
evidence as to the payment of all premiums then due thereon, and (c) not later
than thirty (30) days prior to the expiration of any policy, a certificate of
the insurer evidencing the replacement or renewal thereof.
19. Damage to or Destruction of Property.
19.1 Lessee to Give Notice. In case of any damage to or
destruction of the Improvements, the Restoration of which is reasonably
estimated to cost more than $25,000, Lessee will promptly give notice thereof to
Lessor, generally describing the nature and extent of such damage or destruction
and setting forth Lessee's best estimate of the cost of Restoration.
19.2 Restoration. Subject to Section 19.3, in case of any
damage to or destruction of the Improvements, Lessee
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will, at its sole cost and expense, whether or not such damage or destruction
shall have been insured, and whether or not the insurance proceeds shall be
sufficient for the purpose, promptly commence and complete (subject to
Unavoidable Delays) Restoration of such Improvements. The Lessee shall have no
obligation to restore the Improvements if the damage or destruction has resulted
from a risk not insureable under the form of "all risks" casualty policy
generally available in New York State or if insurance proceeds sufficient to pay
for all costs of Restoration are not made available by Lessor or Lessor's
Mortgagee. In the event of such uninsured damage or destruction or
unavailability of insurance proceeds, (i) Lessee may terminate this Lease by
notice to the Lessor as in Section 19.3 provided and (ii) unless Lessee shall
agree, at its sole cost and expense, to complete the Restoration, Lessor may
terminate this Lease by notice to the Lessee as in Section 19.3 provided. The
Basic Rent and all sums payable hereunder shall be abated or reduced as the case
may be in the proportion that the damaged area of the Improvements bears to the
total area of the Improvements, for the period from the date of the damage or
destruction of the Improvements to the date such damage or destruction shall be
substantially repaired; provided, however, should Lessee reoccupy and resume
business in a portion of the Improvements during the period the repair work is
taking place and prior to the date that the Improvements are substantially
repaired or made tenantable, the Basic Rent and all sums payable hereunder
allocable to such reoccupied portion, based upon the proportion which the area
of the reoccupied portion of the Improvements bears to the total area of the
Improvements, shall be payable by Lessee from the date of such occupancy.
19.3 Right to Terminate. If (a) the Improvements shall be
totally damaged or destroyed by fire or other casualty during the last two years
of the Term or, if the Term is extended, during the last two years of the Term
as extended, or (b) the Improvements are damaged by fire or other casualty
occurring at any other time during the Term of this Lease, which cannot
reasonably be expected to be completed within one year after the date of such
fire or casualty (any such damage or destruction described in clauses (a) and
(b) hereinafter referred to as a "Total Destruction") then either party may
terminate this Lease upon written notice given to the other within 60 days of
the occurence of the Total Destruction, in which case, this Lease shall
terminate on the 30th day following the giving of such notice. In the event
either party shall elect to terminate this Lease, all insurance proceeds of the
Improvements Insurance and Rent Insurance shall be paid to Lessor and Lessee
shall pay to Lessor the amount of any deductible then in effect under any such
insurance. No termination of this Lease pursuant to the terms hereof, however,
shall release Lessee from any liabilities or obligations for Fixed Rent and
Additional Rent hereunder accrued prior to the date of termination.
19.4 Application of Insurance Proceeds. Any compensation or
insurance payment under the Improvements Insurance
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which is not in excess of $50,000 shall be paid directly to Lessee (if no Event
of Default then exists hereunder) and shall be expended by Lessee in connection
with the Restoration of the Property (with the balance of such proceeds, if any,
being retained by Lessee upon the completion of such Restoration). Except as
otherwise provided in Section 19.3 or this Section 19.4, all insurance proceeds
payable on account of the Improvements Insurance (less the actual costs, fees
and expenses incurred in connection with the collection thereof, for which the
Person incurring the same shall be reimbursed from such proceeds) shall be
applied or dealt with as follows:
(a) If the aggregate insurance proceeds received under
the Improvements Insurance by reason of any single instance of damage or
destruction shall be $50,000 or more, such insurance proceeds shall be paid over
to a Depository for the benefit of Lessor, Lessee and any Mortgagee, as their
respective interests may appear. Interest, if any, earned on insurance proceeds
while held by the Depository shall be added to the amount of such insurance
proceeds. All insurance proceeds so paid over to the Depository shall be held
and disposed of as provided in this Section 19.4. The Depository shall hold all
insurance proceeds deposited with it pursuant hereto and shall disburse the same
from time to time to Lessee or as it may direct from time to time as Restoration
progresses to pay (or reimburse Lessee for) the cost of Restoration, but only
upon the written request of Lessee accompanied by evidence reasonably
satisfactory to Lessor that (i) the sum requested has been paid or is then due
and payable and is a proper item of such cost, (ii) there are no mechanic's or
similar liens for labor or materials supplied in connection therewith (except
those that will be discharged upon payment of such sum or those that are being
contested in accordance with Section 17 hereof), and (iii) the remaining balance
of such proceeds will be sufficient to pay 100% of the remaining cost of
Restoration. The balance of such proceeds (if any) shall be paid to Lessee upon
the completion of the Restoration. All such proceeds received or payable on
account of a Total Destruction with respect to the Improvements, when Lessee
exercised its option to terminate this Lease, shall, upon Lessee's termination
of this Lease, be retained by Lessor and, in the event any deductible is then in
effect with respect to such proceeds, Lessee shall reimburse Lessor in the
amount of such deductible. All Restoration by Lessee shall be performed in
accordance with the terms and conditions of Section 8 hereof.
(b) There shall be paid directly to Lessor and to other
persons respectively entitled thereto under provisions of this Lease from time
to time the proceeds of any Rent Insurance provided under Section 18.1 insofar
as required in order to pay the Basic Rent, Taxes, Additional Rent and other
charges payable by Lessee under this Lease.
20. Taking of Property.
20.1 Lessee to Give Notice; Assignment of Awards, etc. In
case of a Taking, or the commencement of any proceedings
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or negotiations that might result in a Taking, in respect of which the
Restoration of the improvements is reasonably estimated to cost more than
$50,000, Lessee will promptly give notice thereof to Lessor, generally
describing the nature and extent of such Taking or the nature of such
proceedings or negotiations and the nature and extent of the Taking that might
result therefrom. Lessee hereby irrevocably assigns, transfers and sets over to
Lessor all rights of Lessee to any award or payment on account of any Taking and
irrevocably authorizes and empowers Lessor, with full power of substitution, in
the name of Lessee or otherwise, to file and prosecute what would otherwise be
Lessee's claim for any such award or payment and to collect, receipt for and
retain the same. Lessor does not, however, reserve to itself and Lessee does not
assign to Lessor, any damages payable for Lessee's Equipment or other property
of Lessee or any damages which are considered "special damages" to Lessee
(including without limitation moving expenses and loss of business). The term
"special damages" as used in this Section shall not be construed to include any
damage to Lessee arising solely from Lessee's loss of its leasehold interest
herein as the result of any Taking for which damages are payable. Lessee
reserves the right to prosecute its own claim for its special damages or
Lessee's Equipment or other property.
20.2 Partial Taking. In case of a Taking other than a Total
Taking, (a) this Lease shall remain in effect as to the portion of the Property
remaining immediately after such Taking, with abatement or reduction of Basic
Rent, Additional Rent and all other sums payable hereunder, according to the
nature and extent of the space lost, and (b) Lessor, whether or not the awards
or payments, if any, on account of such Taking shall be sufficient for the
purpose, at its expense, will promptly commence and complete (subject to
Unavoidable Delays) Restoration of the affected Improvements, except for any
reduction in area of any Improvements caused by such Taking provided, however,
that in case of a Taking for temporary use ("temporary use" being defined for
all purposes herein as any taking for less than nine (9) consecutive months)
Lessor shall not be required to effect any Restoration until such Taking is
terminated.
20.3 Total Taking. (a) In case of the Taking of the Property
in its entirety (or all of the Improvements located thereon) or the Taking
(other than for temporary use) of such a substantial part of any Property (or
the Improvements located thereon) that, in the good faith judgment of either
Lessor or Lessee, either (i) the portion of such Property (or the Improvements
located thereon) remaining after such Taking is (and after Restoration would be)
unsuitable for use by the Lessee in the operation of its business, or (ii)
Restoration of such Property (or the Improvements located thereon) is not
economically feasible, either party may terminate this Lease upon thirty (30)
days notice of its intention so to do, provided such notice is given within
ninety (90) days of such Total Taking. Upon such termina-
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tion, all costs and rents due hereunder shall abate as of the date of the
Taking.
20.4 Application of Awards, etc. All awards and payments
received by or payable to Lessor on account of a Taking (less the actual costs,
fees and expenses incurred in connection with the collection thereof, for which
the Person incurring the same shall be reimbursed from such award or payment,
together with any interest or other income earned on such awards from the
investment thereof and any other interest paid on any such awards prior to
disbursement hereunder) shall be paid and applied in accordance with this Lease
as follows:
(a) All such awards and payments actually received on
account of a Taking (other than a Total Taking based upon which Lessee shall
have terminated the Lease) shall be applied as follows:
(i) Subject to subparagraph (ii) below, such
awards and payments shall be paid to a Depository and applied to pay the cost of
the Restoration of the affected Property, such application to be effected by
Lessor substantially in the same manner and subject to the same conditions as
provided in Section 19.4 hereof with respect to insurance proceeds.
(ii) In case of a Taking for a temporary use, such
awards and payments shall be held and applied to the payment of Basic Rent and
Additional Rent becoming due hereunder for the period of temporary use;
provided, however, that if any portion of such awards and payments is made by
reason of any damage to or destruction of any Property (or the Improvements
thereon) during such Taking for temporary use, such portion shall be held and
applied as provided in subparagraph (i) above after such Taking is terminated.
(iii) The balance, if any, of such awards and
payments not required to be held or applied in accordance with subparagraphs (i)
and (ii) above, shall be paid to Lessor following completion of the Restoration.
(b) All such awards or payments received or payable on
account of a Total Taking with respect to any Property (or the Improvements
thereon) shall, upon termination of this Lease in accordance with the provisions
of Section 20.3 hereof, be paid to and retained by Lessor.
21. Certificate of Lessee as to No Event of Default, etc. In
connection with a proposed transaction including the Property or a request to
Lessor by a third party, Lessee will deliver to Lessor within fifteen (15) days
following Lessor's request therefor (but in no event more often than three (3)
times in any twelve-month period), (a) an Officers' Certificate stating (i) that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full
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force and effect, as modified, and stating the modifications), (ii) the date to
which the Basic Rent has been paid and that all Additional Rent payable on or
before the date of such Officers' Certificate has been paid and/or the amounts,
if any, of Basic or Additional Rent that have been set off or deducted pursuant
to express provisions of this Lease, and (iii) that, to the best knowledge of
the officers signing such certificate, no default or Event of Default exists
hereunder or, if any such default or Event of Default exists, specifying the
nature and period of existence thereof and what action Lessee is taking or has
taken with respect thereto, and (b) such information with respect to Lessee and
the Property or any part thereof as from time to time may reasonably be
requested. Lessor shall do the same at the request of Lessee.
22. Right of Lessor to Perform Lessee's Covenants, etc. If Lessee
shall fail to make any payment or perform any act required to be made or
performed by it hereunder, Lessor, upon ten days prior written notice to Lessee
(except in cases of emergency that threaten bodily injury or material property
damage), but without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may enter
upon the Property or any part thereof for such purpose and take all such action
thereon as, in the reasonable opinion of Lessor, may be necessary or appropriate
therefor. No such entry in and of itself shall constitute an eviction of Lessee.
All payments so made by Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred in connection
therewith or in connection with the performance by Lessor of any such act shall
constitute Additional Rent hereunder.
23. Assignments, Sublease, Mortgages, etc.
23.1 Assignments, Subleases, etc. by Lessee. Lessee, for
itself, its heirs, distributees, executors, administrators, legal
representatives, successors and assigns, expressly covenants that it shall not
assign, mortgage, pledge, encumber, or otherwise transfer this Lease nor
underlet, nor suffer, nor permit the Property or any part thereof to be used or
occupied by others without the prior written consent of Lessor in each instance,
which consent shall not be unreasonably withheld. If this Lease be assigned, or
if the Property or any part thereof be underlet or occupied by anybody other
than Lessee, without the prior written consent of Lessor, Lessor may, after an
Event of Default by Lessee, collect rent from the assignee, undertenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
assignment, underletting, occupancy or collection shall be deemed a waiver of
the provisions hereof, the acceptance of the assignee, undertenant or occupant
as Lessee, or a release of Lessee from the further performance by Lessee of
covenants on the part of Lessee herein contained. The consent by Lessor to an
assignment or underletting shall not in any way be
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construed to relieve Lessee from obtaining the express consent in writing of
Lessor to any further assignment or underletting. In no event shall any
permitted sublessee assign or encumber its sublease or further sublet all or any
portion of its sublet space, or otherwise suffer or permit the sublet space or
any part thereof to be used or occupied by others, without Lessor's prior
written consent in each instance, which further consent shall not be
unreasonably withheld. Any assignment, sublease, mortgage, pledge, encumbrance
or transfer in contravention of the provisions of this Section 23 shall be void.
(a) If Lessee shall at any time or times during the term
of this Lease desire to assign this Lease or sublet all or part of the Property,
Lessee shall give notice thereof to Lessor which notice shall be accompanied by
(i) a conformed or photostatic copy of the proposed assignment or sublease, the
effective or commencement date of which shall be not less than thirty (30) days
nor more than one hundred and eighty (180) days after the giving of such notice,
(ii) a statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Property, (iii) current financial information with respect to the proposed
assignee or subtenant, including, without limitation, its most recent financial
report, and (iv) an agreement by Lessee to indemnify Lessor against liability
resulting from any claims that may be made against Lessor by any persons
claiming any commission or similar compensation in connection with the proposed
assignment or sublease.
(b) If Lessor consents to an assignment of this Lease,
or in the case of an assignment to a Related Corporation (as defined
hereinbelow) or otherwise, that assignment shall not be binding upon Lessor
unless the assignee shall execute, acknowledge and deliver to Lessor (a) a
duplicate original instrument of assignment in form and substance reasonably
satisfactory to Lessor, duly executed by Lessee, and (b) an agreement, in form
and substance reasonably satisfactory to Lessor, duly executed by the assignee,
whereby the assignee shall unconditionally bound by all of the terms, covenants
and conditions of this Lease on Lessee's part to be observed or performed. If
Lessor consents to a proposed subletting of the Property, or any part thereof,
or in the case of a subletting to a Related Corporation, it shall be effective
after the following further conditions have been fulfilled (i) the subletting
shall be expressly subject to all of the obligations of Lessee under this Lease
and, without limiting the generality of the foregoing, the written sublease
agreement shall contain a provision that it is subject to all of the terms,
covenants and conditions of this Lease and shall specifically provide that there
shall be no further subletting of the sublet premises; and (ii) Lessor shall be
furnished with an executed duplicate original of the sublease agreement within
five (5) days after the date of its execution.
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(c) In the event that the Lessee hereunder is a
corporation, other than one whose shares are regularly and publicly traded on a
recognized stock exchange in the United States, any change in the ownership of
and/or power to vote the majority of the outstanding capital stock of Lessee,
whether such change of ownership is by sale, assignment, merger, consolidation,
operation of law or otherwise, shall be deemed an assignment of this Lease,
which shall require the prior consent of Lessor as herein provided.
(d) Notwithstanding anything to the contrary contained
in this Lease, provided that an Event of Default is not continuing, the original
Lessee named herein shall have the right to assign this Lease or sublet all of
the Property, without requiring the consent of the Lessor, to (i) the parent
corporation of Lessee, (ii) a wholly-owned subsidiary of Lessee or of Lessee's
parent corporation, (iii) an entity that acquires all or substantially all of
the assets and business of the original Lessee named herein or of its parent
corporation, or (iv) to a corporation into or with which Lessee is merged or
consolidated in connection with or subsequent to the acquisition by such entity
of 100% of all classes of Lessee's issued and outstanding capital stock (any
such assignee or sublessee collectively, a "Related Corporation"). The right of
the original Lessee named herein to assign this Lease or sublet the entire
Property to a Related Corporation is conditioned upon (i) a certificate of
Lessee that the transaction with the assignee or sublessee is in compliance with
the conditions set forth in this subparagraph (d) shall have been delivered to
the Lessor at least ten days prior to the effective date of any such
transaction, (ii) Lessee or the surviving corporation, as the case may be, shall
continue to be liable under this lease and (iii) Lessee and such assignee or
sublessee shall have complied with the provisions of subparagraph (b) of Section
23.1 of this Lease.
23.2 Assignments, Mortgages, etc. by Lessor. The interest of
Lessor in this Lease and in and to the Property or any part thereof may, at any
time and from time to time, be sold, conveyed, assigned or otherwise transferred
in compliance with Section 45 hereof, without the prior written consent of
Lessee, and upon any such sale or conveyance of the Property as an entirety or
any such assignment or other transfer (other than for the purpose of securing
indebtedness) by any party Lessor of its interest in this Lease and in and to
the Property, such party Lessor shall be completely relieved of and from any and
all obligations not theretofore accrued under this Lease or otherwise with
respect to the Property, and such party Lessor shall have no further obligations
whatsoever to any party Lessee, except to the extent that any such obligation
accrued prior to the date of such sale, conveyance, assignment or transfer, and
Lessee shall thereupon look only to the then owner of Lessor's estate in the
Property for the performance of any obligations of Lessor hereunder. Lessor may
also from time to time mortgage or assign, by way of pledge or otherwise, any or
all of the rights, in whole or in
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part, of Lessor under this Lease or in the Property to any Person as security
for the indebtedness or other obligations of Lessor. From and after any such
mortgage or assignment and to the extent provided in the instrument effecting
such mortgage or assignment, (a) such Mortgagee may enforce any and all of the
terms of this Lease to the extent so assigned as though such Mortgagee had been
a party hereto, (b) after Lessee shall receive notice of such assignment, no
action or failure to act on the part of Lessor shall adversely affect or limit
any rights of such Mortgagee, (c) no such assignment shall constitute an
assumption of any such obligations on the part of such Mortgagee, and (d) a copy
of all notices, demands, consents, approvals and other instruments given by
Lessee hereunder shall also be delivered to such Mortgagee, if such Mortgagee
shall have provided Lessee with written notice of its address for such purposes.
23.3 Subordination. This Lease and the term, rights and
leasehold estate of Lessee shall be subject and subordinate to any Mortgages,
all renewals, modifications, consolidations, replacements or extensions of any
such Mortgage, in all amounts and all advances thereon, in favor of the holder
of any such Mortgage provided the Mortgagee in question has executed,
acknowledged, and delivered the non-disturbance agreement referred to below. The
provisions of this Section 23.3 shall be self-operative, and no further
instruments of subordination shall be required by any such Lessor or Mortgagee.
However, upon request of Lessor, Lessee shall at any time or times, execute,
acknowledge and deliver to Lessor and the Mortgagee, without expense to Lessor,
any instrument reasonably required by Lessor or required by the Mortgagee to
confirm such subordination.
23.4 Attornment. At the request of the holder of any such
Mortgage Lessee shall attorn to and recognize as Lessee's landlord hereunder
such holder or successor. Upon such attornment this lease shall continue in full
force and effect and as a direct lease between Lessee and such holder or
successor except that such holder or successor shall not be (i) liable for any
previous act or omission by Lessor under this Lease, (ii) bound by any previous
modification of this Lease not expressly provided for herein unless such
modification shall have been expressly approved in writing by such holder or
successor, (iii) bound by any previous pre-payment of Basic Rent for a period
greater than one month in advance made after Lessee has received notice of such
mortgage or lease (exclusive of any Security Deposit hereunder) unless such
prepayment shall have been expressly approved in writing by such holder or
successor.
23.5 Non-disturbance of Lessee. Upon the execution of any
Mortgage or renewal, modification, consolidation, replacement, or extension of
any Mortgage described in Section 23.3, the Mortgagee shall execute, acknowledge
and deliver to Lessee an agreement in recordable form to the effect that (a) in
any action or proceeding to enforce the rights of the Mortgagee under the
Mortgage or any document or instrument collateral there-
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to, Lessee and its subtenants, if any, will not be made parties defendant and
the term, right and leasehold estate of Lessee or such subtenants, if any, shall
not be affected, impaired or terminated by any such action or proceeding so long
as there is no continuing Event of Default, (b) if the Mortgagee or its nominee
or its designee shall become the owner of the fee of the Property (whether by
foreclosure or by acceptance of a deed in lieu thereof or by any other means),
it will acquire the same subject to all terms, covenants, and conditions of this
Lease and shall accept performance of the obligations on Lessee's part to be
performed under this Lease from Lessee, (c) the Mortgagee shall agree to apply
and allow Lessor to apply condemnation and insurance proceeds in accordance with
the provisions of this Lease and otherwise to allow Lessee the full exercise of
its rights, under this Lease, and (d) notwithstanding any collateral assignment
to the Mortgagee of the Basic Rent and Additional Rent under this Lease, so long
as no default shall occur and continue uncured under the Mortgage, Lessor shall
have the right to collect, retain and enjoy the Basic Rent and all Additional
Rent payable to Lessor.
23.6 Notices to Mortgagees by Lessee. In the event of any act
or omission by Lessor which would give Lessee the right to terminate this Lease
or to claim a partial or total eviction, Lessee will not exercise such right
unless and until it has given written notice of such act or omission to each
Mortgagee (provided the name and address of such Mortgagee shall have been
furnished to Lessee) and within twenty (20) days after Lessee gives such notice,
any Mortgagee either (a) notifies Lessee that it will remedy the act or omission
in question and a reasonable period for remedying such act or omission shall
have elapsed following the giving of such notice by the Mortgagee during which
the Mortgagee, with reasonable diligence, has not commenced and is not
continuing to remedy such act or omission or to cause it to be remedied or (b)
fails to give such notice.
24. Events of Default; Termination. The occurence of any one or more
of the following events shall constitute an "Event of Default" (whatever the
reason therefor, and whether voluntary or involuntary or by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any rule or regulation of any administrative or governmental body):
(a) if Lessee shall fail to pay any installment of Basic Rent,
Additional Rent or other sum required to be paid by Lessee hereunder on the date
the same becomes due and payable Lessor shall have given written notice to
Lessee of such failure and such failure continues for more than five (5)
Business Days after such notice; or
(b) if any Improvements Insurance or Rent Insurance shall be
cancelled or terminated or shall expire (and if replacement insurance complying
with the provisions of Section 18
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hereof has not been effected prior to such cancellation, termination or
expiration), or shall be amended or modified, except, in each case, as permitted
by Section 18 hereof; or
(c) if Lessee shall fail to perform or comply with any term of
this Lease (other than those referred to in clauses (a) and (b) above) or any
term of any instrument related hereto pursuant to which Lessee undertakes
obligations or makes agreements for the benefit of Lessor or any Mortgagee and,
in any such case, such failure shall continue for more than thirty (30) days
after written notice from Lessor; provided, however, that in the case of any
such failure that is susceptible of being cured but that cannot with diligence
be cured within such thirty (30) day period, if Lessee shall promptly commence
to cure the same and shall thereafter prosecute the curing thereof with
diligence, the period within which such failure may be cured shall be extended
for a further period as shall be necessary for the curing thereof with
diligence, but in no event for a period extending beyond one hundred eighty
(180) days after written notice from Lessor to Lessee of such nonperformance or
noncompliance; or
(d) if the Property (or the Improvements located on the
Property) shall be left vacant without maintenance and security for a period of
thirty (30) consecutive days after notice from Lessor; or
(e) if Lessee shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
(f) if an involuntary case or other proceeding shall be
commenced against Lessee seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undischarged and unstayed for a period of ninety (90) days, or if
an order for relief shall be entered against Lessee under the federal bankruptcy
laws as now or hereafter in effect.
If an Event of Default shall occur, Lessor may at any time
thereafter, during the continuance of any such Event of Default, give a written
termination notice to Lessee specifying a
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date (not less than five (5) days from the date on which such notice is given)
on which this Lease shall terminate, and, on such date, the term of this lease
shall terminate by limitation and/or rights of Lessee under this Lease shall
cease. All reasonable costs and expenses incurred by and on behalf of Lessor
(including, without limitation, reasonable attorneys fees and expenses)
occasioned by any default by Lessee under this Lease shall constitute Additional
Rent hereunder.
25. Repossession, etc. If an Event of Default shall have occurred
and be continuing, Lessor, whether or not the term of this Lease shall have been
terminated pursuant to Section 24 hereof, may enter upon and repossess the
Property or any part thereof by legal process, summary proceedings, ejectment or
otherwise, and may remove Lessee and all other persons and any and all property
therefrom. Lessor shall be under no liability for or by reason of any such
entry, repossession or removal.
26. Reletting. At any time or from time to time after the
repossession of the Property or any part thereof pursuant to Section 25 hereof,
whether or not the term of this Lease shall have been terminated pursuant to
Section 24 hereof, Lessor may (but shall be under no obligation to) relet the
Property or any part thereof for the account of Lessee, in the name of Lessee or
Lessor or otherwise, for such term or terms (which may be greater or less than
the period that would otherwise have constituted the balance of the term of this
Lease) and on such conditions (which may include rent concessions or free rent)
and for such uses as Lessor, in its reasonable discretion, may determine, and
may collect and receive the rents therefor. Lessor shall not be responsible or
liable for any failure to relet the Property or any part thereof or for any
failure to collect any rent due upon any such reletting.
27. Damages.
27.1 Termination of Lease Not to Relieve Lessee of
Obligations. No termination of the term of this Lease pursuant to Section 24
thereof, by expiration or by operation of law or otherwise, and no repossession
of the Property or any part thereof pursuant to Section 25 hereof or otherwise,
and, except as provided in Section 27.2 hereof, no reletting of the Property
pursuant to Section 26 hereof or otherwise, shall relieve Lessee of its
liabilities and obligations hereunder, all of which shall survive such
expiration, termination, repossession or reletting.
27.2 Current Damages. In the event of any such termination,
repossession or reletting Lessee will pay to Lessor the Basic Rent and all
Additional rent and other sums required to be paid by Lessee up to the time of
such termination, repossession or reletting, and thereafter Lessee, for what
would have been the remaining term of this Lease and, whether or not the
Property or any part thereof shall have been relet, shall be lia-
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ble to Lessor for and shall pay to Lessor, as liquidated and agreed current
damages for Lessee's default, (a) the Basic Rent and all Additional Rent and
other sums that would be payable under this Lease by Lessee in the absence of
such termination or repossession, plus (b) all reasonable expenses incurred by
Lessor in connection with such termination and repossession and any reletting
effected for the account of Lessee pursuant to Section 26 hereof (including,
without limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, employees' expenses, alteration costs and expenses of
preparing for such reletting), less (c) the proceeds, if any, of such reletting.
Lessee will pay such current damages on the days on which the Basic Rent would
have been payable under this Lease in the absence of such termination,
repossession or reletting and Lessor shall be entitled to recover the same from
Lessee on each such day.
27.3 Final Damages. At any time after any such termination or
repossession, whether or not Lessor shall have collected any current damages as
aforesaid, Lessor shall be entitled to recover from Lessee and Lessee will pay
to Lessor on demand, as and for liquidated and agreed final damages for Lessee's
default and in lieu of all current damages beyond the date of such demand, an
amount equal to the excess of (i) all past due Basic Rent and Additional Rent
plus the present value of all Basic Rent and Additional Rent that would be
payable under this Lease from the date of such demand (or, if it be earlier, the
date to which Lessee shall have satisfied in full its obligations under Section
27.3 hereof to pay current damages) for what would have been the unexpired term
of this Lease in the absence of such termination, repossession or reletting,
over (ii) the present value of the fair market rental for the Property at the
date of such demand for what would have been the unexpired term of this Lease in
the absence of such termination, repossession or reletting, which present value
shall in each case be determined by the application of the discount factor of
the Federal Reserve Bank of New York at the time of the demand plus one (1%)
percent. If any statute or rule of law shall validly limit the amount of such
liquidated final damages to less than the amount above agreed upon, Lessor shall
be entitled to the maximum amount allowable under such statute or rule of law.
28. Default by Lessor. If Lessor shall default in the performance or
observance of any agreement or condition in this Lease contained on its part to
be performed or observed or shall default in the payment of any tax or other
charge which is a lien upon the Property or in the payment of any installment of
principal or interest upon any mortgage which shall be prior in lien to the lien
of this Lease and if Lessor shall not cure such default within thirty (30) days
after notice from Lessee specifying the default (or if such default cannot
reasonably be cured within such thirty-day (30) period, then shall not within
said thirty-day (30) period commence to cure such default and thereafter
prosecute the curing of such default to completion with due dili-
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gence), Lessee may; at its option, without waiving any claim for damages or
breach of agreement, at any time thereafter cure such default for the account of
Lessor, and any amount paid or any contractual liability incurred by Lessee in
so doing shall be deemed paid or incurred for the account of the Lessor, and
Lessor agrees to reimburse Lessee therefor; provided that Lessee may cure any
such default for the account of Lessor, as aforesaid, prior to the expiration of
said thirty-day (30) period, but after said notice to Lessor, if the curing of
such default prior to the expiration of said thirty-day (30) period is
reasonably necessary to protect the Property or Lessee's interest therein, or to
prevent a governmental fine, or to prevent injury or damage to persons or
property or to permit Lessee to conduct its usual business operations in the
Property. If Lessor shall fail to reimburse Lessee within thirty (30) days after
notice for any amount paid for the account of Lessor hereunder, said amount may
be deducted by Lessee from the next or any succeeding payments of rent due
hereunder or any other amounts due from Lessee to Lessor.
29. Lessee's Waiver of Statutory Rights. In the event of any
termination of the term of this Lease pursuant to Section 24 hereof or any
repossession of the Property or any part thereof pursuant to Section 25
hereof, Lessee, so far as permitted by law, waives (a) any right to a trial by
jury in any proceeding or any matter in any way connected with this Lease, (b)
any right of redemption, reentry or repossession, (c) the benefits of any laws
now or hereafter in force exempting property from liability for rent or for
debt, (d) the service of any notice of intention to reenter or to institute
legal proceedings to that end otherwise required to be given under any present
or future law, and (e) the rights under any present or future law to redeem the
Property or to reenter or repossess the Property or to restore the operation of
this Lease.
30. No Waiver. Failure of either party to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by either party at any time, express or implied, of any
breach of any provision of this Lease shall be deemed a waiver of a breach of
any other provision of this Lease or a consent to any subsequent breach of the
same or any other provision. If any action by either party shall require the
consent or approval of the other party, the other party's consent to or approval
of such action on any one occasion shall not be deemed a consent to or approval
of said action on any other action on the same or any subsequent occasion.
31. Remedies Cumulative. Each right, power and remedy of each party
provided for in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power or remedy provided for in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise,
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and the exercise or attempted exercise by each party of any one or more of the
rights, powers or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by each party of any or all such other rights,
powers or remedies.
32. Modification, Acceptance of Surrender. No modification,
termination or surrender to Lessor of this Lease and no surrender of the
Property or any part thereof or of any interest therein shall be valid or
effective unless agreed to and accepted in writing by Lessor, and no act by any
representative or agent of Lessor, and no act by Lessor, other than such a
written agreement and acceptance by Lessor, shall constitute an agreement
thereto or acceptance thereof.
33. No Merger of Title. There shall be no merger of this Lease nor
of the leasehold estate created by this Lease with the fee estate by reason of
the fact that the same Person may acquire, own or hold, directly or indirectly,
(a) this Lease or the leasehold estate created by this Lease or any interest in
this Lease or in any such leasehold estate, and (b) the fee estate or any other
leasehold estate in the Property or any part thereof or any interest in such fee
estate or leasehold estate, and no such merger shall occur unless and until
every Person having any interest in (i) this Lease or the leasehold or
subleasehold estate created by this Lease, and (ii) the fee estate or any other
leasehold or subleasehold estate in the Property or any part thereof shall join
in a written instrument effecting such merger and shall duly record the same.
34. Option to Extend.
34.1 Extension. Provided that an Event of Default is not
continuing at the time the extension notice is given and at the termination date
of the then current Fixed Term or Extended Term, Lessee named on the first page
of this Lease, shall have the right, at its election, to extend the Fixed Term
for an additional five-year period, commencing upon the expiration of the Fixed
Term. Upon the expiration of such extended period, the Lessee named on the first
page of this Lease shall have the right, at its election, to extend this Lease
for a second five-year period, commencing upon the expiration of the
first-extended period. Each of such five-year extensions shall be referred to
herein as an "Extended Term." To exercise either extension right, Lessee shall
give Lessor notice before the later to occur of (a) the date fifteen (15)
months before the termination date of the then-current Fixed Term or Extended
Term and (b) thirty (30) days after Lessor shall have delivered to Lessee a
notice advising Lessee of the current extension option. Prior to the exercise by
Lessee of said election under this paragraph to extend the Fixed Term, the
expression "the term of this Lease" when used herein shall mean the Fixed Term,
and, following the exercise by Lessee of any election to extend the term, the
expression
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"the term of this Lease" when used herein shall mean the final day of the
respective Extended Term. Except as expressly otherwise provided in this Lease,
all the agreements and conditions contained in this Lease shall apply to the
Extended Term(s). If Lessee named herein shall give notice of the exercise of
its election(s) under this paragraph in the manner and within the time provided
aforesaid, and further provided that no Event of Default has occurred and is
continuing on the termination date of the then-current Fixed Term or Extended
Term, the term shall be extended without the requirement of any action on the
part of Lessor.
34.2 Rent During the Extended Term. During any Extended Term,
Lessee shall pay the Basic Rent in an amount per year equal to the annual fair
market rental value of the Property, as such fair market rental value is
determined pursuant to Section 34.3 below. Lessee shall have the right to revoke
its exercise of any option to extend by giving notice to such effect to Lessor
within (30) days after Lessor has delivered Lessor'se Fair Market Rental Value
Estimate to Lessee. In addition during the Extended Term, Lessee shall continue
to pay all Additional Rent and other sums payable hereunder through the
Termination Date.
34.3 Determination of Fair Market Rental Value. For purposes
of Section 34.2 hereof the Basic Rent shall be adjusted to an amount equal to
the fair market rental value of the Property. Such fair market rental value
shall be determined as follows:
(i) No later than thirty (30) days after the date Lessee
gives to Lessor notice of the exercise of its election to extend the term of
this Lease ("Lessee's Election Date"), Lessor shall notify Lessee in writing of
Lessor's good faith estimate of such fair market rental value ("Fair Market
Rental Value Estimate"). If Lessor fails to deliver Lessor's Fair Market Rental
Value Estimate within said period, then: (a) Lessor shall deliver Lessor's Fair
Market Rental Value Estimate as promptly as possible after the expiration of
said period; (b) for each day by which Lessor's notice is delayed beyond said
period, the effective date of the applicable rent adjustment under this Lease
shall be delayed, and during such period of delay the Basic Rent shall continue
at the same level as before such adjustment date; and (c) except as described in
clause "b", such failure or delay shall not adversely affect either party's
rights under this Lease.
(ii) Lessee may dispute Lessor's Fair Market Rental
Value Estimate by giving written notice to Lessor (the "Dispute Notice") within
thirty (30) days after Lessor has delivered Lessor's Fair Market Rental Value
Estimate to Lessee. If Lessee should fail to revoke its exercise of the option
to extend the term or to give a Dispute Notice within such 30-day period, the
Rent stated in Lessor's Fair Market Rental Value Estimate shall be the Basic
Rent for the Extend Term.
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(iii) Enclosed with the Dispute Notice, Lessee shall
furnish to Lessor its good faith estimate of the fair market rental value of the
Property. For all purposes of this Section 34.3, "fair market rental value of
the Property" shall mean the prevailing actual price [fixed rent for five (5)
years] that a willing lessee would pay a willing lessor for space of a size
similar to the Property, located in the same general neighborhood as the
Property, for a five-year lease commencing on the day next following the
termination date of the then-current Fixed Term or Extended Term and otherwise
on the terms and conditions of the Lease (including pass-throughs), on the
assumption that the Property was delivered to the hypothetical lessee in its
then-current condition.
(iv) If Lessee and Lessor are unable to resolve any
disputes as to the fair market rental value for the Property within thirty (30)
days following the date Lessee gave Lessor its estimate of the fair market
rental value of the Property, then Lessor and Lessee shall each select at their
own cost and expense an Independent appraiser who shall be an M.A.I. appraiser
with at least five (5) years' experience in the Long Island warehousing and
light industrial real estate market. The two appraisers shall attempt to
determine fair market rental value within twenty (20) days after being selected.
If they cannot, then the two shall within ten (10) days choose a third appraiser
having the same qualifications. Lessor and Lessee shall each pay one-half of the
costs and fees charged by any third appraiser. If the two appraisers cannot
agree on the third within ten (10) days, then Lessor or Lessee shall request the
chairman, president or manager of the nearest office of the American Arbitration
Association to provide a list of five (5) appraisers with the qualifications
described. If Lessor and Lessee and their appraisers cannot agree upon the third
appraiser to be chosen from such list, then the third appraiser shall be
whichever appraiser was listed first by the American Arbitration Association.
Lessor's appraiser and Lessee's appraiser shall select a figure which is their
best estimate of the fair market rental value within fifteen (15) days after
selection of the third appraiser. The third appraiser shall select whichever of
such two figures he believes best reflects fair market rental value within
fifteen (15) days after the first two appraisers have made their estimates. Such
determination, made by the third appraiser, shall be deemed to be the fair
market rental value of the Property. The decision of the appraisers shall be
conclusive and binding upon the parties.
35. End of Lease Term.
Upon the expiration or earlier termination of this Lease,
Lessee, at its expense, shall quit and surrender to Lessor the Property in good
order and condition, subject to ordinary wear and tear. Lessee shall be entitled
to remove any of Les-
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see's Equipment or to leave any of such Equipment on the Property.
36. Notices, Etc. All notices, consents, demands and requests
(collectively "Notices" and individually, a "Notice") which are required or
desired to be given by either party to the other shall be in writing. All
notices by either party to the other shall be sent by United States registered
or certified mail, return receipt requested, postage prepaid, or overnight
courier service, addressed to the other party at its address set forth above, or
personally delivered to such address or at such other single address as it may
from time to time designate in a notice to the other party. Notices which are
served upon Lessor or Lessee in the manner aforesaid shall be deemed to have
been given or served for all purposes hereunder on the date on which such notice
shall have been mailed or personally served as aforesaid.
37. Quiet Enjoyment.
37.1 So long as no Event of Default shall occur and be
continuing, Lessee (and any subtenant of Lessee permitted pursuant to the terms
of this Lease) shall peaceably and quietly have, hold and enjoy the Property for
the term hereof, subject, however, to all the terms of this Lease.
Notwithstanding anything contained in this Lease to the contrary, it is
specifically understood and agreed that Lessor shall not have any personal
liability in respect of any of the terms, covenants, conditions or provisions of
this Lease. Nothing contained in this Section 37 shall prohibit Lessor or any
Mortgagee, or their respective authorized representatives, from entering the
Property at reasonable times to inspect the same.
37.2 The Lessor covenants and agrees with Lessee that Lessor
will comply with the covenants, terms and conditions of any mortgages, security
interests, leases or installment sales contracts which are now or which may
hereafter, during the term of this Lease, be superior to this Lease. The
covenant in this paragraph shall be construed as running with the land to and
against subsequent owners and successors in interest and is not, nor shall it
operate or be construed, as a personal covenant of Lessor, except to the extent
of the Lessor's interest in the Property and only so long as such interest shall
continue, and, thereafter, this covenant shall be binding only upon such
subsequent owners and successors in interest of Lessor's interest under this
Lease, to the extent of their respective interest, as and when they shall
acquire the same, and only so long as they shall retain such interest.
38. Limitation of Liability of Lessor. Notwithstanding anything to
the contrary provided in this Lease, it is specifically understood and agreed
that there shall be absolutely no personal liability on the part of Lessor or
any successor in interest of Lessor, or any partner, stockholder, officer,
director
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or trustee of Lessor or any successor in interest of Lessor, with respect to any
of the terms, covenants, and conditions of this Lease, and that Lessee and any
persons claiming by, through or under Lessee shall look solely to the interest
of Lessor or such successor in the Property or the leasehold state of Lessor or
such successor in the Property for the satisfaction of each and every remedy of
Lessee or such person in the event of any breach by Lessor or by such successor
in interest of any of the terms, covenants and conditions of this Lease to be
performed by Lessor, such exculpation of personal liability to be absolute and
without any exception whatsoever.
39. Miscellaneous. All rights, powers and remedies provided herein
may be exercised only to the extent that the exercise thereof does not violate
any applicable provision of law, and are intended to be limited to the extent
necessary so that they will not render this Lease invalid, illegal or
unenforceable under the provisions of any applicable law. If any term of this
Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term shall not be
affected thereby. This Lease may be changed, waived, discharged or terminated
only by an instrument in writing, signed by each of the parties hereto. Subject
to Section 23 hereof, this Lease shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns of the parties
hereto. This Lease shall be construed and enforced in accordance with and
governed by the laws of the State of New York. The headings in this Lease are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease may be executed in several counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument. The terms, covenants, provisions and conditions of the Old
Lease are amended, modified, and superceded in their entirety by the terms,
covenants, provisions and conditions of this Lease.
40. Unavoidable Delays. In the event of any Unavoidable Delays (as
that term is defined in Section 43) under this Lease, the time of performance of
the covenants and obligations under this Lease in question (which shall in no
event include any requirement for the payment of a sum of money) shall
automatically be extended for a period of time equal to the aggregate period of
the Unavoidable Delays.
41. Consent. Wherever this Lease provided that the consent of either
party shall not be unreasonably withheld, the giving of such consent shall also
not be unreasonably delayed.
42. Rights of Butler Funds.
42.1 Notices. Lessor shall give to Senior Lending Associates
I, L.P. and Mezzanine Lending Associates II, L.P. (herein collectively, the
"Butler Funds") a copy of each notice required to be given to Lessee hereunder
at the same time and in
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the same manner as said notice is required to be given to Lessee, and no such
notice shall be deemed effective unless and until it is given to Butler Funds in
accordance with Section 36 hereof. Any notice to the Butler Funds shall be sent
to each Butler Fund, c/o Butler Capital Corporation, 767 Fifth Avenue, 6th
Floor, New York, New York, Attention: Arthur W. Wadman, with a copy to Ropes &
Gray, 225 Franklin Street, Boston, Massachusetts, 02110, Attention, R. Bradford
Malt, Esq.
42.2 Notice of an Event of Default. Lessor shall give to the
Butler Funds a copy of each notice of the occurrence of an Event of Default at
the same time and in the same manner it is required to give notice of such Event
or Default to Lessee, and no such notice of an Event of Default to Lessee, and
no such notice of an Event of Default shall be deemed effective unless and until
it is given to the Butler Funds.
42.3 Right to Cure Lessee's Default. If any Default occurs, as
provided in Section 24 hereof, then upon receipt of notice thereof by the Butler
Funds, the Butler Funds shall be entitled to (i) cure such Default within
fifteen (15) days in the case of a Default in the payment of a sum of money or
(ii) cure such Default or take action designed to cure such Default within
thirty (30) days in the case of any other Default, provided that the period
within which such failure may be cured shall be extended for a further period as
shall be necessary for the curing thereof with diligence, but in no event for a
period extending beyond one hundred eighty (180) days after written notice from
Lessor to the Butler Funds of such Default.
42.4 No Termination, Amendment or Waiver. No termination,
except termination pursuant to Section 24 of this Lease, or amendment of this
Lease, and no waiver by Lessee of any right, power or remedy arising from a
breach of this Lease by Lessor, shall be effective unless the Butler Funds shall
have given expressly in writing their consent to such termination, amendment or
waiver.
42.5 Acceptance of Performance. Subject to the provisions of
Section 23.1 hereof, Lessor shall accept performance by the Butler Funds of any
covenant, condition or agreement on Lessee's part to be performed hereunder with
the same force and effect as though performed by Lessee.
42.6 Applicability. This Section 42 (and subsections 42.1
through 42.5 inclusive) shall only apply for such time or times during the
term of this Lease that the Lessee or the Lessee's parent corporation is
affiliated with or under the control of the Butler Funds or affiliates of the
Butler Funds.
43. Definitions. As used in this Lease, the following terms shall
have the following respective meanings, applicable both to the singular and
plural forms of the terms so defined:
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Additional Rent: the meaning specified in Section 4 hereof.
Basic Rent: the meaning specified in Section 3 hereof and shall include
CPI Rent computed in accordance with Schedule C attached hereto.
Business Day: any day other than a day on which banking institutions in
the State of New York are authorized by law to close.
Date hereof or date hereof: means the Commencement Date.
Depository: shall mean a bank or trust company with a capital and surplus
of at least $100,000,000, having its principal office in the State of New
York, selected by Lessee and approved by Lessor, which approval shall not
be unreasonably withheld. All fees and expenses of any Depository
(including attorneys' fees) shall be borne by Lessee.
Event of Default: the meaning specified in Section 24 hereof.
Extended Term: the meaning specified in Section 34 hereof.
Fixed Term: the meaning specified in Section 1 hereof.
Improvements: the meaning specified in Section 1 hereof.
Indemnified Party: the meaning specified in Section 12 hereof.
Insurance Requirements: all terms of any insurance policy required to be
maintained hereunder covering Lessee or covering or applicable to the
Property or any part thereof, all requirements of the issuer of any such
policy, and all orders, rules, regulations and other requirements of the
National Board of Fire Underwriters (or any other body exercising similar
functions) applicable to or affecting the property or any part thereof or
any use or condition of the Property or any part thereof.
Land: the meaning specified in Section 1 hereof.
Legal Requirements: all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments,
departments, commissions, boards, courts, authorities (including, without
limitation, environmental protection, plan-
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ning and zoning authorities), agencies (and other governmental or
quasigovernmental units, whether Federal, state, county, district,
municipal, city or other), and any officials and officers thereof,
foreseen or unforeseen, ordinary or extraordinary, which now or at any
time hereafter may be applicable to Lessee with respect to the Property or
to the Property or any part thereof (including any which may apply to the
repair, use or maintenance of the Property or any part thereof), or any of
the adjoining sidewalks, curbs, vaults and vault space, if any, streets or
ways, or any use or condition of the Property or any part thereof.
Lessee: the person named as Lessee herein and, from and after any sale,
assignment or other transfer of Lessee's interest in this Lease permitted
pursuant to the provisions hereof, Lessee shall mean the owner at the time
in question of Lessee's interest under this Lease.
Lessee's Equipment: the meaning specified in Section 9.1 hereof.
Lessor: the owner in fee simple of the Property, so that, in the event of
any transfer of the Lessor' 5 entire interest in the Property, the
transferor, grantor or assignor as the case may be, shall be and hereby is
entirely relieved and freed of all of its obligations hereunder, and it
shall be deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to perform and
observe all obligations of the transferor, grantor or assignor hereunder
whether then accrued or thereafter accruing.
Mortgage: any mortgage granted from time to time in compliance with the
provisions of Section 23 which are now liens on the fee title to the
Property as the same may be renewed, modified, extended, consolidated and
replaced, from time to time, provided that such renewals, modifications,
extensions, consolidations and replacements have been made in accordance
with and comply with the provisions of Section 23; each of the Mortgages
is herein sometimes called a Mortgage and each of the holders thereof is
herein sometimes called the "Mortgagee" and collectively the "Mortgagees."
Officers' Certificate: with respect to any corporation other than a bank
or trust company, a certificate signed by the President or a Vice
President and by the Treasurer, Comptroller, Assistant Treasurer or
Assistant Comptroller of such corporation and, with respect to any bank or
trust company, a certificate signed by any officer thereof.
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Person: a corporation, an association, a partnership, an organization, a
trust, an individual, a government or political subdivision thereof or a
governmental agency.
Property: the meaning specified in Section 1 hereof.
Responsible Officer: the chairman or vice chairman of the board of
directors or of any committee thereof, the president, the chief executive
officer, or any vice president (whether or not designated by a word or a
number of words added before or after the title "vice president"), the
treasurer, the secretary or the general counsel of Lessee, or any other
officer of Lessee now or hereafter customarily performing functions
similar to those performed by any of the above designated officers and, in
addition. when used with respect to any particular subject matter, any
other officer of Lessee to whom such matter is referred because of such
officer's knowledge of and particular familiarity with such subject
matter.
Restoration: in case of damage to or destruction or Taking of the Property
(or any of the Improvements located thereon), the restoration, replacement
or rebuilding of such Property (or such Improvements) as nearly as
possible to its value, condition and character immediately prior to such
damage. destruction or Taking, with such alterations and additions as may
be made at Lessee's election pursuant to and subject to the conditions of
Section 8 hereof, together with any temporary repairs and property
protection which may be required pending completion of such work.
Taking: a temporary or permanent taking by a government or political
subdivision thereof or by a governmental agency or an authority or entity
authorized to utilize powers similar to condemnation or eminent domain
during the term hereof of all or any part of the Property, or any interest
therein or right accruing thereto, as the result of or in lieu of or in
anticipation of the exercise of the right of condemnation or eminent
domain, or a change of grade affecting the Property or any part thereof.
Such a taking shall be deemed to have occurred on the date on which Lessee
shall be legally required to relinquish possession of the Property.
Taxes: the meaning specified in Section 14 hereof.
The Term (or term) of this Lease: the meanings specified in Section 34.1
hereof.
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Termination Date: the tenth anniversary of the last day of the month in
which the Commencement Date occurs, unless sooner terminated as expressly
provided in this Lease. However, if the term of this Lease is extended by
Lessee's effective exercise of Lessee's right to extend the term, pursuant
to the provisions of Section 34 of this Lease, then the Termination Date
shall be changed to the last day of the then-current Extended Term (as
defined in Section 34), unless the then-current Extended Term is sooner
terminated as expressly provided in this Lease.
Total Destruction: the meaning specified in Section 19.3 hereof.
Total Taking: the meaning specified in Section 20.3 hereof.
Unavoidable Delays: delays due to acts of God, governmental restrictions,
enemy actions, civil commotion, fire, unavoidable casualty, strikes,
shortages of supplies or other causes beyond the control of the party
required to perform, but lack of funds shall not be deemed a cause beyond
the control of any party hereto.
Various other words or terms which are defined in other Sections of this Lease
shall have the meanings specified in such Sections for all purposes of this
Lease, unless the context otherwise requires.
44. Broker. Lessee and Lessor each represents and warrants to the
other that it is not had any dealing with any realtors, brokers or agents in
connection with the negotiation of this Lease and agrees to pay, and to hold the
other harmless from any cost, expense or liability for any compensation,
commission or charges claimed by any realtors, broker, or agents with whom it
has dealt with in respect to this Lease and/or the negotiation hereof.
45. Right of First Refusal. Provided that an Event of Default is not
continuing, the original Lessee named herein shall have the right of first
refusal to purchase the Property as hereinafter provided. If at any time during
the Fixed Term or any Extended Term of this Lease Lessor shall desire to sell
Lessor's fee simple interest in the Property to a person or entity other than
the Lessee, Lessor shall deliver to the Lessee a written summary of all of the
material terms of the proposed sale transaction (the "Term Sheet") with such
person or entity accompanied by Lessor's offer to sell to the Lessee the
Property under the same terms and conditions contained in the Term Sheet
("Lessor's Offer"). The Lessee will have a period of thirty (30) days after
Lessee has received a copy of the Term Sheet and Lessor's Offer in which to
accept, by written notice to the Lessor, Lessor's Offer. If Lessee elects to
accept Lessor's Offer, Lessee shall
36
<PAGE>
give notice of its acceptance to the Lessor within such 30-day period and will
close on the transaction at the office of the Lessor on a mutually acceptable
date which date shall not be less than sixty (60) days no more than ninety (90)
days after the Lessor and Lessee have entered into a formal contract in respect
to the sale of the Property substantially on the terms set forth in the Term
Sheet and Lessor and Lessee agree to negotiate in good faith and to enter into
such contract within thirty (30) days after Lessor has received Lessee's written
notice of acceptance of Lessor's Offer. If Lessee has not accepted Lessor's
Offer within such 30-day period, Lessor's Offer shall be deemed to be declined
as to that particular transaction only and Lessor will be free to sell the
Property to the third party identified in the Term Sheet at a price and upon
terms and conditions not less favorable to the Lessor than those set forth in
the Term Sheet; provided, however, if the terms of the transaction are modified
at any time after the Lessee has declined or is deemed to have declined the
transaction, then the modified transaction must be resubmitted to the Lessee and
the Lessee's right of first refusal will be applicable to the modified
transaction. The right of first refusal shall not apply to a Taking. See Rider
on page 37-A attached hereto and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed as of the date first set forth above.
LESSOR:
A & C REALTY
/S/ Arnold Barsky
----------------------------------
Arnold Barsky
ATTEST: LESSEE:
ARCON MILLS, INC.
[Illegible] By: /S/ Arnold Barsky
- --------------------------------- ----------------------------------
President
37
<PAGE>
RIDER TO SECTION 45
Notwithstanding anything to the contrary or otherwise contained in this Section
45, the right of first refusal shall not apply to any transfer or proposed
transfer of the Property to Members of the Immediate Family of Lessor. "Members
of the Immediate Family" shall mean, with respect to any individual, each
spouse, parent, brother, sister or child of such individual, each spouse of any
such Person, each child of any spouse, brother, sister or child, each trust
created solely for the benefit of one or more of such Persons and each custodian
or guardian of the property of one or more such Persons (in such Person's
capacity as such custodian or guardian).
37-A
<PAGE>
SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and being at
Oceanside, in the Town of Hempstead, County of Nassau and State of New York,
bounded and described as follows:
BEGINNING at a point on the southeasterly side of New Street, distant 207.75
feet northerly and easterly as measured along the southeasterly and southerly
side of New Street from the corner formed by the intersection of said
southeasterly side of New Street with the easterly side of Schweitzer Road
and from said point of beginning;
RUNNING THENCE South 4 degrees 53 minutes West a distance of 100.00 feet;
THENCE South 85 degrees 07 minutes East a distance of 386.76 feet;
THENCE North 14 degrees 38 minutes East, a distance of 116.68 feet;
THENCE North 85 degrees 07 minutes West, a distance of 404.00 feet to the
southeasterly side of New Street; and
RUNNING THENCE along the southeasterly side of New Street South 14 degrees 25
minutes 30 seconds West, a distance of 15.21 feet to the point or place of
BEGINNING.
TOGETHER with an easement over the most southerly 11.5 feet, more or less, of
the premises adjoining the above described premiss on the north for ingress and
egress to and from New Street and the above described premises.
<PAGE>
EXHIBIT A
Certificate of Occupancy No. 116866, dated May 25, 1972, issued by the
Department of Buildings, Town of Hempstead for the Improvements.
<PAGE>
Schedule B
Title Exceptions
1. Declaration of Easement dated May 8, 1972 made by Point-Set Indoor
Racquet Club, Inc. and recorded in the office of the Nassau County Clerk in
Liber 8392, Page 246.
2. Real Estate Taxes of the Town of Hempstead and the County of Nassau and
any other taxes and assessments imposed by other taxing authorities for the year
1988 and years subsequent thereto.
3. The state of facts shown on a survey of the Property made by John A.
Robinson dated May 21, 1988.
4. The matters set forth in the Certificate of Title No. 460-N-4070 (PLTS
66561-N) issued by First American Title Insurance Company of New York dated
January 15, 1988 and redated to June 1, 1988.
<PAGE>
SCHEDULE C
BASIC RENT SCHEDULE
Lessee covenants and agrees to pay to Lessor Basic Rent for the Property
during the Fixed Term of this Lease in the annual amount of One Hundred Eighty-
Six Thousand ($186,000) Dollars, in twelve (12) monthly installments of Fifteen
Thousand Five Hundred ($15,500) Dollars, subject to the CPI Increases set forth
hereinbelow.
Lessee covenants and agrees to pay to Lessor Basic Rent for the Property
during any Extended Term of this Lease in an amount per year to be determined
pursuant to Section 34.3 of this Lease, subject to the CPI Increases set forth
hereinbelow.
Basic Rent payable during the Fixed Term and any Extended Term of this
Lease shall be subject to the CPI Increase computed as follows. On each
Anniversary Date (as hereinafter defined) the Basic Rent as of the Lease Date
shall be increased by an amount equal to the CPI Increase (as herein defined)
for such Anniversary Date, which increased Basic Rent shall be payable in equal
monthly installments in advance on the first day of each month commencing on the
first day of the month following the date on which the Lessor has submitted a
statement to Lessee setting forth any CPI Increase in the Basic Rent that may be
due, and the first such payment shall include any increases due pursuant to this
paragraph for any month or months between the Anniversary Date and the date of
Lessor's statement. In no event shall the calculations referred to in this
paragraph serve to reduce the Basic Rent below the Basic Rent payable on the day
prior to the Anniversary Date. Within ten days after any written request of
Lessor, Lessee will enter into a modification of this Lease with Lessor, setting
forth the new Basic Rent as increased by the CPI Increase and the date it
commences pursuant to the provisions of this paragraph. The term "Basic Rent"
shall be deemed to include the CPI Increase, when applicable.
"Consumer Price Index" shall mean the Consumer Price Index for All Urban
Consumers (CPI-U), New York, New York/Northeastern New Jersey, all items, now
issued by the Bureau of Labor Statistics (the "BLS") of the United States
Department of Labor. In the event that the Consumer Price Index is not
available, the successor or substitute index published by the BLS shall be used
for the computations herein set forth. In the event that the Consumer Price
Index or such successor or substitute index is not published, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Consumer Price Index shall be used for the
computations herein set forth.
<PAGE>
"Lease Date" shall mean the date of this Lease, except during any Extended
Term for which Basic Rent has been determined pursuant to Section 34.3 of this
Lease, it shall mean the first day of such Extended Term.
"Anniversary Date". shall mean the second anniversary of the Commencment
Date and each biennial anniversary thereafter during the Fixed Term and the
Extended Term, if any.
"CPI Increase shall mean an amount equal to the product of (i) a fraction,
the numerator of which is the difference between the Consumer Price Index for
the first day of the month immediately preceding the Anniversary Date as to
which the computation is made and the Consumer Price Index for the Lease Date,
and the denominator of which is the Consumer Price Index for the Lease Date,
multiplied by (ii) the annual Basic Rent as of the Lease Date.
<PAGE>
OCCUPANCY CERTIFICATE Date 5/25/72
DEPARTMENT OF BUILDINGS
TOWN OF HEMPSTEAD, N.Y. Fee $ No Fee
THIS CERTIFIES that the building located on Section 43 Block No. 194
Lot p/of 105 ZONE Bus
Location S/E/ of New St. & Tupper Road Oceanside, N.Y.
authorized by Building Permit No. 7003861 Dated 12/18/1970
with a declared construction cost of $152,000.00 conforms substantially to the
requirements of the Building Zone Ordinance and Building Code of the Town of
Hempstead, New York, as applying to buildings of its class and kind.
Permitted Occupancy Industrial and Commercial use
This certificate issued to Oceanside Gardens
Owner of the aforesaid building
Address 335 Central Ave. Lawrence
Official House Number New Street
DEPARTMENT OF BUILDINGS
Town of Hempstead, N.Y.
No. 116866 /s/ Bert A. Mayer
------------------------------
Commissioner
SUBJECT TO CONDITIONS, IF ANY, AS LISTED ON REVERSE SIDE HEREOF
<PAGE>
EXHIBIT 10.28
[LOGO]
LEASE AGREEMENT
No. CPG-101
--------
This Lease Agreement is made the 15th day of November, 1995, between IFA
Incorporated with its office at 1901 Roselle Road, Suite 950, Schaumburg,
Illinois 60195 ("Lessor") and Custom Papers Group, Inc. with an office at 110
Tredegar Street, Richmond, Virginia 23219 ("Lessee"). In consideration of the
mutual covenants herein contained, the parties agree as follows:
1. LEASE
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor, the
equipment and/or features ("Equipment") described in the Equipment
Supplement(s) ("Supplement") attached hereto. Each Supplement constitutes a
separate lease. In the event of a conflict between the terms and conditions
of this Lease Agreement and the terms and conditions of any Supplement or any
amendment, addendum or rider thereto, the terms and conditions of any
Supplement, amendment, addendum or rider shall prevail. Any reference to
"Lease" shall mean this Lease Agreement, the Supplement(s), and any
amendment(s), addenda or rider(s) thereto.
This Lease and each Supplement thereto is non-cancellable and Lessee's
obligation to pay all amounts due shall be absolute and unconditional and
shall not be subject to any delay, set-off, defense, counterclaim or
recoupment for any reason, whatsoever, including any failure of the Equipment
or any representations of the manufacturer.
Lessor has the authority to insert the serial numbers and other description
of the Equipment governed by this Lease into a Supplement thereto.
2. TERM
The term of this Lease with respect to the Equipment described in a
particular Supplement shall commence on the date set forth on the applicable
Supplement ("Commencement Date") for such Equipment and shall continue for
such number of months thereafter as is specified on such Supplement ("Initial
Term"). Where no date is specified, the Commencement Date shall be: (a) in
the case of Equipment which is the subject of a sale and leaseback between
Lessor and Lessee, the first day of the month following the date upon which
Lessor purchases such Equipment; or (b) in the case of Equipment requiring
installation, the first day of the month following the date upon which the
Equipment is certified as ready for use by the manufacturer ("Installation
Date").
This Lease may be terminated as to a Supplement at the expiration of its
Initial Term by written notice of termination given by either party to the
other not less than three (3) months prior to the date of termination
designated in such notice which date shall be the last day of a calendar
month. Notice of termination given in accordance with this Section shall not
be effective unless it is applicable to all items of Equipment described in a
Supplement.
3. RENTAL
The monthly rental ("Monthly Rental") and other charges due hereunder for
each item of
<PAGE>
Equipment shall begin to accrue on the Installation Date and shall be due and
payable by Lessee in advance on the first day of each month (except for the
first payment which shall be a pro rata portion of the Monthly Rental charge,
calculated on a 30-day basis, due and payable on the Commencement Date). In
addition to the Monthly Rental set forth in the Supplement, Lessee shall pay
to Lessor an amount equal to all taxes paid, payable or required to be
collected by Lessor, however designated, which are levied or based on the
rental, on the Lease or on the Equipment or its purchase, sale, ownership,
delivery, possession, use, lease, operation, control or value (including,
without limitation, state and local privilege or excise taxes based on gross
revenue, all license and registration fees, any other governmental charges),
any penalties or interest in connection therewith not arising from negligence
on the part of Lessor or taxes or amounts in lieu thereof paid or payable by
Lessor in respect of the foregoing, but excluding taxes on Lessor's net
income. Such sums due under the Lease, in addition to the monthly rental
amounts, will be deemed Additional Rent due.
Lessee shall file timely all necessary personal property returns or
declarations and pay all personal property taxes levied on or assessed
against the Equipment during the Initial Term of the applicable Supplement,
and all renewals or extensions thereof, before such taxes become delinquent,
without any proration whatsoever. Lessee shall promptly (a) provide evidence
satisfactory to Lessor of the timely filing of the returns or declarations
and the payment of such taxes, or (b) notify Lessor, in sufficient time for
Lessor to file same timely, when by law or local custom Lessee cannot file
same, and promptly pay the amount of such taxes to Lessor.
Interest on any past due payments shall accrue at the rate of 1-1/2% per
month, or if such rate shall exceed the maximum rate allowed by law, than at
such maximum rate, and shall be payable on demand. Charges for taxes,
penalties and interest shall be promptly paid by Lessee when invoiced by
Lessor.
4. QUIET ENJOYMENT
Provided Lessee is not in default under this Lease, neither Lessor nor anyone
claiming through Lessor shall interfere with Lessee's right of exclusive
possession, quiet enjoyment and unlimited use of the Equipment.
5. INSTALLATION, MAINTENANCE AND DISCONTINUANCE OF EQUIPMENT
(a) Lessor shall have the sole right and option to make all the
arrangements for (i) the transportation of each Item of Equipment to, and the
installation of, each Item of Equipment at the Equipment Location stated in
the applicable Supplement, and (ii) the discontinuance, disassembly, packing
and transportation of each Item of Equipment from the Equipment Location to a
location of Lessor's choice within the continental United States upon the
termination of the applicable Supplement (by expiration or otherwise) as to
each Item of Equipment.
(b) Lessee shall (i) make all arrangements for rigging and drayage, if
applicable, with respect to the Equipment, and (ii) furnish suitable electric
current required to operate the Equipment and a specific area in the
Equipment Location which is suitable for the operation of the Equipment and
complies with the applicable directives issued by the manufacturer thereof
and by Lessor. All transportation (including insurance), rigging and drayage
costs with respect to the Equipment, both on delivery to the Equipment
Location and redelivery to a
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<PAGE>
location of Lessor's choice within the continental United States, and all
installation, discontinuance, disassembly and packing costs shall be paid by
Lessee.
(c) Any equipment, cards, disks, tapes or other items not specified in
the Supplement(s) which are used on or in connection with the Equipment must
meet the specifications of the manufacturer and shall be acquired by Lessee
as its own expense.
(d) Lessee will at all times keep the Equipment in its sole possession
and control. The Equipment shall not be moved from the Equipment Location
without Lessor's prior written consent.
(e) After prior written notice to Lessor and with Lessor's prior
written consent, Lessee may, at its own expense, make alterations in or add
attachments to the Equipment, provided such alterations or attachments do not
interfere with the normal and satisfactory operation or maintenance of the
Equipment or with Lessee's ability to obtain and maintain the maintenance
contract required by Section 5(f) hereof and are removable at any time
without material damage to the Equipment. All such alterations and
attachments shall be removed by Lessee and the Equipment restored, at
Lessee's expense, to its original condition, reasonable wear and tear only
excepted, no later than the termination of this Lease as to the applicable
item of Equipment. All alterations and attachments not removed upon
termination of the Lease shall become the property of the owner of the
Equipment.
(f) Lessee shall, during the term of this Lease, at its own expense,
enter into and maintain in force a contract with the manufacturer or the
Maintenance Organization covering at least prime shift maintenance of each
item of Equipment. If at any time the Equipment is not being maintained to
Lessor's satisfaction, Lessor shall have the right to require Lessee to have
another company of Lessor's choice maintain the Equipment. Such maintenance
contract shall commence upon expiration of the manufacturer's warranty period,
if any, relating to such item of Equipment. At Lessor's request Lessee shall
furnish Lessor with an executed copy of such maintenance contract and all
renewals and extensions thereof and amendments thereto.
(g) At the termination of this Lease as to the applicable Supplement
(by expiration or otherwise), Lessee shall, at its expense, return the
Equipment to Lessor in the same operating order, repair, condition and
appearance as on the Commencement Date, subject only to reasonable wear and
tear. Lessee shall cause the Equipment to be audited by the manufacturer.
Lessee shall be responsible to have the Equipment certified as acceptable for
the manufacturer's standard maintenance contract prior to redelivery to
Lessor. Lessee shall present Lessor with a manufacturer's audit sheet or
maintenance qualification letter. Lessee shall enter into a contract with the
manufacturer of the Equipment to prepare it for redelivery to Lessor using
manufacturer's standard packing materials. All charges of complying with the
provisions of this section shall be at Lessee's sole expense.
6. OWNERSHIP AND INSPECTION
(a) This is a contract of lease only and Lessee shall have no equity or
property interest in the Equipment other than the rights acquired as a Lessee
hereunder and the Equipment shall remain personal property regardless of the
manner in which it may be installed or attached. Lessee shall not, without
Lessor's prior written consent, install or use the Equipment in such a
-3-
<PAGE>
manner or in such circumstances that any part of the Equipment is deemed to
be an accession to other personal property. The Lessee shall, at Lessor's
request, affix to the Equipment tags, decals or plates furnished by Lessor
indicating Lessor's ownership and Lessee shall not permit the removal or
concealment thereof.
(b) Lessee shall keep the Equipment free and clear of all liens and
encumbrances except liens or encumbrances arising through the actions or
omissions of Lessor. Lessee shall discharge, at its own expense, any liens or
encumbrances filed against the Equipment, except liens and encumbrances
created by Lessor. LESSEE SHALL NOT ASSIGN OR OTHERWISE ENCUMBER THIS LEASE
OR ANY OF ITS RIGHTS HEREUNDER OR THE EQUIPMENT, EXCEPT THAT LESSEE, AT ITS
EXPENSE AND UPON PRIOR WRITTEN NOTICE TO LESSOR, MAY ASSIGN THIS LEASE OR
SUBLEASE THE EQUIPMENT TO ITS PARENT OR ANY SUBSIDIARY CORPORATION OR TO A
CORPORATION WHICH SHALL HAVE ACQUIRED ALL OR SUBSTANTIALLY ALL OF THE
PROPERTY OF LESSEE BY MERGER, CONSOLIDATION OR PURCHASE. Upon any permitted
assignment or sublease, Lessee shall execute and deliver to Lessor, or any
assignee of Lessor, at Lessee's expense, such documentation as Lessor or such
assignee may require, including but not limited to documentation to evidence
and put third parties on notice of Lessor's or is assignees' interest in the
Equipment. No permitted assignment or sublease shall relieve Lessee of any of
its obligations hereunder.
(c) Lessor or its agents shall have free access to the Equipment and any
maintenance records kept by the Lessee which pertain to the Equipment at all
reasonable times for the purpose of inspection and for any other purpose
contemplated in this Lease.
(d) Lessee shall immediately notify Lessor of all details concerning
any damage to, or loss of, the Equipment arising out of any event or
occurrence whatsoever, including, but not limited to, the alleged or apparent
improper manufacture, functioning or operation of the Equipment.
7. WARRANTIES AND DISCLAIMER OF WARRANTIES
(a) Lessee represents that, as of the date the Equipment is installed,
it shall have (i) thoroughly inspected the Equipment, (ii) determined for
itself that all Items of Equipment are of a size, design, capacity and
manufacture selected by it, and (iii) satisfied itself that the Equipment is
suitable for Lessee purposes. Lessee authorizes Lessor to insert in each
Supplement the serial numbers and other identifying data of the Equipment
from the manufacturer's invoice.
(b) Lessee hereby covenants, represents and warrants with respect to
this Lease and each Supplement executed hereunder that:
(i) the execution, delivery and performance thereof by Lessee
have been duly approved and authorized by all necessary corporate action;
(ii) the individual executing such was duly authorized to do so;
(iii) the Lease and each Equipment supplemental constitute legal,
valid and binding agreements of Lessee enforceable in accordance with
their respective terms; and,
(iv) the Equipment is personal property and when subjected to
use by Lessee will
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<PAGE>
not be or become a fixture under applicable law.
(v) Lessee is a valid corporation and is properly authorized to
do business in the jurisdictions relevant to the Lease.
(vi) Lessee maintains a chief office in the city and state listed
on page 1 of this Lease.
(vii) The transaction does not require shareholder approval, or
approval by any other holders of indebtedness.
(viii) The transaction does not violate any laws and does not
constitute a default under any of it other obligations.
(ix) The consummation of the Lease agreement does not require the
consent or approval of any branch of government, or authority.
(x) There are no suits pending against the Lessee with a
potential material adverse effect, and no further action, aside from the
filing of financing statements is required to perfect the Lessor's title
and interest in the Equipment.
(xi) No event of default has occurred under the Lease and the
financial statements furnished by the Lessee to the Lessor prior to the
date of the Lease fairly represent the financial condition of the Lessee.
(xii) As of the date of this Lease, the Lessee does not
contemplate any merger, consolidation, or sale of its assets with any
other entity.
(xiii) In the event of a "sale and leaseback":
(aa) Lessor will receive good and marketable title to the
Equipment free and clear of all liens, except as to the rights of
Lessee and liens and encumbrances created by Lessor;
(bb) All taxes associated with the Lease have been paid
(other than such taxes which are being contested by Lessee in good
faith); and
(cc) Lessee is solvent and will not be rendered insolvent
by the sale of the Equipment.
(c) LESSOR SUPPLIES THE EQUIPMENT "AS IS" AND NOT BEING THE
MANUFACTURER OF THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SUPPLIER'S
AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO
THE EQUIPMENT'S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN,
CONDITION, QUALITY, CAPACITY, MATERIAL OR WORKMANSHIP, OR AS TO PATENT
INFRINGEMENT OR THE LIKE, it being agreed that all such risks, as between
Lessor and Lessee, are to be borne by Lessee. Lessor disclaims any warranty
that the Equipment is in compliance with any applicable governmental
regulations or requirements. Lessor has no familiarity with the Equipment.
Lessee agrees to look solely to the manufacturer or the supplier of the
Equipment for any and all warranty claims and any and all warranties made by
the manufacturer or the supplier to Lessor are hereby assigned to Lessee, to
the extent permitted by the manufacturer or the supplier, for the term of the
applicable Supplement. Lessee agrees that Lessor shall not be responsible for
the delivery, installation, maintenance, operation or service of the
Equipment or for delay or inadequacy of any or
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<PAGE>
all of the foregoing. Lessor shall not be responsible for any direct,
indirect, special or consequential loss or damage resulting from installation
(including strict liability in tort). Lessee (and any guarantor of Lessee's
performance under the Lease) shall defend, indemnify and hold Lessor harmless
from and against any and all claims, actions, damages, demands, obligations,
liabilities and liens and all costs and expenses, including but not limited
to reasonable attorneys' and accountants' fees and court costs, incurred by
Lessor in connection therewith, arising out of the Lease including but not
limited to the purchase, ownership, leasing, licensing, possession,
maintenance, design, manufacture, condition, use or return of the Equipment,
or arising by operation of law or on account of personal injury, strict
liability in tort, negligence or patent, trade secret, trademark, or
copyright infringement excluding, however, any of the foregoing to the extent
they result from the gross negligence or willful misconduct of Lessor.
8. RISK OF LOSS
(a) Lessee shall bear the risk of the Equipment being lost, damaged,
destroyed, stolen, confiscated, or condemned ("Event of Loss") from any
source, arising from the date of delivery of the Equipment to Lessee through
and including the date upon which the Equipment is returned to Lessor or such
person as Lessor may designate. In the event any item of Equipment is lost,
destroyed, damaged, stolen, confiscated or condemned, Lessee will promptly
repair, restore, or replace such item of Equipment with like items reasonably
acceptable to Lessor, and having a fair market value equal to that of the
affected item prior to its being so affected, at Lessee's sole cost and
expense; provided, however, the Lessee shall not be required to make any
repair, restoration or replacement to the Equipment if Lessee shall elect to
terminate this Lease and pay the Stipulated Loss Value in accordance with
Schedule A to the Supplement describing such item of Equipment.
(b) Lessee shall defend, indemnify and hold Lessor harmless against any
and all claims, demands and liabilities, including attorneys' fees of Lessor,
with respect to any loss or damages to the Equipment.
(c) Lessee shall obtain, pay for and maintain at all times until the
Equipment has been returned to Lessor pursuant to the provisions hereof,
public liability, property damage, all risk, and fire and in such amounts
extended coverage insurance with respect to the Equipment, in each case in
such form as shall be reasonably satisfactory to Lessor. Such property damage
insurance shall be in an amount at least equal to the greater of the
replacement value of such Equipment or the Stipulated Loss Value of such
Equipment, determined as of the date of the occurrence of an Event of Loss,
in accordance with Schedule A to the Supplement describing such item of
Equipment. All policies shall be issued by insurers of recognized
responsibility, reasonably satisfactory to Lessor, and shall name as insured
parties and/or loss payees Lessor, Lessee and Lessor's assignees as their
interests may appear and provide that they cannot be cancelled or modified
except on at least thirty (30) days' prior written notice to Lessor. Evidence of
such insurance shall be delivered to Lessor no later than the Commencement Date
of the applicable Supplement and from time to time thereafter as Lessor may
request and in the case of renewals at least thirty (30) days prior to the
expiration of the current policy.
(d) If Lessee fails to perform any of its obligations under this Lease,
including but not
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<PAGE>
limited to, the maintenance of insurance on the Equipment, or the discharge
of any encumbrances created by the Lessee, Lessor has the right, but not the
obligation, to substitute performance, in which case Lessee shall pay Lessor
the cost thereof. The performance by the Lessor of any of Lessee's
obligations shall not be considered a waiver of any sort by Lessor of his
rights under the agreement.
(e) Lessee shall notify Lessor within 10 days of the date when Lessee
becomes aware or should have become aware of an Event of Loss. In the event
that Lessee has not elected to repair, replace or restore such item(s) of
Equipment pursuant to this Section 8, Lessee shall then have the obligation
to pay Lessor, on the due date of the next installment of Monthly Rental, an
amount equal to the Stipulated Loss Value of the item(s) of Equipment
computed as of the due date of such payment plus any rent or other charges
payable by Lessee accrued thereon and unpaid as of the date on which such
Event of Loss occurred. Stipulated loss payments shall be made only to the
extent that Lessor has not received adequate insurance proceeds to cover the
charges due under the Lease. The stipulated loss value, once it becomes
payable to Lessor, shall accrue interest at a rate of 1-1/2% per month. Upon
payment of such Stipulated Loss Value, this Lease shall terminate with
respect to item(s) of Equipment (but not with respect to the remaining
Equipment) and Lessee's obligation to pay rent hereunder shall terminate with
respect only to such item(s) of Equipment.
(f) If Lessee is not in default hereunder, the proceeds of any property
damage insurance or condemnation award or other payment in respect of a
requisition or taking by any governmental authority, received by Lessor with
respect to an Event of Loss shall be applied by Lessor as a credit against,
or a reimbursement of, such payment of Stipulated Loss Value by Lessee,
and the excess of such payment over the Stipulated Loss Value shall be
retained by Lessee.
9. TAX BENEFITS AND INDEMNIFICATION
(a) This Lease has been entered into on the basis that Lessor or any
assignee of Lessor intends to claim such depreciation, interest deductions
and deductions for transaction costs as are provided to an owner of Equipment
under the Internal Revenue Code of 1986, as amended. If, as a direct result
of any act or omission of Lessee, all or any portion of the above tax
benefits are lost, may not be claimed, are disallowed, or are recaptured with
respect to Lessor or any assignee of Lessor, Lessee shall, upon demand,
indemnify Lessor or Lessor's assignee on an after-tax basis so as to
compensate Lessor or Lessor's assignee for such tax loss.
(b) Prior to the Commencement Date, Lessor reserves the right to
terminate this Lease or any Supplement hereto in the event that any change
in the tax law, including retroactive application of such change, results in
the loss, disallowance, or recapture of any portions of the depreciation,
deductions, or other benefits described in Section 9(a) above. Lessor
disclaims any representation or warranty regarding the characterization of
the Lease for tax, accounting or other purposes.
10. EVENTS OF DEFAULT AND REMEDIES
A. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this Lease:
(a) Lessee shall fail to pay all or any portion of any installment of
Monthly Rental or other
-7-
<PAGE>
payment hereunder when and as the same shall become due and payable.
(b) Any representation or warranty made in this Lease, or in any
report, financial statement or other statement furnished pursuant to the
provisions of this Lease or otherwise shall prove to have been false or
misleading in any material respect as of the date on which the same was made.
(c) Lessee shall fail to duly observe or perform any covenant,
condition or agreement made by it hereunder and shall continue to fail to do
so for a period of ten (10) days after the non-performance occurs.
(d) Lessee shall seek the protection of any federal or state bankruptcy
or insolvency law or a proceeding under any such law shall be instituted
against Lessee or all or any part of its property under such laws and, if
against Lessee, it shall fail to cause the same to be dismissed within thirty
(30) days;
(e) The insolvency, cessation of business, or termination of existence
of the Lessee or any guarantor of this Lease;
(f) A material adverse change in the financial condition of the Lessee
or any guarantor of this Lease.
B. REMEDIES. If an Event of Default shall occur, Lessor may exercise any
one or more of the following remedies:
(a) Terminate this Lease and Lessee's rights hereunder, in which event
an amount equal to unpaid rentals to the date of termination, plus, as
liquidated damages for loss of the bargain and not as a penalty, the
Stipulated Loss Value determined in accordance with Schedule A to each
Supplement describing each of the items of Equipment, computed as of the
rental payment date preceding the date of such termination, shall be payable
by Lessee to Lessor;
(b) Recover from Lessee, as liquidated damages for loss of bargain and
not as a penalty, an amount equal to the present value of all monies to be
paid by Lessee during the remaining Initial Term or any successive period
then in effect, discounted at a rate of six percent which payment shall
become immediately due and payable.
(c) Proceed, by appropriate court action(s) either at law or in equity,
to enforce performance by Lessee of the applicable covenants of this Lease or
to recover damages for the breach thereof;
(d) Subject always to any mandatory requirements of applicable law then
in effect:
(i) retake possession of the Equipment without liability to
return to Lessee any rentals or other payments theretofore made, free
from all claims by Lessee, by directing Lessee in writing to assemble the
Equipment and deliver the same to Lessor at any place or places at which
Lessor then maintains facilities for the maintenance or storage of
equipment similar to the Equipment or to any other place or places at
which Lessor then maintains facilities for the maintenance or storage of
equipment similar to the Equipment or to any other place or places which
may be reasonably convenient to Lessee and Lessor in which event Lessee
shall at its own expense forthwith cause the same to be moved to the
place or places so designated by Lessor and there delivered to Lessor, it
being understood (x) that Lessee's obligation to so deliver the Equipment
is of the essence to this Lease and that,
-8-
<PAGE>
accordingly, upon application to a court of equity having jurisdiction,
Lessor shall be entitled to a decree requiring specific performance by
Lessee of such obligation and (y) that Lessor may, without charge, keep
any of the Equipment repossessed by Lessor pursuant to this clause on the
premises of Lessee pending further action by Lessor as hereinafter
provided; or
(ii) If Lessee shall fail to deliver the Equipment pursuant to
the foregoing Section 10(B)(d)(i) hereof, personally or by agents, retake
possession of the Equipment from Lessee (and any items in or on the
Equipment at the time of repossession, wherever such items may be, which
items shall be held temporarily for Lessee without liability on the part
of Lessor), after giving notice by process of law or otherwise, without
liability to return to Lessee any rental or other payments heretofore
made, free from all claims by Lessee, and for that purpose Lessor may
enter upon Lessee's premises where any of the Equipment is located and
remove the same without liability.
(a) In the event Lessor repossesses the Equipment as herein provided,
release the Equipment in such a manner, for such time and upon such terms as
Lessor may determine, or sell the Equipment upon such terms and conditions as
Lessor may determine.
C. APPLICATION OF RELEASE AND SALE PROCEEDS.
(a) Any amount received by Lessor pursuant to a release of Equipment as
provided in Section 10(B)(d) above, shall be applied, in the following order,
to the payment of (i) any expenses and fees (including reasonable attorneys'
and accountants' fees and court costs) incurred by Lessor in retaking possession
of, and removing, storing and leasing the Equipment; (ii) any costs and expenses
incurred by Lessor in overhauling or repairing the Equipment; (iii) any rental
then remaining unpaid under this Lease; and (iv) any other sums then owing to
Lessor by Lessee hereunder.
(b) Any amount received by Lessor pursuant to a sale or other
disposition of Equipment pursuant to Section 10(B)(d), above, shall be
applied, in the following order, to the payment of: (i) the amounts set forth
in Sections (a)(i), (ii) and (iv) above; (ii) the rentals accrued under this
Lease but unpaid up to the time of such sale or other disposition; and (iii)
the Stipulated Loss Value of the Equipment determined as of the date of such
sale or other disposition, with the balance of the proceeds, if any, retained
by Lessor.
(c) Lessee shall remain liable to Lessor to the extent that the
aggregated amounts received by Lessor in connection with the release, the
sale or other disposition of Equipment is insufficient to satisfy in full
those items described in this Sections 10(C)(a)(i), (ii), (iii) and (iv) and
(b)(i), (ii) and (iii) above.
D. GENERAL
(a) Lessor's remedies are cumulative and are not exclusive of other
remedies allowed at law or in equity, and the exercise of one remedy will not
be deemed to be an election or waiver of remedies.
(b) Lessee shall pay to Lessor, upon demand, all costs and expenses
(including reasonable attorney's fees and disbursements, all expenses
associated with repossessing, reconditioning, selling or leasing the
Equipment or otherwise enforcing the provisions of this Lease) which are
incurred by Lessor as a result
-9-
<PAGE>
of an Event of Default and the exercise of any remedy under the Lease.
(c) No action taken by Lessor under the Lease will result in a
"termination" of the Lease and, in any event, a termination of the Lease will
not relieve Lessee from any obligations under the Lease.
(d) Lessor is entitled to damages from Lessee in the amount of any lost
tax benefit to Lessor due to the occurrence of an Event of Default caused by
Lessee.
(e) Any sale or re-lease of the Equipment by Lessor will not relieve
Lessee of its liability for damages and will be free and clear of any
interest of Lessee.
11. NET LEASE
Except as otherwise specifically provided in the Lease, it is understood and
agreed that each Supplement constitutes a net lease, and that, as between
Lessor and Lessee, Lessee shall be responsible for all costs and expenses of
every nature whatsoever arising out of or in connection with or related to
this Lease or the Equipment. Lessee hereby agrees that in the event that
Lessee fails to pay or perform any obligation under this Lease, Lessor may,
at its option, pay or perform said obligation, and any payment made or
expense incurred by Lessor in connection therewith shall become additional
rent which shall be due and payable by Lessee upon demand. All amounts
payable by Lessee under this Lease shall be absolute and unconditional and
shall not be subject to any abatement, reduction, offset, defense,
counterclaim, interruption, deferment or recoupment for any reason,
whatsoever, and such amounts shall be and continue to be payable in all
events. All amounts due under the Lease are payable without demand, notice or
grace periods, and shall accrue interest at a rate of 1-1/2% per month from
the date due until fully paid.
12. ASSIGNMENT
(a) Lessee agrees that Lessor may transfer or assign all or any part of
Lessor's right, title and interest in, under or to the Equipment and this
Lease and any Supplement and any or all sums due or to become due pursuant
any of the above, to any third party ("Assignee") for any reason. Lessee
agrees that upon receipt of written notice from Lessor or Assignee, Lessee
shall perform all of its obligations hereunder for the benefit of Assignee
and, if so desired, shall pay all sums due or to become due hereunder
directly to Assignee or to any other party designated by Assignee. Lessee
hereby covenants, represents and warrants as follows and agrees that Assignee
shall be entitled to rely on and shall be considered a third party
beneficiary of the following covenants, representations and warranties:
(i) Lessee's obligations to Assignee hereunder are absolute and unconditional
and are not subject to any abatement, reduction, offset, defense, counterclaim,
interruption, deferment or recoupment available to Lessee for any reason
whatsoever including, but not limited to, operation of law, defect in the
Equipment, failure of Lessor to perform any of its obligations hereunder or
for any other cause or reason whatsoever, whether similar or dissimilar to
the foregoing; (ii) Lessee shall not look to Assignee to perform any of
Lessor's obligations hereunder; (iii) Lessee will not amend or modify this
Lease without the prior written consent of Assignee; and (iv) Lessee will
send a copy to Assignee of each notice which Lessee sends to Lessor.
(b) Upon receipt of notice of such transfer or assignment, Lessee agrees
to promptly execute
-10-
<PAGE>
and deliver to Lessor such documentation as Assignee may require to secure
and/or complete such transfer or assignment, including, but not limited to,
the following: (i) an acknowledgement of, or consent to, the assignment which
may require Lessee to make certain representations or reaffirmations as to
some of the basic terms and covenants contained in this Lease; (ii) a
certified copy of resolutions of Lessee; (iii) an opinion of counsel for
Lessee with respect to the representations and warranties set forth in
Section 7(b) above; (iv) Financing Statements; and (v) a Certificate of
Delivery and Acceptance. Nothing contained in such documentation required by
Assignee shall be in derogation of any of the rights granted to Lessee
hereunder. Notwithstanding such assignment, Lessor shall not be relieved of
any of its obligations hereunder, and the rights of Lessee hereunder shall
not be impaired.
13. MISCELLANEOUS
(a) Neither this Lease, any Supplement nor any consent or approval
provided for herein shall not be binding upon Lessor unless signed on its
behalf by duly authorized officers at its home office. This Lease shall be
deemed to have been made in the State of Illinois and shall be governed in
all respects by its laws. Without reference, however, to choice of law
provisions.
(b) This Lease and each Supplement constitute the entire agreement and
understanding of the parties with respect to the lease of Equipment listed on
each Supplement (notwithstanding any contrary provision contained in any
instrument submitted by Lessee), and supersedes any or all prior agreements
and understandings related to the subject matter hereof, and may not be
changed orally but only by an agreement in writing signed by both parties.
Lessee's purchase order, if any, shall be used for accounting purposes only.
(c) All notices hereunder shall be in writing and shall be delivered in
person or sent by certified mail, postage prepaid, by facsimile transmission,
or by private courier, to the address of the other party as set forth herein
or to such other address as such party shall have designated by proper notice.
(d) This Lease shall be binding upon and inure to the benefit of Lessor
and Lessee and their respective successors and assigns (including any
subsequent assignee of an Assignee).
(e) No representation or statement made by either party not contained
herein shall be binding upon such party. No provision of this Lease or any
Supplement which may be deemed unenforceable shall any way invalidate any
other provision or provisions hereof, all of which shall remain in full force
and effect. Neither any failure nor any delay on the part of either party in
exercising any of its rights hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise of any other right hereunder.
(f) A waiver of any of the terms and conditions hereof shall not be
effective unless in writing and signed by the party against whom such waiver
is sought to be enforced. Any waiver of the terms hereof shall be effective
only in the specific instance and for the specific purpose given.
(g) Lessor is hereby authorized by Lessee to cause this Lease and other
instruments, including financing statements, to be filed or recorded for the
purposes of evidencing and putting third parties on notice of Lessor's or
Assignee's interest in the Equipment and
-11-
<PAGE>
Lessee agrees that Lessor or Assignee may execute such instruments for and on
behalf of Lessee. If for any reason whatsoever Lessee is determined to have
an interest in the Equipment, other than a purely leasehold interest, Lessee
agrees to and does hereby expressly subordinate such interest to the interests
of the owner of the Equipment and to any security interest presently in
existence or hereafter acquired. Lessee shall execute all documents
requested by an owner of the Equipment, Lessor, or any Assignee to evidence
such subordination.
(h) During the term of this Lease, Lessee agrees to deliver to Lessor a
copy of Lessee's annual audited financial statements within a reasonable time
after said statements are available.
(i) Lessee's covenants, representations and warranties shall survive the
expiration or other termination of this Lease.
(j) If Equipment delivered pursuant to any Supplement contains any
features not specified therein, Lessor reserves the right to remove any such
features at any reasonable time without liability for any downtime occasioned
thereby.
(k) The Lease and any Supplement thereto may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. To
the extent that this Lease constitutes chattel paper, no security interest in
this Lease may be created through the transfer or possession of any
counterpart other than an executed counterpart or a photostatic copy of an
executed counterpart of this Lease together with an executed Supplement
marked "Original".
(l) The invalidity of any provision of this Lease shall not affect any
other provision.
(m) Lessee waives its right to a jury trial and notice of acceptance of
the Lease by Lessor.
(n) If this Lease is deemed a financing arrangement or a loan, nothing
contained herein requires the Lessee to make any such deemed interest
payments which would subject the Lessor to penalty under the applicable law.
(o) Lessee hereby confirms that, notwithstanding the accounting treatment
of the Lease as either an operating or a capital lease, the Lease is a
"finance lease" as defined in and for purposes of Article 2A of the Uniform
Commercial Code.
(p) Time is of the essence under the Lease.
LESSOR: IFA INCORPORATED LESSEE: CUSTOM PAPERS GROUP, INC.
By: By: /s/ Peter R. Hoppe
------------------------------ ----------------------------------
PETER R. HOPPE
Title: Title: VICE PRESIDENT-ADMINISTRATION
--------------------------- ------------------------------
-12-
<PAGE>
CPG-101
[LOGO] EQUIPMENT SUPPLEMENT NO. 1
---
LEASE AGREEMENT DATED NOVEMBER 15 , 1995 ("LEASE")
--------------- --
BY AND BETWEEN IFA INCORPORATED ("LESSOR")
AND CUSTOM PAPERS GROUP, INC. ("LESSEE")
---------------------------
ORIGINAL NO. 1 OF 1
--- ---
1. EQUIPMENT:
<TABLE>
<CAPTION>
ITEM QTY. MFG. MODEL/FEATURE DESCRIPTION SERIAL NO. MONTHLY RENTAL
---- ---- ---- ------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
1. 1 ABB AccuRay 1190 Process Control System
</TABLE>
SEE EQUIPMENT LISTING ATTACHED HERETO AND MADE A PART HEREOF.
NOTE: Lessor may insert serial numbers and other identifying information
concerning the Equipment to conform to the manufacturer's or supplier's
invoices for the Equipment.
2. INITIAL TERM: 84 months
--
3. AGGREGATE MONTHLY RENTAL: $ * (*1.576% of Final Equipment Cost)
-------
4. EQUIPMENT LOCATION: Custom Papers Group, Inc.
44 Old Princeton Road
Fitchburg, MA 01420-4823
5. PROJECTED INSTALLATION DATE: May 1 , 1996.
-------
6. COMMENCEMENT DATE: If Lessee fails to deliver, within fourteen days of
Lessee's execution of this Supplement, any documents requested by Lessor
pursuant to the Lease, Lessor, in its discretion and notwithstanding
anything to the contrary contained in Section 2 of the Lease, may postpone
the commencement of the Initial Term. Lessor shall give Lessee prompt
written notice of any such postponement.
7. LESSOR'S OBLIGATIONS. Lessor's obligations are subject to there
being no tax legislation enacted prior to the Installation Date which
would have an adverse effect upon the rights of, or anticipated
benefits to, Lessor or any owner of the Equipment and are further
subject to there being no material adverse change in the financial
condition of the Lessee prior to the Commencement Date.
8. INCORPORATION BY REFERENCE. All of the terms, and conditions of the
Lease are incorporated herein by reference. By execution and delivery
of this Supplement, the parties affirm all of the terms and conditions
of the Lease (including, without limitation, Lessee's representations
and warranties) except as modified hereby.
LESSOR: IFA INCORPORATED LESSEE: CUSTOM PAPERS GROUP, INC.
By: By: /s/ Peter Hoppe
-------------------------------- ----------------------------------
Title: Title: VICE PRESIDENT-ADMINISTRATION
----------------------------- -------------------------------
Date: Date: December 7, 1995
------------------------------ --------------------------------
<PAGE>
[LOGO] ADDENDUM A
That certain Equipment Supplement No. 1 dated ________________, 1995,
(the "Equipment Supplement") to Lease Agreement No. CPG-101 dated November
15, 1995, by and between IFA Incorporated, as Lessor, and Custom Papers
Group, Inc., as Lessee, (the "Lease") notwithstanding anything to the
contrary set forth therein is hereby amended to add the following provisions
and it is hereby agreed to as follows:
LEASE COMMENCEMENT DATE: The lease shall commence on the date set forth on
- ------------------------ the Certificate of Acceptance. Funding costs
incurred by Lessor prior to the Commencement Date
will be reimbursed to Lessor at the rate of the
then current one month LIBOR Rate of interest, as
published in the WALL STREET JOURNAL, plus two
and one quarter (2 1/4) percent computed on the
average daily balance outstanding.
LEASE RATE: 1.576% (expressed as a percentage of equipment
- ----------- cost per month based upon the Equipment Cost not
including any taxes).
EARLY TERMINATION OPTION: After payment of the 60th Monthly Rental and with
- ------------------------- 180 days prior written notice, the Lessee shall
have the following options: (1) return all but not
less than all of the Equipment to Lessor and pay
Lessor an early termination fee of 16.91% of the
equipment cost, plus the rental amount due on the
early termination date, plus any other amounts
due; or (2) continue the lease to its expiration.
DEBT RATE ASSUMPTION: The Lease Rate is based upon the yield on a
- --------------------- comparable maturity Treasury Note ("Debt Rate").
As of October 13, 1995, the Treasury Note yield
was 5.93%.
LEASE RATE ADJUSTMENT: For each .25% increase in the Debt Rate, the
- ---------------------- lease rate factor will be increased .0159%.
END OF LEASE TERM OPTION: At the end of the Initial Term of the Lease,
- ------------------------- Lessee shall purchase the EQUIPMENT for its then
fair market value of 10% of original Equipment
Cost, whichever is greater.
EQUIPMENT APPRAISAL: Fair Market Value and Fair Market Rental Value
- -------------------- may be determined at the end of the Initial Term
by an independent qualified appraiser chosen by
Lessee.
This Addendum shall be attached to and specifically incorporated into
the Equipment Supplement.
Acknowledged and Agreed: Acknowledged and Agreed:
IFA INCORPORATED, LESSOR CUSTOM PAPERS GROUP, INC., LESSEE
By: By: /s/ Peter Hoppe
-------------------------------- ----------------------------------
Name: Name: PETER R. HOPPE
------------------------------ --------------------------------
Title: Title: VICE PRESIDENT-ADMIN.
----------------------------- -------------------------------
Date: Date: December 7, 1995
------------------------------ --------------------------------
cpg1
<PAGE>
AMENDMENT NO. 1
(PROGRESS PAYMENT AGREEMENT)
[LOGO] TO
SUPPLEMENT NO. 1
TO LEASE AGREEMENT NO. CPG-101
BETWEEN
CUSTOM PAPERS GROUP, INC., AS LESSEE
AND
IFA INCORPORATED, AS LESSOR
THIS AGREEMENT shall amend a certain Equipment Supplement No. 1 dated 12/7/95
to that certain Lease Agreement No. CPG-101 dated November 15, 1995 and
between IFA Incorporated ("Lessor") and Custom Papers Group, Inc. ("Lessee")
(hereinafter referred to as the "Lease"). In the event of any conflict or
ambiguity between this Agreement and the Lease, the terms and provisions of
this Agreement shall govern.
ABB Industrial Systems, Inc. is the "Seller" of the Equipment listed on
Supplement No. 1 and requires Progress Payments for the purchase of the
Equipment. Lessee has requested that Lessor advance the Progress Payment on
its behalf, and Lessor agrees to advance the Progress Payments on behalf of
Lessee.
The Progress Payments are as follows:
Due at the time Lessee places order for equipment: $87,901.00
Due approximately 11/15/95: $87,901.00
Due approximately 12/29/95: $131,852.00
Due upon shipment of equipment (approximately 2/1/96): $43,951.00
Due approximately 3/1/96 for other equipment and installation
services: $55,495.00
Due approximately 5/1/96: $87,900.00
To adjust for the monies of the Progress Payments advanced by Lessor, Lessee
herein agrees to pay Funding Costs to the Lessor monthly upon receipt of
Lessor's invoice. The Funding Costs will be computed as follows:
<PAGE>
Page 2
The Funding Costs shall be based on a rate of the then current one month
LIBOR rate of interest as published in the WALL STREET JOURNAL, plus two
and one quarter (2 1/4) percent, computed on the average daily balance
outstanding. Lessee agrees to pay Funding Costs until the Commencement Date
of the lease.
The Funding costs shall cease upon the Commencement Date of the Lease at which
time full rentals as specified on Supplement No. 1 shall commence.
The funds advanced by Lessor to Seller as aforementioned together with
Funding Costs are in any and all events an unconditional obligation of
Lessee, which obligation Lessee does hereby fully and unconditionally assume.
Lessee agrees that Lessee will promptly reimburse Lessor in full for all such
funds advanced, Funding Costs, and any other costs, charges and fees of any
nature associated therewith in the event, and for any reason whatsoever, that
Lessee does not accept the equipment. It is expressly understood and agreed
upon that Lessee's obligation to pay is absolutely unconditional and Lessee
will hold Lessor harmless for any and all claims by Seller or Lessor's
assignee arising out of Lessee's failure or refusal to accept the equipment.
In addition to the foregoing, Lessee shall pay Lessor all costs and expenses,
including reasonable attorney's fees and fees of collection agencies incurred
by Lessor in exercising any of its right or remedies hereunder, whether or
not suit is institutional.
IN WITNESS WHEREOF, LESSOR AND LESSEE have executed this Agreement to Lease
this _______________ day of ____________, 1995.
IFA INCORPORATED CUSTOM PAPERS GROUP, INC.
LESSOR LESSEE
By: By: /s/ Peter R. Hoppe
-------------------------------- ----------------------------------
Name: Name: Peter R. Hoppe
------------------------------ --------------------------------
Title: Title: Vice President-Administration
----------------------------- -------------------------------
cpg1
<PAGE>
SCHEDULE A TO SUPPLEMENT NO. 1 TO
---
[LOGO] LEASE AGREEMENT DATED NOVEMBER 15 , 1995 ("LEASE")
------------- --
BETWEEN IFA INCORPORATED ("LESSOR")
AND CUSTOM PAPERS GROUP, INC. ("LESSEE")
---------------------------
STIPULATED LOSS VALUES
The following Stipulated Loss Value are expressed as a percent of the Final
-----
Cost of the Equipment.
- ----
Payment Stipulated Payment Stipulated Payment Stipulated
Number Loss Value Number Loss Value Number Loss Value
- ------- ---------- ------- ---------- ------- ----------
1 112.00 29 72.52 57 30.56
2 110.76 30 70.91 58 29.79
3 109.50 31 69.29 59 29.04
4 108.24 32 67.66 60 28.31
5 106.96 33 66.01 61 27.60
6 105.67 34 64.34 62 26.91
7 104.37 35 62.66 63 26.24
8 103.05 36 60.97 64 25.59
9 101.73 37 59.25 65 24.96
10 100.39 38 57.53 66 24.35
11 99.04 39 55.78 67 23.76
12 97.68 40 54.03 68 23.19
13 96.30 41 52.25 69 22.64
14 94.92 42 50.46 70 22.11
15 93.52 43 48.65 71 21.60
16 92.10 44 46.83 72 21.11
17 90.68 45 44.99 73 20.64
18 89.24 46 43.13 74 20.19
19 87.79 47 41.26 75 19.76
20 86.32 48 39.36 76 19.35
21 84.84 49 37.46 77 18.96
22 83.35 50 36.52 78 18.59
23 81.85 51 35.60 79 18.24
24 80.33 52 34.71 80 17.91
25 78.79 53 33.84 81 17.60
26 77.24 54 32.99 82 17.31
27 75.68 55 32.16 83 17.04
28 74.11 56 31.35 84 16.79
LESSEE: CUSTOM PAPERS GROUP, INC.
By: /s/ Peter R. Hoppe
--------------------------------
Name: PETER R. HOPPE Title: VICE PRESIDENT-ADMINISTRATION
------------------------------ --------------------------------
Date: DECEMBER 7, 1995
------------------------------
<PAGE>
SECRETARY'S CERTIFICATE
-----------------------
Gentlemen:
As Secretary of Custom Papers Group, Inc., I hereby certify that:
1. The Company is a duly incorporated, validly existing corporation in
good standing under the laws of the State of Virginia.
2. The following are duly elected or appointed to the offices set
forth opposite their respective names and are incumbent in such
offices as of the date hereof, and the signatures appearing opposite
their respective names are the genuine signatures of such persons:
NAME TITLE SIGNATURE
---- ----- ---------
Peter R. Hoppe Vice President- /s/ Peter R. Hoppe
Administration ------------------
3. The above individuals are duly authorized and empowered by the
Company to execute and deliver all Lease and attendant financing
documents on behalf of the Company.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the Corporate Seal of the Company this 8 day of December , 1995.
--- ----------
/s/ [ILLEGIBLE]
---------------------------------------
(Secretary)
- SEAL -
<PAGE>
MASTER LEASE AGREEMENT
LESSOR: Meridian Leasing Corporation
an Illinois corporation
ADDRESS: 570 Lake Cook Road
Suite 300
Deerfield, Illinois 60015
LESSEE: Custom Papers Group, Inc.
ADDRESS: 110 Tredegar Street
Richmond, VA 23219
AGREEMENT DATE: January 1, 1994
This contract is a Master Lease Agreement. The terms of each Supplement
hereto are subject to any and all conditions and provisions set forth herein
at the time of execution of such Supplement as the same may have been amended
prior to the execution of such Supplement. Each Supplement shall provide a
description of Equipment, Lease Term, Rental Payment(s), Location of
Equipment, Supplement Commencement Date and such other information as may be
required. Each Supplement is enforceable according to the terms and
conditions contained therein and in the event of a conflict between the
language of the Master Lease Agreement and any Supplement hereto, the
language of the Supplement shall prevail in respect to that Supplement. Each
Supplement together with the terms and conditions of this Master Lease
Agreement incorporated therein is referred to herein as the "Lease" or
"Lease Agreement". Lessor, by its acceptance hereof, hereby leases to
Lessee, and the Lessee hereby leases from Lessor, in accordance with the
terms and conditions set forth herein and in the applicable Supplement, the
Equipment described on the Supplement and in any attachments thereto (the
"Equipment").
1. LEASE TERM
This Master Lease Agreement shall be effective from the date hereof. As to
any particular item of Equipment, the term shall continue as stated in the
applicable Supplement, from the respective Supplement Commencement Date, as,
from time to time, Equipment described in any Supplement is accepted by
Lessee. Said term shall be automatically extended at the monthly lease rate
in effect at the end of said term unless and until terminated by either party
hereto giving the other not less than ninety (90) days prior written notice.
Acceptance ("Acceptance") shall occur on the earlier of (i) the day the
Equipment has been installed and, if applicable, approved for coverage under
a prime shift maintenance contract by the manufacturer thereof or other
applicable maintenance organization; or (ii) the seventh (7th) day after
delivery of the Equipment to Lessee if the Equipment is used equipment
provided by Lessor and a delay of installation is caused by Lessee. Lessee
agrees both to advise Lessor on the Acceptance date and thereupon to execute
and deliver to Lessor a Certificate of Acceptance.
2. PAYMENTS OF RENT
Unless otherwise set forth in the respective Supplement, the following shall
apply: The first rental payment shall be due upon the Acceptance of the
Equipment by Lessee, and such payment shall cover the lease month or other
period commencing on the Supplement Commencement Date. Each subsequent rental
payment shall be due and payable in advance, for the lease period covered by
such payment, on the first day thereof. In the event Acceptance occurs prior
to the Supplement Commencement Date, interim rental shall be paid by Lessee
in the amount equal to a proration on a per diem basis of the Monthly Rent,
as hereinafter defined, for the period commencing as of the date of
Acceptance to the Supplement Commencement Date. Notwithstanding the provision
of any notice contemplated by Section 1 above, in the event that any Item of
Equipment is not returned at the expiration of any Supplement, Lessor shall be
entitled without notice or demand to receive Supplemental Rent for each day
that such return is delayed at the rate of 200% of the daily proration of
Monthly Rent. All rental and other payments by Lessee under this Lease shall
be made to Lessor at its address stated above or at such other address as
Lessor may designate in writing and if payment shall be made by check, such
check shall arrive at such address in sufficient time so that the same shall
arrive on or before the date the rental payment shall be due. Monthly rent
payable with respect to each item of Equipment ("Monthly Rent") shall be as
set forth for such Item in the applicable Supplement. Any and all amounts
payable to Lessor hereunder other than Monthly Rent shall be considered and
referred to herein as "Supplemental Rent". Monthly Rent, together with
Supplemental Rent, shall be referred to herein as "Rent". This Lease provides
for a net lease, and the Rent due hereunder from Lessee to Lessor shall be
absolute and unconditional and shall not be subject to any abatement,
recoupment, defense, claim, counter-claim, reduction, set-off, or any other
adjustment of any kind for any reason whatsoever.
3. ADDITIONAL SUMS PAYABLE BY LESSEE
(a) All transportation, transit insurance and other charges payable for
delivery of the Equipment to Lessee, and for installation of the Equipment,
shall be paid by Lessee.
(b) Lessee shall promptly pay all costs, expenses and obligations of every
kind and nature incurred in connection with the use, maintenance, servicing,
repair or operation of the Equipment which may arise or be payable during the
lease term of such Equipment hereunder, except as specifically provided
herein, and shall keep the Equipment in as good repair, condition and working
order as when delivered to Lessee hereunder, reasonable wear and tear from
the proper use thereof alone excepted, and shall furnish any and all parts,
mechanisms and devices required to keep the Equipment in such good repair,
condition and working order, at the expense of Lessee, and in addition will
permit the manufacturer to make all free-of-charge engineering changes, all so
that the Equipment will remain acceptable to the manufacturer for
maintenance. Without limiting the foregoing, Lessee shall, during the
continuance of this Lease, at its own expense, make appropriate arrangements
for maintenance of each item of Equipment, including without limitation with
respect to each item of Equipment entering into and maintaining in
force a contract with the manufacturer of the Equipment or other person or
entity approved in writing by Lessor covering at least prime shift
maintenance.
(c) Lessee shall indemnify and hold harmless Lessor against and shall pay all
federal, state, county or local taxes, fees or other charges, however
designated (together with any related interest or penalties not arising from
negligence on the part of Lessor), imposed or assessed against or with
respect to this Lease. Rent hereunder, the Equipment, Lessor or Lessee or
payable by Lessor or Lessee with respect to the use, lease, sale, purchase,
delivery, possession, sublease or ownership of the Equipment, excepting only
(i) taxes on or to the extent measured by the net income of Lessor; and (ii)
sales, use or similar taxes paid by Lessor if, and only if, any such taxes
are included as part of the acquisition cost of any Equipment. Lessor shall
give Lessee and Lessee shall give Lessor written notice of any event or
condition which requires indemnification by Lessee hereunder or any
allegation of such event or condition, promptly upon obtaining knowledge
thereof. Lessee shall not be obligated to pay any amount under this Section 3
so long as Lessee shall in good faith and by appropriate proceedings contest
and diligently prosecute the validity or the amount thereof unless such
contest would adversely affect the title of the Lessor to the Equipment or
would subject it to forfeiture or sale, provided that Lessee should make any
required deposits during such contest. Upon resolution of such contest,
Lessee shall promptly pay all amounts then owing. In case any report or
return is required to be made with respect to any obligation of Lessee
arising out of this Section 3, Lessee will either make such report or return
in such manner as shall be satisfactory to Lessor or, if required by Lessor,
furnish information to Lessor necessary to complete such report or return by
Lessor.
4. WARRANTIES
(a) Lessor hereby warrants and covenants to Lessee that so long as no Event of
Default has occurred and is continuing under the applicable Supplement
hereto, Lessee shall and may quietly have, hold and enjoy the Equipment and
every part thereof leased hereunder for the term of this Lease, as such term
may be extended hereunder, free from disturbance by Lessor or its agents,
employees, successors or assigns, or by anyone (whether the holder of a lien
or otherwise) claiming solely by, through or
<PAGE>
under Lessor. LESSOR HAS NOT MADE AND MAKES NO, AND HEREBY EXPRESSLY
DISCLAIMS ANY OTHER, EXPRESS OR IMPLIED WARRANTY WHATSOEVER HEREUNDER,
INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PURPOSE, OR
OTHERWISE, REGARDING THE EQUIPMENT OR ANY PART OR THE DESIGN OR CONDITION
THEREOF. Subject to the provisions of Section 10 hereof, Lessor hereby
transfers and assigns to Lessee during the term of this Lease all of its
right, title and interest in any express or implied warranties and covenants
of any Equipment manufacturer or vendor which are assignable by Lessor.
Lessor and Lessee agree to execute any manufacturer's transfer of "Patent and
Copyright Indemnity" and "Warranties" documents with respect to the Equipment
leased hereunder.
(b) Lessee, at the time of execution of this Agreement and any Supplement
hereto, hereby warrants and represents to Lessor, Secured Party, as
hereinafter defined, and their respective successors and assigns: (i) that
execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action on its part and are not in
conflict with its charter or bylaws or with or constitute a breach of or
default under any indenture, contract or agreement by which it is bound, or
with any statute, judgment, decree, rule or regulation binding upon it; (ii)
that no consent or approval of any trustee or holder of any indebtedness or
obligation, and no consent or approval of, or taking of any other action with
respect to, any governmental authority, is necessary for execution, delivery
or performance of this Agreement (iii) that this Agreement is legal, valid,
binding, and enforceable against the Lessee in accordance with its terms,
subject to enforcement limitations imposed by rules of equity or by
bankruptcy or similar laws; (iv) Lessee is a corporation validly existing and
in good standing under the laws of the jurisdiction of its incorporation and
the jurisdiction(s) where the Equipment will be located and has adequate
corporate power to enter into and perform this Lease; and (v) there are no
actions, suits or proceedings pending or, to the knowledge of Lessee
threatened against or affecting Lessee in any court or before any
governmental commission, board or authority which, if adversely determined,
will have a materially adverse effect on the ability of Lessee to perform its
obligations under this Lease.
5. POSSESSION, USE AND MAINTENANCE OF THE EQUIPMENT
(a) The Equipment shall be kept by Lessee (i) subject to inspection by Lessor
at reasonable times and manner, (2) at Lessee's address, as stated on each
Supplement hereto, which Equipment shall not be relocated without prior
written consent of Lessor, which consent shall not be unreasonably withheld,
(3) free of all security interests of any kind whatever, liens, encumbrances
and other claims, except (i) those of persons claiming solely against Lessor
but not Lessee on account of obligations which Lessee is not required by this
Lease to discharge, (ii) liens of current taxes not delinquent (except liens
for taxes which are being contested by Lessee as provided in Section 3
hereof), (4) marked with the manufacturer's identification marks or numbers
and, if requested by Lessor or Secured Party, conspicuously labeled with
labels supplied by Lessor or Secured Party to disclose Lessor's and any
Secured Party's interest in the Equipment, and (5) in good and efficient
working order, condition and repair, reasonable wear and tear excepted, and
acceptable for maintenance under the manufacturer's maintenance agreement at
the expiration of the Lease Term. Lessee will, within ten (10) working days
of receiving notice thereof, promptly notify Lessor in writing of any
mortgage, pledge, lien, attachment, charge, encumbrance or right of others
which has arisen with respect to the Equipment.
(b) Lessee shall use the Equipment with due care to prevent injury thereto,
and to any person or property, and in conformity with all applicable laws,
ordinances, rules, regulations and other requirements of any insurer or
governmental body and with all requirements of the manufacturer with respect
to the use, maintenance and operation of the Equipment. Lessee shall not
modify any Equipment without the prior written consent of Lessor, which may
be granted or withheld in its sole discretion. It is the intention and
understanding of both Lessor and Lessee that the Equipment shall be and at
all times remain separately identifiable personal property. Lessee shall not
permit any Equipment to be installed in, or used, stored or maintained with,
any personal property (except other Equipment leased hereunder) in such
manner or under such circumstances that such Equipment might be or become an
accession to or confused with such other personal property. Lessee shall not
permit any Equipment to be installed in or used, stored or maintained with,
any real property in such a manner or under such circumstances that any
person might acquire any rights in such Equipment paramount to the rights of
Lessor or Secured Party by reason of such Equipment being deemed to be real
property or a fixture thereon.
6. RISK OF LOSS
(a) Lessee assumes and shall bear the entire risk of partial or complete
loss, theft, damage, destruction, condemnation, requisition, taking by
eminent domain or other interruption or termination of use of the Equipment
from any cause whatsoever, whether or not insured against, from the date of
delivery of the Equipment until the Equipment is returned to and received by
Lessor. Except as otherwise expressly provided herein, no such loss, theft,
damage, destruction, condemnation, requisition, taking by eminent domain or
other interruption or termination of use of the Equipment, and no delay,
deficiency or absence of insurance proceeds, and no unavailability, delay or
failure of supplies, parts, mechanisms, devices or service for the Equipment
or any failure of the Equipment to function for any cause, shall relieve
Lessee of the obligation to pay Rent hereunder. Lessee's obligation to pay
all Rent, and the rights of Lessor and the Secured Party in and to such
payments, shall be absolute and unconditional and except as otherwise
expressly provided herein, this Lease shall not terminate, nor shall the
respective obligations of the Lessor or the Lessee be affected, by reason of
any defect in or Total Casualty (as defined in this Section 6) to or
obsolescence of the Equipment or any item thereof from whatever cause, or the
interference with the use thereof by any private person, corporation or
governmental authority, or any other disability of the Lessee to use the
Equipment, or war, act of God, or governmental regulations, any present or
future law or regulation to the contrary notwithstanding. Lessee shall
promptly notify Lessor in writing of the occurrence of any of the above
events and all pertinent details connected therewith. Except during any
period when an Event of Default shall have occurred and shall be continuing.
Lessee shall be entitled to the proceeds of any claim or right of Lessor or
Lessee against any third party on account of any of the foregoing events and
Lessee shall be subrogated to the Lessor's right of recovery therefor against
any third party. Lessor shall execute and deliver from time to time such
instruments and take such other action as may be necessary or appropriate
more fully to vest in Lessee such proceeds or affect such subrogation,
provided, however, that all costs and expenses, including court costs and
attorneys' fees, incurred in connection with enforcing or realizing upon any
such claim or right to proceeds or obtaining enforcement of or realizing upon
such right of subrogation, shall be paid by, Lessee.
(b) In the event any item of Equipment is physically damaged to a material
extent by any occurrence whatsoever, Lessee shall immediately notify Lessor
of such damage and, unless Lessor shall determine that Section 6(c) hereof is
applicable to such damage, Lessee, at Lessee's expense, shall promptly cause
such item of Equipment to be returned to the condition described in Sections
3 and 5 hereof.
(c) In the event any item of Equipment shall be lost, stolen, destroyed,
damaged beyond repair or permanently rendered unfit for use for any reason
whatsoever, or shall be subjected to a requisition, taking by eminent domain
or other interruption or termination of use for a stated period which exceeds
the term of this Lease (any such occurrence being referred to as "Total
Casualty"), Lessee shall promptly notify Lessor and either, (i) obtain
replacement equipment of like model and features, having utility and remaining
useful life at least equal to that of each such replaced item of Equipment
and, in which case, Lessee shall immediately convey to Lessor good title for
all such replacement equipment free of all liens, claims or encumbrances and
such replacement equipment shall be substituted for each such item of
Equipment replaced hereunder; or (ii) pay to Lessor, on the next Monthly
Rent payment date for such item of Equipment following such Total Casualty,
an amount equal to the Casualty Value (specified in the applicable
Supplement) of such item of Equipment on such Monthly Rent payment date. If
Lessee elects to pay the Casualty Value rather than replace the Equipment,
after the payment of such Casualty Value and all Monthly Rent due and owing
for the period prior to the date of the Total Casualty with respect to such
item of Equipment, Lessee's obligation to pay further Monthly Rent for such
item of Equipment shall cease, but Lessee's obligation to pay Rent for all
other items of Equipment, shall remain unchanged. So long as no Event of
Default shall have occurred and be continuing under this Lease, and provided
Lessee shall have made the Casualty Value payment identified above. Lessor
shall pay Lessee any insurance proceeds received by Lessor by reason of such
Total Casualty up to the amount of the Casualty Value paid by the Lessee.
7. INSURANCE
Lessee shall at all times during the term of this Lease and until the
Equipment has been returned to Lessor as provided below, at its own expense,
maintain physical damage insurance in an amount not less than the replacement
value of the Equipment but in no event less than the Casualty Value thereof,
and liability and property damage insurance covering the Equipment (including
Lessee's contractual liability under Section 9 hereof), in such amount, and
with such companies and such endorsements and covering such hazards, as are
in general usage by companies owning or operating similar property and
engaged in a business similar to Lessee's, in order to adequately protect the
parties hereto. All insurance so maintained shall provide for a thirty-day
prior written notice to Lessor and its assigns of any cancellation or
reduction of coverages and an option in Lessor or its assignees to prevent
cancellation by payment premiums, shall cover both the interest of the Lessor
and any assigns of which the Lessee has notice and of the Lessee
<PAGE>
in the Equipment, and shall provide that all insurance proceeds shall be
payable to the Lessee, Lessor and any such assignee as their respective
interests may appear at the time of any such payment. Lessor and any such
assignee shall be named as additional insureds on any public liability
insurance policies so maintained. Lessee shall furnish to Lessor satisfactory
evidence of any insurance so maintained no later than the date of delivery of
each item of Equipment and once annually, upon Lessor's request, during the
term hereof. Lessee's above obligation shall commence on the initial date of
delivery of the Equipment and shall continue until the Lease term hereof
expires and the Equipment is returned to Lessor. Lessee shall cooperate and,
to the extent possible, cause others to cooperate with Lessor and all
companies providing any insurance to Lessee or Lessor or both with respect to
the Equipment in collection on or enforcement of any such insurance. By this
Section 7, Lessor does not modify or limit any provision of this Lease
relating to disclaimer of warranties and liability, or indemnity.
8. RETURN OF EQUIPMENT
Upon the expiration or earlier termination of the Lease term, Lessee shall
return the Equipment to Lessor in the same condition and configuration
including original serial number, as received, reasonable wear and tear
excepted and in the condition required by Sections 3 and 5 hereof, and shall
permit the Equipment to be (a) inspected by agent(s) of the respective
manufacturer(s), if Lessor so requests, (b) repaired, if necessary, so as to
place the Equipment in the foregoing condition, (c) crated, and (d) shipped
by truck or other normal ground transportation to such address as Lessor may
designate. Lessor shall pay all expenses arising from the above clause (a) of
this Section 8, and Lessee shall pay all expenses arising from the above
clauses (b), (c), and (d) of this Section 8, provided-that shipping charges
payable by Lessee under such clause (d) shall be limited to an amount equal
to the cost of shipping the Equipment to any location within the Continental
United States.
9. DISCLAIMER OF LIABILITY AND INDEMNITY
Lessor shall not be liable for, and Lessee agrees to indemnify and hold
Lessor, Secured Party, and their respective successors and assigns harmless
against any loss, claim, action, suit, demand, proceeding, liability, penalty
cost, damage, obligation, lien or expense of any kind on account of personal
injury, property damage or otherwise, including but not limited to any matter
arising under strict liability in tort, imposed on or incurred by or asserted
against Lessor or Secured Party or its or their successors or assigns,
including without limitation attorneys' fees incurred on account of any of
the foregoing, in any way relating to this Lease or any document contemplated
hereby, or in any way relating to the selection, manufacture, purchase,
acceptance, ownership, delivery, installation, lease, sublease, possession,
use, operation, maintenance, condition, return or storage of any item of
Equipment, or any accident in connection therewith, or arising by operation
of law as a consequence of any of the foregoing. The provisions of this
Section 9 shall survive any termination of this Lease, provided, however,
that the Lessee shall not be required to indemnify the Lessor for (a) any
claim in respect of any item of Equipment arising from acts or events which
occur after possession of such item has been redelivered to the Lessor, (b)
any claim resulting from the willful misconduct or negligence of the Lessor.
Lessee shall give Lessor prompt written notice of any matter hereby
indemnified against and agrees that unless directed to the contrary by
written notice by the indemnified Party. Lessee shall assume full
responsibility for the defense thereof on behalf of such party.
10. EVENTS OF DEFAULT
(a) Each of the following shall constitute an Event of Default hereunder: (i)
default in the payment of any Rent hereunder and continuance thereof for ten
days after notice by Lessor to Lessee of said default; (ii) failure by Lessee
to make any other payment required by this Lease, or to perform any other of
Lessee's agreements set forth in this Lease, within 30 days after notice
thereof is given by Lessor to Lessee; (iii) Lessee becomes insolvent or
admits in writing its inability to pay its debts as they mature, or applies
for, consents to, or acquiesces in the appointment of a trustee or a receiver
or similar officer for it or any of its property, or, in the absence of such
application, consent or acquiescence, a trustee or receiver or similar
officer is appointed for Lessee or for a substantial part of its property and
is not discharged within 60 days, or any bankruptcy, reorganization, debt,
dissolution or other proceeding under any bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is instituted by or against
Lessee, and if instituted against Lessee is consented to or acquiesced in by
Lessee or remains for 60 days undismissed; (iv) Lessee shall make an
assignment for the benefit of creditors; (v) any warranty, representation,
statement or report made in writing by Lessee in this Lease or in any
document or certificate furnished in connection with this Lease or any
financing obtained in connection therewith proves to have been untrue or
incorrect in any material respect; or (vi) Lessee shall be a party to a
transaction governed by Section 11(a) below without complying with such
Section.
(b) Upon the occurrence of an Event of Default and so long as the same is
continuing, Lessor may, at its option, declare the applicable Supplement(s)
to be in default by notice to Lessee, and thereafter exercise one or more of
the following remedies, as Lessor in its sole discretion lawfully elects:
(1) Proceed by court action, either at law or in equity, to enforce
performance by Lessee of this Lease or to recover damages for the breach
thereof.
(2) By notice terminate the applicable Supplement, whereupon all rights
of Lessee in the Equipment subject to said Supplement will absolutely cease
but Lessee will remain liable as hereinafter provided; and thereupon
Lessee, if so requested, will at its expense promptly return the Equipment
to Lessor at the place designated by Lessor within the Continental United
States and in the condition required pursuant to the terms hereof, or
Lessor, at its option, may enter the premises where the Equipment is
located and take immediate possession of and remove the same in a lawful
manner. Lessee will, without further demand, forthwith pay Lessor an amount
equal to any past due Rent which was due and payable for all periods up to
and including the Monthly Rent payment date following the date on which
Lessor has declared the Supplement to be in default, plus, as liquidated
damages for loss of a bargain and not as a penalty, an amount equal to the
Casualty Value of the Equipment then subject to the applicable Supplement,
computed as of such monthly Rent payment date. Following the return of the
Equipment to Lessor pursuant to this clause (2), Lessor will proceed to
sell or re-lease the Equipment in a commercially reasonable manner. The
proceeds of such sale or re-lease will be applied by Lessor (A) first, to
pay all costs and expenses, including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the
exercise of its remedies with respect thereto, (B) second, to pay Lessor an
amount equal to any unpaid past due Rent due and payable plus the Casualty
Value, to the extent not previously paid by Lessee, and (C) third, to
reimburse Lessee for the Casualty Value to the extent previously paid as
liquidated damages. Any surplus remaining thereafter will be retained by
Lessor. To the extent Lessee has not paid Lessor the amounts specified in
this clause (2), Lessee will forthwith pay such amounts to Lessor plus
interest provided in Section 12 on such amounts, computed from the date the
Casualty Value is payable hereunder until such amounts are paid.
(c) In addition, Lessee shall be liable for any damages and expenses which
Lessor shall have sustained by reason of the breach of any covenant,
representation or warranty of this Lease other than for the payment of the
Monthly Rent, and shall be liable for any and all unpaid amounts due
hereunder before, during or after the exercise of any of the foregoing
remedies and for all reasonable attorneys' fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise
of Lessor's remedies with respect thereto, including all costs and expenses
incurred in connection with the return of any item of Equipment. Upon the
occurrence and during the continuance of an Event of Default hereunder,
Lessor shall be exclusively entitled to enforce the warranties assigned to
Lessee under Section 4 hereof, notwithstanding such assignment.
(d) A cancellation or termination hereunder shall occur only upon written
notice by Lessor to Lessee, or repossession as provided above, and only with
respect to such items of Equipment as Lessor specifically elects to cancel or
terminate by such notice or repossession. Except as to any such item of
Equipment with respect to which there is a cancellation or termination, this
Lease shall remain in full force and effect and Lessee shall be and remain
liable for the full performance of all its obligations.
11. SUBLEASE AND ASSIGNMENT
(a) LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR AND SECURED
PARTY WHICH MAY BE GRANTED OR WITHHELD IN THEIR SOLE DISCRETION, (i)
SUBLEASE, ASSIGN, PLEDGE, HYPOTHECATE OR IN ANY OTHER WAY TRANSFER THIS
LEASE, THE EQUIPMENT OR ANY PART THEREOF, OR ANY INTEREST THEREIN, OR (ii)
PERMIT THE EQUIPMENT OR ANY PART THEREOF TO BE USED BY ANYONE OTHER THAN
LESSEE OR LESSEE'S EMPLOYEES. Any assignment, sublease, pledge hypothecation
or transfer for which consent is required hereby and which is made without
such consent shall be void. The consent of Lessor or Secured Party to any of
the foregoing applies only to the specific instance in which given, and shall
not be deemed a consent to any subsequent like act by Lessee or any other
person. Subject to the foregoing, this Lease inures to the benefit of, and is
binding upon, the successors and assigns of the parties hereto, Lessee's
interest herein shall not be assigned by operation of law. Notwithstanding
the foregoing, Lessee shall be entitled to assign or transfer this Lease, the
Equipment and its interests in this Lease and the Equipment in connection
with a sale of all or substantially all of its assets to, or a consolidation
of Lessee with, or a merger of Lessee into, any corporation so long as Lessee
provides Lessor with 45 days prior written notice and such corporation
assumes the obligations of Lessee under
<PAGE>
this Lease and Lessee provides written evidence satisfactory to Lessor that
immediately following such sale, consolidation or merger such corporation is
in the opinion of Lessor now less credit-worthy than Lessee immediately prior
to such sale, consolidation or merger. Lessor and any direct or remote
assignee of any right, title and interest of Lessor hereunder shall have the
right at any time or from time to time to assign to any third party all or
any part of its right, title and interest in and to this Lease or the
Equipment.
(b) Lessor may obtain financing through financial institutions and secure
such financial institutions ("Secured Party") by granting a security interest
in or lien on all or any part of Lessor's interest in the Equipment, the
applicable Supplement, any collateral therefor, and amounts payable by Lessee
under the applicable Supplement. Such financing may include the purchase of
the Equipment by the Secured Party. In the event of such financing (1) the
lien instrument or security agreement will specifically provide that it is
subject to to Lessee's rights as herein provided; (2) such assignment of the
applicable Supplement or any interest herein will not relieve Lessor from its
obligations hereunder or be construed to be an assumption by Secured Party of
such obligations (but Secured Party may perform, at its option, some or all
of Lessor's obligations); (3) upon appropriate notice and upon request by
Secured Party, Lessee will execute such acknowledgements and other
documentation as may be requested by Lessor or Secured Party and Lessee will
thereafter pay directly to Secured Party all Rent and other amounts payable
hereunder; and (4) Lessee's obligations hereunder, including, without
limitation, its obligation to pay Rent and other amounts hereunder, shall be
absolute and unconditional and shall not be subject to any reduction,
abatement, defense, set-off, counterclaim or recoupment for any reason
whatsoever. Lessee acknowledges that any assignment or transfer by Lessor
permitted under this Lease shall not materially change Lessee's duties or
obligations under this Lease or materially increase the burdens or risks
imposed upon Lessee.
12. GENERAL
(a) Any provision herein that Lessee shall take any action shall require
Lessee to do so at its sole cost and expense. Lessee shall pay Lessor
interest at the maximum rate permitted by applicable law, but in no event in
excess of a rate of 1-1/2% per month, on any amount past due from the date it
is required to make any payment of Rent or other amount hereunder. Such
interest shall be payable with respect to the period commencing on the date
such payment is due through the date such payment is actually made.
(b) Any notice hereunder shall be in writing and shall be deemed to be given
when delivered, including but not limited to overnight courier or electronic
transmission or, if mailed, on the third day after mailing by registered or
certified mail, postage prepaid and addressed to Lessee or Lessor at its
respective address shown on the first page hereof, or to either party at such
other address it has designated as its address for purposes of notice
hereunder.
(c) Promptly upon Lessor's written request, Lessee agrees to execute,
acknowledge and deliver such instruments, and to take such other action, as
may reasonably be necessary in the opinion of Lessor, or Lessor's counsel, to
protect Lessor's or any Secured Party's interests in the Equipment, this
Lease and any Rent, including, but without limitation, the obtaining and
execution of landlord and mortgage waivers and Uniform Commercial Code
financing statements in recordable form, incumbency certificates and, at
Lessee's expense, opinion of Lessee's legal counsel regarding the matters
contained in Section 4(b) hereof. Upon Lessor's written request, Lessee also
agrees to provide quarterly financial statements and annual audited financial
statements in the form previously furnished to Lessor within 120 days of the
end of each quarter and Lessee's fiscal year end. Lessor may file or record a
copy of this Lease as a financing statement or for any other purpose.
(d) This Agreement is, and is intended to be, a lease, and Lessee does not
acquire hereby any right, title or interest in or to the Equipment except
the right to use the same as Lessee under the terms hereof. Both Lessor and
Lessee agree to characterize this Agreement as a lease for Federal income
tax purposes, such that Lessor shall receive the benefits of any depreciation
and investment tax credit, allowance or similar benefit associated with any
item of Equipment.
(e) This Master Lease Agreement and all Supplements duly executed and
attached hereto from time to time constitute the entire agreement between the
parties hereto with respect to the Equipment, and any change or modification
hereto and any related agreement must be in writing and signed by the parties
hereto. There shall be a single executed original of this Master Lease
Agreement which shall be marked and for the purposes hereof shall be referred
to as the "Original"; all other counterparts shall be marked "Duplicate".
With respect to any Supplement to this Master Lease Agreement executed by the
parties hereto, the following shall apply: (i) each such Supplement shall
constitute a new lease between the parties; (ii) there shall be a single
executed original of each such Supplement marked "Original"; (iii) all other
counterparts of such Supplement shall be marked "Duplicate"; and (iv) to the
extent, if any, that any such Supplement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as is in effect in any
applicable jurisdiction) no security interest therein may be created through
the transfer or possession of the Original of this Master Lease Agreement or
any Duplicate of such a Supplement, but such security interest may be created
by the transfer or possession of the Original of such Supplement together
with a certified copy of this Master Lease Agreement.
(f) Lessor is not, and shall not be deemed to be, an agent, employee or
representative of Lessee or any manufacturer of any Equipment, for any
purpose whatsoever.
(g) If this Lease or any provision hereof shall be deemed invalid, illegal or
unenforceable in any respect or in any jurisdiction, the validity, legality
and enforceability of this Lease in other respects and in other jurisdictions
shall not be in any way impaired or affected thereby. No covenant or
condition of this Lease can be waived except by the written consent of the
party to be bound by such waiver. No waiver by Lessor of any Event of Default
hereunder shall in any way be, or be constituted to be, a waiver of any
future or subsequent Event of Default. Forbearance or indulgence by Lessor or
Lessee in any regard whatsoever shall not constitute a waiver of the covenant
or condition to be performed by the other party to which such forbearance or
indulgence may apply, and, until complete performance by such party of such
covenant or condition. Lessor or Lessee, as the case may be, shall be
entitled to invoke any remedy available to such party under this Lease or by
law or in equity or otherwise despite said forbearance or indulgence. This
Lease shall be governed by the laws of the State of Illinois. Lessee hereby
submits to the jurisdiction of the state and federal courts located in
Illinois.
(h) Should Lessee fail to make any payment or to do any act as herein
provided, after notice to Lessee which is reasonable under the circumstances,
Lessor shall have the right, but not the obligation and without releasing
Lessee from any obligation hereunder or waiving Lessor's right to declare a
default hereunder, to make or do the same, and to pay, purchase, contest or
compromise any encumbrance, charge or lien which in the reasonable judgment
of Lessor appears to materially and adversely affect Lessor's interest in the
Equipment, and in exercising any such rights, Lessor may incur any liability
and expend whatever amount in its reasonable discretion it may deem necessary
therefor. All sums so incurred or expended by Lessor shall be without demand
immediately due and payable by Lessee.
(i) Whenever the context of this Lease requires, the singular number includes
the plural. Section headings contained herein are solely for the convenience
of the parties, and are not an aid in the interpretation of the instrument.
Although this Lease is dated as of the date first above written for
convenience, the Supplement Agreement Date and the Supplement Commencement
Date shall be as specified in the applicable Supplement.
(j) This Master Lease Agreement may be canceled by Lessee in writing,
provided all outstanding Supplements hereunder have either expired or have
been terminated with respect to their individual termination provisions, and
that no Events of Default are continuing under any Supplements, and Lessee
has fulfilled all obligations under all such Supplements.
LESSOR: LESSEE:
MERIDIAN LEASING CORPORATION CUSTOM PAPERS GROUP, INC.
By: By: /s/ ILLEGIBLE
-------------------------------- --------------------------------
Title: Title: VICE-PRESIDENT
----------------------------- -----------------------------
<PAGE>
[LOGO]
02/24/94 ms
SUPPLEMENT NUMBER 1
LESSEE: CUSTOM PAPERS GROUP, INC.
MASTER LEASE AGREEMENT DATE: January 1, 1994
This Supplement is issued pursuant to the Master Lease Agreement identified
above. All of the terms and conditions of the Master Lease Agreement are
hereby incorporated herein and made a part hereof as if such terms and
conditions were set forth in this Supplement. This Supplement, together with
the terms and conditions as incorporated herein, constitutes a separately
enforceable lease agreement with respect to the Equipment.
Lessee acknowledges that any assignment or transfer by Lessor permitted under
this Lease shall not materially change Lessee's duties or obligations under
this Lease or materially increase the burdens or risks imposed upon Lessee.
SUPPLEMENT AGREEMENT DATE: January 1, 1994
SUPPLEMENT COMMENCEMENT DATE: January 1, 1994
The Lease Term shall begin on the Supplement Commencement Date. To the extent
that the Equipment is accepted prior to that date, the Lessee shall pay to
the Lessor an interim rental representing a proration on a per diem basis of
the initial monthly rental.
EQUIPMENT: Manufactured by ACCURAY
See Equipment/Location Schedule A to Supplement Number 1.
LEASE TERM AND RENTAL PAYMENTS: Term 72 months, payable semi-annually on the
last day of each six months. The amount of payment for payments 1 through 12
is $196,290.00 per six months.
LOCATION OF EQUIPMENT:
See Equipment/Location Schedule A
to Supplement Number 1
ADDITIONAL PROVISIONS TO SUPPLEMENT:
Casualty Values. . . . . . . . . . . . . . . . . . . .Schedule B
Renewal Option . . . . . . . . . . . . . . . . . . . .Schedule C
Purchase Option. . . . . . . . . . . . . . . . . . . .Schedule C
Additional Consideration . . . . . . . . . . . . . . .Schedule C
MERIDIAN LEASING CORPORATION CUSTOM PAPERS GROUP, INC.
(Lessor) (Lessee)
By By /s/ [ILLEGIBLE]
------------------------- -------------------------------
Title: Title: VICE-PRESIDENT
<PAGE>
EQUIPMENT/LOCATION SCHEDULE A
TO SUPPLEMENT NUMBER 1
LESSEE: CUSTOM PAPERS GROUP, INC.
SUPPLEMENT AGREEMENT DATE: January 1, 1994
EQUIPMENT: Manufactured by ACCURAY
LOCATION: CUSTOM PAPERS GROUP, INC.
FITCHBURG MILL
ONE OLD PRINCETON ROAD
FITCHBURG, MA 01420
SEMI-ANNUAL
QTY TYPE/MODEL DESCRIPTION RENT
- --- ---------- ----------- -----------
1 #1PM PROCESS CONTROL SYSTEM $36,304.00
LOCATION: CUSTOM PAPERS GROUP, INC.
WARREN GLEN MILL
WARREN GLEN, NJ 08804
SEMI-ANNUAL
QTY TYPE/MODEL DESCRIPTION RENT
- --- ---------- ----------- -----------
1 #7PM PROCESS CONTROL SYSTEM $ 37,660.00
1 #8PM PROCESS CONTROL SYSTEM $ 72,930.00
LOCATION: CUSTOM PAPERS GROUP, INC.
HUGHESVILLE MILL
HUGHESVILLE, NJ 08804
QTY TYPE/MODEL DESCRIPTION
- --- ---------- -----------
1 #9PM PROCESS CONTROL SYSTEM $ 49,396.00
--------------
Total $196,290.00
This Schedule is hereby attached to and made a part of the Supplement to the
Master Lease Agreement bearing date as set forth above, between MERIDIAN
LEASING CORPORATION and Lessee named above.
Lessee Address: CUSTOM PAPERS GROUP, INC.
110 TREDEGAR ST.
RICHMOND, VA 23219
<PAGE>
SCHEDULE B TO SUPPLEMENT NUMBER 1
To
Master Lease Agreement Dated January 1, 1994
Between
MERIDIAN LEASING CORPORATION (Lessor)
And
CUSTOM PAPERS GROUP, INC. (Lessee)
CASUALTY VALUES
The Casualty Value of the Equipment covered by the Supplement identified
above, as of any date, shall be the amount indicated below opposite the
period of time in which such date occurs. Values for those periods between
the ones indicated below can be calculated through interpolation of nearest
values.
Months Expired After Casualty
Supplement Commencement Date Value
0 $1,906,548
12 $1,558,794
24 $1,265,185
36 $1,016,953
48 $807,423
60 $630,495
72 $481,022
After the term of lease for such Equipment, and until such item of Equipment
has been surrendered to Lessor, as provided in the Master Lease Agreement,
the Casualty Value of such Equipment shall be $481,022.
Following payment of the Casualty Value, the Lessor and the Lessee shall each
make reasonable efforts to obtain bids for the purchase of any existing
Equipment suffering such Total Casualty. Such Equipment shall be sold for the
highest cash offer then available, or if higher, other offer acceptable to
Lessor and Lessee. Upon such sale, the Lessee shall be refunded the amount of
the proceeds of the sale less the actual expenses incurred by Lessor in
making the sale, including, without limitation, storage, insurance,
advertising and sales taxes, but such refund shall not be in excess of the
Casualty Value previously paid.
Following payment of the Casualty Value, the Lessee shall be entitled to the
proceeds of any insurance covering the Equipment suffering such a Total
Casualty up to an amount not in excess of the Casualty Value previously paid,
but in no event shall the aggregate of amounts refunded to or received by
Lessee pursuant to this Schedule B exceed the Casualty Value.
This Schedule is hereby attached to and made a part of the Supplement of the
Master Lease Agreement bearing date as set forth above, between MERIDIAN
LEASING CORPORATION and Lessee named above.
<PAGE>
SCHEDULE C TO SUPPLEMENT NUMBER 1
To
Master Lease Agreement dated January 1, 1994
Between
MERIDIAN LEASING CORPORATION (Lessor)
And
CUSTOM PAPERS GROUP, INC. (Lessee)
RENEWAL OPTION:
Lessee has the option, with three months prior written notice, provided it
has not previously received written notice of default under the terms of the
Lease, or if it received such notice of default, has cured such default, to
renew the Lease for the Equipment at the end of the Lease Term for Fair
Market Value for a designated renewal term, such Fair Market Value to be
determined objectively by Lessor. In the event Lessee does not exercise said
renewal option, the Lease Term shall be automatically extended at the monthly
lease rate in effect at the end of said term unless and until terminated by
either party giving the other not less than three months prior written notice.
PURCHASE OPTION:
Lessee has the option, with three months prior written notice, provided
Lessee has not previously received written notice of default under the terms
of the Lease, or if it received such notice of default, has cured such default,
to purchase the Equipment at the termination of the Lease for $99,999.00.
ADDITIONAL CONSIDERATION:
The Casualty Values on Schedule B are prorated on a per location basis as
follows:
Type/Model Location Percentage
- ---------- -------- ----------
#1PM FITCHBURG MILL 18.495%
ONE OLD PRINCETON ROAD
FITCHBURG, MA 01420
#7PM WARREN GLEN MILL 19.186%
WARREN GLEN, NJ 08804
#8PM WARREN GLEN MILL 37.154%
WARREN GLEN, NJ 08804
#9PM HUGHESVILLE MILL 25.165%
HUGHESVILLE, NJ 08804
This Schedule is hereby attached to and made a part of the Supplement to the
Master Lease Agreement bearing date as set forth above, between MERIDIAN
LEASING CORPORATION and Lessee named above.
<PAGE>
[Logo]
CERTIFICATE OF ACCEPTANCE
The undersigned being the Lessee under Supplement Number 1, to Master Lease
Agreement dated January 1, 1994, ("Lease") by and between MERIDIAN LEASING
CORPORATION, as Lessor, and the undersigned, as Lessee, hereby certifies as
follows:
(a) The equipment listed below is accepted by Lessee as being installed and
being acceptable under the terms of the Lease.
EQUIPMENT: Manufactured by ACCURAY
See Equipment/Location Schedule A to Supplement Number 1.
(b) The Lessor is not known to be in default under the terms of said Lease
and Lessee has no known claim against Lessor under the Lease as of the date
hereof.
(c) Lessee hereby waives any right it may have under Section 2A-517 of the
Uniform Commercial Code or otherwise to revoke this acceptance for any reason
whatsoever including but not limited to (i) any assumption by Lessee that a
nonconformity would be cured, (ii) any inducement of acceptance by the
Lessor's assurances or any difficulty to discover a nonconformity before
acceptance, or (iii) any Lessor default under the Lease. Lessee further
hereby waives its rights under Section 2A-401 and 2A-402 of the Uniform
Commercial Code to suspend performance of any of its obligations under the
Lease with respect to the Equipment hereby accepted.
CUSTOM PAPERS GROUP, INC.
(Lessee)
Acceptance
Date: January 1, 1994 By /s/ (ILLEGIBLE)
----------------------------- -----------------------------
Title: VICE-PRESIDENT
<PAGE>
EQUIPMENT/LOCATION SCHEDULE A
TO SUPPLEMENT NUMBER 1
LESSEE: CUSTOM PAPERS GROUP, INC.
SUPPLEMENT AGREEMENT DATE: January 1, 1994
EQUIPMENT: Manufactured by ACCURAY
LOCATION: CUSTOM PAPERS GROUP, INC.
FITCHBURG MILL
ONE OLD PRINCETON ROAD
FITCHBURG, MA 01420
Semi-Annual
Qty Type/Model Description Rent
- --- ---------- ----------- -----------
1 #1PM PROCESS CONTROL SYSTEM $ 36,304.00
LOCATION: CUSTOM PAPERS GROUP, INC.
WARREN GLEN MILL
WARREN GLEN, NJ 08804
Semi-Annual
Qty Type/Model Description Rent
- --- ---------- ----------- -----------
1 #7PM PROCESS CONTROL SYSTEM $ 37,660.00
1 #8PM PROCESS CONTROL SYSTEM $ 72,930.00
LOCATION: CUSTOM PAPERS GROUP, INC.
HUGHESVILLE MILL
HUGHESVILLE, NJ 08804
Qty Type/Model Description
- --- ---------- -----------
1 #9PM PROCESS CONTROL SYSTEM $ 49,396.00
-----------
Total $196,290.00
This Schedule is hereby attached to and made a part of the Supplement to the
Master Lease Agreement bearing date as set forth above, between MERIDIAN
LEASING CORPORATION and Lessee named above.
Lessee Address: CUSTOM PAPERS GROUP, INC.
110 TREDEGAR ST.
RICHMOND, VA 23219
<PAGE>
[LETTERHEAD]
INSURANCE AUTHORIZATION LETTER
------------------------------
TO : Alexander and Alexander (Name of Insurance Agency/Broker)
-----------------------
[ILLEGIBLE] (Address)
-----------------------
[ILLEGIBLE] (Address)
-----------------------
Richmond VA 27209 (City, State, Zip)
-----------------------
ATTN: [ILLEGIBLE]
----------------------- (Agent's Name)
TEL: 800 783-0336 (Telephone Number)
-----------------------
RE: 1 (Supplement)
------------------------
Please issue a Certificate of Insurance in the name of MERIDIAN LEASING
CORPORATION AND ITS ASSIGNS covering Supplement Number 1 and mail within five
(5) working days to:
Meridian Leasing Corporation
ATTN: Insurance Department
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
The insurance requirements below are in connection with Supplement Number 1
and cover equipment described as:
Computer Equipment
- -------------------------------------------------------------------------------
Located at: VARIOUS LOCATIONS
---------------------
I. LIABILITY REQUIREMENTS: (Bodily Injury and Property Damage)
--------- ------------
A. $1,000,000 Single Limit Bodily Injury and Property Damage coverage.
B. ENDORSEMENT: It is understood and agreed that Meridian Leasing
Corporation ("Meridian") and its assigns are included as Additional
Insureds, as their interests may appear, with respect to the ownership,
security interest, maintenance or existence of certain personal
property leased to the named insured below by Meridian. It is further
understood that said equipment is leased on a "net lease" basis, and
that Meridian has no maintenance obligations with respect thereto.
C. ENDORSEMENT: It is understood and agreed that this insurance is primary
insurance insofar as it relates to any and all equipment leased from
Meridian under the above-referenced supplement.
D. ENDORSEMENT: It is understood and agreed that this policy shall not be
cancelled, nor any reduction or restriction of coverage be effected
until at least thirty (30) days prior written notice has been given to
Meridian at the above address by Certified Mail, Return Receipt
Requested.
(continued on next page)
<PAGE>
[LETTERHEAD]
(continued from first page)
II. PHYSICAL DAMAGE REQUIREMENTS:
-------- ------ ------------
A. All Risk coverage for not less than $1,906,548.00.
-------------
B. ENDORSEMENT: It is understood and agreed that Meridian and its assigns
are included as Loss Payees with respect to the ownership, maintenance,
or existence of certain personal property leased to the named insured
below by Meridian. It is further understood that said equipment is
leased on a "net lease" basis, and that Meridian has no maintenance
obligations with respect thereto.
C. ENDORSEMENT: It is understood and agreed that this insurance is primary
insurance insofar as it relates to any and all equipment leased from
Meridian under the above-referenced supplement.
D. ENDORSEMENT: It is understood and agreed that this policy shall not be
cancelled, nor any reduction or restriction of coverage be effected until
at least thirty (30) days prior written notice has been given to
Meridian at the above address by Certified Mail, Return Receipt
Requested.
E. ENDORSEMENT: It is understood and agreed that any loss shall be
adjusted with the named insured below and proceeds made payable to
Meridian and its assigns, as their interests may appear.
The undersigned hereby authorizes you to provide a Certificate of Insurance
on the terms and in the manner as specified above.
Named Insured: CUSTOM PAPERS GROUP, INC.
----------------------------
(Lessee)
By: [ILLEGIBLE]
----------------------------------------
Title: Vice-President
-------------------------------------
Date: 3/7/94
-------------------------------------
(ms)
<PAGE>
Exhibit 10.30
---------------
Siemens Credit Corporation
SIEMENS
LEASING SCHEDULE
TO MASTER EQUIPMENT LEASE AGREEMENT #:620-0003660-000
---------------
DATE OF MASTER AGREEMENT: ---------------
LEASING SCHEDULE #: 620-0003661-000
---------------
- ------------------------------------------------------------------------------
LESSOR: Siemens Credit Corporation LESSEE: CPG Holdings, Inc.
5300 Broken Sound Boulevard, N.W. ----------------------------
Boca Raton, FL 33487-3509 (HEREIN "LESSEE")
(800) 327-4443 (407)994-7400
110 Tredegar Street
----------------------------
(ADDRESS)
Richmond, VA 23219
----------------------------
(CITY, STATE, ZIP)
LEASING SCHEDULE # 620-0003661-000 , TO THAT CERTAIN MASTER EQUIPMENT
------------------
LEASE AGREEMENT. AGREEMENT # 620-0003660-000 (HEREIN "AGREEMENT"), BETWEEN
----------------
LESSOR AND LESSEE.
<TABLE>
<CAPTION>
<S> <C>
1. EQUIPMENT DESCRIPTION (including related items):
ROLM 9200 Model 210 Phone System with PhoneMail
as described in Vendor Quote #B92Q7WV 27,468.81 Equipment Cost
1,648.13 6% NJ Use Tax Reimbursement
---------
2. TOTAL EQUIPMENT COST (including related items): $ 29,116.94
---------------------
3. LEASE TERM (in months): 36 Plus Interim Period
---------------------
4. COMMENCEMENT DATE: On Equipment cutover by Vendor
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
5. NUMBER OF LEASE PAYMENTS: 36
---------------------
6. LEASE PAYMENT (per payment period): $ 873.43
---------------------
7. PAYMENT PERIOD (monthly, quarterly, other): Monthly
---------------------
8. ADVANCE LEASE PAYMENT(S): #(s) 1 & 36 : TOTALING $ 1,747.02*
----------------- -------------------
*Due on Lease signing by Lessee
</TABLE>
9. EQUIPMENT LOCATION (if different from Lessee's address above):
Route 519 South
Bloomsbury, NJ 08804
10. DEFINITIONS: The terms used herein, which are not otherwise defined herein,
shall have the same meanings set forth in the Agreement.
11. TERMS OF SCHEDULE: Lessor and Lessee agree that the terms and conditions
of the Agreement are hereby incorporated into this Leasing Schedule
(collectively the "Lease") and made a part hereof to the same extent as if
such terms and conditions were set forth in full herein. The Lease shall
constitute a lease of each item of Equipment described above.
12. AMENDMENTS: Any amendments contained or incorporated into this Leasing
Schedule, which in any way alter the terms of the Agreement, shall be
effective only with respect to this Leasing Schedule and shall be ineffective
with respect to any other Leasing Schedule.
13. EFFECTIVENESS: The Lease shall become effective at the time of Lessor's
acceptance (by execution hereof) at the address set forth above, by an
authorized representative of Lessor.
IN WITNESS WHEREOF, the parties hereto have duly executed the Lease as of the
dates set forth below. For all purposes hereof, the date of the Lease shall
be the date of Lessor's acceptance as set forth below.
By execution hereof, the signer
certifies that (s)he has read the
entire Lease, that Lessor or its
representatives have made no agreements
or representations except as set forth
herein, or in the Agreement, and that
(s)he is duly authorized to execute the
Lease on behalf of Lessee.
ACCEPTED BY:
LESSOR: SIEMENS CREDIT CORPORATION LESSEE: CPG Holdings, Inc.
--------------------------------
BY: /s/ILLEGIBLE BY: /s/Peter Hoppe
----------------------------- --------------------------------
(AUTHORIZED SIGNATURE) (AUTHORIZED SIGNATURE)
NAME: ILLEGIBLE NAME: PETER R. HOPPE
----------------------------- --------------------------------
(PRINTED OR TYPED) (PRINTED OR TYPED)
TITLE: TITLE: VICE-PRESIDENT
----------------------------- --------------------------------
DATE: FEB - 3 1995 DATE: 1/19/95
----------------------------- --------------------------------
<PAGE>
SIEMENS Siemens Credit Corporation
MASTER EQUIPMENT LEASE AGREEMENT
AGREEMENT #: 620-0003660-000
--------------------
- -------------------------------------------------------------------------------
LESSOR: Siemens Credit Corporation LESSEE: CPG Holdings, Inc.
5300 Broken Sound Boulevard, N.W. ----------------------------
Boca Raton, FL 33487-3509 (PERMIT "LESSEE")
(800) 327-4443 (407)994-7400
110 Tredegar Street
----------------------------
(ADDRESS)
Richmond, VA 23219
----------------------------
(CITY, STATE, ZIP)
TERMS AND CONDITIONS OF AGREEMENT
1. MASTER LEASE: This Master Equipment Lease Agreement (herein "Agreement")
sets forth the basic terms and conditions upon which Lessor shall lease to
Lessee and Lessee shall lease from Lessor items of equipment specified in
leasing schedules (herein "Leasing Schedules") to be entered into from time
to time. Each Leasing Schedule shall incorporate the terms and conditions of
the Agreement and shall constitute a lease as to the equipment specified in
such Leasing Schedule (herein "Equipment"). The term "Lease" as used in the
Agreement shall mean the applicable Leasing Schedule as incorporating the
terms and conditions of the Agreement. The Agreement shall become effective
at the time of Lessor's acceptance (by execution thereof) at the address set
forth above, by an authorized representative of Lessor.
2. TERM AND LEASE PAYMENTS: The lease term of the Equipment shall be for the
period specified in the Leasing Schedule (herein "Lease Term"). The Lease
Term shall commence upon the commencement date specified in the Leasing
Schedule (herein "Commencement Date") and thereupon Lessee agrees to execute
and deliver to Lessor a delivery and acceptance certificate in the form
supplied by Lessor. For the Lease Term, Lessee agrees to pay to Lessor the
number of lease payments specified in the Leasing Schedule, each in the
amount specified in the Leasing Schedule (herein "Lease Payments") for the
payment periods specified in the Leasing Schedule (herein "Payment Periods"),
including any Advance Lease Payments specified in the Leasing Schedule, with
the first Lease Payment being due on the first day of the month immediately
following the Commencement Date ("First Regular Payment Date") and the
remaining Lease Payments on the same day of each consecutive Payment Period
thereafter for the duration of the Lease Term. In addition to the foregoing,
for the period covering the Commencement Date to the First Regular Payment
Date ("Interim Period"), Lessee shall pay to Lessor an amount equal to the
Lease Payment Amount divided by thirty (30) and multiplied by the number of
days in the Interim Period. Such amount shall be due and payable on the
tenth day following the Commencement Date. The Stipulated Loss Value Schedule
to the Lease shall be construed so that the column titled "Month of Lease
Term" shall mean - month of Lease Term beginning with the First Regular
Payment Date, except that month "1" shall also include the Interim Period.
Lessee agreed to pay on demand, as a late charge, 1.5% per month limited by
the maximum rate permitted by law, on all overdue payments under the Lease,
whether such payments are due prior to or after a Default (as hereinafter
defined). All payments provided for in the Lease shall be payable at the
office of Lessor set forth above, or at any other place designated by Lessor.
The Lease is a net lease and Lessee shall not be entitled to any abatement
of, reduction of, or setoff against Lease Payments for any reason whatsoever.
The Lease may not be terminated or cancelled for any reason whatsoever,
except as expressly provided in the Lease. No amounts under the Lease may be
prepaid without the written consent of Lessor.
3. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDY; LIMITATION OF LIABILITY:
Lessee has selected both the Equipment and the supplier from whom at Lessee's
request Lessor agrees to purchase the Equipment. LESSEE ACKNOWLEDGES THAT
LESSOR HAS NO SPECIAL FAMILIARITY OR EXPERTISE WITH RESPECT TO THE EQUIPMENT.
LESSEE AGREES THAT THE EQUIPMENT LEASED UNDER THE LEASE IS LEASED "AS IS" AND
IS OF A SIZE, DESIGN AND CAPACITY SELECTED BY LESSEE AND THAT LESSEE IS
SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S PURPOSES, AND THAT EXCEPT AS
MAY OTHERWISE BE SPECIFICALLY PROVIDED IN THE LEASE, LESSOR HAS MADE NO
REPRESENTATION OR WARRANTY AS TO ANY MATTER WHATSOEVER. LESSOR DISCLAIMS ALL
WARRANTIES WITH RESPECT TO THE EQUIPMENT INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY LOSS OF USE, REVENUE, ANTICIPATED
PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT
OF OR IN CONNECTION WITH THE LEASE OR THE USE, PERFORMANCE OR MAINTENANCE OF
THE EQUIPMENT. If the Equipment is not properly installed, does not operate
as represented or warranted by the vendor, manufacturer and/or service
company or is unsatisfactory for any reason, Lessee shall make any claim on
account thereof solely against the vendor, manufacturer and/or service
company and shall, nevertheless, pay Lessor all amounts payable under the
Lease and shall not set up against Lessee's obligations any such claims as a
defense, counterclaim, deduction, setoff or otherwise. For the Lease Term,
Lessor hereby appoints Lessee as Lessor's agent, so long as no Default (as
hereinafter defined) has occured and is continuing, to assert at Lessee's
expense (if any) and to the extent permitted by applicable law, any right
Lessor may have against any vendor, manufacturer and/or service company to
enforce any product warranties with respect to the Equipment, provided
however, Lessee shall indemnify and defend Lessor from and against all
claims, expenses, damages, losses and liabilities incurred or suffered by
Lessor in connection with any such action taken.
4. TITLE; IDENTIFICATION; PERSONAL PROPERTY: Lessee acknowledges that subject
to the provisions of Section 10 hereof, title to the Equipment shall at all
times be vested in Lessor, and no right, title or interest in the Equipment
shall pass to Lessee other than, conditioned upon Lessee's compliance with and
fulfillment of the terms and conditions of the Lease, the right to possess
and use the Equipment of the full Lease Term. Lessee agrees not to sell,
assign, sublet, pledge, or otherwise encumber any interest in the Lease or
the Equipment and agrees to keep the same free from any lien, encumbrance,
right of distraint or any other claim which may be asserted by any third
party. Lessee shall immediately notify Lessor in writing of any tax or other
liens attaching to the Equipment. Lessor may require plates or markings to be
affixed to or placed on the Equipment indicating Lessor's interest. Lessor
and Lessee hereby confirm their intent that the Equipment always remain and
be deemed personal property even though the Equipment may hereafter become
attached or affixed to realty. Lessee shall obtain all such waivers as Lessor
may reasonably require to acknowledge Lessor's title to and assure Lessor's
right to remove the Equipment, including any landlord and mortgagee waivers.
5. PAYMENT OF TAXES; GENERAL INDEMNIFICATION: Lessee shall pay promptly to
Lessor when due, all taxes, fees, and assessments, including but not limited
to, all license and registration fees, sales, use, property, gross receipts,
excise, transaction, ad valorem, privilege, intangible, stamp or other taxes or
charges, together with any fines, penalties or interest thereon, now or
hereafter imposed by any governmental body, upon or with respect to, any of
the Equipment or the use, possession, ownership, leasing, operation, delivery
or return thereof (excluding, however, franchise taxes and any taxes based on
the net income of Lessor). Any fees, taxes or other amounts paid by Lessor
upon failure of Lessee to make such payments set forth in this Section 5
shall be payable upon demand from Lessee to Lessor. Lessee agrees to
indemnify and hold Lessor harmless from and against any and all claims,
losses, liabilities, damages, penalties, actions and suits (including
reasonable legal costs and expenses in connection therewith) incurred by
Lessor which result from, or relate to, the manufacture, purchase, ownership,
maintenance, modification, delivery, installation, possession, condition,
use, acceptance, rejection, operation or return of the Equipment.
6. INSTALLATION AND DELIVERY: Lessee shall provide a suitable installation
environment for the Equipment as specified in the applicable manufacturer's
or vendor's manuals, and except as otherwise specified by the manufacturer or
vendor, furnish all labor required for unpacking and placing each item of
Equipment in the desired location. Lessee shall also be responsible for any
delivery, rigging, destination and installation charges charged by the
manufacturer or vendor with respect to the Equipment.
7. OPERATION; USE; INSPECTION: For the full Lease Term, Lessee shall operate
the Equipment in accordance with all applicable manufacturer and vendor
manuals or instructions by fully qualified and duly authorized
(CONTINUED ON REVERSE SIDE)
IN WITNESS WHEREOF, the parties hereto have duly executed the Agreement as of
the dates set forth below. For all purposes hereof, the date of the Agreement
shall be the date of Lessor's acceptance as set forth below.
By execution hereof, the signer certifies
that (s)he has read the entire Agreement,
front and back, that Lessor or its
representatives have made no agreements
or representations except as set forth
herein or in the Leasing Schedule and
that (s)he is duly authorized to
execute the Agreement on behalf of
Lessee.
ACCEPTED BY:
LESSOR: SIEMENS CREDIT CORPORATION LESSEE: CPG Holdings, Inc.
--------------------------------
BY: /s/ILLEGIBLE BY: /s/ILLEGIBLE
----------------------------- --------------------------------
(AUTHORIZED SIGNATURE) (AUTHORIZED SIGNATURE)
NAME: ILLEGIBLE NAME: PETER R. HOPPE
----------------------------- --------------------------------
(PRINTED OR TYPED) (PRINTED OR TYPED)
TITLE: TITLE: VICE-PRESIDENT
----------------------------- --------------------------------
DATE: FEB - 3 1995 DATE: 1/19/95
----------------------------- --------------------------------
<PAGE>
personnel only, in accordance with all applicable laws and regulations.
The Equipment shall be used for business purposes only and only for its
normally intended purpose. For said Lease Term, Lessee shall properly
maintain the Equipment, or cause it to be properly maintained, by a fully
qualified service company, and shall immediately notify Lessor in writing
of the entity maintaining the Equipment and of any change of such entity.
Such maintenance shall be performed in accordance with all requirements
necessary to enforce all product warranty rights. All operating and
maintenance costs with respect to the Equipment shall be borne by Lessee.
Lessee shall not (a) use, operate or locate the Equipment in any area
excluded from coverage by any insurance required under the Lease; (b)
abandon the Equipment; (c) alter the Equipment; (d) permit the Equipment
to be removed from the equipment location specified in the Leasing
Schedule (herein "Equipment Location"), or any subsequent location,
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld; (e) without the prior written consent of Lessor,
allow the Equipment or any item of it to be affixed to realty in such
manner as to cause the Equipment or such item to become a fixture; or (f)
without the prior written consent of Lessor, affix or install any
accessory, equipment or device on any item of Equipment if such (i) is not
readily removable, or (ii) will impair the originally intended function
or use of such Equipment. All additions, repairs, parts, accessories,
equipment and devices attached or affixed to any item of Equipment which
are not readily removable, shall become the property of Lessor and part
of the Equipment for all purposes hereof. Lessor shall have the right
from time to time during normal business hours to enter upon the
Equipment Location or elsewhere for the purpose of confirming the
existence, condition or proper maintenance of the Equipment.
a. RISK OF LOSS; INSURANCE: (a) Lessee agrees that it shall bear all risk
of loss, damage to or destruction of the Equipment. Lessee shall give
Lessor prompt notice of any damage to or loss of any Equipment or of any
occurence arising from the possession, use or operation of the Equipment
resulting in death or bodily injury, or damage to property. In the event
of damage to any item(s) of Equipment, Lessee shall immediately place
such item(s) in good repair (with no abatement of Lease Payments), with
the proceeds of any insurance recovery applied to the cost of such
repair. Should any item(s) of Equipment become lost, stolen, destroyed,
worn out, damaged beyond repair, condemned, confiscated, seized or
requisitioned (herein "Event of Loss"), Lessee shall, at the option of
Lessor, either (i) replace the same with like equipment in good repair
(with no abatement of Lease Payments), or (ii) pay to Lessor on the lease
payment date immediately following such Event of Loss (herein "Loss
Payment Date"), the pro rata portion relating to such item(s) of the
greater of (A) the Fair Market Value (as hereinafter defined) of the
Equipment calculated as of the lease payment date immediately prior to
such Event of Loss, or (B) the stipulated loss value of the Equipment as
set forth in the schedule to the Lease ("Stipulated Loss Value")
calculated for the Payment Period immediately preceding the Loss Payment
Date, plus all Lease and other payments due but unpaid as of the day
immediately preceding the Loss Payment Date relating to such item(s),
whereupon the Lease shall terminate as to such item(s) and Lessor shall
adjust the remaining Lease Payments and Stipulated Loss Value Schedule
accordingly.
(b) For the full Lease Term, Lessee, at its expense, shall maintain
comprehensive general liability insurance, and "fire and allied perils"
and "all risks" property insurance with respect to the Equipment, both in
such amounts as Lessor shall require, except that such property insurance
shall be in an amount at least equal to the greater of the full
replacement value of the Equipment or the applicable Stipulated Loss
Value thereof, and such insurance shall be placed with carriers
acceptable to Lessor. The liability insurance policy shall name Lessor as
additional insured and the property insurance policy shall name Lessor as
loss payee to the extent its interest may appear, and both policies shall
provide that they may not be cancelled or altered without at least thirty
(30) days prior written notice to Lessor. Lessee shall furnish to Lessor
within thirty (30) days of delivery of the Equipment, a certificate of
insurance that such coverage is in effect, however, Lessor shall be under
no duty either to ascertain the existence of or to examine such insurance
policies or to advise Lessee in the event that such insurance coverage
does not comply with the requirements hereof.
a. DEFAULT AND REMEDIES: (a) Any of the following shall constitute a
default by Lessee under the Lease (herein "Default"): (i) failure by
Lessee to pay any amounts under the Lease when due and such remains
unremedied for a period of ten (10) days from the due date; or (ii)
failure by Lessee to comply with any provisions or perform any of its
obligations arising under the Lease or under any other documents or
agreements relating to the Lease, and such remains unremedied by Lessee
for a period of twenty (20) days; or (iii) any representations or
warranties made or given by Lessee in connection with the Lease or the
Agreement, or any other document or agreement relating to the Lease or
the Agreement, were false or misleading when made; or (iv) subjection of
the Equipment to levy or execution or other judicial process which is not
or cannot be removed within thirty (30) days from the subjection thereof;
or (v) commencement of any insolvency, bankruptcy or similar proceedings
by or against Lessee or any guarantor of any of Lessee's obligations
under the Lease (herein "Guarantor"), including any assignment by Lessee
for the benefit of creditors, and in the case of any such involuntary
proceedings, such is not dismissed within thirty (30) days of
institution; or (vi) any act of Lessee which imperils the value of the
Equipment or the prospect of full performance of Lessee's obligations
under the Lease, including but not limited to the liquidation or
dissolution of Lessee or the commencement of any acts relative thereto,
or without the prior written consent of Lessor, any sale or other
disposition of all or substantially all of the assets of Lessee, or any
merger or consolidation of Lessee unless Lessee is the surviving entity,
or the cessation of business by Lessee; or (vii) a default by Lessee
under any other agreement (including but not limited to any other lease)
with Lessor, or with any assignee of the Lease; or (viii) the death or
dissolution of Lessee or of any Guarantor, the withdrawal of any partner
of Lessee if Lessee is a partnership, or the inability of Lessee or of
any Guarantor of the Lease to perform any of the obligations contained in
the Lease or in any applicable guaranty.
(b) Upon any Default, Lessor may exercise any one or more of the
following remedies (which remedies shall be cumulative): (i) terminate
the Lease; (ii) declare all remaining Lease Payments for the balance of
the Lease Term discounted at a per annum rate of six percent (6%), plus
all other amounts due from Lessee, immediately due and payable in full;
(iii) by notice to Lessee declare the Stipulated Loss Value of the
Equipment calculated for the Payment Period immediately following such
notice (herein "Calculation Date") immediately due and payable, together
with (A) all due but unpaid Lease Payments from the commencement of the
Lease Term through the day prior to the Calculation Date, and (B) all
other amounts due under the Lease (including late charges); (iv) secure
peaceable repossession and removal of the Equipment by Lessor or its
agent without judicial process; (v) demand that Lessee return the
Equipment to Lessor in accordance with Section 11 hereof; (vi) sell,
lease or otherwise dispose of the Equipment at public or private sale
without advertisement or notice except that required by law, upon such
terms and at such place as Lessor may deem advisable and Lessor may be
the purchaser at any such sale; (vii) demand that Lessee pay all expenses
in connection with the Equipment relating to its retaking, refurbishing,
selling or the like; (viii) exercise any other right or remedy which may
be available to it under the Uniform Commercial Code or any other
applicable law or proceed by appropriate court action to enforce the
Lease or recover damages for the breach thereof. To the extent permitted
by applicable law, Lessee waives all rights it may have to limit or
modify any of Lessor's rights and remedies under the Lease, including but
not limited to, any rights of Lessee to require Lessor to dispose of the
Equipment or otherwise mitigate its damages under the Lease.
10. PURCHASE OPTION: Provided no Default has occurred and is continuing
and provided the Lease shall not have previously terminated, Lessee shall
have the option, exercisable by written notice to Lessor received by
Lessor at least ninety (90) but no more than one hundred eighty (180)
days before the expiration of the Lease Term, to purchase on the day
following the last day of such term (herein "Purchase Date"), all but not
less than all of the Equipment subject to the Lease for its Fair Market
Value. Fair Market Value shall mean the value which would be obtained in
an arm's-length transaction between an informed and willing buyer-user (other
than a lessee currently in possession or a used equipment dealer) under
no compulsion to buy, and an informed and willing seller under no
compulsion to sell and, in such determination, costs of removal from the
location of current use shall not be a deduction from such value. Fair
Market Value shall be determined by the mutual agreement of Lessor and
Lessee in accordance with the preceding sentence. If Lessee and Lessor
cannot agree, Fair Market Value shall be determined by a qualified
independent equipment appraiser selected by Lessor and approved by
Lessee, and Lessee shall pay the cost of appraisal. Provided Lessee has
exercised such option, Lessee shall pay to Lessor on the Purchase Date
the aforementioned purchase price in cash, together with all sales and
other taxes applicable to the transfer of the Equipment and any other
amounts as may then be due and owing under the Lease, whereupon Lessor
shall transfer its interest in the Equipment to Lessee without recourse
or warranty, on an as-is, where-is basis. In the event that Lessee fails
to exercise such purchase option, Lessee shall (upon termination of the
Lease) return the Equipment to Lessor on demand, in accordance with the
provisions of Section 11 hereof.
11. RETURN OF EQUIPMENT: Upon demand of Lessor pursuant to Section 9 or
10 hereof, Lessee, at its own risk and expense, shall immediately return
the Equipment to Lessor, packed for shipment in accordance with
manufacturer's specifications, in good working order and eligible for
manufacturer's maintenance, if available, freight prepaid and insured, to
such location within the continental United States as Lessor shall
designate.
12. LESSEE REPRESENTATIONS AND ASSURANCES: Lessee represents: that it is
duly organized and validly existing under the laws of its state of
organization and by consummation of the Lease transaction, Lessee is not
in violation of any governmental statute or regulation, nor will
consummation of the Lease transaction cause any breach, default or
violation of the certificate of incorporation or by-laws (if Lessee is a
corporation), the partnership certificate or partnership agreement (if
Lessee is a partnership) or any judgment, decree or agreement, all as may
apply to Lessee; that the Lease transaction was duly authorized by
appropriate corporate or partnership action (as applicable); and the
Lease is enforceable in accordance with its terms. Lessee shall promptly
execute and deliver to Lessor such further documents and take such
further action as Lessor may reasonably request in order to more
effectively carry out the intent and purpose of the Lease. Lessee shall
provide Lessor with audited and other financial statements and such other
information as Lessor shall reasonably request from time to time.
13. NOTICES; CHANGES; FILINGS: Notices, requests or other communications
required under the Lease to be sent to either party shall be in writing
and shall be (a) by United States first class mail, postage prepaid, and
addressed to the other party at the address specified above (or to such
other address as such party shall have designated by proper notice) or
(b) by personal delivery. Lessee consents to service of process by
certified mail at its address above (or to such other address as Lessee
shall have designated by proper notice) in connection with any legal
action brought by Lessor. Lessee authorizes Lessor to fill in descriptive
material in the Lease (including serial numbers) and to correct any
patent errors under the Lease. Lessee shall execute and authorizes Lessor
to file with such authorities and at such locations as Lessor may deem
appropriate, Uniform Commercial Code financing statements relating to the
Equipment and/or the Lease, and Lessee agrees to reimburse Lessor upon
demand for all costs incurred relative thereto. In addition, Lessee
agrees that an original or a photocopy of the Lease (including any
addenda, attachments and amendments to the Lease) may be filed by Lessor
as a Uniform Commercial Code financing statement. Lessee agrees to
immediately notify Lessor in writing, of any change in Lessee's name or
address, or discontinuance of its place or places of business.
14. ASSIGNMENT BY LESSOR: The Lease or any interest of Lessor in the
Lease may be assigned by Lessor. UPON NOTICE OF SUCH ASSIGNMENT LESSEE
AGREES TO PAY DIRECTLY TO ASSIGNEE WITHOUT ABATEMENT, DEDUCTION OR SETOFF
ALL AMOUNTS WHICH BECOME DUE UNDER THE LEASE AND FURTHER AGREES THAT IT
WILL NOT ASSERT AGAINST ASSIGNEE ANY DEFENSE, COUNTERCLAIM OR SETOFF FOR
ANY REASON WHATSOEVER IN ANY ACTION FOR PAYMENT OR POSSESSION BROUGHT BY
ASSIGNEE. Upon any such assignment, such assignee (herein "Assignee")
shall have and be entitled to any and all rights and remedies of Lessor
under the Lease, all references in the Lease to Lessor shall include
Assignee except that Assignee shall not be chargeable with any
obligations or liabilities of Lessor under the Lease. Lessee shall (if
requested by Lessor) acknowledge in writing any assignments (including
any material terms of the Lease) in a form supplied by Lessor.
15. MISCELLANEOUS: THE LEASE, OR ANY PART OF THE LEASE, MAY NOT BE
ASSIGNED BY LESSEE WITHOUT THE WRITTEN CONSENT OF LESSOR and shall be
binding upon and inure to the benefit of the parties hereto, their legal
representatives, permitted successors and assigns. No amendment to the
Lease or the Agreement shall be effective unless in writing signed by the
parties thereto and no waiver of any provision of the Lease shall be
effective unless in writing, signed by the party to be charged. No
failure to exercise, no delay in exercising, and no single or partial
exercise on the part of Lessor of any right, remedy, or power under the
Lease, shall operate as a waiver thereof or preclude Lessor from
exercising any other right, remedy or power under the Lease. Any
provision of the Lease which is unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability, without invalidating the remaining provisions of the
Lease. No action, regardless of form, arising out of the Lease may be
brought by Lessee more than two (2) years after the cause of action has
arisen. The representations, warranties, obligations and indemnities of
Lessee under the Lease shall survive the termination of the Lease to the
extent required for their full observance and performance. The
obligations of each co-maker (if any) of the Lease, shall be primary,
joint and several, and each such co-maker hereby irrevocably consents to
any extension of time of payments and/or the execution of any refinancing
agreement relative to the Lease. In the event that Lessee fails to meet
any of its obligations under the Lease, Lessor may at its option satisfy
such obligation and Lessee shall reimburse Lessor on demand therefor. In
the event that legal or other action is required to enforce Lessor's
rights under the Lease (including the exercise of remedies under Section
9 hereof), Lessee agrees to reimburse Lessor on demand for its reasonable
attorneys' fees and its other related costs and expenses. The captions in
the Agreement are for convenience only and shall not define or limit any
of the terms hereof. THE AGREEMENT AND THE LEASE SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
<PAGE>
EXHIBIT 12.1
Specialty Paperboard, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Historical:
Income (loss) before
income taxes (4,207) 1,434 6,634 7,996 7,529 5,091 7,994
Interest expense 8,231 7,752 3,137 1,356 892 811 310
Rental expense -- -- -- 681 1,022 843 1,070
------ ------ ------ ------ ------ ------ ------
Earnings 4,024 9,186 9,771 10,033 9,443 6,745 9,374
Rental expense -- -- -- 681 1,022 843 1,070
Interest expense 8,231 7,752 3,137 1,356 892 811 310
------ ------ ------ ------ ------ ------ ------
Fixed charges 8,231 7,752 3,137 2,037 1,914 1,654 1,380
Ratio of earnings to
fixed charges 0.49 1.18 3.11 4.93 4.93 4.08 6.79
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Nine Months Ended
Pro Forma September 30, Pro Forma
Year Ended ----------------- Latest Twelve Months
December 31, 1995 1995 1996 Ended September 30, 1996
----------------- ---- ---- ------------------------
<S> <C> <C> <C> <C>
Income before income taxes 12,128 8,828 12,321 15,621
Interest expense 9,825 7,370 7,370 9,825
Rental expense 1,022 843 1,070 1,249
------ ------ ------ ------
Earnings 22,975 17,041 20,761 26,695
Rental expense 1,022 843 1,070 1,249
Interest expense 9,825 7,370 7,370 9,825
------ ------ ------ ------
Fixed charges 10,847 8,213 8,440 11,074
Ratio of earnings to fixed charges 2.12 2.07 2.46 2.41
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated January 26, 1996 on our audits of the consolidated financial
statements of Specialty Paperboard, Inc. We also consent to the reference to
our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 6, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Specialty
Paperboard, Inc. on Form S-4 of our report dated February 29, 1996 (August
28, 1996 as to Note 13) on our audits of the financial statements of CPG
Investors Inc. as of December 31, 1994 and 1995, for the eight-week period
from November 1, 1993 (commencement of operations) to December 26, 1993, and
for the years ended December 31, 1994 and 1995.
We also consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Richmond Virginia
December 5, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Specialty Paperboard, Inc. of our report
dated November 28, 1995, except for Note 14, which is as of August 28, 1996
relating to the consolidated financial statements of Arcon Holdings Corp.,
which appears in such Prospectus. We also consent to the references to us
under the headings "Experts".
PRICE WATERHOUSE LLP
Melville, New York
Date
--------------------
Specialty Paperboard Inc. is filing a registration statement with the
Securities and Exchange Commission in anticipation of conducting an offer to
exchange up to an aggregate principal amount of $100,000,000 of its 9 3/8%
Senior Notes due 2006, Series B for up to an aggregate principal amount of
$100,000,000 of its outstanding 9 3/8% Senior Notes due 2006, Series A. The
above consent is in the form which will be signed by Price Waterhouse LLP
upon effectiveness of the Registration Statement assuming that, from August
28, 1996 to such date, no other events shall have occurred that would affect
the consolidated financial statements referred to in the above consent.
PRICE WATERHOUSE LLP
Melville, New York
December 5, 1996
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Specialty Paperboard, Inc. of our
report dated August 28, 1996, relating to the financial statements of Arcon
Coating Mills, Inc., which appears in such Prospectus. We also consent to
the references to us under the headings "Experts".
PRICE WATERHOUSE LLP
Melville, New York
Date
--------------------
Specialty Paperboard Inc. is filing a registration statement with the
Securities and Exchange Commission in anticipation of conducting an offer to
exchange up to an aggregate principal amount of $100,000,000 of its 9 3/8%
Senior Notes due 2006, Series B for up to an aggregate principal amount of
$100,000,000 of its outstanding 9 3/8% Senior Notes due 2006, Series A. The
above consent is in the form which will be signed by Price Waterhouse LLP
upon effectiveness of the Registration Statement assuming that, from August
28, 1996 to such date, no other events shall have occurred that would affect
the financial statements referred to in the above consent.
PRICE WATERHOUSE LLP
Melville, New York
December 5, 1996
<PAGE>
Exhibit 23.5
Specialty Paperboard, Inc. is filing this Registration Statement with the
Securities and Exchange Commission in anticipation of conducting an offer
to exchange up to an aggregate principal amount of $100,000,000 of its 9 3/8%
Senior Notes due 2006, series B, for up to an aggregate principal amount of
$100,000,000 of its outstanding 9 3/8% Senior Notes due 2006, series A.
The consent below is in the form which is expected to be signed by
Arthur Andersen LLP upon effectiveness of the Registration Statement
assuming we receive the necessary representation letters from the successor
auditor indicating that from the date of our opinion forward to the effective
date of the Registration Statement, no events shall have occurred that would
affect the Arcon Coating Mills, Inc. financial statements for the year ended
October 31, 1993 and notes thereto included herein.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Specialty Paperboard, Inc:
As independent public accountants, we hereby consent to the use of our report
dated December 30, 1993 on the financial statements of Arcon Coating Mills,
Inc. for the year ended December 31, 1993 and to all references to our Firm
included in or made a part of this Registration Statement.
Philadelphia, PA
<PAGE>
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _____
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
SPECIALTY PAPERBOARD, INC.
(Exact name of obligor as specified in its charter)
Delaware 82-0429330
(State of incorporation) (I.R.S. employer identification no.)
Brudies Road
Brattleboro, Vermont 05302
(Address of principal executive offices) (Zip Code)
9 3/8% Senior Notes due 2006
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee and
upon information furnished by the obligor, the obligor is not an affiliate
of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence
business and the authorization of Wilmington Trust Company to exercise
corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b) of
Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 26th day
of November, 1996.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ DONALD G. MACKELCAN By: /s/ NORMA P. CLOSS
------------------------- ----------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE>
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the General
Assembly of the State of Delaware, entitled "An Act to Incorporate the Delaware
Guarantee and Trust Company", approved March 2, A.D. 1901, and the name of which
company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed in the
Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act
of Incorporation of which company has been from time to time amended and changed
by merger agreements pursuant to the corporation law for state banks and trust
companies of the State of Delaware, does hereby alter and amend its Charter or
Act of Incorporation so that the same as so altered and amended shall in its
entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of Delaware is
at Rodney Square North, in the City of Wilmington, County of New Castle;
the name of its resident agent is WILMINGTON TRUST COMPANY whose address is
Rodney Square North, in said City. In addition to such principal office,
the said corporation maintains and operates branch offices in the City of
Newark, New Castle County, Delaware, the Town of Newport, New Castle
County, Delaware, at Claymont, New Castle County, Delaware, at Greenville,
New Castle County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate branch
offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market
Street, and 3605 Market Street, all in the City of Wilmington, New Castle
County, Delaware, and such other branch offices or places of business as
may be authorized from time to time by the agency or agencies of the
government of the State of Delaware empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this Corporation are
to do any or all of the things herein mentioned as fully and to the same
extent as natural persons might or could do and in any part of the world,
viz.:
(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at
pleasure, to hold, purchase, convey, mortgage or otherwise deal in
real and personal estate and property, and to appoint such officers
and agents as the business of the
<PAGE>
Corporation shall require, to make by-laws not inconsistent with the
Constitution or laws of the United States or of this State, to
discount bills, notes or other evidences of debt, to receive deposits
of money, or securities for money, to buy gold and silver bullion and
foreign coins, to buy and sell bills of exchange, and generally to
use, exercise and enjoy all the powers, rights, privileges and
franchises incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby created.
(2) To insure titles to real and personal property, or any estate or
interests therein, and to guarantee the holder of such property, real
or personal, against any claim or claims, adverse to his interest
therein, and to prepare and give certificates of title for any lands
or premises in the State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the
purchase, sale, management and disposal of property of all
descriptions, and to prepare and execute all papers which may be
necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every description,
and to carry on the business of conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry, plate,
deeds, bonds and any and all other personal property of every sort and
kind, from executors, administrators, guardians, public officers,
courts, receivers, assignees, trustees, and from all fiduciaries, and
from all other persons and individuals, and from all corporations
whether state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of registering,
issuing, certificating, countersigning, transferring or underwriting
the stock, bonds or other obligations of any corporation, association,
state or municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two parties,
and in like manner may act as Treasurer of any corporation or
municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond or
other instrument issued by any state, municipality, body politic,
corporation, association or person, either alone or in conjunction
with any other person or persons, corporation or corporations.
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(8) To guarantee the validity, performance or effect of any contract
or agreement, and the fidelity of persons holding places of
responsibility or trust; to become surety for any person, or persons,
for the faithful performance of any trust, office, duty, contract or
agreement, either by itself or in conjunction with any other person,
or persons, corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment, suit, order,
or decree to be entered in any court of record within the State of
Delaware or elsewhere, or which may now or hereafter be required by
any law, judge, officer or court in the State of Delaware or
elsewhere.
(9) To act by any and every method of appointment as trustee, trustee
in bankruptcy, receiver, assignee, assignee in bankruptcy, executor,
administrator, guardian, bailee, or in any other trust capacity in the
receiving, holding, managing, and disposing of any and all estates and
property, real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian or bailee by any
persons, corporations, court, officer, or authority, in the State of
Delaware or elsewhere; and whenever this Corporation is so appointed
by any person, corporation, court, officer or authority such trustee,
trustee in bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other trust
capacity, it shall not be required to give bond with surety, but its
capital stock shall be taken and held as security for the performance
of the duties devolving upon it by such appointment.
(10) And for its care, management and trouble, and the exercise of
any of its powers hereby given, or for the performance of any of the
duties which it may undertake or be called upon to perform, or for the
assumption of any responsibility the said Corporation may be entitled
to receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages, debentures,
shares of capital stock, and other securities, obligations, contracts
and evidences of indebtedness, of any private, public or municipal
corporation within and without the State of Delaware, or of the
Government of the United States, or of any state, territory, colony,
or possession thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest, dividends and
income upon and from any of the bonds, mortgages, debentures, notes,
shares of capital stock, securities, obligations, contracts, evidences
of indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages, debentures, notes,
shares of capital stock, securities, obligations, contracts, evidences
of indebtedness and other property, any and all the rights, powers and
privileges of individual
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owners thereof, including the right to vote thereon; to invest and
deal in and with any of the moneys of the Corporation upon such
securities and in such manner as it may think fit and proper, and from
time to time to vary or realize such investments; to issue bonds and
secure the same by pledges or deeds of trust or mortgages of or upon
the whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when the Board
of Directors shall determine, and in the promotion of its said
corporate business of investment and to the extent authorized by law,
to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and
convey real and personal property of any name and nature and any
estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers conferred by
the laws of the State of Delaware, it is hereby expressly provided that the
said Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the same
extent as natural persons might or could do, and in any part of the
world.
(2) To acquire the good will, rights, property and franchises and to
undertake the whole or any part of the assets and liabilities of any
person, firm, association or corporation, and to pay for the same in
cash, stock of this Corporation, bonds or otherwise; to hold or in any
manner to dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any part of
any business so acquired, and to exercise all the powers necessary or
convenient in and about the conduct and management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien, and to
lease, sell, exchange, transfer, or in any manner whatever dispose of
property, real, personal or mixed, wherever situated.
(4) To enter into, make, perform and carry out contracts of every
kind with any person, firm, association or corporation, and, without
limit as to amount, to draw, make, accept, endorse, discount, execute
and issue promissory notes, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same extent as
natural persons might or could do, to purchase or otherwise acquire,
to hold, own, to mortgage, sell, convey or otherwise dispose of, real
and personal property, of every class and description, in any State,
District, Territory or Colony of the United States, and in any foreign
country or place.
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(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except where
otherwise expressed in said paragraph) be nowise limited or restricted
by reference to or inference from the terms of any other clause of
this or any other paragraph in this charter, but that the objects,
purposes and powers specified in each of the clauses of this paragraph
shall be regarded as independent objects, purposes and powers.
FOURTH: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million (41,000,000)
shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par value
$10.00 per share (hereinafter referred to as "Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par value
$1.00 per share (hereinafter referred to as "Common Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of
Directors each of said series to be distinctly designated. All shares of
any one series of Preferred Stock shall be alike in every particular,
except that there may be different dates from which dividends, if any,
thereon shall be cumulative, if made cumulative. The voting powers and the
preferences and relative, participating, optional and other special rights
of each such series, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any
time outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by resolution or
resolutions adopted prior to the issuance of any shares of a particular
series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number may
be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of
Directors;
(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be
paid, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes, or
series of the same or other class of
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stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for, shares of
any other class or classes or of any series of the same or any other
class or classes of stock of the Corporation and the terms and
conditions of such conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times
at which, and the terms and conditions on which, Preferred Stock of
such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the
foregoing include the right, voting as a series or by itself or
together with other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the
Corporation if there shall have been a default in the payment of
dividends on any one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of Directors may
determine.
(c) (1) After the requirements with respect to preferential dividends on
the Preferred Stock (fixed in accordance with the provisions of section (b)
of this Article FOURTH), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts (fixed in accordance with the provisions of section (b)
of this Article FOURTH), and subject further to any conditions which may be
fixed in accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to time by
the Board of Directors.
(2) After distribution in full of the preferential amount, if any
(fixed in accordance with the provisions of section (b) of this
Article FOURTH), to be distributed to the holders of Preferred Stock
in the event of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up, of the Corporation, the
holders of the Common Stock shall be entitled to
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receive all of the remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively.
(3) Except as may otherwise be required by law or by the provisions
of such resolution or resolutions as may be adopted by the Board of
Directors pursuant to section (b) of this Article FOURTH, each holder
of Common Stock shall have one vote in respect of each share of Common
Stock held on all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any
class or series or any additional shares of any class or series to be
issued by reason of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for stock
of the Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of stock or
securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations
or associations, whether such holders or others, and upon such terms as may
be deemed advisable by the Board of Directors in the exercise of its sole
discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and rights
of each other series of Preferred Stock shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in section (b) of this
Article FOURTH and the consent, by class or series vote or otherwise, of
the holders of such of the series of Preferred Stock as are from time to
time outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the powers,
preferences and rights of such other series shall be fixed by the Board of
Directors as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided, however, that
the Board of Directors may provide in the resolution or resolutions as to
any series of Preferred Stock adopted pursuant to section (b) of this
Article FOURTH that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of
such series voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
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(f) Subject to the provisions of section (e), shares of any series of
Preferred Stock may be issued from time to time as the Board of Directors
of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred Stock
may, without a class or series vote, be increased or decreased from time to
time by the affirmative vote of the holders of a majority of the stock of
the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of directors
constituting the entire Board shall be not less than five nor more than
twenty-five as fixed from time to time by vote of a majority of the whole
Board, provided, however, that the number of directors shall not be reduced
so as to shorten the term of any director at the time in office, and
provided further, that the number of directors constituting the whole Board
shall be twenty-four until otherwise fixed by a majority of the whole
Board.
(b) The Board of Directors shall be divided into three classes, as nearly
equal in number as the then total number of directors constituting the
whole Board permits, with the term of office of one class expiring each
year. At the annual meeting of stockholders in 1982, directors of the
first class shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class shall be elected
to hold office for a term expiring at the second succeeding annual meeting
and directors of the third class shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Any vacancies in the
Board of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the Board of
Directors, acting by a majority of the directors then in office, although
less than a quorum, and any directors so chosen shall hold office until the
next annual election of directors. At such election, the stockholders
shall elect a successor to such director to hold office until the next
election of the class for which such director shall have been chosen and
until his successor shall be elected and qualified. No decrease in the
number of directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that some lesser percentage may be specified by law, this Charter or
Act of Incorporation or the By-Laws of the Corporation), any director or
the entire Board of Directors of the
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Corporation may be removed at any time without cause, but only by the
affirmative vote of the holders of two-thirds or more of the outstanding
shares of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class) cast
at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing, delivered
or mailed by first class United States mail, postage prepaid, to the
Secretary of the Corporation not less than 14 days nor more than 50 days
prior to any meeting of the stockholders called for the election of
directors; provided, however, that if less than 21 days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of the
meeting was mailed to stockholders. Notice of nominations which are
proposed by the Board of Directors shall be given by the Chairman on behalf
of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed
in such notice, (ii) the principal occupation or employment of such nominee
and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with
the foregoing procedure, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
SIXTH: - The Directors shall choose such officers, agent and servants as
may be provided in the By-Laws as they may from time to time find necessary
or proper.
SEVENTH: - The Corporation hereby created is hereby given the same powers,
rights and privileges as may be conferred upon corporations organized under
the Act entitled "An Act Providing a General Corporation Law", approved
March 10, 1899, as from time to time amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
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NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority of the
whole Board, may designate any of their number to constitute an Executive
Committee, which Committee, to the extent provided in said resolution, or
in the By-Laws of the Company, shall have and may exercise all of the
powers of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be liable
for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation by a
vote of the majority of the entire Board. The stockholders may make, alter
or repeal any By-Law whether or not adopted by them, provided however, that
any such additional By-Laws, alterations or repeal may be adopted only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be from time
to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by law, and
except as otherwise expressly provided in sections (b) and (c) of this
Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into (i) any Interested Stockholder
(as hereinafter defined) or (ii) any other corporation (whether or not
itself an Interested Stockholder), which, after such merger or
consolidation, would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions)
to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate fair market value of $1,000,000 or
more, or
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(C) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities
of the Corporation or any Subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
similar transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder, or any Affiliate of any Interested
Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this Article
FIFTEENTH shall mean any transaction which is referred to any one
or more of clauses (A) through (E) of paragraph 1 of the section
(a).
(b) The provisions of section (a) of this Article FIFTEENTH shall not
be applicable to any particular business combination and such business
combination shall require only such affirmative vote as is required by
law and any other provisions of the Charter or Act of Incorporation of
By-Laws if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who
or which as of the record date for the determination of stockholders
entitled to notice of and to vote on
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such business combination, or immediately prior to the consummation of any
such transaction:
(A) is the beneficial owner, directly or indirectly, of more than 10%
of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two
years prior thereto was the beneficial owner, directly or indirectly,
of not less than 10% of the then outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share of
capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder,
and such assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates (as
hereafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding, or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any other
Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options or otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on December 31, 1981.
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(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect on
December 31, 1981) is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Investment
Stockholder set forth in paragraph (2) of this section (c), the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(d) majority of the directors shall have the power and duty to
determine for the purposes of this Article FIFTEENTH on the basis of
information known to them, (1) the number of Voting Shares
beneficially owned by any person (2) whether a person is an Affiliate
or Associate of another, (3) whether a person has an agreement,
arrangement or understanding with another as to the matters referred
to in paragraph (3) of section (c), or (4) whether the assets subject
to any business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or any
Subsidiary has an aggregate fair market value of $1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and in addition to any
other vote that may be required by law, this Charter or Act of
Incorporation by the By-Laws), the affirmative vote of the holders of at
least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) shall be required to amend,
alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or
SIXTEENTH of this Charter or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware General
Corporation Laws as the same exists or may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a Director of the
Corporation existing hereunder with respect to any act or omission
occurring prior to the time of such repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON DECEMBER 21, 1995
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the third
Thursday in April each year at the principal office at the Company or at such
other date, time, or place as may be designated by resolution by the Board of
Directors.
Section 2. Special meetings of all stockholders may be called at any time
by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given by
mailing to each stockholder at least ten (10) days before said meeting, at his
last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the Company
issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors shall
be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72) years
shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for three
years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed and
conducted by the Board of Directors.
Section 5. Regular meetings of the Board of Directors shall be held on the
third Thursday of each month at the principal office of the Company, or at such
other place and
<PAGE>
time as may be designated by the Board of Directors, the Chairman of the Board,
or the President.
Section 6. Special meetings of the Board of Directors may be called at any
time by the Chairman of the Board of Directors or by the President, and shall be
called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of any
special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal, inability to
act, or disqualification of any director, the Board of Directors, although less
than a quorum, shall have the right to elect the successor who shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred, and until such director's successor shall have been duly
elected and qualified.
Section 10. The Board of Directors at its first meeting after its election
by the stockholders shall appoint an Executive Committee, a Trust Committee, an
Audit Committee and a Compensation Committee, and shall elect from its own
members a Chairman of the Board of Directors and a President who may be the same
person. The Board of Directors shall also elect at such meeting a Secretary and
a Treasurer, who may be the same person, may appoint at any time such other
committees and elect or appoint such other officers as it may deem advisable.
The Board of Directors may also elect at such meeting one or more Associate
Directors.
Section 11. The Board of Directors may at any time remove, with or without
cause, any member of any Committee appointed by it or any associate director or
officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
(A) The Executive Committee shall be composed of not more than
nine
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members who shall be selected by the Board of Directors from its own members and
who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the
Board of Directors when it is not in session to transact all business for and in
behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Executive
Committee or at the call of the Chairman of the Board of Directors. The
majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be
held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall
be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient severity
to prevent the conduct and management of the affairs and business of the Company
by its directors and officers as contemplated by these By-Laws any two available
members of the Executive Committee as constituted immediately prior to such
disaster shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Company in accordance with the
provisions of Article III of these By-Laws; and if less than three members of
the Trust Committee is constituted immediately prior to such disaster shall be
available for the transaction of its business, such Executive Committee shall
also be empowered to exercise all of the powers reserved to the Trust Committee
under Article III Section 2 hereof. In the event of the unavailability, at such
time, of a minimum of two members of such Executive Committee, any three
available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the foregoing provisions of this Section. This By-Law shall be subject to
implementation by Resolutions of the Board of Directors presently existing or
hereafter passed from time to time for that purpose, and any provisions of these
By-Laws (other than this Section) and any resolutions which are contrary to the
provisions of this Section or to the provisions of any such implementary
Resolutions shall be suspended during such a disaster period until it shall be
determined by any interim Executive Committee acting under this section that it
shall be to the advantage of the Company to resume the conduct and management of
its affairs and business under all of the other provisions of these By-Laws.
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Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than
thirteen members who shall be selected by the Board of Directors, a majority of
whom shall be members of the Board of Directors and who shall hold office during
the pleasure of the Board.
(B) The Trust Committee shall have general supervision over
the Trust Department and the investment of trust funds, in all matters, however,
being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office of
the Company or elsewhere in its discretion at least once a month. A majority of
its members shall be necessary to constitute a quorum for the transaction of
business. Special meetings of the Trust Committee may be held at any time when
a quorum is present.
(D) Minutes of each meeting of the Trust Committee shall be
kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members who
shall be selected by the Board of Directors from its own members, none of whom
shall be an officer of the Company, and shall hold office at the pleasure of the
Board.
(B) The Audit Committee shall have general supervision over
the Audit Division in all matters however subject to the approval of the Board
of Directors; it shall consider all matters brought to its attention by the
officer in charge of the Audit Division, review all reports of examination of
the Company made by any governmental agency or such independent auditor employed
for that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the
majority of its members shall deem it to be proper for the transaction of its
business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not more
than five
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(5) members who shall be selected by the Board of Directors from its own members
who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise upon
all matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at
any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected by
the Board of Directors as an associate director, to serve during the pleasure of
the Board.
(B) An associate director shall be entitled to attend all
directors meetings and participate in the discussion of all matters brought to
the Board, with the exception that he would have no right to vote. An associate
director will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any
Committee created under Article III of the By-Laws of this Company, 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
absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at all
meetings of the Board and shall have such further authority and powers and shall
perform such duties as the Board of Directors may from time to time confer and
direct. He shall also exercise such powers and perform such duties as may from
time to time be agreed upon between himself and the President of the Company.
Section 2. The Vice Chairman of the Board of Directors shall preside at
all
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meetings of the Board of Directors at which the Chairman of the Board shall not
be present and shall have such further authority and powers and shall perform
such duties as the Board of Directors or the Chairman of the Board may from time
to time confer and direct.
Section 3. The President shall have the powers and duties pertaining to
the office of the President conferred or imposed upon him by statute or assigned
to him by the Board of Directors in the absence of the Chairman of the Board the
President shall have the powers and duties of the Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President as
designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however denominated
by the Board of Directors, who may at any time perform all the duties of the
Chairman of the Board of Directors and/or the President and such other powers
and duties as may from time to time be assigned to them by the Board of
Directors, the Executive Committee, the Chairman of the Board or the President
and by the officer in charge of the department or division to which they are
assigned.
Section 6. The Secretary shall attend to the giving of notice of meetings
of the stockholders and the Board of Directors, as well as the Committees
thereof, to the keeping of accurate minutes of all such meetings and to
recording the same in the minute books of the Company. In addition to the other
notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all assets
and liabilities of the Company. He shall be custodian of and responsible for
all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
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There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank to all
Vice Presidents with such functional titles as shall be determined from time to
time by the Board of Directors, who shall ex officio hold the office Assistant
Secretary of this Company and who may perform such duties as may be prescribed
by the officer in charge of the department or division to whom they are
assigned.
Section 11. The powers and duties of all other officers of the Company
shall be those usually pertaining to their respective offices, subject to the
direction of the Board of Directors, the Executive Committee, Chairman of the
Board of Directors or the President and the officer in charge of the department
or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of the
Company and a transfer book shall be kept in which all transfers of stock shall
be recorded.
Section 2. Certificate of stock shall bear the signature of the President
or any Vice President, however denominated by the Board of Directors and
countersigned by the Secretary or Treasurer or an Assistant Secretary, and the
seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of
stock shall be issued only upon giving such security as may be satisfactory to
the Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to fix in
advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
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any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the following
form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice President,
however denominated by the Board of Directors, shall have full power and
authority to enter into, make, sign, execute, acknowledge and/or deliver and the
Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as although
expressly authorized by the Board of Directors and/or the Executive Committee.
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ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other than
salaried officers of the Company, shall be paid such reasonable honoraria or
fees for attending meetings of the Board of Directors as the Board of Directors
may from time to time determine. Directors and associate directors who serve as
members of committees, other than salaried employees of the Company, shall be
paid such reasonable honoraria or fees for services as members of committees as
the Board of Directors shall from time to time determine and directors and
associate directors may be employed by the Company for such special services as
the Board of Directors may from time to time determine and shall be paid for
such special services so performed reasonable compensation as may be determined
by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
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, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, PROVIDED, HOWEVER,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of expenses,
under this Article X is not paid in full within ninety days after a written
claim therefor has been received by the Corporation the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the Corporation shall have the burden of proving
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that the claimant was not entitled to the requested indemnification of payment
of expenses under applicable law.
(D) The rights conferred on any person by this Article X shall
not be exclusive of any other rights which such person may have or hereafter
acquire under any statute, provision of the Charter or Act of Incorporation,
these By-Laws, agreement, vote of stockholders or disinterested Directors or
otherwise.
(E) Any repeal or modification of the foregoing provisions of
this Article X shall not adversely affect any right or protection hereunder of
any person in respect of any act or omission occurring prior to the time of such
repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in whole or
in part, and any new By-Law or By-Laws adopted at any regular or special meeting
of the Board of Directors by a vote of the majority of all the members of the
Board of Directors then in office.
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EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended,
Wilmington Trust Company hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: November 26, 1996 By: /s/ NORMA P. CLOSS
---------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ---------------------------------------------------------- -----------------
Name of Bank City
in the State of DELAWARE , at the close of business on September 30, 1996.
ASSETS
Thousands of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.................198,288
Interest-bearing balances............................................... 0
Held-to-maturity securities............................................ 489,428
Available-for-sale securities............................................783,718
Federal funds sold........................................................19,000
Securities purchased under agreements to resell.......................... 48,500
Loans and lease financing receivables:
Loans and leases, net of unearned income...........................3,620,289
LESS: Allowance for loan and lease losses............................49,721
LESS: Allocated transfer risk reserve................................... 0
Loans and leases, net of unearned income, allowance, and reserve...3,570,568
Assets held in trading accounts................................................0
Premises and fixed assets (including capitalized leases)..................83,675
Other real estate owned................................................... 4,607
Investments in unconsolidated subsidiaries and associated companies......... 85
Customers' liability to this bank on acceptances outstanding...................0
Intangible assets..........................................................4,131
Other assets.............................................................101,592
Total assets...........................................................5,303,592
CONTINUED ON NEXT PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices....................................................3,457,641
Noninterest-bearing.....................740,731
Interest-bearing......................2,716,910
Federal funds purchased..................................................135,889
Securities sold under agreements to repurchase.......................... 213,617
Demand notes issued to the U.S. Treasury..................................94,999
Trading liabilities............................................................0
Other borrowed money:....................................................///////
With original maturity of one year or less...........................844,000
With original maturity of more than one year..........................28,000
Mortgage indebtedness and obligations under capitalized leases............. 0
Bank's liability on acceptances executed and outstanding.......................0
Subordinated notes and debentures..............................................0
Other liabilities....................................................... 103,818
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,877,964
Limited-life preferred stock and related surplus...............................0
EQUITY CAPITAL
Perpetual preferred stock and related surplus..................................0
Common Stock.................................................................500
Surplus...................................................................62,119
Undivided profits and capital reserves...................................363,705
Net unrealized holding gains (losses) on available-for-sale securities.. (696)
Total equity capital.....................................................425,628
Total liabilities, limited-life preferred stock, and equity capital....5,303,592
2
