<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
REGISTRATION NUMBER 33-88496
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT 33-88496 ON FORM S-4
UNDER THE SECURITIES ACT OF 1933
---------------
S.D. WARREN COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 2621 23-2366983
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
------------------------
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 423-7300
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
TREVOR L. LARKAN
S.D. WARREN COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 423-7300
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
KRIS F. HEINZELMAN
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If 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. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
S.D. WARREN COMPANY
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND HEADING ON FORM S-4 HEADING OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Post-Effective Amendment No. 2 and
Outside Front Cover Page of Prospectus............... Cover Pages of Registration Statement and Prospectus;
Cross-Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................... Prospectus Summary; Summary Financial Data; Risk
Factors; Selected Historical Financial Data
4. Terms of the Transaction............................. Prospectus Summary; Certain Federal Income Tax
Considerations; Description of the Notes; Description
of the Senior Preferred Stock; Description of the
Exchange Debentures
5. Material Contracts with the Company Being Acquired... Not Applicable
6. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters........ Not Applicable
7. Interests of Named Experts and Counsel............... Not Applicable
8. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
9. Information with Respect to S-3 Registrants.......... Not Applicable
10. Incorporation of Certain Information by Reference.... Not Applicable
11. Information with Respect to S-2 or S-3 Registrants... Not Applicable
12. Incorporation of Certain Information by Reference.... Not Applicable
13. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................... Prospectus Summary; Risk Factors; Use of Proceeds;
Capitalization; Selected Historical Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business; The
Acquisition; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
14. Information with Respect to S-3 Companies............ Not Applicable
15. Information with Respect to S-2 or S-3 Companies..... Not Applicable
16. Information with Respect to Companies Other Than S-3
or S-2 Companies..................................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
17. Information if Proxies, Consents or Authoriza-tions
are to be Solicited.................................. Not Applicable
18. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer...... Prospectus Summary; Management; Security Ownership of
Certain Beneficial Owners and Management; Certain
Relationships and Related Transactions
</TABLE>
i
<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>
S.D. WARREN COMPANY
[LOGO]
$375,000,000
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2004
AND
$75,000,000
14% SERIES B SENIOR EXCHANGEABLE
PREFERRED STOCK DUE 2006
The 12% Series B Senior Subordinated Notes due 2004 (the "Notes") of S.D.
Warren Company (the "Company") bear interest at the rate of 12% per annum,
payable semi-annually on June 15 and December 15 of each year, commencing June
15, 1995 and are redeemable at the option of the Company, in whole or in part,
at any time on or after December 15, 1999 at the redemption prices set forth
herein. See "Description of the Notes--Optional Redemption". The Notes are
unsecured, subordinated obligations of the Company and rank junior in right of
payment to all existing and future Senior Debt (as defined) of the Company,
including the obligations of the Company under the Credit Agreement (as
defined). At July 3, 1996, the aggregate principal amount of such Senior Debt
was $567.2 million. As of the date hereof, the Company has no subordinated
Indebtedness (as defined) other than the Notes. The Notes will rank senior in
right of payment to or PARI PASSU to any subordinated Indebtedness of the
Company issued hereafter. See "Description of the Notes-- Subordination".
Each share of the Company's 14% Series B Senior Exchangeable Preferred Stock
due 2006 (the "Senior Preferred Stock") has a liquidation preference of $25.00
per share and will rank senior to any Junior Securities (as defined) of the
Company issued hereafter. As of the date hereof, the Company has no Junior
Securities outstanding, other than its common stock. Dividends on the Senior
Preferred Stock will accrue and be cumulative from the date of issuance and will
accrue in each period ending on March 15, June 15, September 15 and December 15
of each year at a rate of 14% per annum of (i) the liquidation preference plus
(ii) the amount of accrued but unpaid dividends from prior periods ending on or
prior to December 15, 1999. The Company does not expect to pay dividends on the
Senior Preferred Stock in cash for any period ending on or prior to December 15,
1999. See "Description of the Senior Preferred Stock--Dividends". The Senior
Preferred Stock will be redeemable at the option of the Company, in whole or in
part, at any time on or after December 15, 2001 at the redemption prices set
forth herein. See "Description of the Senior Preferred Stock--Redemption of
Senior Preferred Stock--Optional". The Company is required to redeem the Senior
Preferred Stock on December 15, 2006 at the Specified Amount (as defined). On
any scheduled dividend payment date, the Company may, at its option, exchange
all but not less than all of the shares of Senior Preferred Stock then
outstanding for the Company's 14% Subordinated Exchange Debentures due 2006 (the
"Exchange Debentures"). See "Description of the Senior Preferred
Stock--Exchange" and "Description of the Exchange Debentures".
The Notes, the Senior Preferred Stock and the Exchange Debentures are
referred to collectively herein as the "Securities".
SEE "RISK FACTORS" ON PAGE 9 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJSC") in connection with offers and sales of the Securities in
market making transactions in the over-the-counter market at negotiated prices
related to prevailing market prices at the time of sale. DLJSC may act as
principal or agent in such transactions. The Company will not receive any of the
proceeds from the sale of the Securities.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is November , 1996
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act with
respect to the Securities being offered by this Prospectus. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and at Citicorp Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates or through the World Wide Web (http://www.sec.gov). As
a result of the filing of the Registration Statement with the Commission, the
Company was subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith was
required to file periodic reports and other information with the Commission. The
Company is no longer to be subject to the reporting requirements of the Exchange
Act; however the Company has agreed that, for so long as any of the Securities
remain outstanding, it will furnish to the applicable trustee or transfer agent
and the holders of the Securities, as applicable, and file with the Commission
(unless the Commission will not accept such a filing) (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 the Company was required to file
such forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all reports that would be required to be filed with the Commission on Form
8-K if the Company was required to file such reports.
2
<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 STATEMENTS
INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES,
THE "COMPANY", "S.D. WARREN" OR "WARREN" REFERS TO S.D. WARREN COMPANY. ALL
REFERENCES TO SHIPMENTS REFER TO U.S. DOMESTIC SHIPMENTS OF PAPER, UNLESS
OTHERWISE NOTED. ALL REFERENCES TO FISCAL YEARS IN THIS PROSPECTUS REFER TO THE
COMPANY'S FISCAL YEARS ENDING ON THE LAST SATURDAY IN DECEMBER, EXCEPT FOR
FISCAL 1995 WHICH REFERS TO THE PERIOD FROM DECEMBER 21, 1994 THROUGH SEPTEMBER
27, 1995 (THE "NINE MONTHS ENDED SEPTEMBER 27, 1995"). THIS CHANGE REFLECTS
THAT, EFFECTIVE DECEMBER 20, 1994, THE COMPANY CHANGED ITS FISCAL YEAR TO FISCAL
YEARS ENDING ON THE WEDNESDAY CLOSEST TO SEPTEMBER 30 UNTIL OTHERWISE DETERMINED
BY THE COMPANY'S BOARD OF DIRECTORS.
RISK FACTORS
Before making an investment in the Securities, prospective investors should
consider carefully the factors described in "Risk Factors", including the
consequences of the Company's substantial leverage, the risk that the Company
would be unable to service its debt, the cyclical industry conditions and strong
competiton which the Company faces, the restrictions imposed on the Company by
the Credit Agreement, the dependence of the Company on certain customers, the
subordination of the Securities to Senior Debt of the Company, stringent
regulations faced by the Company and control of the Company by a few significant
shareholders.
MARKET MAKING PROSPECTUS
This Prospectus will be used by DLJSC in connection with offers and sales of
the Securities in market-making transactions in the over-the-counter market at
negotiated prices related to prevailing market prices at the time of sale. DLJSC
may act as principal or agent in such transactions.
THE COMPANY
The Company manufactures printing, publishing and specialty papers and has
pulp and timberland operations vertically integrated with some of its
manufacturing facilities. The Company is the largest producer of coated free
paper (free of groundwood pulp) in the United States. The Company currently
operates four paper mills with total annual production capacity of approximately
1.5 million tons of paper. The Company also owns a sheeting and distribution
facility in Allentown, Pennsylvania, with annual sheeting capacity of
approximately 90,000 tons, and owns approximately 911,000 acres of timberlands
in the State of Maine.
S.D. Warren is widely recognized for its product quality and technological
innovation in the development and manufacture of coated free paper, which has
allowed Warren to sustain the franchise value of its name-brand products such as
SOMERSET-REGISTERED TRADEMARK-, LUSTRO-REGISTERED TRADEMARK-,
WARRENFLO-REGISTERED TRADEMARK- and PATINA-REGISTERED TRADEMARK-. The Company
has strong customer relationships and a distribution network for coated paper
which includes over 288 merchant distributing locations.
For the period from December 21, 1994 through September 27, 1995, S.D.
Warren's sales of domestic paper products consisted of coated paper (70.6%),
uncoated paper (13.6%), specialty paper (10.2%) and technical and other paper
products (5.6%). Coated paper is used in corporate communications, advertising,
brochures, magazine covers and upscale magazines, catalogues, direct mail
promotions and educational text books. Uncoated paper is used by commercial
printers, quick printers, large in-house copy/printing end-users and small
business and home applications. Specialty and technical papers are used in
business from printing, coated fabric converters, pressure-sensitive laminators,
label printers and other niche market applications.
The Company is a wholly owned subsidiary of SDW Holdings Corporation
("Holdings"). As of the date of this Prospectus, Sappi Limited ("Sappi")
indirectly owns 75.07%, DLJ Merchant Banking Partners, L.P. and certain of its
affiliates ("DLJMB") own 18.35% and UBS Capital LLC ("UBSC") owns 3.92%,
3
<PAGE>
respectively, of the common equity of Holdings on a fully diluted basis. Sappi,
DLJMB and UBSC are collectively referred to herein as the "Investor Group".
Holdings' principal executive offices are located at 2700 Westchester Avenue,
Purchase, NY 10577. The telephone number is (914) 696-0021.
The Company's principal executive offices are located at 225 Franklin
Street, Boston, Massachusetts. The telephone number is (617) 423-7300.
SUMMARY DESCRIPTION OF THE SECURITIES
NOTES:
<TABLE>
<S> <C>
Securities............. $375.0 million aggregate principal amount of 12% Series B Senior
Subordinated Notes due 2004.
Maturity............... December 15, 2004.
Interest............... The Notes bear interest at the rate of 12% per annum, payable
semiannually on June 15 and December 15.
Ranking................ The Notes are general unsecured obligations of the Company and rank
(i) junior in right of payment to all existing and future Senior
Debt (as defined in the indenture pursuant to which the Notes were
issued, the "Indenture") of the Company and (ii) senior in right of
payment to or PARI PASSU in right of payment with all existing and
future subordinated Indebtedness of the Company. At July 3, 1996,
the aggregate principal amount of such Senior Debt was $567.2
million. As of the date hereof, the Company has no subordinated
Indebtedness other than the Notes.
Optional Redemption.... The Notes may be redeemed at the option of the Company, in whole or
in part, on or after December 15, 1999 at a premium declining to
par in 2002, plus accrued and unpaid interest, if any, through the
redemption date. In the event that Holdings consummates one or more
public offerings of its common stock on or before December 15,
1997, the Company may, at its option, redeem up to $130.0 million
in aggregate principal amount of Notes with the net proceeds
therefrom at 111.0% of the aggregate principal amount thereof, plus
accrued and unpaid interest through the redemption date; PROVIDED,
that at least $245.0 million in aggregate principal amount of Notes
remains outstanding following such redemption. See "Description of
the Notes--Optional Redemption".
Change of Control...... In the event of a Change of Control, the holders of the Notes will
have the right to require the Company to purchase their Notes at a
price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest to the date of purchase. See
"Description of the Notes--Repurchase at the Option of
Holders--Change of Control".
Covenants.............. The Indenture contains certain covenants that, among other things,
limit the ability of the Company and its subsidiaries to incur
additional Indebtedness and issue preferred stock, pay dividends or
make other distributions, repurchase Equity Interests (as defined)
or PARI PASSU or subordinated Indebtedness, make Restricted
Investments (as defined), engage in sale and leaseback
transactions, create certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell Equity Interests of the
Company's subsidiaries or enter into certain mergers and
consolidations. In addition, under certain circumstances, the
Company will be required to offer to purchase Notes at a price
equal to 101% of the principal amount thereof, plus accrued and
unpaid
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
interest to the date of purchase, with the proceeds of certain
Asset Sales (as defined). See "Description of the Notes--Certain
Covenants;--Repurchase at the Option of Holders--Asset Sales".
</TABLE>
SENIOR PREFERRED STOCK:
<TABLE>
<S> <C>
Securities............. 3,000,000 shares of 14% Series B Senior Exchangeable Preferred
Stock due 2006 of the Company.
Dividends.............. The Company may elect not to pay dividends in cash on or prior to
December 15, 1999, in which case such unpaid dividends shall accrue
and become part of the Specified Amount of the Senior Preferred
Stock upon which dividends must be paid. Dividends on each share
will accrue in each period ending on March 15, June 15, September
15 and December 15 of each year (each a "Dividend Accrual Date"),
in an amount equal to 14% per annum of the Specified Amount
thereof, defined as the sum of (A) such share's liquidation
preference of $25.00 and (B) the amount of dividends with respect
to such share that accrued in prior dividend accrual periods ending
on or prior to December 15, 1999 and were not previously paid in
cash (the "Accumulated Dividends"). It is not anticipated that the
Company will pay any dividends in cash for any period ending on or
prior to December 15, 1999.
Liquidity of Market.... In addition, the terms of the Credit Agreement and the Indenture
limit the amount of cash dividends the Company may pay with respect
to the Senior Preferred Stock and other equity securities both
before and after December 15, 1999.
Liquidation
Preference............ $25.00 per share.
Specified Amount....... The Specified Amount of the Senior Preferred Stock consists of the
Liquidation Preference plus the Accumulated Dividends. As of July
3, 1996, the Specified Amount was $30.97 per share.
Ranking................ The Senior Preferred Stock ranks senior in right of payment with
respect to all Junior Securities (as defined) and PARI PASSU in
right of payment with respect to all Parity Securities (as
defined).
Optional Redemption.... The Senior Preferred Stock is redeemable at the option of the
Company, in whole or in part, at any time on or after December 15,
2001 at a premium declining to par in 2004, plus all accrued and
unpaid dividends, if any. In the event that Holdings consummates
one or more public offerings of its common stock on or before
December 15, 1997, the Company may, at its option, redeem Senior
Preferred Stock with the proceeds therefrom at a redemption price
equal to 113.0% of the Specified Amount, plus all accrued and
unpaid dividends (other than Accumulated Dividends), if any,
through the redemption date; PROVIDED, that at least $50.0 million
in aggregate Specified Amount of Senior Preferred Stock remains
outstanding immediately following such redemption. See "Description
of the Senior Preferred Stock--Redemption of Senior Preferred
Stock--Optional".
Mandatory Redemption... The Company is required to redeem the Senior Preferred Stock on
December 15, 2006 at a redemption price equal to the Specified
Amount thereof plus all accrued and unpaid dividends (other than
Accumulated Dividends), if any, through the date of redemption.
Change of Control...... In the event of a Change of Control (as defined), holders of Senior
Preferred Stock will have the right to require the Company to
redeem their Senior Preferred Stock, in whole or in part, at a
price equal to 101% of the Specified
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Amount thereof, plus accrued and unpaid dividends (other than
Accumulated Dividends), if any, to the date of purchase. See
"Description of the Senior Preferred Stock--Change of Control".
Voting Rights.......... Holders of Senior Preferred Stock will have limited voting rights,
including (i) those required by law and (ii) that holders of a
majority of the outstanding shares of Senior Preferred Stock,
voting as a separate class, will (a) upon the failure of the
Company (1) with respect to dividend accrual periods ending on and
after March 15, 2000, to pay for more than six consecutive dividend
accrual periods dividends in cash equal to the dividend that
accrued during such dividend accrual period, (2) to satisfy any
mandatory redemption obligation with respect to the Senior
Preferred Stock, (3) to make a Change of Control Offer within 30
days following any Change of Control or (4) to comply with the
covenants set forth in the Certificate of Designations, be entitled
to elect two members to the Board of Directors of the Company, (b)
have the right to approve each issuance by the Company of any
Senior Securities or Parity Securities (other than Senior Preferred
Stock), except that without the approval of the holders of Senior
Preferred Stock, the Company may issue and have outstanding shares
of Parity Securities issued from time to time in exchange for, or
the proceeds of which are used to redeem or repurchase, any or all
of the shares of Senior Preferred Stock or other Parity Securities
and (c) have the right to approve certain mergers, consolidations
and sales of assets. See "Description of the Senior Preferred
Stock--Voting Rights".
Covenants.............. The Certificate of Designations for the Senior Preferred Stock (the
"Certificate of Designations") contains customary covenants that:
(i) limit the ability of the Company to redeem or repurchase Junior
Securities or Parity Securities and pay dividends thereon, (ii)
prohibit, under certain circumstances, certain mergers and
consolidations of and sales of assets by the Company, (iii)
restrict transactions with affiliates and (iv) require the Company
to deliver certain reports and information to the holders.
Exchange Feature....... On any scheduled dividend payment date, the Company may, at its
option, exchange all but not less than all of the shares of Senior
Preferred Stock then outstanding for Exchange Debentures in a
principal amount equal to the Specified Amount of Senior Preferred
Stock held by such holder at the time of such exchange.
</TABLE>
EXCHANGE DEBENTURES:
<TABLE>
<S> <C>
Securities............. 14% Subordinated Exchange Debentures due 2006, limited in principal
amount to the Specified Amount of the Senior Preferred Stock
outstanding on the Exchange Date (as defined), plus such principal
amount of additional Exchange Debentures as may be issued in lieu
of cash interest.
Maturity............... December 15, 2006
Interest............... The Exchange Debentures will bear interest at the rate of 14% per
annum, payable semiannually on June 15 and December 15, commencing
with the first of such dates to occur after the Exchange Date. On
or prior to December 15, 1999, interest may, at the option of the
Company, be paid in cash or by issuing additional Exchange
Debentures with a principal amount equal to such interest. After
December 15, 1999, interest on the Exchange Debentures may be paid
only in cash.
Ranking................ The Exchange Debentures will be unsecured obligations of the
Company, subordinate to all existing and future Senior Debt (as
defined in the indenture
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
pursuant to which the Exchange Debentures will be issued, the
"Exchange Debenture Indenture") of the Company, including the
obligations of the Company under the Credit Agreement and the
Notes. At July 3, 1996, the aggregate amount of such Senior Debt
was $567.2 million.
Optional Redemption.... The Exchange Debentures may be redeemed at the option of the
Company, in whole or in part, on or after December 15, 2001 at a
premium declining to par in 2004, plus accrued and unpaid interest
and Liquidated Damages, if any, through the redemption date. In the
event that Holdings consummates one or more public offerings of its
common stock on or before December 15, 1997, the Company may, at
its option, redeem Exchange Debentures with the net proceeds
therefrom at a redemption price equal to 113.0% of the aggregate
principal amount thereof, plus accrued and unpaid interest through
the redemption date; PROVIDED, that at least $50.0 million in
aggregate principal amount of Exchange Debentures remains
outstanding immediately following such redemption. See "Description
of the Exchange Debentures--Optional Redemption".
Change of Control...... In the event of a Change of Control, the holders of the Exchange
Debentures will have the right to require the Company to purchase
their Exchange Debentures at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the
date of purchase. See "Description of the Exchange
Debentures--Change of Control".
Certain Covenants...... The Exchange Debenture Indenture will contain covenants similar to
the covenants with respect to the Senior Preferred Stock and will
also limit the ability of the Company and its subsidiaries to incur
additional Indebtedness and issue preferred stock, pay dividends or
make other distributions, repurchase Equity Interests or
subordinated Indebtedness or make certain Restricted Investments.
</TABLE>
7
<PAGE>
SUMMARY FINANCIAL DATA (1)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------------------------------- -------------
PERIOD PERIOD
TWELVE TWELVE SEPTEMBER 25, DECEMBER 21,
MONTHS ENDED MONTHS ENDED TWELVE MONTHS NINE MONTHS 1994 THROUGH 1994 THROUGH
DECEMBER 28, DECEMBER 26, ENDED DECEMBER ENDED SEPTEMBER DECEMBER 20, SEPTEMBER 27,
1991 1992(2) 25, 1993 24, 1994 1994 1995
------------ ------------ -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 1,169.7 $ 1,212.8 $ 1,143.6 $ 828.8 $ 313.6 $ 1,155.8
Gross profit.................. 144.6 182.5 168.1 106.4 49.9 269.8
Selling, general and
administrative expenses...... 92.0 91.0 91.7 72.1 22.2 96.7
Restructuring charges......... 38.0 -- 66.1 -- -- --
Income from operations........ 14.6 91.5 10.3 34.3 27.7 173.1
Other income (expense), net... 0.1 0.1 0.1 0.1 (0.5) 3.2
Interest expense.............. 9.3 9.0 8.5 6.4 2.3 106.0
Income tax provision.......... 2.6 32.0 6.5 11.2 9.9 28.2
Extraordinary item, net of
tax.......................... -- -- -- -- -- --
Net income (loss)............. 2.8 50.6 (4.6) 16.8 15.0 42.1
OTHER FINANCIAL DATA:
EBITDA (3).................... $ 180.9 $ 183.1 $ 169.5 $ 105.9 $ 56.5 $ 262.9
Capital expenditures.......... 53.7 70.1 68.9 32.3 14.5 33.7
Depreciation, cost of timber
harvested and amortization... 128.3 91.6 93.1 71.6 28.8 89.8
Ratio of earnings to fixed
charges (4).................. 1.3x 5.8x 1.1x 3.1x 8.2x 1.4x
<CAPTION>
NINE MONTHS
ENDED
JULY 3,
1996
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 1,066.8
Gross profit.................. 192.7
Selling, general and
administrative expenses...... 98.1
Restructuring charges......... --
Income from operations........ 94.6
Other income (expense), net... (1.3)
Interest expense.............. 84.3
Income tax provision.......... 3.6
Extraordinary item, net of
tax.......................... (2.0)
Net income (loss)............. 3.4
OTHER FINANCIAL DATA:
EBITDA (3).................... $ 181.0
Capital expenditures.......... 32.2
Depreciation, cost of timber
harvested and amortization... 86.4
Ratio of earnings to fixed
charges (4).................. (5)
</TABLE>
<TABLE>
<CAPTION>
AT JULY 3, 1996
------------------
<S> <C>
(DOLLARS IN
MILLIONS)
BALANCE SHEET DATA:
Working capital............................................................................................. $ 88.7
Plant assets (net).......................................................................................... 1,115.7
Total assets................................................................................................ 1,681.0
Total debt (including current maturities)................................................................... 949.4
Senior preferred stock (6).................................................................................. 84.5
Stockholder's equity........................................................................................ 358.2
</TABLE>
- ------------------------
(1) For a more detailed presentation of the Company's financial statements, see
"Selected Historical Financial Data" and the Company's Financial Statements
included herein.
(2) Includes the revision in the estimated useful lives used to compute
depreciation for certain equipment which increased net income by
approximately $26.2 million as well as the adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which reduced net income by
approximately $6.1 million.
(3) EBITDA is defined as income from operations before restructuring expense
plus depreciation, cost of timber harvested and amortization as reported in
the Statements of Cash Flows. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and incur
debt. EBITDA should not be considered by an investor as an alternative to
GAAP operating income as an indicator of the Company's operating
performance or as an alternative to the Company's cash flow from operating
activities as a measure of liquidity.
(4) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense on long-term debt, amortization of
deferred financing costs and that portion (one-third) of rentals deemed to
be representative of interest. Earnings consist of income before income
taxes, plus fixed charges.
(5) For the period ended July 3, 1996, the Company's earnings were insufficient
to cover fixed charges by $8.6 million.
(6) Liquidation value was $92.9 million at July 3, 1996.
8
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that this Prospectus contains
forward-looking statements which, at the time made, speak about the future and
are based upon management's interpretation of what it believes are significant
factors affecting the Company's business. The Company believes that various
factors could affect the Company's actual results and could cause the Company's
actual results for 1996 and beyond to differ materially from those expressed in
any forward-looking statements made by or on behalf of the Company. Such factors
include, but are not limited to: global economic and market conditions;
production and capacity in the United States and Europe; production and pricing
levels of pulp and paper; any major disruption in production at key facilities;
alterations in trade conditions in and between the United States and other
countries where the Company does business; and changes in environmental, tax and
other laws and regulations.
RISK FACTORS
Prospective investors should consider carefully the following summary of
material risk factors in addition to other information included in this
Prospectus before making an investment in the Securities.
CONSEQUENCES OF SUBSTANTIAL LEVERAGE FOR THE COMPANY AND SECURITYHOLDERS
In connection with the Acquisition, the Company incurred substantial
indebtedness. Consequently, the Company has significant debt service
obligations. As of July 3, 1996, the Company had total outstanding long-term
indebtedness (including the current portion thereof) of $949.4 million and
redeemable preferred stock plus stockholder's equity of $442.7 million,
resulting in a debt to equity and preferred stock ratio of 2.1 to 1. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The degree to which the Company is leveraged could have important
consequences to holders of the Securities, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) certain of the Company's borrowings are and will continue to be
at variable rates of interest, which exposes the Company to the risk of
increased interest rates; (iv) the indebtedness outstanding under the Bank
Financing is secured by substantially all the assets of the Company and matures
prior to the maturity of the Notes and the Exchange Debentures, if issued, and
prior to the date on which the Senior Preferred Stock is required to be
redeemed; (v) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; and
(vi) the Company's substantial degree of leverage may hinder its ability to
adjust rapidly to changing market conditions and could make it more vulnerable
in the event of a downturn in general economic conditions or its business. See
"Description of the Credit Agreement and the A/R Facility"; "Description of the
Notes"; and "Description of the Senior Preferred Stock".
RISK OF INABILITY TO SERVICE DEBT
The ability of the Company to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
There can be no assurance that its operating results will be sufficient for
payment of its indebtedness in the future.
The Company's operating results will need to be of sufficient magnitude to
meet its debt service obligations, including with respect to the Notes and, if
issued, the Exchange Debentures, and to make mandatory redemption payments with
respect to the Senior Preferred Stock. The Company's operating results have been
negatively affected by market conditions in recent periods and accordingly there
can be no assurance that the Company's operating results will be of sufficient
magnitude to enable the Company to meet its debt service obligations. In the
absence of such operating results, the Company could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet its debt
9
<PAGE>
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds which the Company could realize therefrom. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
CYCLICAL INDUSTRY CONDITIONS; STRONG COMPETITION
The markets for the Company's products are highly cyclical, characterized by
periods of supply and demand imbalance. Between 1988 and 1993, the rate of
growth of demand slowed as a result of the world-wide recession. Conversely,
coated paper capacity increased significantly in North America over such period.
In addition, in 1992, North American imports from Europe increased as a result
of excess capacity in Europe and a devaluation in certain European currencies in
relation to the U.S. dollar, causing North American prices to deteriorate.
The large supply-demand imbalance as a result of significant capacity
additions and, to a lesser degree, imports from Europe caused operating margins
of the Company and its competitors to decline over the period from 1988 through
early 1994. Beginning in mid-1994, however, the industry rebounded from this
decline, with several price increases announced throughout the industry.
However, since the third quarter of 1995, demand for the Company's products
decreased. Accordingly, demand was lower during the nine months ended July 3,
1996 as compared to demand levels during the second half of fiscal 1995. This
decrease is due to a softening in orders experienced by the industry across
certain product lines primarily resulting from merchants, printers and other
converters reducing their inventory levels which had increased above normal
levels. The decline in demand resulted in reduced prices, with discounting
occurring on certain paper product grades. Accordingly, the Company realized
lower net selling prices per ton during the first nine months of fiscal year
1996 as compared to prices realized during the second half of fiscal year 1995.
However, because the impact of the increase in prices in 1995 was not realized
until the latter half of fiscal year 1995, net selling prices realized during
the nine months ended July 3, 1996 remained relatively flat as compared to those
prices realized during the same period last year. In addition, the cost of raw
materials decreased during the nine months ended July 3, 1996 as compared to
prices at the end of fiscal year 1995 due to the decrease in the market price of
pulp. However, the Company manufactures approximately 65% of its pulp
requirements which reduces its ability to benefit from (and its exposure to)
fluctuations in the market price for pulp.
As a result of the weaker market conditions, the Company temporarily reduced
production levels at certain of its manufacturing facilities during the first
quarter of fiscal year 1996. The reduction of inventory levels by the Company's
customers and the weaker market conditions continued into the summer months
which are typically strong due to increased demand from catalog printers. In
addition, new capacity commencing later this year in the United States and
overseas is expected to increase competition for market share and may delay any
improvement in market conditions. The paper market is highly cyclical and to the
extent that the weaker market trend does not reverse or becomes more pervasive
within the Company's existing product lines, the Company's sales, gross margins
and cash flows will continue to be adversely affected.
In addition, the North American coated paper industry is highly competitive.
The Company competes mainly with U.S. and Canadian producers of coated free
paper, and, to a lesser degree, European producers. Manufacturers of coated free
paper compete primarily on the basis of quality, service, price and breadth of
product line, as well as product innovation and sales and distribution support.
Certain of the Company's competitors have greater financial resources than the
Company and certain of the mills operated by its competitors may be lower cost
producers of pulp and coated paper than certain of the mills operated by the
Company. See "Business--The Company--Competition".
RESTRICTIONS IMPOSED BY CREDIT AGREEMENT
The Company's credit agreement with respect to the Bank Financing (the
"Credit Agreement") contains a number of significant covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur debt, pay dividends, create liens, make capital expenditures and
make certain investments or acquisitions and otherwise restrict corporate
activities. In addition, under the Credit Agreement, the Company is required to
maintain specified financial ratios, including a minimum interest coverage
ratio, a minimum debt service ratio and a net worth test. The ability of the
Company to
10
<PAGE>
comply with such provisions may be affected by events beyond the Company's
control. In order to comply with some of these covenants, the Company will be
required to achieve financial and operating results which are slightly better
than those achieved historically. There can be no assurance that such results
will be achieved. The breach of any of the covenants could result in a default
under the Credit Agreement. In the event of any such default, depending on the
actions taken by the lenders thereunder (the "Lenders"), the Company could be
prohibited from making any payments of principal or interest on the Notes and,
if issued, the Exchange Debentures and from paying dividends on the Senior
Preferred Stock. In addition, the Lenders could elect to declare all amounts
borrowed under the Credit Agreement, together with accrued interest, to be due
and payable. If the Company were unable to repay such borrowings, the Lenders
could proceed against their collateral. If the indebtedness under the Credit
Agreement were to be accelerated, there can be no assurance that the assets of
the Company would be sufficient to repay such indebtedness and any of the
Securities in full. See "Description of the Credit Agreement and the Accounts
Receivable Facility"; "Description of the Notes--Subordination"; "Description of
the Senior Preferred Stock--Dividends"; and "Description of the Exchange
Debentures--Subordination".
DEPENDENCE ON PRINCIPAL CUSTOMERS
For the nine months ended July 3, 1996, the Company's customers that
individually accounted for greater than 10% of sales were divisions or
subsidiaries of International Paper Company, Central National-Gottesman Inc. and
Alco Standard Corporation. Each of these customers is a merchant that resells
the Company's paper products to a wide range of end-users. As indicated in the
Notes to Financial Statements, the loss of any one of these customers could have
a material adverse effect on the Company's business and results of operations.
See "Business--The Company--Customers" and the Notes to Financial Statements.
SUBORDINATION OF NOTES TO SIGNIFICANT SENIOR DEBT
The Notes are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future Senior Debt (as defined in the
Indenture) of the Company. At July 3, 1996, the aggregate principal amount of
such Senior Debt was $567.2 million. As of the date hereof, the Company has no
subordinated Indebtedness other than the Notes. In the event of the bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Notes only after all such Senior Debt of the
Company has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on any or all of the Notes then outstanding. Additional
indebtedness, including Senior Debt, may be incurred by the Company and its
Subsidiaries from time to time, subject to the terms of the Indenture. In
addition, although the Notes may be guaranteed in the future by certain of the
Company's subsidiaries of a certain size, the Notes will be structurally
subordinated to any liabilities or obligations of any subsidiary of the Company
which is not a Guarantor (as defined) and, in any event, will be contractually
subordinated, in accordance with the terms of the Indenture, to such Senior Debt
of each subsidiary which is a Guarantor. See "Description of the
Notes--Subordination".
JUNIOR RANKING OF SENIOR PREFERRED STOCK AND SUBORDINATION OF
EXCHANGE DEBENTURES TO SIGNIFICANT SENIOR DEBT
The Senior Preferred Stock ranks junior in right of payment to all existing
and future liabilities and obligations (whether or not for borrowed money) of
the Company, PARI PASSU with each other class of capital stock or series of
preferred stock issued by the Company that specifically provides that such
series will rank on a parity with Senior Preferred Stock and senior in right of
payment to all common stock and each other class of capital stock or series of
preferred stock issued by the Company that specifically provides that such
series will rank junior to the Senior Preferred Stock or which do not specify
their rank. The holders of the Senior Preferred Stock will have limited voting
rights. See "Description of the Senior Preferred Stock-- Rank; --Voting Rights".
The Exchange Debentures will be unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior Debt
(as defined in the Exchange Debenture Indenture) of the Company, including the
obligations of the Company under the Credit Agreement, the A/R Facility and the
Notes. At July 3, 1996, the aggregate principal amount of such Senior Debt was
$567.2 million. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be
11
<PAGE>
available to pay obligations on the Exchange Debentures only after all such
Senior Debt of the Company has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Exchange
Debentures then outstanding. Additional indebtedness, including Senior Debt, may
be incurred by the Company and its subsidiaries from time to time, subject to
the terms of the Exchange Debenture Indenture. In addition, the Exchange
Debentures will be structurally subordinated to any liabilities or obligations
of the Company's subsidiaries. See "Description of the Exchange
Debentures--Subordination".
STRINGENT ENVIRONMENTAL REGULATION; PROPOSED TIMBER REGULATION
The Company and its operations are subject to a wide range of environmental
laws and regulations relating to, among other matters, air emissions, wastewater
discharges, landfill operations and hazardous waste management. Compliance with
these laws and regulations is an increasingly important factor in the Company's
business. The Company will continue to incur capital and operating expenditures
to maintain compliance with applicable federal and state environmental laws and
to meet new regulatory requirements. Such new requirements include the proposed
regulations announced in November 1993 by the United States Environmental
Protection Agency (the "EPA") that would require more stringent controls on air
and water discharges from pulp and paper mills (generally referred to as the
"cluster rules"). Although the EPA has not made any commitments, final
promulgation of portions of the cluster rules may occur in 1996 and compliance
with the rules may be required beginning in 1998. It is expected that the
cluster rules, if adopted as currently proposed, will require the Company to
incur approximately $86.0 million to $96.0 million of capital expenditures
through 1999. The Company also anticipates that through 1999, it will incur an
additional $10.0 million to $20.0 million of capital expenditures related to
environmental compliance, other than as a result of the cluster rules. The
ultimate financial impact of the proposed cluster rules on the Company will
depend upon the nature of the final regulations, the timing of required
implementation and the cost and availability of new technology. Expenditures to
comply with proposed and future environmental laws and regulations could have a
material adverse effect on the Company's business and financial condition. See
"Business--The Company--Environmental and Safety Matters".
In addition to conventional pollutants, minute quantities of dioxins and
other chlorinated organic compounds may be contained in the wastewater effluent
of the Company's bleached kraft pulp mills in Somerset and Westbrook, Maine and
Muskegon, Michigan. The most recent National Pollutant Discharge Elimination
System ("NPDES") wastewater permit limits proposed by the EPA would limit dioxin
discharges from the Company's Somerset and Westbrook mills to less than the
level of detectability. The Company is presently meeting the EPA's proposed
dioxin limits but it is not meeting the proposed limits for other parameters
(E.G., temperature and color) and is attempting to revise these other wastewater
permit limits for its facilities. While the permit limitations at these two
facilities are being challenged, the Company continues to operate under existing
EPA permits, which have technically expired, in accordance with accepted
administrative practice. In addition, the Muskegon mill is involved, as one of
various industrial plaintiffs, in litigation with the County of Muskegon
regarding a 1994 ordinance governing the County's industrial wastewater
pretreatment program. The lawsuit challenges, among other things, the treatment
capacity availability and the local effluent limit provisions of the ordinance.
In July 1996, the Court rendered a decision substantially in favor of the
Company and the other plaintiffs, but the County has appealed the Court's
decision. If the Company and the other plaintiffs do not prevail in that appeal
or are not successful in ongoing negotiations with the County, the Company may
not be able to obtain additional treatment capacity for future expansions and
the County could impose stricter permit limits. The imposition of currently
proposed permit limits or the failure of the Muskegon lawsuit could require
substantial additional expenditures, including short-term expenditures, and may
lead to substantial fines for any noncompliance. See "Business--The
Company--Environmental and Safety Matters".
The Company owns approximately 911,000 gross acres of timberlands in Maine,
789,400 of which are net forested acres. The Company believes that it can
harvest approximately 13,100 acres per year on a sustainable basis. On November
5, 1996, a proposed binding referendum measure to eliminate clearcutting in
unincorporated areas in the State of Maine was defeated. A competing measure,
which could establish new forestry standards stricter than current law, but
which would not completely ban clearcutting, received a plurality vote. This
competing measure was supported by the Company, other major timber interests in
12
<PAGE>
Maine, several environmental groups as well as the Governor of Maine. Under
Maine law, this competing measure will not automatically become law unless it
receives a simple majority of the votes cast in a special election to be held in
1997. If this competing measure does become law, the consequence to the Company
is not expected to be material because such measure generally reflects
sustainable forestry initiatives that have already been voluntarily adopted by
the Company. See "Business--Timberlands".
CONTROL BY MAJORITY STOCKHOLDER
As of the date of this Prospectus, Holdings owned 100% of the Company's
voting stock. Sappi controls approximately 75.07% of Holdings' outstanding
voting stock on a fully diluted basis. Pursuant to a Shareholders Agreement (as
defined) among Sappi, DLJMB, UBSC, Holdings, S.D. Warren (as successor by merger
to SDW Acquisition Corporation ("SDW Acquisition") and certain other parties,
Sappi is entitled to nominate a majority of the Board of Directors of Holdings
and has certain other special approval rights. Accordingly, it is expected that
Sappi will exercise significant influence over the Board of Directors and
business and operations of each of Holdings and the Company. Subject to the
restrictions on corporate actions described under "--Restrictions on Company's
Corporate Actions", Sappi may be deemed to control Holdings and the Company. See
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions".
RESTRICTIONS ON THE COMPANY'S CORPORATE ACTIONS
Pursuant to the Shareholders Agreement, the Company has agreed not to take
certain corporate actions, including (i) dispositions of certain subsidiaries or
divisions of the Company, (ii) the hiring or dismissal of the chief executive
officer or chief financial officer of the Company, (iii) any merger in which the
Company is not the surviving corporation and (iv) any change in the capital
structure of the Company (including the incurrence of indebtedness) involving
amounts in excess of specified thresholds, without not only approval by the
majority of the board of Holdings present at a meeting at which a Quorum exists
but also approval by at least one Sappi Group director, the DLJ Group director
and, in certain cases, the UBS Group director (as such terms are defined in the
Shareholders Agreement). Consequently, each of the Sappi Group, the DLJ Group
and, in certain cases, the UBS Group effectively have the power to block such
actions. In addition, the Shareholders Agreement provides that the annual
business plan or budget of the Company must be approved by a director designated
by each of such Groups. Compliance with such special approval requirements could
delay or be disruptive to the normal corporate functioning of the Company. See
"Security Ownership of Certain Beneficial Owners and Management--Shareholders
Agreement".
REQUIREMENT TO DO BUSINESS WITH SAPPI AFFILIATES
Pursuant to the Shareholders Agreement, if the Company sells products
outside of the United States and Canada, it is, subject to certain exceptions,
required to enter into arms' length marketing agreements with affiliates of
Sappi relating to such sales. For the nine months ended July 3, 1996, the
Company sold approximately $71.1 million of products through affiliates of Sappi
and expensed fees of approximately $4.3 million. See "Certain Relationships and
Related Transactions--Transactions With Related Parties".
During fiscal year 1996, the Company began purchasing products from certain
affiliates in U.S. Dollars primarily for sale to external customers. The Company
receives commissions from the affiliates on such sales. To date, these
transactions have not been material.
RESTRICTIONS ON MAKING A CHANGE OF CONTROL OFFER; ANTITAKEOVER EFFECTS
OF CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control, as defined in the Indenture, the
Certificate of Designations or the Exchange Debenture Indenture, as the case may
be, each holder of Notes, Senior Preferred Stock or, if issued, Exchange
Debentures, will have the right to require the Company to purchase all or part
of such holder's Notes, Senior Preferred Stock or, if issued, Exchange
Debentures, at a repurchase price equal to 101% of the aggregate principal
amount or Specified Amount thereof, as the case may be, plus accrued and unpaid
interest or dividends (other than Accumulated Dividends) or interest, as the
case may
13
<PAGE>
be. See "Description of the Notes--Repurchase at the Option of Holders--Change
of Control"; "Description of the Senior Preferred Stock--Change of Control"; and
"Description of the Exchange Debentures-- Change of Control".
The Credit Agreement and the A/R Facility each contain, and other
indebtedness may contain, prohibitions of certain events which would constitute
a Change of Control. In addition, the exercise by the holders of the Notes, the
Senior Preferred Stock or, if issued, the Exchange Debentures of their right to
require the Company to repurchase the Notes, the Senior Preferred Stock or, if
issued, the Exchange Debentures could cause a default under the Credit Agreement
or such other indebtedness, even if the Change of Control itself does not.
Finally, the Company's ability to pay cash to the holders of the Notes, the
Senior Preferred Stock or, if issued, the Exchange Debentures, upon a repurchase
may be limited by the Company's then existing financing resources. See
"Description of the Credit Agreement and the A/R Facility".
The Change of Control purchase feature of the Notes, the Senior Preferred
Stock or, if issued, the Exchange Debentures and the Change of Control
prohibitions in each of the Credit Agreement and the A/R Facility may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company and, thus, the removal of incumbent management.
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SENIOR PREFERRED STOCK
AND EXCHANGE OF EXCHANGE DEBENTURES
The redemption price of the Senior Preferred Stock substantially exceeds its
issue price. As a result, a holder will be required to treat such excess as a
series of constructive distributions on the Senior Preferred Stock occurring
over the life of such stock. To the extent of the Company's current and
accumulated earnings and profits (as calculated for Federal income tax
purposes), the amount of each such constructive distribution will be includible
in a holder's income as ordinary dividend income (subject to the applicable
dividends received deduction) at the time such distribution is deemed to occur,
notwithstanding that the cash attributable to such income will not be received
by the holder until a subsequent period.
The Company may, at its option and under certain circumstances, exchange
Exchange Debentures for the Senior Preferred Stock. Any such exchange will be a
taxable event to holders of the Senior Preferred Stock. Furthermore, the
Exchange Debentures will be treated as having been issued with original issue
discount ("OID") for Federal income tax purposes. Holders of Exchange Debentures
will be required to include such OID (as ordinary income) in income over the
life of the Exchange Debentures, in advance of the receipt of the cash
attributable to such income. See "Certain Federal Income Tax Considerations".
LIMITATION ON CASH DIVIDENDS; OBLIGATIONS WITH RESPECT TO HOLDINGS PREFERRED
STOCK
The Company is not required to pay cash dividends on the Senior Preferred
Stock until March 15, 2000. The Company intends to retain future earnings, if
any, for use in its business and does not anticipate paying any cash dividends
on the Senior Preferred Stock for any period ending on or prior to December 15,
1999. In addition, the terms of the Credit Agreement and the Indenture limit the
amount of cash dividends the Company may pay with respect to the Senior
Preferred Stock and other equity securities both before and after that date. See
"Description of the Credit Agreement and the A/R Facility"; "Description of the
Notes--Certain Covenants"; and "Description of the Senior Preferred
Stock--Dividends". In addition, the Company would have to fund any cash
dividends payable with respect to the 15% Senior Exchangeable Preferred Stock of
Holdings ("Holdings Preferred Stock"). Holdings is not required to pay cash
dividends on the Holdings Preferred Stock until March 15, 2000. See "The
Acquisition".
RISK THAT NOTE OFFERING DETERMINED A FRAUDULENT CONVEYANCE
Various laws enacted for the protection of creditors may apply to the Notes
and, if issued, the Exchange Debentures. If a court in a lawsuit by a creditor
or a representative of creditors (such as a trustee in bankruptcy or the Company
itself as debtor-in-possession) were to determine that SDW Acquisition or the
Company did not receive fair consideration or reasonably equivalent value for
incurring the indebtedness evidenced by the Notes and, if issued, the Exchange
Debentures, and at the time of such incurrence SDW Acquisition or the Company
(i) was insolvent or was rendered insolvent by such incurrence, (ii) had
14
<PAGE>
unreasonably small capital with which to carry on its business and all
businesses in which it intended to engage or (iii) intended to incur, or
believed it would incur, debts beyond its ability to repay as such debts
matured, then such court could invalidate, in whole or in part, such
indebtedness as a fraudulent conveyance. The obligations of the Company under
the Notes and, if issued, the Exchange Debentures, could then be avoided, in
which case a court may direct the return of all payments made thereunder to the
Company or to a fund for the benefit of its creditors. Alternatively, a court
could subordinate the Notes and, if issued, the Exchange Debentures, to all
existing and future indebtedness of the Company.
The measure of insolvency for purposes of the foregoing will vary depending
upon which jurisdiction's law is being applied. Generally, however, an entity
would be considered insolvent if (i) the amount of its debts (including certain
contingent liabilities) is greater than all of its assets at a fair valuation or
(ii) the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liabilities on its existing debts as they
become absolute and mature.
In rendering opinions with respect to the validity of the Notes and, if
issued, the Exchange Debentures, counsel did not express any opinion as to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, including federal and state statutes dealing with
fraudulent conveyances.
LIQUIDITY OF MARKET
Although DLJSC has advised the Company that it currently makes a market in
the Securities, it is not obligated to do so and may discontinue such market
making at any time without notice. The Securities are not listed on any national
securities exchange or admitted to trading in the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can be
given as to the liquidity of the trading market for any of the Securities. If a
trading market is not maintained, holders of the Securities may experience
difficulty in reselling such Securities or may be unable to sell them at all.
Future trading prices of the Securities will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Company, the Securities may trade at a discount
from their principal amount or liquidation preference, as the case may be.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of any Securities in
any market making transaction in connection with which this Prospectus may be
delivered.
DIVIDEND POLICY
The Company is not required to pay cash dividends on the Senior Preferred
Stock until March 15, 2000. The Company intends to retain future earnings, if
any, for use in its business and does not anticipate paying any cash dividends
on the Senior Preferred Stock for any period ending on or prior to December 15,
1999. In addition, the terms of the Credit Agreement and the Indenture limit the
amount of cash dividends the Company may pay with respect to the Senior
Preferred Stock and other equity securities both before and after that date. See
"Description of the Credit Agreement and the A/R Facility"; "Description of the
Notes--Certain Covenants"; and "Description of the Senior Preferred
Stock--Dividends".
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at July 3, 1996. This table should be read in conjunction with the
Company's Financial Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(IN
MILLIONS)
-----------
<S> <C>
Current portion of long-term debt.................................................................... $ 46.6
-----------
Long-term debt:
Revolving Credit Facility (1)...................................................................... --
Term Loan Facility (1)............................................................................. 411.4
Notes.............................................................................................. 375.0
Other (2).......................................................................................... 116.4
-----------
Total long-term debt............................................................................. 902.8
-----------
Senior Preferred Stock (3)........................................................................... 84.5
-----------
Stockholder's equity:
Common Stock and paid-in capital................................................................... 331.8
Retained earnings.................................................................................. 26.4
-----------
Total stockholder's equity....................................................................... 358.2
-----------
Total capitalization........................................................................... $ 1,392.1
-----------
-----------
</TABLE>
- ------------------------
(1) SDW Acquisition financed the Acquisition in part through borrowings of
$630.0 million under senior secured term loan facilities (the "Term Loan
Facilities") and initial borrowings of $160.2 million under a $250.0 million
revolving credit facility (the "Revolving Credit Facility" and, together
with the Term Loan Facilities, the "Bank Financing"). The Company and SDWF
(as defined) obtained the five-year A/R Facility, the proceeds of which were
used to prepay, in an aggregate principal amount, $100.0 million of the
final installments of the Tranche A Term Loans (as defined) and Tranche B
Term Loans (as defined). See "Description of the Credit Agreement and the
A/R Facility".
(2) Consists principally of tax-exempt industrial revenue and pollution control
bonds.
(3) Liquidation value, including unpaid dividends, was $92.9 million at July 3,
1996.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected statement of operations data, other
financial data, operating data and balance sheet data for S.D. Warren Company
(the "Company" or "Warren") and the Predecessor Corporation (as defined in the
Notes to Financial Statements). The selected financial data for fiscal year
1993, the nine months ended September 24, 1994 and the period from September 25,
1994 to December 20, 1994 are derived from the combined financial statements of
the Predecessor Corporation, which have been audited by Deloitte & Touche LLP.
The selected financial data for the period from December 21, 1994 through
September 27, 1995 are derived from the consolidated financial statements of the
Company which have been audited by Deloitte & Touche LLP (whose report expresses
an unqualified opinion and includes an explanatory paragraph relating to the
comparability of the Predecessor Corporation's financial statements). The
selected financial data for fiscal year 1991 and fiscal year 1992 have been
prepared from selected financial data provided to the Company by the Predecessor
Corporation's Parent, Scott Paper Company, in connection with the acquisition of
Warren. Operating data for any period less than a year are not necessarily
indicative of the results that may be expected for the full year. This data
should be read in conjunction with the Company's Financial Statement appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE NINE SEPTEMBER 25,
MONTHS TWELVE MONTHS TWELVE MONTHS MONTHS 1994
ENDED ENDED ENDED ENDED THROUGH
DECEMBER 28, DECEMBER 26, DECEMBER 25, SEPTEMBER 24, DECEMBER 20,
1991 1992(1) 1993 1994 1994
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
S.D. WARREN S.D. WARREN S.D. WARREN S.D. WARREN
S.D. WARREN COMPANY COMPANY COMPANY COMPANY
COMPANY AND AND AND AND AND
CERTAIN CERTAIN CERTAIN CERTAIN CERTAIN
RELATED RELATED RELATED RELATED RELATED
AFFILLIATES AFFILIATES AFFILIATES AFFILIATES AFFILIATES
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
------------ ------------- ------------- ------------- -------------
(IN MILLIONS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Sales............................................... $ 1,169.7 $ 1,212.8 $ 1,143.6 $ 828.8 $ 313.6
Gross profit........................................ 144.6 182.5 168.1 106.4 49.9
Selling, general and administrative expenses........ 92.0 91.0 91.7 72.1 22.2
Restructuring charges............................... 38.0 -- 66.1 -- --
Income from operations.............................. 14.6 91.5 10.3 34.3 27.7
Other income (expense), net......................... 0.1 0.1 0.1 0.1 (0.5)
Interest expense.................................... 9.3 9.0 8.5 6.4 2.3
Income tax provision................................ 2.6 32.0 6.5 11.2 9.9
Extraordinary item, net of tax...................... -- -- -- -- --
Net income (loss)................................... 2.8 50.6 (4.6) 16.8 15.0
Dividends and accretion on Senior Preferred Stock... -- -- -- -- --
Net income (loss) applicable to common
stockholders...................................... 2.8 50.6 (4.6) 16.8 15.0
SHARE DATA:
Net earnings per common share (in millions)......... $ -- $ -- $ -- $ -- $ --
Weighted average common shares outstanding.......... -- -- -- -- --
OTHER FINANCIAL DATA:
EBITDA (2).......................................... 180.9 183.1 169.5 105.9 56.5
Capital expenditures................................ 53.7 70.1 68.9 32.3 14.5
Depreciation, cost of timber harvested and
amortization...................................... 128.3 91.6 93.1 71.6 28.8
Ratio of earnings to fixed charges (3).............. 1.3x 5.8x 1.1x 3.1x 8.2x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital..................................... $ 49.4 $ 67.0 $ 47.1 $ 156.2 $ 233.2
Total assets........................................ 1,699.4 1,696.8 1,711.7 1,676.9 1,737.1
Total debt (including current maturities)........... 125.2 125.7 124.3 119.8 119.3
Senior Preferred Stock (5).......................... -- -- -- -- --
Parent's equity..................................... 1,185.1 1,152.3 1,088.1 1,136.5 1,219.1
Stockholder's equity................................ -- -- -- -- --
<CAPTION>
DECEMBER 21, NINE
1994 MONTHS
THROUGH ENDED
SEPTEMBER 27, JULY 3,
1995 1996
------------- ---------------
<S> <C> <C>
S.D. WARREN S.D. WARREN
COMPANY COMPANY
AND AND
SUBSIDIARIES SUBSIDIARIES
(SUCCESSOR) (SUCCESSOR)
------------- ---------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Sales............................................... $ 1,155.8 $ 1,066.8
Gross profit........................................ 269.8 192.7
Selling, general and administrative expenses........ 96.7 98.1
Restructuring charges............................... -- --
Income from operations.............................. 173.1 94.6
Other income (expense), net......................... 3.2 (1.3)
Interest expense.................................... 106.0 84.3
Income tax provision................................ 28.2 3.6
Extraordinary item, net of tax...................... -- (2.0)
Net income (loss)................................... 42.1 3.4
Dividends and accretion on Senior Preferred Stock... 9.1 10.0
Net income (loss) applicable to common
stockholders...................................... 33.0 (6.6)
SHARE DATA:
Net earnings per common share (in millions)......... $ 0.33 $ (0.07)
Weighted average common shares outstanding.......... 100 100
OTHER FINANCIAL DATA:
EBITDA (2).......................................... 262.9 181.0
Capital expenditures................................ 33.7 32.2
Depreciation, cost of timber harvested and
amortization...................................... 89.8 86.4
Ratio of earnings to fixed charges (3).............. 1.4x (4)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital..................................... $ 177.6 $ 88.7
Total assets........................................ 1,887.6 1,681.0
Total debt (including current maturities)........... 1,127.4 949.4
Senior Preferred Stock (5).......................... 74.5 84.5
Parent's equity..................................... -- --
Stockholder's equity................................ 364.8 358.2
</TABLE>
- ------------------------------
(1) Includes the revision in the estimated useful lives used to compute
depreciation for certain equipment which increased net income by
approximately $26.2 million as well as the adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which reduced net income by
approximately $6.1 million.
(2) EBITDA is defined as income from operations before restructuring expense
plus depreciation, cost of timber harvested and amortization as reported in
the Statements of Cash Flows. EBITDA is presented because it is a widely
accepted financial indicator of a Company's ability to service and incur
debt. EBITDA should not be considered by an investor as an alternative to
GAAP operating income, as an indicator of the Company's operating
performance or as an alternative to the Company's cash flow from operating
activities as a measure of liquidity.
(3) For purposes of computing the ratio of earnings to fixed charges, fixed
charges consist of interest expense on long-term debt, amortization of
deferred financing costs and that portion (one third) of rentals deemed to
be representative of interest. Earnings consist of income before income
taxes, plus fixed charges.
(4) For the period ended July 3, 1996, the Company's earnings were insufficient
to cover fixed charges by $8.6 million.
(5) Liquidation value was $92.9 million at July 3, 1996.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARKET OVERVIEW
The paper market is highly cyclical, characterized by periods of supply and
demand imbalance. Between 1988 and 1993, the rate of growth of demand slowed as
a result of the world-wide recession. Conversely, coated paper capacity
increased significantly in North America during such period. In addition, in
1992, North American imports from Europe increased as a result of excess
capacity in Europe and a devaluation of certain European currencies in relation
to the U.S. dollar, causing North American prices to deteriorate. During the
third quarter of calendar year 1994, Warren's net selling prices began to
improve. List price increases of approximately $60 per ton for the #1 and #2
grades and approximately $65 per ton for the #3 grade were announced in August
1994 by Warren and other major coated paper producers, and a further list price
increase for #3 grade of approximately $40 per ton was announced in October 1994
which became effective in December 1994. Warren believes that as a result of
this improved pricing environment, selling price discounts for the #2 and #3
grades were also significantly reduced during the third quarter of 1994. During
the first quarter of 1995, a list price increase of approximately $97 per ton
from the December 1994 price level was achieved for #3 grade web paper. In April
1995, a further 10.5% price increase for the Company's #3 grade web paper, over
the average price for such paper for the first quarter of 1995, was achieved.
However, since the third quarter of 1995, demand for the Company's products
has decreased. Accordingly, demand for the Company's products was lower during
the nine months ended July 3, 1996 as compared to demand levels during the
second half of fiscal 1995. This decrease is due to a softening in orders
experienced by the industry across certain product lines primarily resulting
from merchants, printers and other converters reducing their inventory levels
which had increased above normal levels. The decline in demand resulted in
reduced prices, with discounting occurring on certain paper product grades.
Accordingly, the Company realized lower net selling prices per ton during the
first nine months of fiscal year 1996 as compared to prices realized during the
second half of fiscal year 1995. However, because the impact of the increase in
prices in 1995 was not realized until the latter half of fiscal year 1995, net
selling prices realized during the nine months ended July 3, 1996 remained
relatively flat as compared to those prices realized during the same period last
year. In addition, the cost of raw materials decreased during the nine months
ended July 3, 1996 as compared to prices at the end of fiscal year 1995 due to
the decrease in the market price of pulp. However, the Company manufactures
approximately 65% of its pulp requirements which reduces its ability to benefit
from (and its exposure to) fluctuations in the market price for pulp.
As a result of the weaker market conditions, the Company temporarily reduced
production levels at certain of its manufacturing facilities during the first
quarter of fiscal 1996. The reduction of inventory levels by the Company's
customers and the weaker market conditions continued into the summer months
which are typically strong due to increased demand from catalog printers. In
addition, new capacity commencing later this year in the United States and
overseas is expected to increase competition for market share and may delay any
improvement in market conditions. The paper market is highly cyclical and to the
extent that the weaker market trend does not reverse or becomes more pervasive
within the Company's existing product lines, the Company's sales, gross margins
and cash flows will continue to be adversely affected.
The following discussion and analysis should be read in conjunction with the
Financial Statements of the Company appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 3, 1996 COMPARED TO THE NINE MONTHS ENDED JUNE 28, 1995
The following discussion compares the nine months ended July 3, 1996 with
the nine months ended June 28, 1995. As used herein, the nine months ended June
28, 1995 refers to the Predecessor Corporation for the period September 25, 1994
through December 20, 1994 combined with the Successor Corporation for the period
December 21, 1994 through June 28, 1995. For purposes of this discussion,
"Predecessor
18
<PAGE>
Corporation" refers to Warren and certain related affiliates on or prior to
December 20, 1994 (during which time Warren was a wholly owned subsidiary of
Scott) and "Successor Corporation" refers to Warren after December 20, 1994.
SALES
The Company's sales for the nine months ended July 3, 1996 were $1,066.8
million compared to $1,077.9 million for the nine months ended June 28, 1995.
Both average net revenue per ton and shipment volume were relatively flat during
the nine months ended July 3, 1996 as compared to the same period last year.
COST OF GOODS SOLD
The Company's cost of goods sold for the nine months ended July 3, 1996 was
$874.1 million compared to $853.7 million for the nine months ended June 28,
1995, an increase of $20.4 million or 2.4%. This increase was primarily
attributable to costs related to lower production during the first fiscal
quarter, the net effect of a power outage which resulted in a loss of production
for approximately 24 days during the second fiscal quarter, unplanned
maintenance costs and inventory valuation adjustments.
The increase in pulp costs which occurred during the first fiscal quarter of
1996 as compared to the same period last year was offset by a decrease in the
market price of pulp during the third quarter as compared to the same period in
fiscal year 1995. The Company expects the lower pulp costs to continue through
the remainder of the fiscal year.
The increase in cost of goods sold resulted in gross profit as a percent of
sales decreasing to 18.1% for the nine months ending July 3, 1996 from 20.8% for
the same period last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense was $98.1 million for the nine
months ended July 3, 1996 compared to $81.6 million for the nine months ended
June 28, 1995, an increase of $16.5 million. Selling, general and administrative
expense as a percent of sales increased to 9.2% for the nine months ended July
3, 1996 as compared to 7.6% for the nine months ended June 28, 1995. This
increase was primarily due to additional administrative expenses incurred to
maintain the appropriate level of administrative services that were previously
performed by Scott.
INTEREST EXPENSE AND TAXES
Following the Acquisition, the Company's capitalization and tax basis of
accounting changed significantly. As a result, interest and tax expense prior to
the Acquisition are not comparable to results following the Acquisition.
The Company's interest expense for the nine months ended July 3, 1996 was
$84.3 million compared to $76.3 million for the nine months ended June 28, 1995.
This increase reflects the incremental interest costs associated with the
financing of the Acquisition. For all periods subsequent to the Acquisition
date, interest expense includes the amortization of deferred financing fees and,
for the nine months ended June 28, 1995, fees associated with a bridge loan made
available to the Company at the time of the Acquisition.
NINE MONTHS ENDED SEPTEMBER 27, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
24, 1994
The following discussion compares the results of operations for the
Successor Corporation's nine-month period ended September 27, 1995 with the
Predecessor Corporation's nine-month period ended September 24, 1994. The period
December 21, 1994 through September 27, 1995 is referred to as the nine-month
period ended September 27, 1995. The "Company" refers to both the Predecessor
and Successor Corporations.
SALES
Sales for the nine months ended September 27, 1995 were $1,155.8 million
compared to $828.8 million for the nine months ended September 24, 1994, an
increase of $327.0 million or 39.5%. Shipment volume increased from
approximately 846,300 tons for the nine months ended September 24, 1994 to
965,000 tons for the nine months ended September 27, 1995 or approximately
14.0%. This increase was primarily attributable
19
<PAGE>
to increased volume of coated free paper. Average net revenue per ton increased
by $218.4 or 22.3% across all grades due to higher selling prices and reduced
sales of second quality paper resulting from improved manufacturing performance
achieved during this period.
COST OF GOODS SOLD
The Company's cost of goods sold for the nine months ended September 27,
1995 was $886.0 million compared to $722.4 million for the nine months ended
September 24, 1994, an increase of $163.6 million or 22.6%. This increase was
attributable to the increase in volume sold and increased raw material cost for
purchased pulp and wood and wood chips used to manufacture pulp, partially
offset by a net reduction in labor costs and increased production efficiencies
and output.
The increase in wood and wood chip costs was primarily attributable to the
increased demand for lumber by the housing sector as the economy expanded. The
increase in pulp costs primarily resulted from significantly higher prices on
purchased pulp and the effect of the Company's market-based long-term pulp
supply contract at the Company's Mobile, Alabama facility which was entered into
with Scott at the time of the Acquisition. Prior to the Acquisition, pulp
purchases for the Company's Mobile operations were on a shared cost basis with
other Scott operations located at the Mobile facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the nine months ended
September 27, 1995 increased approximately 34.1% or $24.6 million. This increase
is primarily due to the increase in distribution and administrative related
expenses. Distribution related expenses increased primarily as a result of the
increase in sales volume. Administrative expenses increased primarily as a
result of the costs incurred to obtain the appropriate level of administrative
services that were previously performed by Scott. Selling, general and
administrative expenses as a percent of sales remained relatively flat at 8.4%
for the nine months ended September 27, 1995 as compared to 8.7% for the nine
months ended September 24, 1994.
INCOME (LOSS) FROM OPERATIONS
The Company's income from operations for the nine months ended September 27,
1995 was $173.1 million compared to $34.3 million for the nine months ended
September 24, 1994. This increase was primarily attributable to the substantial
increase in gross profit partially offset by the increase in selling, general
and administrative expenses.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the nine months ended September 27, 1995 was
$3.2 million compared to $0.1 million for the nine months ended September 24,
1994. This increase was primarily due to an increase in interest income which
resulted from interest earned on surplus cash balances held prior to the
application of such balances towards certain business requirements and the
reduction of long-term debt.
INTEREST EXPENSE AND TAXES
Following the Acquisition, Warren's capitalization and tax basis of
accounting changed significantly. As a result, Warren's interest and tax expense
prior to the Acquisition are not comparable to results following the
Acquisition.
The Company's interest expense for the nine months ended September 27, 1995
was $106.0 million compared to $6.4 million for the nine months ended September
24, 1994. This increase reflects the incremental interest costs for the nine
months ended September 27, 1995 associated with the financing of the
Acquisition, as discussed in the Notes to Financial Statements. For the nine
months ended September 27, 1995 interest expense includes the amortization of
deferred financing fees. The Company's hedging activities as discussed in the
Notes to Financial Statements did not have a material effect on the weighted
average borrowing rate or interest expense for the nine months ended September
27, 1995.
The Company's income tax expense was $28.2 million for the nine months ended
September 27, 1995 compared to $11.2 million for the nine months ended September
24, 1994. This increase was primarily attributable to changes in the Company's
earnings levels.
20
<PAGE>
TWELVE MONTHS ENDED DECEMBER 20, 1994 COMPARED TO TWELVE MONTHS ENDED DECEMBER
25, 1993
The following discussion compares the results of operations for the
Predecessor Corporation's approximate twelve month period ended December 20,
1994 with the twelve-month period ended December 25, 1993. For the purposes of
discussions relating to the twelve-month period ended December 20, 1994, the
"Company" refers to the Predecessor Corporation's combined results for the nine
months ended September 24, 1994 and the period September 25, 1994 through
December 20, 1994.
SALES
Sales for the twelve months ended December 20, 1994 were $1,142.4 million
compared to $1,143.6 million for the twelve months ended December 25, 1993.
Shipment volume increased to approximately 1,142,000 tons for the twelve months
ended December 20, 1994 from approximately 1,131,300 tons for the twelve months
ended December 25, 1993. Average net revenue per ton was relatively constant
from period to period.
COST OF GOODS SOLD
Cost of goods sold for the twelve months ended December 20, 1994 were $986.1
million compared to $975.5 million for the twelve months ended December 25,
1993, an increase of $10.6 million. This increase was primarily due to an
increase in raw material costs during 1994 as compared to the previous year
partially offset by a net reduction in labor costs during such period. The
increase in raw material costs was primarily due to the increase in tons shipped
and increased costs for wood and wood chips used to manufacture pulp.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense includes marketing and
distribution, research, administrative and general expenses. For the twelve
months ended December 20, 1994 the Company's selling, general and administrative
expense was $94.3 million compared to $91.7 million for the twelve months ended
December 25, 1993, an increase of $2.6 million or 2.8%.
RESTRUCTURING
During the fourth quarter of the twelve months ended December 25, 1993, the
Predecessor Corporation recorded a charge of $66.1 million, primarily for
restructuring and productivity improvement programs. The charge included the
estimated effect of future workforce reductions, as well as actions to
consolidate and simplify the Predecessor Corporation's coated papers business.
The remaining reserve balance as of September 24, 1994 was fully utilized by the
Predecessor Corporation prior to the date of the Acquisition.
INCOME (LOSS) FROM OPERATIONS
Income from operations for the twelve months ended December 20, 1994 was
$62.0 million compared to $10.3 million for the twelve months ended December 25,
1993. Excluding a $66.1 million restructuring charge and the effect of gains on
land sales of $4.6 million during the twelve months ended December 25, 1993,
income from operations would have been $71.8 million for that period. The
decrease in income from operations for the twelve-month period ended December
20, 1994 to $62.0 million, as compared to $71.8 million for the twelve months
ended December 25, 1993, adjusted for the restructuring charge and the gains on
land sales, was primarily due to the aforementioned increase in cost of goods
sold.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED JULY 3, 1996 COMPARED TO NINE MONTHS ENDED JUNE 28, 1995
The Company's net cash provided by operating activities was $147.4 million
for the nine months ended July 3, 1996 as compared to $108.1 million for the
nine months ended June 28, 1995. This increase was primarily due to $90.0
million of proceeds received resulting from the sale of the Company's accounts
receivable as indicated in the Notes to Condensed Financial Statements. This
increase was partially offset by the decrease in net income, accounts payable
and accrued and other current liabilities.
Inventory tons increased at July 3, 1996 as compared to September 27, 1995
primarily due to a decline in demand as a result of weakened market conditions.
Although inventory tons increased, the inventories balance reflected on the
Condensed Balance Sheet indicates a decrease during such period due to
adjustments to the carrying value of certain inventories to net realizable
value. The decrease in accounts payable at July 3, 1996 compared to September
27, 1995 was primarily attributable to declining pulp prices when compared to
the end of fiscal year 1995. Accrued and other current liabilities decreased
during the nine months ended July 3, 1996 as compared to the balance at
September 27, 1995 primarily as a result of a significant semiannual interest
payment made in June 1996.
The Company's operating working capital decreased to $110.9 million at July
3, 1996 compared to $174.0 million at September 27, 1995. Operating working
capital is defined as trade accounts receivable, other receivables and
inventories less accounts payable and accrued and other current liabilities.
This decrease primarily resulted from the sale of the Company's receivables.
The Company's ratio of current assets to current liabilities was 1.4 at July
3, 1996 compared to 1.6 at September 27, 1995. This decrease reflects the effect
of the sale of the Company's accounts receivable, partially offset by a decrease
in the current maturities of long-term debt, accounts payable and accrued and
other current liabilities.
Net cash used in investing activities for the nine months ended July 3, 1996
was $30.0 million compared to $1,522.5 million for the nine months ended June
28, 1995. Net cash used in investing activities for the nine months ended June
28, 1995 includes the effect of the cash outflows related to the Acquisition of
approximately $1,493.7 million.
Capital expenditures for the nine months ended July 3, 1996 were $32.2
million compared to $29.4 million for the nine months ended June 28, 1995.
Capital spending for the nine months ended July 3, 1996 and June 28, 1995 was
primarily for improvements to the Company's manufacturing and distribution
facilities.
Capital expenditures were expected to approximate $50.0 million during
fiscal year 1996 due to a wide variety of increasingly stringent environmental
laws and regulations, including compliance with the cluster rules (see the Notes
to Unaudited Condensed Financial Statements). The Company anticipates that
aggregate capital expenditures related to environmental compliance will be
approximately $86.0 million to $96.0 million through fiscal year 1999, assuming
the cluster rules are adopted. The Company believes that cash generated by
operations and amounts available under its revolving credit facility will be
sufficient to meet its ongoing operating and capital expenditure requirements.
Net cash used in financing activities for the nine months ended July 3, 1996
was $177.8 million compared to net cash provided of $1,409.7 million for the
nine months ended June 28, 1995. During the nine months ended July 3, 1996, the
Company borrowed and repaid $56.1 million under its revolving credit facility
and paid approximately $74.9 million of outstanding borrowings under its term
loan facilities in compliance with an excess cash flow payment requirement.
Amounts paid in compliance with the excess cash flow requirement fulfill the
majority of payments otherwise required to be paid in June 1996 and reduce
future semiannual installments on a pro rata basis. In addition, in April 1996,
the Company utilized the cash received from the aforementioned sale of the
Company's accounts receivable and amounts on hand to repay $100 million of its
outstanding long-term debt (see Notes to Unaudited Condensed Financial
Statements). Cash provided by financing activities for the nine months ended
June 28, 1995 includes proceeds from long-term debt of $1,130.1 million. During
the nine months ended June 28, 1995, the Company repaid $162.2
22
<PAGE>
million of amounts primarily borrowed under the Company's revolving credit
facility. In addition, the Company received net proceeds from the issuance of
preferred and common stock of $65.4 million and $331.8 million, respectively.
Cash provided by financing activities for the nine months ended June 28, 1995
was primarily utilized for the Acquisition. During the period from September 25,
1994 through December 20, 1994, the Predecessor Corporation received a net
capital infusion from the Predecessor Corporation's parent company of
approximately $31.6 million.
NINE MONTHS ENDED SEPTEMBER 27, 1995 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 24, 1994
The following discussion compares the Successor Corporation's nine-month
period ended September 27, 1995 with the Predecessor Corporation's nine-month
period ended September 24, 1994. For purposes of this discussion, the nine-month
period ended September 27, 1995 refers to the period December 21, 1994 through
September 27, 1995.
The Company's net cash provided from operating activities was $136.0 million
and $27.8 million for the nine months ended September 27, 1995 and September 24,
1994, respectively. The increase in cash provided by operations for the nine
months ended September 27, 1995 compared to the comparable period in 1994 is
primarily due to an increase in net income, accounts payable and accrued
liabilities, offset by an increase in accounts receivable and inventories.
The Company's operating working capital increased to $174.0 million at
September 27, 1995 compared to $112.4 million at September 24, 1994. Operating
working capital is defined as trade accounts receivable, other receivables and
inventories, less accounts payable, accrued and other current liabilities.
The increase in accounts receivable at September 27, 1995 as compared to the
balance at September 24, 1994 is primarily due to the effect of the receivables
that were factored by the Predecessor Corporation as of September 24, 1994, as
indicated in the Notes to Financial Statements, and the increase in sales. The
increase in inventory at September 27, 1995 compared to September 24, 1994 was
primarily due to enhanced production levels, an increase in purchasing volume,
higher costs of raw materials and the effect of a change in inventory costing
method as indicated in the Notes to Financial Statements. The increase in
accounts payable at September 27, 1995 compared to September 24, 1994 was also
primarily attributable to the increase in purchasing volume and the higher costs
of raw materials.
The Company's current ratio, the ratio of current assets to current
liabilities, was 1.6 at September 27, 1995 compared to 2.3 at September 24,
1994. This decrease is primarily due to the increase in the current portion of
long-term debt and the decrease in the current deferred tax asset offset by the
increase in operating working capital for such period.
The changes in the balances of deferred taxes, goodwill, deferred financing
costs, other assets, current and long-term debt, accrued liabilities and other
long-term liabilities were primarily caused by the Acquisition (see the Notes to
Financial Statements). Accrued liabilities also increased as a result of
interest accrued on the Company's Term Loan Facilities.
Net cash used for investing activities for the nine months ended September
27, 1995 was $1,489.6 million compared to $46.4 million for the nine months
September 24, 1994. Net cash used in investing activities for the nine months
ended September 27, 1995 includes the effect of the cash outflows related to the
Acquisition of approximately $1,455.9 million. This amount is net of $43.6
million the Company received from Scott pursuant to a post closing adjustment
mechanism in the Stock Purchase Agreement (as defined) and includes the cash
outflows for related transaction fees of approximately $19.2 million (see the
Notes to Financial Statements).
Capital expenditures for the nine months ended September 27, 1995 were $33.7
million compared to $32.3 million for the nine months ended September 24, 1994.
Capital spending for the nine months ended September 27, 1995 and September 24,
1994 were primarily for improvements to the Company's manufacturing and
distribution facilities. Capital spending for the nine months ended September
24, 1994 included expenditures of approximately $9.0 million related to the new
sheeting and distribution facility located in Allentown, Pennsylvania, which
began operations in the second quarter of fiscal 1994.
23
<PAGE>
Net cash provided by financing activities for the nine months ended
September 27, 1995 was $1,340.8 million compared to $21.2 million for the nine
months ended September 24, 1994. Cash provided by financing activities for the
nine months ended September 27, 1995 includes proceeds from long-term debt of
$1,105.7 million which is net of approximately $59.7 million of related
financing fees. The related financing fees have been recorded as a long-term
deferred asset and are being amortized over the life of the debt. During the
nine months ended September 27, 1995, the Company repaid $162.1 million of
amounts primarily borrowed under the Revolving Credit Facility (see the Notes to
Financial Statements). In addition, the Company received net proceeds from the
issuance of preferred and common stock of $65.4 million and $331.8 million,
respectively. Cash provided by financing activities for the nine months ended
September 27, 1995 was primarily utilized for the Acquisition.
TWELVE MONTHS ENDED DECEMBER 20, 1994 COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 25, 1993
The following discussion compares the Predecessor Corporation's approximate
twelve-month period ended December 20, 1994 with the twelve-month period ended
December 25, 1993. For purposes of this discussion, "Company" refers to the
Predecessor Corporation. The twelve month period ended December 20, 1994 refers
to the Predecessor Corporation's combined results for the nine months ended
September 24, 1994 and the period September 25, 1994 through December 20, 1994.
The Company's net cash provided by operating activities was $81.5 million
for the twelve months ended December 20, 1994 compared to $130.3 million for the
twelve months ended December 25, 1993. This decrease is primarily due to
increased receivables, a reduction in payables and spending related to the
restructuring announced in the fourth quarter of fiscal year 1993.
Net cash used by investing activities for the twelve months ended December
20, 1994 was $60.9 million compared to $73.7 million for the twelve months ended
December 25, 1993. This decrease is primarily attributable to decreased
investments in plant assets and timber resources. Capital expenditures for the
twelve months ended December 20, 1994 were $46.8 million compared to $68.9
million for the twelve months ended December 25, 1993. This decrease is
primarily due to spending related to the sheeting and distribution facility
located in Allentown, Pennsylvania, which began operations in the quarter ended
June 25, 1994.
Net cash provided by financing activities for the twelve months ended
December 20, 1994 was $52.3 million compared to a use of cash of $55.8 million
for the twelve months ended December 25, 1993. The $52.3 million net cash flow
for the twelve months ended December 20, 1994 primarily reflects net capital
infusions of $57.0 million the Predecessor Corporation received from Scott. For
the twelve months ended December 25, 1993, Scott made net capital withdrawals of
$54.1 million.
OTHER ITEMS
DEBT AND PREFERRED STOCK
At July 3, 1996, the Company's long-term debt was $902.8 million compared to
$1,048.8 million at September 27, 1995, a decrease of $146.0 million. The
current maturities of long-term debt balance of $46.6 million at July 3, 1996
primarily represents the amounts payable in December 1996 and June 1997 under
the Company's term loan facilities. The current maturities of long-term debt
balance as of September 27, 1995 primarily reflects payments totalling $74.9
million made during the first quarter of fiscal year 1996 pursuant to an excess
cash flow requirement as indicated in the Notes to Condensed Financial
Statements. In addition, the Company paid $100.0 million in April 1996 on
amounts outstanding under the Company's credit facility obligations. The funds
used for this debt payment were primarily provided by the aforementioned sale of
the Company's accounts receivable. Approximately $3.3 million of financing fees
that had previously been deferred were written off in the third fiscal quarter
as a result of this prepayment. This write-off of $3.3 million has been recorded
as an extraordinary item in the Company's Condensed Statement of Operations net
of a $1.3 million tax effect as indicated in the Notes to Unaudited Condensed
Financial Statements.
The Company has a $250.0 million revolving credit facility to finance
working capital needs. At July 3, 1996, the Company did not have any borrowings
outstanding under this facility, resulting in an unused
24
<PAGE>
borrowing capacity of approximately $249.0 million, after giving effect to
outstanding letters of credit, which may be used to finance working capital
needs. The Company is required to pay a commitment fee on the unused daily
commitment available under the revolving credit facility. The fee ranges between
0.375% and 0.50% per annum and is based upon the achievement of a certain
financial ratio. From September 27, 1995 through April 26, 1996 (as of which
date the Credit Agreement was amended and restated) this fee was 0.50% and from
April 26, 1996 through July 3, 1996 this fee was 0.375%.
In addition, the Company has a Letter of Credit Facility (as defined) to
support certain obligations of the Company. The Company had approximately $170.5
million of letters of credit outstanding under its Letter of Credit Facility at
each of July 3, 1996 and September 27, 1995. The Company pays a commission and a
fronting fee between 1.0% and 2.5% and between 0.20% and 0.25%, respectively, on
the outstanding letters of credit balance. Such fees are based on the
achievement of a certain financial ratio. From September 27, 1995 through April
26, 1996, the commission was 2.50% and the fronting fee was 2.50%, and from
April 26, 1996 through July 3, 1996 the commission and fronting fees were 1.75%
and 0.20%, respectively.
The Credit Agreement, which was amended and restated as of April 26, 1996,
as indicated in the Notes to Condensed Financial Statements, contains
restrictive covenants which limit the Company with respect to certain matters
including, among other things, the ability to incur debt, pay dividends, make
acquisitions, sell assets, merge, grant or incur liens, guarantee obligations,
make investments or loans, make capital expenditures, create subsidiaries or
change its line of business. The Credit Agreement also restricts the Company
from prepaying certain of its indebtedness. Under the Credit Agreement, the
Company is required to satisfy certain financial covenants which will require
the Company to maintain specified financial ratios, including a minimum interest
coverage ratio, a minimum debt service ratio and a net worth test.
The Company does not anticipate paying cash dividends on its senior
preferred stock for any period ending on or prior to December 15, 1999. The
Company intends to retain future earnings, if any, for use in its business and
does not anticipate paying any cash dividends on the senior preferred stock
prior to such date. In addition, the terms of the credit agreement and the
indenture (the "Indenture") relating to the Company's series B senior
subordinated notes limit the amount of cash dividends the Company may pay with
respect to the senior preferred stock and other equity securities both before
and after that date.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and debt. The Company uses
interest rate caps and swaps, which are required by the terms of the Credit
Agreement, as a means of managing interest rate risk associated with the current
debt balances. The Company adopted Statement of Financial Accounting Standards
No. 119 ("FAS 119") "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" in 1995.
During the third quarter of fiscal 1996, the Company commenced transacting
business in currencies other than the U.S. Dollar, primarily the Japanese Yen.
The Company manages the potential exposure associated with transacting in
foreign currencies through the use of foreign currency forward contracts. These
contracts are used to offset the effects of exchange rate fluctuations on a
portion of the underlying foreign currency denominated exposure. These exposures
include firm intercompany trade accounts receivable. Realized and unrealized
gains and losses on these contracts at July 3, 1996 were insignificant. See the
Notes to Unaudited Condensed Financial Statements for additional information.
LONG-TERM CONTRACTS
A substantial portion of the Company's electricity requirements are
satisfied through cogeneration agreements ("Power Purchase Agreements" or
"Agreements") whereby the Somerset and Westbrook mills each cogenerate
electricity and sell the output to Central Maine Power Company ("CMP"). The
Westbrook and Somerset Agreements require CMP to purchase such energy produced
by these cogeneration facilities at above market rates which has reduced the
Company's historical cost of electrical energy. The Westbrook Agreement expires
October 31, 1997 and the Somerset Agreement expires in the year 2012. The
favorable pricing element of the Somerset Agreement will end on November 30,
1997. The Agreements also require the mills to purchase electricity from CMP at
the standard industrial tariff rate.
25
<PAGE>
To properly reflect the fair market value of the acquired Power Purchase
Agreements as of the Acquisition date, the Company established a deferred asset
of approximately $32.3 million, in accordance with APB No. 16. This deferred
asset is recorded with other contracts valued at the Acquisition date as a net
long-term liability. This deferred asset is being amortized over the remaining
life of the favorable Power Purchase Agreements. As of July 3, 1996, accumulated
amortization related to this asset was $19.8 million.
SUBSEQUENT EVENTS
On October 17, 1996, a fire occurred at an outside warehouse location in
Muskegon, Michigan, which resulted in the loss of approximately 8,000 tons of
inventory valued in excess of $5.5 million. While the Company cannot reasonably
estimate at this time the total loss experienced, or the amount to be recovered
under its insurance policies, it does not expect that total losses will exceed
its insurance coverage limits.
Due to exceptionally heavy rains, the Presumpscot River flooded the
Westbrook mill on October 21, 1996. The flooding resulted in the temporary
closure of the mill. Damage to mill equipment is being repaired and normal
operating mill conditions are being restored. While the mill is not yet
operating at full production, the Company anticipates that it will be in the
near future. While the Company cannot reasonably estimate at this time the total
loss experienced, or the exact amount to be recovered under its insurance
policies, early indications suggest that such amounts may be significant.
However, total losses are not expected to exceed the Company's insurance
coverage limits, which include both business interruption and property loss
coverage.
On October 24, 1996, the Company announced a restructuring plan that will
likely result in a pretax charge of approximately $10.0 million in the first
quarter of fiscal 1997. The charge will be taken to cover the one-time costs
related to the reduction of up to approximately 200 salaried positions, or
approximately 14% of the Company's salaried workforce.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FAS No. 121
addresses the accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill when the events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The implementation of FAS No. 121 is not expected to have a
material impact on the Company's financial position, results of operations or
cash flows.
In October 1995, the Financial Accounting Standards Board issued FAS No. 123
"Accounting for Stock-Based Compensation". FAS No. 123 addresses the financial
accounting and reporting standards for stock-based employee compensation plans.
FAS No. 123 permits an entity to either record the effects of stock-based
employee compensation plans in its financial statements or present pro-forma
disclosures in the notes to the financial statements. The implementation of FAS
No. 123 is not expected to have a material impact the Company's financial
position, results of operations or cash flows.
In October 1996, the Financial Accounting Standards Board issued FAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." FAS No. 125 addresses accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
FAS No. 125 is required to be adopted in 1997. The implementation of FAS No. 125
is not expected to have a material impact on the Company's financial position,
results of operations or cash flows.
CONSIDERATIONS RELATING TO HOLDINGS' CASH OBLIGATIONS
The Company expects that it may make certain cash payments to Holdings or
other affiliates during fiscal 1996 to the extent cash is available and to the
extent it is permitted to do so under the terms of the Credit Agreement, the
Indenture and the terms of the Senior Preferred Stock. Such payments may
include, among other things, (i) amounts under a tax sharing agreement to be
entered into between the Company and Holdings necessary to enable Holdings to
pay the Company's taxes, (ii) administrative fees to Holdings and amounts to
cover specified costs and expenses of Holdings and (iii) an annual advisory fee
for management
26
<PAGE>
advisory services, limited to $1.0 million, to Sappi and/or its affiliates. To
the extent the Company continues to make such payments, it will do so only to
the extent such payments are permitted under the terms of the Credit Agreement,
the Indenture and the terms of the Senior Preferred Stock.
Because Holdings has no material assets other than the outstanding common
stock of the Company (all of which is pledged to the lenders under the Credit
Agreement) and all of the operations of Holdings (other than the management of
its investment in the Company) are currently conducted through the Company and
its subsidiaries, Holdings' ability to meet its cash obligations is dependent
upon the earnings of the Company and its subsidiaries and the distribution or
other provision of those earnings to Holdings. Holdings has no material
indebtedness outstanding (other than advances that may be owed from time to time
to the Company and guarantees in respect of indebtedness of the Company and its
subsidiaries) and Holdings' 15% Senior Exchangeable Preferred Stock (the
"Holdings Preferred Stock"), which was issued in connection with the
Acquisition, is not mandatorily redeemable (except upon the occurrence of
certain specified events) and provides that dividends need not be paid in cash
until the year 2000. Holdings does, however, have various obligations with
respect to its equity securities (including in respect of registration rights
granted by Holdings) that are likely to require cash expenditures by Holdings.
The Company believes that the Credit Agreement, the Indenture and the Senior
Preferred Stock permit the Company to pay a dividend or otherwise provide funds
to Holdings to enable Holdings to meet its known cash obligations for the
foreseeable future, provided that the Company meets certain conditions. Among
such conditions are that the Company maintain specified financial ratios and
comply with certain financial tests.
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Deloitte & Touche LLP were appointed independent auditors to Holdings, the
parent of the Company, prior to the Acquisition. Coopers & Lybrand L.L.P. served
as independent accountants of the Predecessor Corporation prior to the
Acquisition and, upon completion of the Acquisition, Deloitte & Touche LLP
replaced Coopers & Lybrand L.L.P. as independent auditors of the Predecessor
Corporation. There were no disagreements between the Predecessor Corporation and
Coopers & Lybrand L.L.P. on matters of accounting and financial disclosure in
the two years and subsequent interim period preceding their replacement by
Deloitte & Touche LLP.
During 1995, Coopers & Lybrand L.L.P. informed the Company that they would
not consent to the use of their report on the Predecessor Corporation's
financial statements in certain anticipated registration statements to be filed
with the Commission. As a result, the Company engaged Deloitte & Touche LLP to
reaudit the Predecessor Corporation's financial statements included in this
Prospectus.
27
<PAGE>
BUSINESS
GENERAL
S.D. Warren Company ("S.D. Warren", "Warren", the "Company" or the
"Successor Corporation") manufactures printing, publishing and specialty papers
and has pulp and timberland operations vertically integrated with some of its
manufacturing facilities. Warren is the largest producer of coated free paper
(free of groundwood pulp) in the United States. The Company currently operates
four paper mills with total annual production capacity of approximately 1.5
million tons of paper. The Company also owns a sheeting and distribution
facility in Allentown, Pennsylvania, with annual sheeting capacity of
approximately 90,000 tons, and owns approximately 911,000 acres of timberlands
in the State of Maine.
The Company was founded in 1854 and grew through internal growth and
acquisitions until it was acquired by Scott in 1967. Scott invested significant
resources in S.D. Warren, including approximately $1.0 billion from 1988 through
1994, to upgrade, expand and rebuild many of the Warren facilities. As of
October 8, 1994, SDW Acquisition entered into the Stock Purchase Agreement
pursuant to which, on December 20, 1994, SDW Acquisition acquired from Scott all
of the outstanding capital stock of Warren, then a wholly owned subsidiary of
Scott, and certain related affiliates of Scott. Immediately following the
Acquisition, SDW Acquisition merged with and into Warren (the "Merger"), with
Warren surviving.
SDW Holdings Corporation owns all the outstanding Common Stock of Warren.
The largest investor in Holdings is Sappi. Sappi, a South African company, is
the largest forest products company in Africa, the third largest producer of
coated free paper in Europe and one of the world's leading pulp, paper and
timber exporters. Sappi owns and operates a number of timber processing plants
and eight mills in Southern Africa. Outside Africa, Sappi's operations include
four fine paper mills in the United Kingdom and two mills in Germany which
produce coated and uncoated free paper and specialty paper. Following the
Acquisition, Sappi became the largest coated free paper manufacturer in the
world. The other shareholders of Holdings are DLJMB and UBSC. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" for information
regarding the ownership of Holdings and the Notes to the Company's Financial
Statements (the "Financial Statements") for information regarding the
Acquisition and financing for the Acquisition.
PRINCIPAL PRODUCTS
The paper industry is generally divided into the printing and writing market
segment and the packaging market segment. The printing and writing market
segment is divided into newsprint and fine paper, which includes coated and
uncoated paper. The Company's principal products include coated, uncoated,
specialty and technical papers. The following table illustrates the Company's
major markets, expressed as a percentage of sales, for the twelve months ended
December 25, 1993, the nine months ended September 24, 1994, the period
September 25, 1994 through December 20, 1994 (the "three months ended December
20, 1994") and the nine months ended September 27, 1995:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Coated paper.................................... 71.4% 70.9% 73.9% 70.6%
Uncoated paper.................................. 17.8 17.9 18.5 13.6
Specialty paper................................. 5.0 5.0 4.8 10.2
Technical paper and other....................... 5.8 6.2 2.8 5.6
----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The coated paper market is divided into two types of products: coated free
paper and coated groundwood paper. Coated papers are primarily differentiated
into five product grades of decreasing quality and brightness, ranging from #1,
which is premium, to #5, the lowest in quality and price. The Company
principally competes in the coated free paper market which is composed of
product grades #1 through #3, and a limited amount of #4 and #5. The coated
groundwood market is composed of the #4 and #5 product grades. Each grade is
manufactured in a range of basis weights, which is the measurement of a paper's
weight
28
<PAGE>
for a given sheet size, as well as differentiated by finish which can be either
gloss, dull or matte. The appearance of coated paper can also be significantly
altered by finishing techniques, such as varnishing, which can impart a dull or
shiny property to a sheet. The coated paper market, in addition to being
segmented by product grade, is divided into products which are coated on one
side and products which are coated on both sides. Paper which is coated on one
side is used in special applications such as consumer product and mailing label
applications. The majority of coated paper production is two-sided which permits
quality printing on both sides of the paper.
Coated paper is used in corporate communications, advertising, brochures,
magazine covers and upscale magazines, catalogues, direct mail promotions and
educational text books. Uncoated paper is used by commercial printers, quick
printers, large in-house copy/printing end-users and small business and home
applications. Speciality and technical papers are used in business form
printing, coated fabric converters, pressure-sensitive laminators, label
printers and other niche market applications.
The market for coated paper has historically experienced price fluctuations
which are driven by production supply, end-user demand and, to a lesser degree,
the availability and relative price of imported products. The growth in the
supply of coated paper is driven by the opening of new coated paper
manufacturing facilities, each of which can take up to three years to construct.
See "Risk Factors--Cyclical Industry Conditions; Strong Competition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for information regarding recent market trends.
COMPETITION
The markets for coated free products are highly competitive with a number of
major companies competing in each market. The Company competes mainly with U.S.
and Canadian producers of coated free paper, and, to a lesser degree, European
producers. The Company's principal competitors in the coated free market are
Champion International Corporation, Westvaco Corporation, Consolidated Papers
Inc., The Mead Corporation, Simpson Paper Co., Repap Wisconsin, Inc. and
Potlatch Corporation. Competition is primarily on the basis of quality, service,
price and breadth of product line, as well as product innovation and sales and
distribution support. Certain of the Company's competitors have greater
financial resources than the Company and certain of the mills operated by its
competitors may be lower cost producers of pulp and coated paper than certain of
the mills operated by the Company. See "Risk Factors--Cyclical Industry
Conditions; Strong Competition".
Several factors contribute to the Company's competitive strengths in the
coated free paper market, including high product quality, technological
innovation, high brand recognition and a strong distribution network. The
Company is the leading seller of #1 and #3 grades of coated free paper in North
America and is among the leaders with respect to the #2 grade based on sales for
the nine months ended July 3, 1996.
DISTRIBUTION
The Company, unlike most of its competition, has made a strategic decision
to sell all of its coated products through the merchant distribution system. The
Company believes this policy increases the focus of the merchant sales force on
the sale of the Company's products. Warren was the first to develop merchant
distribution for branded coated paper. In 1917, Warren formed an association of
paper merchants that became the Warren Merchant's Association. Today, the
Company's sales force sells coated paper to approximately 288 merchant
distributing locations. Merchants are authorized to distribute Warren products
by geographic area and handle competitors' lines to cover all segments of the
market. The Company believes it has created a loyal group of merchant customers
because Warren's sales force focuses on generating end-user demand, which is
then serviced by the merchant distributors, and does not compete with the
merchants to make sales.
Merchants perform numerous functions, including sales, credit, warehousing,
local distribution and promotional activities. They purchase the paper from
Warren and resell it, marking up their purchase price from Warren to a
competitive market price. The product is delivered to the customer either
directly from the
29
<PAGE>
mill, a Warren distribution center or from the merchant's warehouse. The
merchant handles credit review and payment collection and pays Warren's invoice
without regard to final collection from the end-user customer.
The Company sells uncoated paper in North America through the same network
of merchant distributors that it uses for coated paper, with some exceptions
(approximately 225 merchant locations sell uncoated paper, versus the 288 which
sell coated paper). The Company also distributes uncoated paper through original
equipment manufacturers, catalogues and merchant stores and is beginning to
develop additional distribution channels, such as warehouse clubs, office
superstores and telemarketing.
The Company sells both specialty and technical paper in North America
directly to the customer base through the relevant sales force and ships
products directly from the mill to the customer.
EXPORT SALES
The Company had sales to customers outside of the United States ("Export
Sales") of $67.2 million, $60.0 million, $24.7 million and $90.5 million for the
twelve months ended December 25, 1993, the nine months ended September 24, 1994,
the three months ended December 20, 1994 and the nine months ended September 27,
1995, respectively. Export Sales are primarily to Canada, Europe and the Far
East. The Company's sales outside North America are handled by divisions of
Sappi. See "Certain Relationships and Related Transactions--Transactions with
Related Parties" and "Risk Factors--Requirement to Do Business with Sappi
Affiliates".
CUSTOMERS
For the nine months ended July 3, 1996, the Company's customers that
individually accounted for greater than 10% of sales were divisions or
subsidiaries of International Paper Company, Central National-Gottesman Inc.,
and Alco Standard Corporation. Each of these customers is a merchant that
resells the Company's paper products to a wide range of end users. As indicated
in the Notes to Financial Statements, the loss of any of these customers could
have a material adverse effect on the Company's business and results of
operations. See "Risk Factors--Dependence on Principal Customers" and the Notes
to Financial Statements.
BACKLOG AND SEASONALITY
Backlog as of September 24, 1994 and September 27, 1995 was not significant.
The Company had approximately one to four weeks of backlog depending upon the
product and basis weights.
The Company's operations are not significantly affected by seasonality. The
first and third quarters of the calendar year tend to be stronger than the
second and fourth quarters.
PATENTS, TRADEMARKS AND LICENSES
S.D. Warren is widely recognized for its product quality and technological
innovation in the development and manufacture of coated free paper, which has
allowed Warren to sustain the franchise value of its name brand products such as
SOMERSET-REGISTERED TRADEMARK-, LUSTRO-REGISTERED TRADEMARK-,
WARRENFLO-REGISTERED TRADEMARK-and PATINA-REGISTERED TRADEMARK-.
Although the Company owns or licenses a number of patents and patent
applications that are important to its business, they are not material to the
conduct of the Company's business as a whole. The Company believes that its
position in each of its markets depends primarily on such factors as customer
service, prompt and accurate delivery and diversity of products rather than on
patent protection.
The Company has a long history of product innovations. It was the first
paper company to develop both one and two-sided coated paper, the first to
develop dull and matte coated paper, the first to develop high bulk-to-weight
coated paper and the first to develop lightweight coated free web. In addition,
the Company has a number of proprietary technologies, including the on-line
finishing technology and its ULTRACAST-Registered Trademark- electronbeam
technology. The Company's on-line finishing technology is used in its production
of coated paper as well as in its production of specialty papers. The Company's
ULTRACAST-Registered Trademark- technology is utilized in specialty papers and
the Company plans to extend this technology into a broader line of unique
products and new market segments.
30
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's research and development efforts continue to focus on creating
new and improved products as well as developing more efficient processes for
producing them. The Company's research facility is located in Westbrook, Maine.
The research personnel work closely with marketing, sales and manufacturing
personnel as well as the Company's customers to respond to needs for
technological improvements and to meet market opportunities.
The Company spent approximately $15.3 million, $9.5 million, $3.0 million
and $10.7 million on research and development activities for the twelve months
ended December 25, 1993, the nine months ended September 24, 1994, the three
months ended December 20, 1994 and the nine months ended September 27, 1995,
respectively.
SUPPLY REQUIREMENTS
The principal supply requirements for the manufacture of the Company's
products are wood, pulp, energy and other supplies. The Company believes that it
has adequate sources of these and other raw materials and supplies necessary for
the manufacture of pulp and coated paper for the foreseeable future. In the
event that any of the Company's suppliers is unable to meet its demands, the
Company believes that adequate alternative suppliers or substitute materials
would be available at comparable prices.
WOOD AND PULP
In fiscal 1995, the Company manufactured approximately 65% of its pulp
requirements. This vertical integration reduces the Company's exposure to (and
ability to benefit from) fluctuations in the market price for pulp. All three of
the Company's northern mills are integrated with respect to hardwood pulp
production and the Somerset mill also has softwood pulping capability. The
Mobile, Alabama facility receives most of its pulp requirements from an adjacent
pulp mill owned by Scott. In connection with the Acquisition, the Company
entered into a long-term pulp supply agreement with Scott to supply the
Company's Mobile paper mill with its wood pulp requirements (subject to minimum
and maximum amounts) at prices generally based upon market prices, less a
discount to reflect transportation and other cost savings. Scott had previously
announced its intention to sell the Mobile pulp mill, but any sale is apparently
on hold due to the recent merger between Scott and Kimberly-Clark Corporation.
The buyer of this facility will be bound by the terms of the above-mentioned
agreement. Additional pulp requirements for the remaining mills are purchased in
the open market. In the event that any of the Company's pulp suppliers are
unable to meet its demands, the Company believes it could obtain adequate
supplies to meet its future pulp requirements.
The Company owns approximately 911,000 gross acres of timberlands in Maine,
789,400 of which are net forested acres. Approximately 433,700 of these acres
produce softwood timber, such as spruce, fir, hemlock and white pine and 355,700
acres produce hardwood timber, such as beech, birch and maple. The Company
believes it can harvest approximately 13,100 acres per year on a sustainable
basis. See "Risk Factors--Stringent Environmental Regulation; Proposed Timber
Regulation" and "Business-- Timberlands".
The Company currently offers recycled products in all coated and some
uncoated grade lines. The Company uses reprocessed fibers produced from its
existing operations and purchases post consumer waste from several suppliers to
meet market requirements for recycled products.
ENERGY REQUIREMENTS
The Company's energy requirements are satisfied through wood and by-products
derived from the Company's pulping processs (approximately 54% of the total
units of energy), coal (approximately 16%), oil (approximately 16%), purchased
steam from the Mobile utility complex (approximately 7%) and natural gas,
electricity and other (approximately 7%).
A substantial portion of the Company's electricity requirements is satisfied
through cogeneration agreements ("the Power Purchase Agreements" or
"Agreements") whereby the Somerset and Westbrook mills each cogenerate
electricity and sell the output to Central Maine Power Company ("CMP"). The
31
<PAGE>
Westbrook and Somerset Agreements require CMP to purchase such energy produced
by these cogeneration facilities at above market rates which has reduced the
Company's historical cost of electrical energy. The Westbrook Agreement expires
October 31, 1997 and the Somerset Agreement expires in the year 2012. The
favorable pricing element of the Somerset Agreement will end on November 30,
1997. The agreements also require the mills to purchase electricity from CMP at
the standard industrial tariff rate. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
Muskegon cogenerates electricity and uses the total output in its
operations. The electric utility that supplies the Muskegon mill with standby
power has filed a request with the state to raise its rates for standby power.
The Company has in the past successfully challenged such proposed rate increases
and intends to challenge this increase.
In the past, Scott operated the Mobile facility (including the Warren paper
mill, a pulp mill, a tissue mill and an energy facility) on an integrated basis.
Prior to the Acquisition, Scott sold its energy facility at Mobile and the buyer
entered into a long-term agreement with Warren to provide electric power and
steam to the paper mill.
OTHER SUPPLIES
The Company also requires substantial quantities of other supplies such as
coating clay, latex, starch and TiO(2). All of these materials are supplied by
various suppliers.
EMPLOYEES AND LABOR RELATIONS
As of July 3, 1996, the Company had 4,156 employees. Approximately 68% of
employees are represented by six international unions under ten different
contracts. Prior to the Acquisition, employees at the Company's Mobile facility
were employed under contracts with Scott. The Company negotiated new collective
bargaining agreements with the Mobile employees which were executed upon the
consummation of the Acquisition. In addition, during 1995, the Company
negotiated an initial labor agreement with employees at its Allentown,
Pennsylvania facility. The Company's contract, covering approximately 750
employees at the Somerset facility, expired September 30, 1995. The Somerset
employees are continuing to work under the terms of the expired agreement. The
Company anticipates reaching agreement on a new contract and does not expect a
work stoppage to occur. However, in the event an agreement cannot be reached and
a prolonged work stoppage that results in a curtailment of output ensues, the
Company's financial position, results of operations and cash flow could be
adversely affected. Other than the Somerset contract, there are no labor
agreements subject to renegotiation until June 1997. The Company has experienced
no work stoppage in the U.S. in the past eight years and believes that its
relationship with its employees is satisfactory.
ENVIRONMENTAL AND SAFETY MATTERS
The Company is subject to a wide variety of increasingly stringent
environmental laws and regulations relating to, among other matters, air
emissions, wastewater discharges, past and present landfill operations and
hazardous waste management. These laws include the Federal Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act and their respective
state counterparts. The Company will continue to incur significant capital and
operating expenditures to maintain compliance with applicable federal and state
environmental laws. These expenditures include costs of compliance with federal
worker safety laws, landfill expansions and wastewater treatment system
upgrades. See "Risk Factors--Stringent Environmental Regulation; Proposed Timber
Regulation".
In addition to conventional pollutants, minute quantities of dioxins and
other chlorinated organic compounds may be contained in the wastewater effluent
of the Company's bleached kraft pulp mills in Somerset and Westbrook, Maine and
Muskegon, Michigan. The most recent National Pollutant Discharge Elimination
System ("NPDES") wastewater permit limits proposed by the EPA would limit dioxin
discharges from the Company's Somerset and Westbrook mills to less than the
level of detectability. The Company is presently meeting the EPA's proposed
dioxin limits but it is not meeting the proposed limits for other parameters
(E.G., temperature and color) and is attempting to revise these other wastewater
permit limits for its facilities. While the permit limitations at these two
facilities are being challenged, the Company continues to operate under existing
EPA permits, which have technically expired, in accordance with
32
<PAGE>
accepted administrative practice. In addition, the Muskegon mill is involved, as
one of various industrial plaintiffs, in litigation with the County of Muskegon
regarding a 1994 ordinance governing the County's industrial wastewater
pretreatment program. The lawsuit challenges, among other things, the treatment
capacity availability and local effluent limit provisions of the ordinance. In
July 1996, the Court rendered a decision substantially in favor of the Company
and the other plaintiffs, but the County has appealed the Court's decision. If
the Company and the other plaintiffs do not prevail in that appeal or are not
successful in ongoing negotiations with the County, the Company may not be able
to obtain additional treatment capacity for future expansions and the County
could impose stricter permit limits. The imposition of currently proposed permit
limits or the failure of the Muskegon lawsuit could require substantial
additional expenditures, including short-term expenditures, and may lead to
substantial fines for any noncompliance.
In November 1993, the EPA announced proposed regulations that would impose
new air and water quality standards aimed at further reductions of pollutants
from pulp and paper mills, particularly those conducting bleaching operations
(generally referred to as the "cluster rules"). Although the EPA has not made
any commitments, final promulgation of portions of the cluster rules may occur
in 1996 and compliance with the rules may be required beginning in 1998. The
Company believes that compliance with the cluster rules, if adopted as currently
proposed, may require aggregate capital expenditures of approximately $76.0
million through 1999. The ultimate financial impact to the Company of compliance
with the cluster rules will depend upon the nature of the final regulations, the
timing of required implementation and the cost and availability of new
technology. The Company also anticipates that it will incur an estimated $10.0
million to $20.0 million of capital expenditures through 1999 related to
environmental compliance other than as a result of the cluster rules.
The Company's mills generate substantial quantities of solid wastes and
by-products that are disposed of at permitted landfills and solid waste
management units at the mills. The Company is currently planning to expand the
landfill at the Somerset mill at a projected total cost of approximately $12.0
million, of which approximately $5.0 million will be spent between 1996 and
1997.
The Muskegon mill has had discussions with the Michigan Department of
Natural Resources ("DNR") regarding a wastewater surge pond adjacent to the
Muskegon Lake. The DNR presently is considering whether the surge pond is in
compliance with Michigan Act 245 (Water Resources Commission Act) regarding
potential discharges from that pond. The matter is now subject to the results of
a pending engineering investigation. There is a possibility that, as a result of
DNR requirements, the surge pond may be closed in the future. The Company
estimates the cost of closure will be approximately $2.0 million. In addition,
if it is necessary to replace the functional capacity of the surge pond with
above-grade structures, the Company preliminarily estimates that up to an
additional $8.0 million may be required for such construction costs.
Warren has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage share
in each proceeding, and the number of potentially responsible parties at each
site, the Company presently believes that its aggregate exposure for these
matters will not be material. Moreover, as a result of the Acquisition, Warren's
former parent, Scott, agreed to indemnify and defend the Company for and
against, among other things, the full amount of any damages or costs resulting
from the off-site disposal of hazardous substances occurring prior to the date
of closing, including all damages and costs related to these seven sites. Since
the date of closing of the acquisition agreement, Scott has been performing
under the terms of this environmental indemnity and defense provision and,
therefore, the Company has not expended any funds with respect to these seven
sites.
The Company must comply with a number of federal and state regulations that
govern health and safety in the workplace, the most significant of which is the
Federal Occupational Safety and Health Act ("OSHA"). Pursuant to a program
sponsored by the State of Maine, in 1993, the Predecessor Corporation performed
a self-assessment audit with respect to OSHA mandates at its Somerset and
Westbrook mills and
33
<PAGE>
submitted a compliance plan to address certain health and safety matters. The
Company anticipates that the total cost of implementing the compliance plan will
be approximately $19.0 million. As of September 27, 1995, approximately $14.4
million of the total estimated $19.0 million had been expended. The Company
expects that the majority of the remaining costs will be expended during fiscal
years 1996 and 1997. The Company recognizes these costs as they are incurred.
The Company currently has a five-year demolition project in progress at its
Westbrook facility for health and safety reasons. Total costs of the project are
estimated to be approximately $9.0 million, of which approximately $4.5 million
had been spent as of September 27, 1995. The Company recognizes these costs as
they are incurred.
The Company does not believe that it will have any liability under emergency
legislation enacted by the State of Maine to cover a significant shortfall in
the Maine workers' compensation system through assessments of employers and
insurers; however, there can be no assurance that the existing legislation will
fully address the shortfall.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position,
results of operations or cash flows.
PROPERTIES
Warren's principal executive offices are located in Boston, Massachusetts.
The Company believes that its property and equipment are generally well
maintained, in good operating condition and adequate for its present needs. The
inability to renew any short-term leases would not have a material adverse
effect on the Company's financial position or results of operations.
The following table sets forth the location and use of the Company's
principal facilities, which are owned in fee unless otherwise indicated. All of
the Company's properties are pledged as collateral under Warren's Credit
Facilities (see the Notes to Financial Statements).
<TABLE>
<CAPTION>
LOCATION USE
- --------------------------- -------------------------------------------------------------------------------------
<S> <C>
Skowhegan, Maine Manufacturing facility for the manufacture of coated paper and softwood and hardwood
(Somerset Mill) pulp.
Muskegon, Michigan Manufacturing facility for the manufacture of coated paper and hardwood pulp and a
warehouse (a).
Mobile, Alabama Manufacturing facility for the manufacture of uncoated paper and specialty paper, a
warehouse, a warehouse/distribution center (b) and offices (c).
Westbrook, Maine Manufacturing facility for the manufacture of specialty paper, high bulk coated paper
and hardwood pulp. A research and development facility is also located at this site.
Allentown, Pennsylvania Coated paper sheeting facility and distribution center.
</TABLE>
- ------------------------
(a) Subject to a lease that expired in September 1996, but which has been
extended through April 1997.
(b) Subject to a lease expiring in December 2014.
(c) Subject to a lease expiring in December 2019.
TIMBERLANDS
The Company owns approximately 911,000 gross acres of timberlands in Maine,
789,400 of which are net forested acres. Approximately 433,700 of these acres
produce softwood timber, such as spruce, fir, hemlock and white pine, and
355,700 acres produce hardwood timber such as beech, birch and maple. The
Company believes that it can harvest approximately 13,100 acres per year on a
sustainable basis.
On November 5, 1996, a proposed binding referendum measure to eliminate
clearcutting in unincorporated areas in the State of Maine was defeated. A
competing measure, which could establish new forestry standards stricter than
current law, but which would not completely ban clearcutting, received a
plurality
34
<PAGE>
vote. This competing measure was supported by the Company, other major timber
interests in Maine, several environmental groups as well as the Governor of
Maine. Under Maine law, this competing measure will not automatically become law
unless it receives a simple majority of the votes cast in a special election to
be held in 1997. If this measure does become law, the consequence to the Company
is not expected to be material because such measure generally reflects
sustainable forestry initiatives that have already been voluntarily adopted by
the Company. See "Risk Factors--Stringent Environmental Regulation; Proposed
Timber Regulation".
CAPACITY
The Company currently operates four mills and a sheeting facility with total
annual production capacity of approximately 1.5 million tons of paper. The
Company's manufacturing facilities were fully utilized during the nine months
ended September 27, 1995. However, as a result of weaker market conditions, the
Company temporarily reduced production levels at certain of its manufacturing
facilities during the first quarter of this fiscal year. See "Risk
Factors--Cyclical Industry Conditions; Strong Competition"; "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
THE COMPANY
Set forth below are the names, ages (at July 3, 1996) and positions of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ------------------------------------------------------
<S> <C> <C>
Eugene van As 57 Director, Chairman of the Board
Monte R. Haymon 58 Director, President, Chief Executive Officer
James H. Frick, Jr. 57 Director, Vice President(1)
O. Harley Wood 54 Director, Vice President
William E. Hewitt 61 Director, Vice President
Trevor L. Larkan 41 Director, Chief Financial Officer, Vice President,
Treasurer, Secretary
E. Dannis Herring 43 Director, Vice President
Pablo P. Zamora 54 Vice President
Lewis W. Mohler 59 Vice President
</TABLE>
- ------------------------
(1) Mr. Frick retired as Vice President--Sales and Marketing effective August 1,
1996. Mr. Frick continues to serve as a Director of the Company and has
entered into a consulting agreement with the Company for the period August
1, 1996 through July 31, 1999. The fee for such consulting services to be
paid to Mr. Frick under such agreement is not considered significant.
Messrs. van As, Hewitt and Larkan have been Directors since December 20,
1994. Mr. Frick has been a Director since March 21, 1989. Messrs. Herring and
Wood have been Directors since March 17, 1992. Mr. Haymon has been a Director
since October 1, 1995. Directors of the Company are elected annually to serve
until the next annual meeting of stockholders of the Company and until their
successors have been elected or appointed and qualified. Executive officers are
appointed by, and serve at the direction of the Board of Directors of the
Company.
Set forth below is a brief account of the business experience of each of the
directors and executive officers of the Company.
EUGENE VAN AS served as President and Chief Executive Officer of the Company
from April 30, 1995 through September 30, 1995. Mr. van As has been Executive
Chairman of Sappi since 1991. He joined Sappi in 1977 as the Managing Director.
He is also a director of Malbak Limited, Olivetti Africa Limited, the Council
for Scientific and Industrial Research and the South African Foreign Trade
Organization.
MONTE R. HAYMON was appointed President and Chief Executive Officer of
Warren on October 1, 1995. Previously he had been President and Chief Operating
Officer of Ply-Gem Industries, and for thirteen years, President and Chief
Executive Officer of Packaging Corporation of America, a division of Tenneco. In
addition to his business experience, Mr. Haymon is a member of the Board of
Directors of Evanston Hospital, a member of the Board of Trustees of Tufts
University as well as Chairman of the Board of Overseers of the Engineering
School. Mr. Haymon is a former member of the Board of Directors of the National
Association of Manufacturers. He is also a former Trustee of both the Institute
of Paper & Science and American Forest Products Association.
JAMES H. FRICK, JR., became Vice President--Sales and Marketing in December
1994. Prior to assuming such a position, Mr. Frick held various positions with
the Company since joining the Company in 1961, including Vice President--Coated
Printing and Publishing from January 1984 through December 1994 and Vice
President/Division Manager Printing and Publishing beginning in 1975.
36
<PAGE>
O. HARLEY WOOD became Vice President--Manufacturing of Warren in March 1991.
Mr. Wood joined Scott in January 1989 as Vice President of Manufacturing
Development for its U.S. tissue businesses. Prior to joining Scott, Mr. Wood had
held various positions with Procter and Gamble since 1964.
WILLIAM E. HEWITT was appointed a non-executive director of S.D. Warren at
the time of the Acquisition. He has been the Executive Director--Finance of
Sappi since 1987. He qualified as a chartered accountant in 1957. He has held
executive financial positions in the motor, steel, transportation and retailing
sectors and was Group Financial Director, Toyota (South Africa) until 1987. Mr.
Hewitt is a director of Sappi, Limited.
TREVOR L. LARKAN, having most recently been Financial Director for Sappi
Southern Africa, a division of Sappi Limited, transferred to Warren as Vice
President and Treasurer with effect from January 1, 1995. In May 1995, Mr.
Larkan was also appointed Chief Financial Officer of the Company. A chartered
accountant, he specialized in treasury management during the early and
mid-1980s, joining Saiccor, the dissolving pulp subsidiary of Courtaulds Plc in
1986. Soon after the acquisition of Saiccor by Sappi in 1988, he was appointed
Financial and Commercial Director of that division.
E. DANNIS HERRING became Vice President--Procurement and Distribution in May
of 1995. Prior to such time, Mr. Herring held various positions with the
Company, including serving as Controller from 1992 to 1994 and as Chief
Financial Officer from March 1994 to May 1995, Mr. Herring began his career with
Scott in 1974 in Warren's Mobile, Alabama mill.
PABLO P. ZAMORA became Vice President--Research and Development for the
Company in February 1995. Prior to such time, Mr. Zamora had been with the James
River Corporation as Vice President-- Research and Development and Chief
Technology Officer. From 1984 to 1990 he held the title of Vice
President--Product Development for Tambrands, Incorporated. Mr. Zamora also held
several technical management positions during a 16-year period of employment
with Procter and Gamble.
LEWIS W. MOHLER has been Vice President and General Manager of the
Specialties business since July 1992. Prior to such time, Mr. Mohler has held
various positions with Warren since he joined the Company in 1966, including as
General Manager of the Pressure Sensitive business from 1988 to 1992.
37
<PAGE>
COMPENSATION
The following tables set forth information with respect to the compensation
of the Chief Executive Officer and the four other most highly compensated
individuals who served as officers of S.D. Warren during 1995. All references to
shares, options and stock appreciation rights ("SARs") therein refer to shares
of Scott. S.D. Warren has not granted shares, options or SARs to its employees
prior to or during the fiscal year ended September 27, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------- ------------- ALL OTHER
YEAR SALARY OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION (1)(2) ($) (#) (3)
- ------------------------------------------------------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Eugene van As............................................... 1995 $ -- $ -- $ --1995
Chief Executive Officer and President (4)
J. Richard Leaman, Jr....................................... 1995 211,074 0 0
Former Chief Executive Officer 1994 448,767 25,000(6) 504,334
and President (5) 1993 441,096 25,000 24,303
Pablo Zamora................................................ 1995 154,329 0 3,186
Vice President--Research and Development
James H. Frick.............................................. 1995 152,744 0 37,017
Vice President--Sales and Marketing (7) 1994 183,967 6,000(6) 161,924
O. Harley Wood.............................................. 1995 134,601 0 157,803
Vice President--Manufacturing 1994 173,025 6,000(6) 54,493
E. Dannis Herring........................................... 1995 121,745 0 6,807
Vice President--Procurement 1994 150,222 4,500(6) 6,707
and Distribution
</TABLE>
- ------------------------
(1) Information with respect to years prior to 1995 is being provided only for
Messrs. Leaman, Frick, Wood and Herring to the extent that information with
respect to their compensation has previously been required to be filed with
the Commission.
(2) Compensation for 1995, 1994, and 1993 is for the fiscal year December 21,
1994 through September 27, 1995, the nine months ended September 24, 1994
combined with the period September 25, 1994 through December 20, 1994, and
the twelve months ended December 25, 1993, respectively.
(3) The amounts shown under "All Other Compensation" consist of matching
contributions under the Salaried Investment Plan, imputed income for life
insurance premiums for each year shown and educational assistance payouts
plus payments made upon withdrawals of vacation accrued consisting of
$17,260 in 1993 for Mr. Leaman, $7,460 both in 1995 and 1994 for Mr. Frick,
$3,078 in 1995 and $2,532 in 1994 for Mr. Herring, and $13,310 for Mr. Wood
in 1995. In addition, the amounts shown under "All Other Compensation"
consists of bonuses associated with the sale of S.D. Warren by Scott in the
amount of $500,000 for Mr. Leaman, $150,000 for Mr. Frick and $50,000 for
Mr. Wood paid in 1994 and $140,000 paid by Scott to Mr. Wood in 1995 under a
supplemental retirement plan.
(4) From April 30, 1995 through September 27, 1995, Mr. van As, Chief Executive
Officer of Sappi Limited, served as Chief Executive Officer and President of
S.D. Warren without additional compensation, but pursuant to a management
services agreement under which Warren paid Sappi a fee.
(5) Mr. Leaman resigned from his position as Chief Executive Officer on April
30, 1995. Mr. Leaman was compensated based upon a consulting contract from
December 21, 1994 through April 30, 1995 and was therefore not an employee
during that period. Mr. Leaman was reimbursed for the increase in his state
personal income tax liability resulting from his employment in Massachusetts
upon becoming President in 1991. These amounts are not considered
significant.
38
<PAGE>
Mr. Leaman's compensation was approved by Eugene van As, Chairman of the
Board of the Company, based upon the compensation paid to him by Scott. The
compensation of the other executive officers was determined by Mr. van As
and the Company's Vice President of Human Resources, in consultation with
the Company's compensation consultant and approved by Mr. van As.
(6) All options granted by Scott in 1994 were forfeited prior to the end of 1994
in connection with the sale of Warren by Scott.
(7) Mr. Frick retired effective August 1, 1996 and will receive a distribution
pursuant to a Supplemental Executive Retirement Program in early 1997. This
amount will be treated as compensation and is not considered significant.
The following table provides information on stock option exercises during
1995 by each person named in the Summary Compensation Table, and provides
information on the number and value of stock options, both exercisable and
unexercisable, held by each such person on September 27, 1995.
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR END YEAR END
ACQUIRED ON VALUE ----------------------- -----------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------- ----------- ------------ ----------------------- -----------------------
<S> <C> <C> <C> <C>
J. Richard Leaman, Jr.............. 200,000 $ 4,481,513 0/0 0/0
James H. Frick..................... 44,000 871,600 0/0 0/0
O. Harley Wood..................... 0 0 0/0 0/0
E. Dannis Herring.................. 4,000 119,619 0/0 0/0
</TABLE>
PENSION BENEFITS
As of October 31, 1994, the Company assumed sponsorship of the portion of
the Scott qualified plans which covered employees who would continue to be
employed by the Company after the closing of the Acquisition (the "Closing
Date"). The defined benefit plan which covers the executive officers (the
"Salaried Plan") provides benefits based on a participant's years of service and
highest compensation during the final years of employment. Generally, the hourly
defined benefit plan provides covered employees with a stated amount of
retirement benefit for each year of service. The Company maintains a
Supplemental Executive Retirement Program for certain key executives. This plan
is a non-qualified deferred compensation plan.
The following table shows the estimated annual retirement benefits payable
to participants with specified amounts of compensation and years of credited
service at normal retirement age under the Salaried Plan. The estimated
retirement benefits are the amounts payable in the form of a single life annuity
and do not take into account the reduction with respect to years of credited
service after 1978 equal to a percentage (up to a maximum of 50%) of the
participant's Social Security benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE (2)
AVERAGE FINAL ----------------------------------------------------------------
COMPENSATION (1) 15 20 25 30 35 40
- ---------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$100,000.................... $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500 $ 60,000
125,000.................... 28,125 37,500 46,875 56,250 65,625 75,000
150,000.................... 33,750 45,000 56,250 67,500 78,750 90,000
200,000.................... 45,000 60,000 75,000 90,000 105,000 120,000
</TABLE>
- ------------------------
(1) A participant's "Average Final Compensation" is the average of the
participant's annual compensation in the four calendar years (whether or not
consecutive), out of the last ten years of the participant's employment, in
which the participant's annual compensation was highest. "Annual
compensation" includes salary and bonuses paid in such year. For this
purpose, years of employment with, and
39
<PAGE>
compensation paid by, Scott prior to the Acquisition are taken into account.
To comply with tax qualification requirements under the Internal Revenue
Code, annual compensation taken into account for any participant under the
Salaried Plan may not exceed $150,000. However, effective January 1, 1995,
the Company adopted a plan (the "SERP") to provide supplementary retirement
benefits where benefits are lost under the qualified plans as a result of
the statutory limitations and the benefits are reflected in the table.
Accordingly, the covered compensation of each executive officer for 1995 was
equal to the amounts of salary and bonus shown on the Summary Compensation
Table above. There also is a statutory limitation on the amount of annual
benefit which may be paid under the Salaried Plan. Benefits which accrued
under the Plan in excess of the statutory limitations are also protected
under the SERP.
(2) The named executive officers had the following full years of credited
service under the Salaried Plan as of September 30, 1995: Messrs. Frick, 34;
Wood, 6; and Herring, 21. Neither Mr. van As nor Mr. Leaman participates in
the salaried plan. The Company also adopted, effective January 1, 1995, the
Plan for Individual Deferred Compensation Arrangements in which Messrs. Wood
and Zamora participated. If Mr. Zamora remains with the Company for five
years from February 19, 1995, this Plan will pay him a supplemental benefit
as if he had an additional five years of credited service under the Salaried
Plan and five more after 10 years of employment. Mr. Wood will receive a
benefit under this Plan based upon an additional 10 years of credited
service if he is employed by the Company for five years from February 1,
1994.
In addition to the foregoing plans, the Company sponsors two collectively
bargained pension plans in the U.S. and one salaried plan in Belgium. The
collectively bargained plans provide benefits of stated amounts for each year of
credited service and the international plan provides benefits based on years of
service and compensation. No executive officer is covered by any of these other
plans.
40
<PAGE>
THE ACQUISITION
As of October 8, 1994, SDW Acquisition, a direct wholly owned subsidiary of
Holdings, entered into a definitive agreement (the "Stock Purchase Agreement")
pursuant to which, on December 20, 1994, SDW Acquisition acquired from Scott all
of the outstanding capital stock of Warren for a net cash purchase price of
approximately $1.5 billion, plus the assumption of various liabilities,
including approximately $121.9 million of outstanding indebtedness (including
capital leases) of the Company, subject to there being a Net Assets (as defined
therein) value of $1.6 billion at closing. Pursuant to the provisions of the
Stock Purchase Agreement, $75.0 million of cash was required to be on Warren's
balance sheet on the Closing Date, effectively reducing the cash purchase price
by such amount. Based on a closing Net Assets calculation delivered to the
Company by Scott pursuant to the Stock Purchase Agreement (the "Seller's Net
Assets Calculation"), the purchase price was reduced by approximately $43.6
million pursuant to a post-closing adjustment mechanism. The Company and Scott
have resolved a dispute regarding the Seller's Net Assets Calculation pursuant
to dispute procedures established in the Stock Purchase Agreement. The actual
amount of the purchase price adjustment was $48.0 million. Scott has since been
acquired by Kimberly-Clark Corporation.
The largest investor in Holdings is Sappi, which is the largest forest
products company in Africa, the third largest producer of coated free paper in
Europe and one of the world's leading pulp, paper and timber exporters. Sappi
owns and operates a number of timber processing plants and eight mills in
Southern Africa. Outside Africa, Sappi's operations include four fine paper
mills in the United Kingdom and two mills in Germany which produce coated and
uncoated free paper and specialty paper. With the S.D. Warren Acquisition, Sappi
became the largest coated free paper manufacturer in the world. Sappi is based
in Johannesburg, South Africa and employs approximately 23,000 people worldwide.
SDW Acquisition financed the Acquisition (including approximately $87.7
million of transaction expenses) with the following sources of funds: (i)
borrowings of $630.0 million under the Term Loan Facilities and initial
borrowings of $160.2 million under the $250.0 million Revolving Credit Facility,
of which $75.0 million was available for repayment following the Acquisition
with cash required to be on Warren's balance sheet at closing, (ii) the issuance
of $375.0 million of SDW Acquisition 12% Senior Subordinated Notes due 2004 (the
"SDW Acquisition Notes" and the offering thereof the "Note Offering"), (iii) the
issuance of $75.0 million in liquidation preference of SDW Acquisition 14%
Senior Exchangeable Preferred Stock due 2006 (the "SDW Acquisition Senior
Preferred Stock") as part of Units (the "Units" and the Offering thereof, the
"Unit Offering" and, together with the Note Offering, the "Offerings")
consisting of SDW Acquisition Senior Preferred Stock and Class A Warrants and
(iv) a net common equity contribution of $331.8 million from Holdings. Holdings'
common equity contribution was financed through the purchase of common equity
and Class B warrants of Holdings ("Class B Warrants") by the Investor Group, the
purchase of $37.5 million in liquidation preference of Holdings Preferred Stock
by DLJMB and UBSC and the issuance of Class A warrants of Holdings (the "Class A
Warrants") as part of the Unit Offering. The Bank Financing also included a
$220.0 million Letter of Credit Facility, pursuant to which letters of credit
were issued to support an existing letter of credit arranged by Scott and to
support the Company's obligations with respect to certain indebtedness and
capital and operating leases.
Immediately following the Acquisition, SDW Acquisition merged with and into
S.D. Warren and (i) the indebtedness outstanding under the Bank Financing and
the SDW Acquisition Notes was assumed by the Company (the "Series A Notes") and
(ii) the SDW Acquisition Senior Preferred Stock was converted into an equivalent
amount of the Company's 14% Series A Senior Exchangeable Preferred Stock due
2006 (the "Old Senior Preferred Stock").
Pursuant to an exchange offer consummated on May 31, 1995 (the "Exchange
Offer"), the Notes were issued by the Company for the Series A Notes and the
Senior Preferred Stock was issued by the Company in exchange for the Old Senior
Preferred Stock.
41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Holdings. Pursuant to the Credit
Agreement, certain guarantees and the Facilities (as defined) are secured by
security interests in all of the common stock of Warren. See "Description of the
Credit Agreement--Guarantees and Collateral Security". The following table sets
forth certain information with respect to the beneficial ownership of Common
Stock as of the date of this Prospectus. See "Risk Factors--Significant
Influence by Majority Stockholder".
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------
NAME AND ADDRESS OF NUMBER OF PERCENT OF CLASS
BENEFICIAL OWNER SHARES OUTSTANDING (1)
- ----------------------------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
Sappi Limited (2).................................................................. 26,976,561 87.80
48 Ameshoff Street
Braamfontein 2001
Republic of South Africa
DLJ Merchant Banking............................................................... 6,593,749(3) 19.28
Partners, L.P. and certain
of its affiliate
140 Broadway
New York, NY 10005
UBS Capital LLC.................................................................... 1,408,594(3) 4.47
299 Park Avenue
New York, NY 10171
</TABLE>
- ------------------------
(1) Percentages have been calculated assuming, in the case of each person or
group listed, the exercise of all warrants and options owned (which are
exercisable within 60 days following September 27, 1995) by each such person
or group, respectively, but not the exercise of any warrants or options
owned by any other person or group.
(2) Sappi's shares are held through one of its subsidiaries.
(3) Includes the following shares of Common Stock subject to Class B Warrants
(as defined): DLJMB, 3,468,749 shares and UBSC, 693,750 shares. In addition,
UBSC's ownership includes 89,844 shares of Common Stock issuable upon
exercise of Class A Warrants that UBSC purchased in connection with its
purchase of the Units.
SHAREHOLDERS AGREEMENT
The following summary of the material provisions of the Shareholders
Agreement (as defined) is qualified in its entirety by reference to the complete
text of the Shareholders Agreement, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.
In connection with the Acquisition, Sappi, an affiliate of Sappi, DLJMB,
UBSC, Holdings and the Company (as successor by merger to SDW Acquisition)
entered into a shareholders agreement, as amended (the "Shareholders
Agreement"), which contains certain agreements with respect to the capital stock
and corporate governance of Holdings and the Company following the Acquisition.
See "Risk Factors--Restrictions on the Company's Corporate Actions". The
following is a summary of the material terms of the Shareholders Agreement.
Capitalized terms used below and not otherwise defined have the meanings
assigned thereto in the Shareholders Agreement.
CORPORATE GOVERNANCE
The Board of Directors of Holdings (the "Holdings Board") will initially
consist of nine members. Sappi and its permitted transferees (the "Sappi Group")
have the right to designate a majority of the Holdings Board (initially five
directors) subject to the conditions that (a) if the Sappi Group owns less than
50% of its original holdings of Common Stock, the Sappi Group will lose such
right and will be allowed to designate two directors of the Holdings Board and
(b) if the value of the Sappi Group's original holdings of Common Stock
42
<PAGE>
is below a specified threshold, the Sappi Group will lose its right to designate
a second director. DLJMB and certain of its affiliates and their permitted
transferees (the "DLJ Group") originally had the right to designate two
directors; however, the value of the DLJ Group's original investment fell below
a specified threshold, and, as a result, the DLJ Group lost its rights to
designate a second director. UBSC and its permitted transferees (the "UBS
Group") have the right to designate one director. The chief executive officer of
the Company is also a director and does not count as a designee for any member
of the Investor Group. If any of the Sappi Group, the DLJ Group or the UBS Group
should own less than a specific percentage of the Common Stock, such group will,
subject to certain exceptions, lose all rights to designate a director, which
rights would not be regained through the subsequent acquisition of additional
shares of Common Stock other than shares acquired upon the exercise of certain
warrants acquired by such Group.
"Board Approval" generally requires the affirmative vote of at least a
majority of the directors at a duly convened meeting of the Holdings Board at
which a Quorum (as defined below) is present. "Special Board Approval" generally
requires (a) Board Approval, (b) approval by at least one DLJ Group director (if
any) and (c) approval by at least one Sappi Group director (if any).
"Extraordinary Board Approval" generally requires (a) Board Approval, (b)
approval by at least one DLJ Group director (if any), (c) approval by at least
one Sappi Group director (if any) and (d) approval by a UBS Group director (if
any). A "Quorum" of the Holdings Board (or any committee thereof) generally
requires (a) a majority of directors present to be Sappi Group directors (so
long as the Sappi Group is entitled to designate a majority of Directors to the
Holdings Board); (b) a DLJ Group director (so long as the DLJ Group is entitled
to one director); and (c) after the Sappi Group loses its right to have a
majority of its directors on the Holdings Board, a Sappi Group director (so long
as the Sappi Group is entitled to one director). There is no requirement to have
a majority of Sappi Group directors present after the Sappi Group loses its
right to have a majority of its directors on the Holdings Board.
Each of the following actions requires Extraordinary Board Approval:
(a) prior to an Initial Public Offering (as defined), any amendment of
the Certificate or Articles of Incorporation or By-laws of Holdings
or the Company; (b) approval of any annual business plan or budget of
Holdings or the Company; (c) hiring or dismissal of the chief executive
officer or chief financial officer of Holdings or the Company; (d) certain
issuances of capital stock of Holdings or the Company (or issuances of
securities exchangeable, convertible or exercisable for such capital stock);
(e) any merger or similar transaction involving (i) Holdings or (ii) the
Company (but only if the Company is not the surviving corporation); (f) any
sale of Holdings or the Company; (g) any sale of all or substantially all
the assets of Holdings or the Company; (h) any transaction, contract or
arrangement with an affiliate of Holdings or with a Shareholder (as defined)
(or an affiliate thereof) if such transaction is not in the business plan or
budget (and identified therein as an affiliate transaction) and involves an
amount in excess of $1 million (Board Approval is required for certain
transactions that involve $1 million or less); (i) entering into the
marketing agreements referred to below under "--Miscellaneous Provisions";
(j) the grant of any registration or similar rights to any person other than
various rights granted in connection with the Acquisition and (k) the
selection of the managing underwriters in connection with any Underwritten
Public Offering.
Each of the following transactions requires the approval specified below:
(a) any merger involving (i) the Company where it is the surviving entity
or (ii) any subsidiary of the Company; (b) any sale of a subsidiary
of the Company or any division of the Company; (c) any sale of substantially
all the assets of any subsidiary or division of the Company; (d) any change
in the capital structure (including the incurrence of indebtedness) of
Holdings or the Company or any subsidiary thereof; (e) any appointment or
dismissal of auditors and principal legal counsel of Holdings or the
Company; (f) any voluntary filing of or failure to oppose a bankruptcy
petition; (g) compensation of the chief executive officer of Holdings or the
Company and (h) any declaration or payment of any dividend by Holdings if
not paid out of earnings (other than dividends on common stock of the
Company so long as Holdings owns 100% of such common stock and dividends on
Holdings Preferred Stock or Senior Preferred Stock). Any transaction
described in (e) through (h) above requires Special Board Approval.
43
<PAGE>
Any transaction described in clauses (a) through (d) above requires Special
Board Approval if it involves more than $50 million or if it involves more
than $25 million and is not specifically set forth in an approved budget or
business plan. Any such transaction requires Board Approval if it involves
more than $20 million or if it involves more than $10 million and is not
specifically set forth in an approved budget or business plan. In addition,
Special Board Approval is required for any contract involving the receipt or
expenditure of more than $20 million in any one year or more than $50
million over the term of the contract.
In addition to the transactions that are described in the preceding
paragraph as requiring Board Approval, the following transactions require Board
Approval: (a) any declaration or payment of any dividend or distribution by
Holdings or the Company if paid out of earnings (other than dividends on Company
common stock so long as Holdings owns 100% of such common stock); (b)
compensation of the chief financial officer of Holdings or the Company; and (c)
election or appointment of the members of the Company's Board of Directors.
Board Approval is also required for any other contract involving the receipt or
expenditure of more than $10 million in any one year or more than $25 million
over the term of the contract and for certain transactions, contracts or
arrangements with an affiliate of Holdings or with any Shareholder (or any
affiliate thereof).
PREEMPTIVE RIGHTS
Except in certain circumstances, upon any issuance of Common Stock
Equivalents (as defined) of Holdings, the Sappi Group, the DLJ Group and the UBS
Group have preemptive rights with respect to such Common Stock Equivalents.
TRANSFER RESTRICTIONS
Except for certain permitted dispositions, members of the Sappi Group may
not transfer any Shares (as defined) until the earlier of an Initial Public
Offering by Holdings or December 20, 1997 (the earlier of such dates, the
"Restriction Termination Date"). After the Restriction Termination Date, members
of the Sappi Group may transfer Shares as follows: transfers in a public
offering upon exercise of registration rights; transfers pursuant to Rule 144 of
the Securities Act (subject, in certain circumstances, to certain "first offer"
and "tag along" rights); transfers (subject to certain "first offer" and "tag
along" rights) to a person who becomes a party to the Shareholders Agreement and
who is not an Adverse Person (as defined); and transfers pursuant to certain
specified pledge arrangements. Shareholders who are not members of the Sappi
Group (collectively, the "Minority Shareholders")may transfer Shares as follows:
subject to certain restrictions, transfers in a public offering upon exercise of
registration rights; transfers pursuant to Rule 144 (subject, in certain
circumstances, to certain "first offer" and "tag along" rights); transfers
pursuant to "tag along" rights; and transfers (subject to certain "first offer"
and "tag along" rights) to a person who becomes a party to the Shareholders
Agreement and who is not an Adverse Person. Members of the Sappi Group may
participate in such Initial Public Offering only after the Minority Shareholders
have participated to the fullest extent requested by such Minority Shareholders.
After June 18, 1998, the DLJ Group or the UBS Group may, under certain
circumstances, transfer the right to designate a director of Holdings (but not
any Special Approval or Extraordinary Approval rights). Any Shareholder may
transfer Shares to a Permitted Transferee (as defined) who is not an Adverse
Person and who becomes a party to the Shareholders Agreement or to Sappi
(subject to certain "tag along" rights) or any of its Permitted Transferees.
RIGHT OF FIRST OFFER
If either (i) any Minority Shareholder proposes to transfer any Shares to
any Person other than to one of its Permitted Transferees or to Sappi or any of
its Permitted Transferees or (ii) any member of the Sappi Group proposes to
transfer any Shares other than to one of its Permitted Transferees, such
Shareholder (the "Selling Shareholder") is required to offer to sell such
securities to certain other Shareholders party to the Shareholders Agreement and
Holdings. Sales of Shares to a Permitted Transferee of the seller or to Sappi or
any of its Permitted Transferees are not subject to these first offer
provisions.
44
<PAGE>
PARTICIPATION RIGHTS
Under certain circumstances, if a member of the Sappi Group proposes to
transfer any Shares, it must offer the Minority Shareholders the right to
participate in such transfer. In addition, under certain circumstances, if any
member of the DLJ Group or the UBS Group is selling equity securities of
Holdings or the Company it must offer members of the group whose member is not
the selling Shareholder a right to participate in such sale.
REGISTRATION RIGHTS
Members of the Sappi Group, the DLJ Group and the UBS Group have the right,
subject to certain limitations, to require Holdings to register all or a portion
of their Registrable Stock (as defined) under the Act by giving written notice
to Holdings of such demand (a "Demand Registration"). Subject to certain
limitations, the Sappi Group and the DLJ Group each have the right to make up to
three Demand Registrations and the UBS Group has the right to make one Demand
Registration. The Shareholders Agreement also grants members of the DLJ Group
the right, under certain circumstances, to transfer one demand right to a
transferee of shares of Common Stock, subject to certain limitations. Holdings
has agreed to pay all reasonable expenses incurred in connection with the first
two Demand Registrations effected pursuant to the Shareholders Agreement. If a
Demand Registration involves an underwritten public offering, any underwriters
involved in such offering have the right, subject to certain limitations, to
limit the Registrable Stock included in such registration, in which case
Shareholders requesting the Demand Registration shall, subject to certain
exceptions, have priority over Shareholders exercising piggyback rights
(described below).
In addition, under certain circumstances, Shareholders holding Class B
Warrants can require registration by Holdings to permit the exercise of such
Class B Warrants.
PIGGYBACK RIGHTS
Under certain circumstances, if Holdings registers Common Stock under the
Act, each Shareholder (and certain transferees of members of the DLJ Group and
UBS Group) will have the right, subject to certain limitations, to require
Holdings to include such Shareholder's (or transferee's) Registrable Stock in
such registration.
MISCELLANEOUS PROVISIONS
If certain of Sappi's foreign operations intend to sell products into the
United States that are the same as or substantially similar to, or compete with,
the Company's products, they will, subject to certain exceptions, be required to
enter into an arms' length marketing agreement with the Company, and if the
Company intends to sell products outside of the United States and Canada, it
will, subject to certain exceptions, be required to enter into arms' length
marketing agreements with affiliates of Sappi. Each Shareholder has agreed not
to use Confidential Information (as defined) in any way that is reasonably
likely to result in a material detriment to the business of the Company in the
United States or to the business of Sappi and its affiliates outside the United
States. Moreover, each Shareholder has agreed not to disclose Confidential
Information, subject to certain limitations (including that members of the Sappi
Group may disclose Confidential Information to Sappi and its affiliates in the
ordinary course of business).
Any amendment to the Shareholders Agreement requires the approval of
Holdings (with Board Approval) and representatives of the Sappi Group, the DLJ
Group and the UBS Group (but only so long as a Group is entitled to designate
one director, subject to certain exceptions) but not the approval of the
Company.
TERMINATION
The Shareholders Agreement terminates on the earliest of (a) the tenth
anniversary of such Agreement unless earlier terminated, (b) subject to certain
exceptions, the merger, consolidation or sale of substantially all of the assets
of Holdings, (c) on the date on which none of the Sappi Group, the DLJ Group or
the UBS Group is entitled to designate a member of the Board or (d) written
agreement among Holdings, the Sappi Group (if it is entitled to designate a
member of the Board), the DLJ Group (if it is entitled to designate a member of
the Board) and the UBS Group (if it is entitled to designate a member of the
Board).
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE COMPANY'S MOBILE FACILITY: ARRANGEMENTS WITH SCOTT
The Company's Mobile, Alabama paper mill was historically operated by Scott
as part of an integrated facility (including a tissue mill, a pulp mill and
energy facility). In connection with the Acquisition, the Company entered into
long-term (25 years initially, subject to mill closures and certain FORCE
MAJEURE events) supply agreements with Scott for the supply of pulp and water
and the treatment of effluent at the Mobile facility. Wood pulp will be supplied
generally at market prices. Pulp prices will be discounted, primarily because of
the lower delivery costs due to the elimination of freight costs associated with
delivering pulp to Warren's Mobile paper mill and pulp quantities will be
subject to minimum (170,000 to 182,400 tons per year) and maximum (220,000 to
233,400 tons per year) limits. Prices for other services to be provided by Scott
will generally be based upon cost. Prior to the Acquisition, Scott sold its
energy facility at Mobile to Mobile Energy Services Corporation ("MESC"). In
connection with the sale of the energy facility, MESC entered into a long-term
agreement with Warren to provide electric power and steam to the paper mill at
rates generally comparable to market tariffs, including fuel cost and capital
recovery components. Scott, MESC and Warren have also entered into a long-term
shared facilities and services agreement (the "Shared Facilities Agreement")
with respect to medical and security services, common roads and parking areas,
office space and similar items and a comprehensive master operating agreement
providing for the coordination of services and integration of operations among
the energy facility, the paper mill, the pulp mill and the tissue mill. Annual
fees under the Shared Facilities Agreement are expected to be approximately $1.5
million per year through the 25-year term of the agreement. Warren has the
option to cancel certain nonessential services covered by the Shared Services
Agreement at any time prior to the end of the 25-year term. Scott had previously
announced its intention to sell the Mobile pulp mill, but any sale is apparently
on hold due to the recent merger between Scott and Kimberly-Clark Corporation.
The buyer of the mill will be bound by the terms of the above-mentioned
agreements.
SHAREHOLDERS AGREEMENT
In connection with the Acquisition, Sappi, one of Sappi's affiliates, DLJMB
(an affiliate of DLJSC), UBSC, Holdings and the Company (as successor by merger
to SDW Acquisition) entered into a Shareholders Agreement. See "Security
Ownership of Certain Beneficial Owners and Management--Shareholders Agreement".
INVESTOR GROUP AGREEMENTS
The Company paid certain sponsor fees, reimbursed expenses for and provided
indemnification to, members of the Investor Group in connection with the
Acquisition and the financing thereof. Sappi received a sponsor fee in the
amount of $3,752,543 and UBSC received a sponsor fee in the amount of $553,753.
In addition, DLJSC, an affiliate of DLJMB, received a sponsors fee in the amount
of $2,768,766. The Company pays a yearly advisory fee to Sappi and/or its
Affiliates of up to $1.0 million. As a result of this fee, Sappi and its
Affiliates generally will not charge the Company for time spent on Company
matters by the senior executive officers of Sappi and its Affiliates or for
related travel and out-of-pocket expenses.
TRANSACTIONS INVOLVING DLJMB AND UBSC
In connection with the Acquisition (i) DLJMB purchased for an aggregate
consideration of $65.0 million, $31.25 million in liquidation preference of
Holdings Preferred Stock, Class B Warrants to acquire 3,593,749 shares of Common
Stock, and 3,125,000 shares of Common Stock; (ii) UBSC, purchased for an
aggregate consideration of $20.2 million, $6.25 million in liquidation
preference of the Holdings Preferred Stock, Class B Warrants to acquire 718,750
shares of Common Stock, 625,000 shares of Common Stock and 300,000 Units; (iii)
DLJSC provided investment banking services to Holdings and Warren in connection
with the offering of 2,700,000 Units, for which it received a customary
underwriting discount; and (iv) an affiliate of DLJMB provided a standby bridge
loan commitment for which it received approximately $5.6 million and was
reimbursed for expenses.
46
<PAGE>
Following the Acquisition, the Units became separately transferable. On July
6, 1995, DLJMB sold all of its Holdings Preferred Stock and 125,000 Class B
Warrants and UBSC sold all of its Holdings Preferred Stock and 25,000 Class B
Warrants.
TRANSACTIONS WITH RELATED PARTIES
Pursuant to the limitations on restricted payments outlined in the Credit
Agreement, the Indenture and the Senior Preferred Stock, the Company may make
cash payments to Holdings, including, among other things, (i) amounts under a
tax sharing agreement to be entered into between the Company and Holdings
necessary to enable Holdings to pay the Company's taxes and (ii) administrative
fees to Holdings and amounts to cover various specified costs and expenses of
Holdings. The associated administrative fee incurred by the Company during the
nine months ended July 3, 1996 was approximately $0.8 million.
The Company has contracted through a management services agreement (the
"Management Services Agreement") and central cost allocation agreement (the
"Central Cost Allocation Agreement") with two subsidiaries of Sappi, Sappi
International Management AG ("SIM") and Sappi Management Services Limited
("SMS"), to provide management advisory services. The aggregate fee to be
charged to the Company by SIM and SMS is limited to an annual amount of $1.0
million. For the nine months ended July 3, 1996, the Company incurred a related
management fee expense of approximately $0.8 million.
The Management Services Agreement with SIM establishes an agreement whereby
SIM provides strategic and corporate planning advice, financial and legal
services and services relating to public affairs and human resources. The
Company agrees to pay a service fee to SIM which is determined based upon the
Company's proportionate share in the aggregate amount of costs which SIM incurs
in providing services to the entire number of group companies which have entered
into agreements of this nature with SIM, plus a profit mark-up of 10%. The
Company's proportionate share is based upon the time spent on Company services
divided by total time spent by SIM on total group company services. This
agreement commenced on January 1, 1995 and is effective until terminated by
either party with six months' written notice.
The Central Cost Allocation Agreement with SMS provides for general
technical and administrative support services to supplement the services
provided by SIM. The Company has agreed to pay a service fee to SMS which is
determined based upon the Company's proportionate share in the aggregate amount
of costs which SMS incurs in providing services to the entire number of group
companies which have entered into agreements of this nature with SMS, plus a
profit mark-up of 10%. The Company's proportionate share is based upon the
Company's inventory turnover divided by total inventory turnover of SMS group
companies. This agreement commenced on January 1, 1995 and is effective until
terminated by either party with six months written notice.
Warren has also entered into a cross licensing agreement with Sappi
Deutschland, the worldwide holding company for all European and U.S. business
operations of the Sappi group and the entity through which Sappi holds its
interest in Holdings, and Hannover Papier AG ("Hannover"), a subsidiary of
Sappi. Pursuant to this agreement, the Company and Hannover have agreed to enter
into specific written agreements to share paper processing techniques and have
also agreed to enter into specific distribution agreements whereby the Company
has agreed to use its distribution network in the United States to facilitate
and increase Hannover's exports. Sappi Deutschland will facilitate the licensing
process. No specific agreements have been entered into in connection with this
cross licensing agreement as of July 3, 1996.
The Company sells products to certain Sappi subsidiaries (primarily Sappi
Europe, SA, Specialty Pulp Services and U.S. Paper Corporation) at market rates.
These subsidiaries then sell the Company's products to external customers and
remitted the proceeds from such sales to Warren, net of a sales commission. For
the nine months ended July 3, 1996, the Company sold $71.1 million of products
to Sappi subsidiaries and expensed fees of approximately $4.3 million relating
to such sales. Trade accounts receivable at July 3, 1996 include approximately
$24.3 million due from subsidiaries of Sappi. The Company is in the process of
formalizing written agreements for these relationships. See "Risk
Factors--Control by Majority Stockholder".
47
<PAGE>
During fiscal year 1996, the Company began purchasing products from certain
affiliates in U.S. Dollars primarily for sale to external customers. The Company
receives commissions from the affiliates on such sale. These transactions to
date have not been material.
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued pursuant to an indenture between SDW Acquisition and
The Bank of New York, as trustee (the "Trustee") dated as of December 20, 1994
(the "SDW Acquisition Indenture") as amended by the supplemental indenture
between the Company and the Trustee dated as of December 20, 1994 (the
"Supplemental Indenture" and, with the SDW Acquisition Indenture, the
"Indenture"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part. The terms 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 amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture is qualified
in its entirety by reference to the Indenture, including the definitions therein
of certain terms used below, and the Trust Indenture Act. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions".
The Notes are general unsecured obligations of the Company, rank senior in
right of payment to or PARI PASSU in right of payment with all future
subordinated Indebtedness of the Company (including the Exchange Debentures, if
issued) and rank junior in right of payment to all existing and future Senior
Debt of the Company. See "--Subordination".
As of the date of this Prospectus, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on December 15, 2004. Interest on the Notes will
accrue at the rate of 12% per annum and will be payable semi-annually in arrears
on each June 15 and December 15, to Holders of record on the immediately
preceding June 1 and December 1. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest, if any, on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or, at
the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes were issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the Company's option prior to December 15, 1999. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -----------
<S> <C>
1999.................................................................... 104.500%
2000.................................................................... 103.000%
2001.................................................................... 101.500%
2002 and thereafter..................................................... 100.000%
</TABLE>
48
<PAGE>
On or prior to December 15, 1997, the Company may redeem from time to time
up to $130.0 million in aggregate principal amount of Notes at a redemption
price of 111.0% of the principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date, with the net proceeds of one or more
public offerings of common stock of Holdings; PROVIDED that at least $245.0
million in aggregate principal amount of Notes remain outstanding immediately
after such redemption; and PROVIDED FURTHER that such redemption shall occur
within 45 days of the date of the closing of any such public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED
that no Notes of $1,000 or less shall be redeemed in part. Notices 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 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
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SUBORDINATION
The payment of principal, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the Issue Date or
thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
winding up, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, in each such case whether voluntary or
involuntary, domestic or foreign, the holders of Senior Debt of the Company will
be entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding in
accordance with the terms of the applicable Senior Debt, whether or not such
interest is an allowed claim enforceable against the debtor in a bankruptcy case
under Title 11 of the United States Code) before the Holders of Notes will be
entitled to receive any payment (including any payment or other distribution
that may be payable by reason of the payment of any other Indebtedness of the
Company (including, without limitation, the Exchange Debentures) being
subordinated to the payment of the Notes) with respect to the Notes, and until
all Obligations with respect to Senior Debt of the Company are paid in full, any
such distribution to which the Holders of Notes would be entitled shall be made
to the holders of such Senior Debt (except that so long as the Notes are not
treated in any case or proceeding or other event described above as part of the
same class of claims as the Senior Debt or any class of claim on a parity with
or senior to the Senior Debt for any payment or distribution, Holders of Notes
may receive securities that are subordinated at least to the same extent as the
Notes to Senior Debt of the Company and any securities issued in exchange for
such Senior Debt and that are authorized by an order or decree of a court of
competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy, insolvency or similar law which gives effect to the subordination of
the Notes to Senior Debt in a manner and with an effect which would be required
if this parenthetical clause were not included in this paragraph; PROVIDED that
the Senior Debt is assumed by the new corporation, if any, resulting from any
such reorganization or readjustment and issuing such securities.).
The Company also may not make any payment upon or in respect of the Notes
whether on account of principal, interest, premiums or otherwise (except in such
subordinated securities) if: (i) a default in the payment of the principal of,
premium, if any, or interest on any Senior Debt occurs and is continuing beyond
any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated
49
<PAGE>
Senior Debt or would occur as a consequence of such payment that permits holders
of the Designated Senior Debt as to which such default relates to accelerate its
maturity without further notice (except such notice as may be required to effect
such acceleration) or lapse of time and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or any representative of
the holders of any such Designated Senior Debt (including the administrative
agent under the Credit Agreement). Payments on the Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a non-payment default, the earlier
of the date on which such non-payment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated and not
paid. No new period of payment blockage may be commenced within 365 days after
the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt of the Company if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. At July 3, 1996, the
aggregate principal amount of Senior Debt of the Company was $567.2 million. The
Indenture limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock".
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Change of Control Payment").
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder stating: (1) that the Change of Control Offer is being made
pursuant to the covenant entitled "Change of Control" and that all Notes
properly tendered will be accepted for payment; (2) the purchase price and the
purchase date, which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"); (3) that
any Note not properly tendered will continue to accrue interest; (4) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date; (5) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, or transfer the Notes by
book-entry, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding 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 close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Notes purchased; and (7) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered
(or transferred by book-entry), which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful: (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together
50
<PAGE>
with an Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Paying Agent will promptly
mail to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book-entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; PROVIDED that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture provides that, prior to complying with the provisions of
this covenant, but in any event within 90 days following a Change of Control,
the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of Notes required by this covenant. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Credit Agreement prohibits the Company from purchasing any Notes and
also provides that a Change of Control will constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1 and Rule 13e-4, in connection
with any offer required to be made by the Company to repurchase the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with 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 Indenture by
virtue thereof.
The provisions relative to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the Holders of a majority in principal
amount of the Notes.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in an Asset Sale unless: (i) the Company
(or such Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (as
determined by the Board of Directors) of the assets sold or otherwise disposed
of and (ii) at least 85% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of Cash Equivalents; PROVIDED that
the amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets and (y) any notes or other obligations received by
the Company or any such Restricted Subsidiary from such transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) shall be deemed to be Cash Equivalents for
purposes of this provision.
Within one year after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option: (a) to permanently
reduce borrowings under the Credit Agreement or repay, prepay or purchase any
other Senior Debt of the Company or any Guarantor (and, in the case of revolving
51
<PAGE>
credit borrowings, to correspondingly permanently reduce commitments with
respect thereto) or (b) to an Investment in another business, the making of a
capital expenditure or the acquisition of long-term/tangible assets, in each
case, in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce revolving credit borrowings under
the Credit Agreement or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $25.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1 and Rule 13e-4, in connection
with any offer required to be made by the Company to repurchase the Notes as a
result of an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with 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 Indenture by
virtue thereof.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution (or payment of fees or other amounts in lieu
thereof) on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable (A) to the Company or any Wholly Owned Restricted
Subsidiary of the Company that is a Guarantor or (B) pro rata to all holders of
Capital Stock of a Restricted Subsidiary of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any Restricted Subsidiary or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company that is a Guarantor); (iii) purchase, redeem or otherwise acquire
or retire for value any Indebtedness that is PARI PASSU with or subordinated to
the Notes (other than Notes), except at final maturity or in accordance with the
mandatory redemption or repurchase provisions set forth in the original
documentation governing such Indebtedness; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of such Restricted Payment:
(a) no Default shall have occurred and be continuing or would occur as a
consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (including Restricted Payments
52
<PAGE>
permitted by clauses (i), (ii) and (xvi) of the next succeeding paragraph
but excluding Restricted Payments permitted by clauses (iii) through (xv),
(xvii) and (xviii) of the next succeeding paragraph), is less than the sum
(without duplication) of:
(A) 50% of the Consolidated Net Income of the Company (determined by
excluding amounts included in clause (D)) for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit);
(B) 100% of the aggregate net cash proceeds received by the Company
from the issue or sale after the Issue Date of Equity Interests
of the Company or of debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock);
(C) the aggregate cash received by the Company after the Issue Date
as capital contributions to the Company; and
(D) the amount of the net reduction in Investments in Unrestricted
Subsidiaries resulting from (1) the payment of cash dividends or
the repayment in cash of the principal of loans or the cash return on any
Investment, in each case to the extent received by the Company or any
Wholly Owned Restricted Subsidiary of the Company from Unrestricted
Subsidiaries, (2) to the extent that any Restricted Investment that was
made after the Issue Date is sold for cash or otherwise liquidated or
repaid for cash, the after-tax cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (3)
the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued as provided in the definition of "Investment"), such aggregate
amount of the net reduction in Investments not to exceed in the case of
any Unrestricted Subsidiary, the amount of Restricted Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments.
The foregoing provisions will not prohibit: (i) the making of any Restricted
Payment within 60 days after the date of declaration thereof or the making of
any binding commitment in respect thereof, if at said date of declaration or
commitment such Restricted Payment would have complied with the provisions of
the Indenture; (ii) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of the Company, or the defeasance, redemption or
repurchase of PARI PASSU or subordinated Indebtedness in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than any Disqualified
Stock) or out of the proceeds of a substantially concurrent cash capital
contribution received by the Company; (iii) the defeasance, redemption or
repurchase of PARI PASSU or subordinated Indebtedness with the net proceeds from
an Incurrence of Indebtedness permitted by the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) the
repurchase, redemption or other acquisition or retirement for value of (or
payments to Holdings which are used by Holdings to repurchase, redeem or
otherwise acquire or retire for value) any Equity Interests of Holdings held by
employees of Holdings, the Company or its Subsidiaries pursuant to any employee
equity subscription agreement, stock incentive agreement or stock ownership
arrangement; PROVIDED that (A) the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$5.0 million in any twelve-month period plus the aggregate cash proceeds
received by the Company during such twelve-month period from any reissuance of
Equity Interests of Holdings to employees of Holdings, the Company and its
Subsidiaries and (B) no Default shall have occurred and be continuing
immediately after such transaction; (v) the defeasance, redemption or repurchase
of PARI PASSU or subordinated Indebtedness with Excess Proceeds to the extent
such Excess Proceeds may be used for general corporate purposes as described
under "Repurchase at the Option of Holders-- Asset Sales"; (vi) the issuance of
the Exchange Debentures in exchange for the Senior Preferred Stock;
53
<PAGE>
(vii) the payment of (A) a Restricted Payment to Holdings promptly following the
Merger to be used by Holdings to pay Transaction Costs, (B) an administrative
fee to Holdings in an amount not to exceed $2.0 million in any calendar year and
(C) a yearly advisory fee to Sappi and/or its Affiliates of $1.0 million in lieu
of charges to the Company for time spent on Company matters by the senior
executive officers of Sappi and its Affiliates or for related travel and
out-of-pocket expenses; PROVIDED that no such payments in clause (B) above shall
be paid to Affiliates of Holdings; (viii) Restricted Investments in an aggregate
amount outstanding not to exceed $10.0 million; (ix) the payment of
distributions to Holdings pursuant to the Tax Sharing Agreement; (x) in the
event that the Company elects to issue the Exchange Debentures in exchange for
the Senior Preferred Stock, any cash payments made in lieu of the issuance of
Exchange Debentures having a face amount less than $1,000 and any cash payments
representing accrued and unpaid Liquidated Damages and dividends and, in the
event that Holdings elects to issue Holdings Debentures in exchange for the
Holdings Preferred Stock, a Restricted Payment to Holdings in an amount equal to
any cash payments by Holdings made in lieu of the issuance of Holdings
Debentures having a face amount less than $1,000 and any cash payments by
Holdings representing accrued and unpaid Liquidated Damages and dividends; (xi)
in the event that the Company pays any interest in kind with respect to the
Exchange Debentures, any cash payments made in lieu of fractional Exchange
Debentures with respect thereto and, in the event that Holdings pays any
interest in kind with respect to the Holdings Debentures, a Restricted Payment
to Holdings in an amount equal to any cash payments by Holdings in lieu of
fractional Holdings Debentures with respect thereto; (xii) upon exercise of the
Warrants, a Restricted Payment to Holdings equal to any cash payments made by
Holdings in lieu of the issuance of fractional Warrant Shares; (xiii) the
repurchase of the Senior Preferred Stock in accordance with the terms thereof
upon the occurrence of a Change of Control and a Restricted Payment to Holdings
equal to the amount required to be paid by Holdings to repurchase the Holdings
Preferred Stock in accordance with the terms thereof upon the occurrence of a
Change of Control; (xiv) the purchase, repurchase or other acquisition of PARI
PASSU or subordinated Indebtedness purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each case
due within 12 months of the date of acquisition; (xv) payments permitted by
clauses (v) and (ix) of the covenant described under the caption "--Transactions
with Affiliates"; (xvi) an Investment in a joint venture at least 50% owned by
the Company where the consideration for such Investment consists of existing
coating, laminating or finishing machines at the Company's Westbrook, Maine and
Mobile, Alabama facilities; provided that such joint venture does not Incur or
at any time have outstanding any Indebtedness (other than Indebtedness
consisting of a Lien on such machines to secure Indebtedness under the Credit
Agreement); (xvii) an Investment in an amount up to $15.0 million for the
development of a de-inked fiber facility and businesses related thereto being
sponsored by the Bronx Community Paper Company; and (xviii) a Restricted Payment
to Holdings equal to any cash payments made by Holdings representing liquidated
damages under the Warrant Agreement.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Debt) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
Preferred Stock; PROVIDED that the Company or any Guarantor may Incur
Indebtedness (including Acquired Debt) or the Company may issue Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is Incurred
or such Disqualified Stock is issued would have been at least (a) 1.75 to 1 if
such Indebtedness is Incurred or such Disqualified Stock is issued on or prior
to December 15, 1997 and (b) 2.0 to 1 thereafter.
54
<PAGE>
The foregoing provisions will not apply to:
(i)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness under the revolving credit facility contained in the
Credit Agreement or any other revolving credit facility; PROVIDED that the
aggregate principal amount of such Indebtedness outstanding at any time
shall not exceed $250.0 million;
(ii)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness under the term loan facility contained in the Credit
Agreement in an aggregate principal amount at any time outstanding not to
exceed $630.0 million, less the aggregate amount of all repayments of
principal, optional or mandatory, with respect to such Indebtedness that
have been made since the Issue Date;
(iii)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness under the letter of credit facility contained in the
Credit Agreement in an aggregate principal amount (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Restricted Subsidiaries thereunder) at any
time outstanding not to exceed the lesser of (A) $220.0 million, less the
aggregate amount of all commitment reductions, optional or mandatory, with
respect to such Indebtedness that have been made since the Issue Date and
(B) the outstanding amount of the Obligations supported by such letter of
credit facility;
(iv)
the Incurrence by the Company or any of its Restricted Subsidiaries
of the Existing Indebtedness;
(v)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by the Notes or any Guarantee of the
Notes, respectively;
(vi)
the Incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, including obligations with respect to industrial
revenue bonds to construct new facilities, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company
or such Guarantor, in an aggregate principal amount not to exceed $50.0
million at any time outstanding;
(vii)
the Incurrence by the Company or any Guarantor of Indebtedness
consisting of Attributable Debt in an aggregate amount not to exceed
$50.0 million at any time outstanding;
(viii)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be Incurred;
(ix)
the Incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries that is a Guarantor;
(x)
the Incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations with respect to Indebtedness of such entity
permitted by the terms of the Indenture to be outstanding; and
(xi)
the Incurrence by the Company or any Guarantor of Indebtedness (in
addition to Indebtedness permitted by any other clause of this
paragraph or by the first paragraph of this covenant) in an aggregate
principal amount at any time outstanding not to exceed $75.0 million.
For purposes of determining any particular amount of Indebtedness under the
foregoing covenant, Guarantees, liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included. For purposes of determining compliance
with the foregoing covenant, (A) in the event that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness described above, the
Company, in its sole discretion, will classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
the above clauses, (B) an item of Indebtedness may be split between more than
one of the types of Indebtedness
55
<PAGE>
described above and Indebtedness under the Credit Agreement, in excess of the
amounts permitted under clauses (i), (ii) and (iii) above, may be Incurred under
any of the other categories of permitted Indebtedness and (C) the amount of
Indebtedness issued at a price that is less than or greater than the principal
amount thereof will be equal to the amount of the liability in respect thereof
determined in conformity with GAAP.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Liens upon any of their respective assets to secure, directly or indirectly, any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated
(pursuant to its terms) in right and priority of payment to any other
Indebtedness of the Company or such Restricted Subsidiary, unless the Notes are
equally and ratably secured for as long as such secured Indebtedness is so
secured; PROVIDED that if such subordinated Indebtedness is subordinated
(pursuant to its terms) in right and priority of payment to the Notes or any
Restricted Subsidiary's obligation under its Guarantee of the Notes, as the case
may be, the Lien securing such subordinated Indebtedness shall be subordinate to
the Lien securing the Notes or such Restricted Subsidiary's obligation under its
Guarantee, as the case may be, with the same relative priority as such
subordinated Indebtedness shall have with respect to the Notes or such
Restricted Subsidiary's obligation under its Guarantee, as the case may be;
PROVIDED FURTHER that this clause shall not be applicable to any Liens arising
from any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which Lien is not
applicable to the Company or any of its Restricted Subsidiaries, or the
properties or assets of the Company or any of its Restricted Subsidiaries, other
than the Person, or the property or assets of the Person, so acquired, and any
amendments, modifications, restatements or renewals thereof; PROVIDED that such
amendments, modifications, restatements or renewals do not give rise to Liens on
any assets other than assets encumbered by Liens arising under agreements as in
effect at the time of such acquisition.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to: (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the Issue Date and any amendments, modifications,
restatements or renewals thereof; PROVIDED that such amendments, modifications,
restatements or renewals are no more restrictive with respect to such dividend
and other payment restrictions than those contained in the applicable agreements
as in effect on the Issue Date, (b) the Credit Agreement and related collateral
documents as in effect on the Issue Date, and any amendments, modifications,
restatements, refundings, replacements restructurings or refinancings thereof;
PROVIDED that such amendments, modifications, restatements, refundings,
replacements, restructurings or refinancings are no more restrictive with
respect to such dividend and other payment restrictions than those contained in
the Credit Agreement and related collateral documents as in effect on the Issue
Date, (c) the Indenture and the Notes and any amendments, modifications,
restatements or renewals thereof, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, and any
amendments, modifications, restatements or renewals thereof; PROVIDED that such
amendments, modifications, restatements or renewals are no more restrictive with
respect to such dividend and other payment restrictions than those contained in
the applicable agreements as in effect at the time of such acquisition, (f) by
reason of customary non-assignment
56
<PAGE>
provisions in leases entered into in the ordinary course of business, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (h) Permitted Refinancing Debt; PROVIDED that the
restrictions with respect to such dividend and other payment restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (i) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the capital stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; PROVIDED
that such sale would not violate the Indenture, or (j) in the case of clause
(iii), restrictions contained in the security agreements securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such agreements.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless: (i) the resulting, surviving or transferee person (the "Successor
Company") is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the Successor
Company (if other than the Company) assumes all the obligations of the Company
under the Notes, and the Indenture and the Registration Rights Agreements
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default exists; and (iv)
the Successor Company (A) will have Consolidated Net Worth (immediately after
the transaction on a pro forma basis but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction but after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock".
Notwithstanding clauses (iii) and (iv) in the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such Successor Company had been named as the Company in the
Indenture; PROVIDED that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes, except in the case
of a sale of all of the Company's assets that meets the requirements of the
first paragraph of this covenant.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless: (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii)(a) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, the Board of Directors determines that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10.0 million, the Company delivers to the Trustee an
opinion from an investment banking firm of national standing with non-investment
grade debt underwriting experience and with total assets in excess of $5.0
billion to the effect that the terms of such Affiliate Transaction are fair to
the Company or such Restricted Subsidiary, as the case may be, from a financial
point of view or an opinion
57
<PAGE>
from a third party appraiser of national standing to the effect that the terms
of such Affiliate Transaction are at least as favorable to the Company or such
Restricted Subsidiary as might reasonably have been obtained in a comparable
arm's length transaction with an unaffiliated third party. Notwithstanding the
foregoing, nothing in this covenant will prohibit any of the following: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; (ii) transactions between or
among the Company and/or its Restricted Subsidiaries; (iii) transactions
permitted by the provisions of the Indenture described above under the caption
"--Restricted Payments"; (iv) the payment of reasonable fees to directors of the
Company or its Restricted Subsidiaries; (v) Investments in employees in the
ordinary course of business; (vi) any Tax Sharing Agreement; PROVIDED that the
aggregate amount payable by the Company pursuant thereto shall not exceed the
sum of (A) the amount of taxes which the Company would have been liable for on a
stand-alone basis plus (B) the amount of any state net worth tax applicable to
Holdings; (vii) arrangements between (x) the Company and its Restricted
Subsidiaries and (y) Sappi Limited and its Affiliates providing for the sales of
such other's products; PROVIDED that, in each case, the amount of any sales
commissions, fees or other amounts in connection therewith shall be in
accordance with standard industry practice; (viii) any issuance of securities or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans of the Company entered into in the ordinary course of business and
approved by the Board of Directors and (ix) Affiliate Transactions pursuant to
agreements existing at the time of the Merger.
SALE/LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any Sale/Leaseback Transaction;
PROVIDED that the Company may enter into a Sale/Leaseback Transaction if: (i)
the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such Sale/Leaseback Transaction pursuant to the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens", (ii) the
gross cash proceeds of such Sale/Leaseback Transaction are at least equal to the
fair market value (as determined in good faith by the Board of Directors) of the
property that is the subject of such Sale/Leaseback Transaction and (iii) the
transfer of assets in such Sale/Leaseback Transaction is permitted by, and the
Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales".
NO SENIOR SUBORDINATED DEBT
The Indenture provides that (i) the Company will not Incur any Indebtedness
that is subordinate or junior in right of payment to any Senior Debt of the
Company and senior in any respect in right of payment to the Notes and (ii) no
Guarantor will Incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of such Guarantor and senior in any respect in right
of payment to the Guarantee by such Guarantor of the Notes.
GUARANTEE OF THE NOTES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, transfer any assets, businesses, divisions, real
property or equipment to any Restricted Subsidiary or acquire a new Restricted
Subsidiary unless (i) such transferee or acquired Restricted Subsidiary enters
into or has entered into a Guarantee of the Notes in accordance with the terms
of the Indenture or (ii) the aggregate fair market value (as determined in good
faith by the Board of Directors) at the time of such transfer or acquisition of
the assets, businesses, divisions, real property or equipment proposed to be
transferred or the Capital Stock proposed to be acquired, together with the
aggregate fair market value of all assets, businesses, divisions, real property
or equipment previously transferred pursuant to this clause (ii) and Capital
Stock previously acquired pursuant to this clause (ii) (in each case as valued
at the time of transfer or acquisition), does not exceed $40.0 million; PROVIDED
that, in the case of clause (ii), if the Restricted Subsidiary to which such
transfer was made or whose Capital Stock was acquired subsequently enters into a
Guarantee of the Notes, such transfer or acquisition thereafter shall be treated
as having been made pursuant to clause (i).
58
<PAGE>
Any such Guarantee of the Notes by a Restricted Subsidiary will be
subordinated to all Senior Debt of such Restricted Subsidiary, including any
guarantee by such Restricted Subsidiary of the Company's obligations under the
Credit Agreement, on substantially the same terms as the Notes are subordinated
to Senior Debt of the Company. Any such Guarantee by a Restricted Subsidiary
will be limited in amount to an amount not to exceed the maximum amount that can
be guaranteed by that Restricted Subsidiary without rendering such Guarantee
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. With such
limitations, such Guarantee could be effectively subordinated to all other
Indebtedness (including guarantees and other contingent liabilities) of such
Restricted Subsidiary and, depending on the amount of such Indebtedness, such
Restricted Subsidiary's liability on its Guarantee could be reduced to zero.
Upon the sale or other disposition of a Restricted Subsidiary that is a
Guarantor (other than to the Company or an Affiliate of the Company) permitted
by the Indenture, such Restricted Subsidiary will be released and relieved from
all of its obligations under its Guarantee.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than a Permitted Business.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture, the Registration Rights Agreement or the Notes, unless such
consideration is offered to be paid or agreed to be paid to all Holders of the
Notes that so consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Trustee and the Holders of Notes (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 the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales", and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
59
<PAGE>
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company to comply with the provisions
described above under the caption "--Change of Control"; (iv) failure by the
Company for 30 days after notice from the Trustee or holders of 25% of the
aggregate principal amount of the Notes then outstanding to comply with the
covenants described under "--Restricted Payments", "--Incurrence of Indebtedness
and Issuance of Preferred Stock" or "--Merger, Consolidation or Sale of Assets"
above; (v) failure of the Company for 60 days after notice from the Trustee or
Holders of 25% of the aggregate principal amount of the Notes then outstanding
to comply with any of its other agreements in the Indenture, (other than any
agreement for the benefit of holders of the Senior Preferred Stock) or the
Notes; (vi) default under any mortgage, indenture or instrument under which
there may be issued, or by which there may be secured or evidenced, any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the Issue Date, which default (a) is caused by a failure to pay
principal of or premium, if any, on such Indebtedness when due after giving
effect to any applicable grace periods provided in such Indebtedness on the date
of such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness (which Indebtedness has not been repaid and as
to which such default has not been cured or such acceleration has not been
rescinded), together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated (which Indebtedness has not been repaid and as to which such
default has not been cured or such acceleration has not been rescinded),
aggregates $20.0 million or more; (vii) failure by the Company or any Restricted
Subsidiary which is a Significant Subsidiary to pay final judgments aggregating
in excess of $20.0 million, which judgments are not paid, discharged, bonded or
stayed for a period of 60 days; (viii) except as permitted in the Indenture, any
Guarantee of the Notes is held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or Person acting on behalf of any Guarantor, shall deny or disaffirm
its obligations under its Guarantee of the Notes; and (ix) certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary which is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company, all outstanding Notes will become due
and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default (except a Default relating to the payment of principal or interest), if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 1999 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to December 15, 1999, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
60
<PAGE>
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default and its consequences under the Indenture except
a continuing Default in the payment of interest on, or the principal of, the
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default, to deliver to the Trustee a statement specifying
such Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes and the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and does not affect any
Holder's right to sue under federal securities laws for violations thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"), except for: (i) the rights of Holders of outstanding Notes to
receive payments from the trust described below in respect of the principal of,
premium, if any, and interest on such 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 payment and money for security payments
held in trust, (iii) the rights, powers, trusts, 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 with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment, and
bankruptcy, receivership, rehabilitation and insolvency events with respect to
the Company) 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 of the Notes, cash in U.S. dollars, non-callable Government
Securities 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 outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (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 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 confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default shall have occurred and be continuing on the
date of such deposit (other than a Default resulting from the borrowing of funds
to be applied to make 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
61
<PAGE>
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds are not subject to any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed. The
registered Holder of a Note will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of a
majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes, (iii)
reduce the rate of or change the time for payment of interest on any Note, (iv)
waive a Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, or interest on the Notes, (vii) waive a redemption payment with respect to
any Note, (viii) except as otherwise permitted in the Indenture, release any
Guarantor from its obligations under its Guarantee of the Notes, or change any
Guarantee of the Notes in any manner that would adversely affect Holders of
Notes, or (ix) make any change in the foregoing amendment and waiver provisions.
In addition, without affecting the right of any third party beneficiary to
consent to such amendment, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding, if such amendment would adversely affect the rights of Holders of
Notes.
Notwithstanding the foregoing, without notice to or the consent of any
Holder of Notes, the Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to secure the Notes, to add
Guarantees with respect to the Notes, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
62
<PAGE>
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions with the Company and its Affiliates; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in the case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to constitute control of such Person. In no event shall the Initial
Purchaser, UBSC or any of their Affiliates be deemed Affiliates of the Company
for purposes of the covenants contained in the Indenture.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition
(collectively, "dispositions") of any assets (including by way of a
Sale/Leaseback Transaction) other than dispositions of inventory or timber (but
not timberland) in the ordinary course of business, (ii) the issuance by any
Restricted Subsidiary of Equity Interests of such Restricted Subsidiary and
(iii) the disposition by the Company or any of its Restricted Subsidiaries of
Equity Interests of any Restricted Subsidiary of the Company, in the case of
either clause (i), (ii) or (iii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $1.0 million
or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing, the following will not be deemed to be Asset Sales: (i) a disposition
of assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly
Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) a disposition consisting of a Restricted Payment permitted by the covenant
described above under the caption "--Restricted Payments" and (iv) the
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole permitted by the covenant described above under
the caption "--Merger, Consolidation or Sale of Assets".
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, at the
time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with
63
<PAGE>
GAAP or, in the event that such rate of interest is not reasonably determinable,
discounted at the rate of interest borne by the Notes) of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended or may, at the option of the lessor, be extended).
"BOARD OF DIRECTORS" means, unless otherwise specified, the Board of
Directors of the Company or any authorized committee thereof.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" of any person means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) in the case of any Person, any
other interest or participation that confers the right to receive a share of the
profits and losses of, or distributions of assets of, such Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States Government, or
any agency or instrumentality thereof, having maturities of not more than one
year from the date of acquisition, (iii) marketable general 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 a credit
rating of A or better from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iv) certificates of deposit, time deposits, eurodollar
time deposits, overnight bank deposits, bankers' acceptances and repurchase
agreements having maturities of not more than one year from the date of the
acquisition of any domestic commercial bank the long-term debt of which is rated
at the date of acquisition thereof at least A or the equivalent thereof by
Standard & Poor's Corporation, or A or the equivalent thereof by Moody's
Investors Service, Inc., and having capital and surplus in excess of $500
million, (v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii), (iii) and (iv)
entered into with any bank meeting the qualifications specified in clause (iv)
above and (vi) commercial paper rated at the date of acquisition thereof at
least A-2 or the equivalent thereof by Standard & Poor's Corporation or P-2 or
the equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of investments, and in either
case maturing within 270 days after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of Holdings or
the Company to any Person or group (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than the Principals or their Related
Parties, (ii) the adoption of a plan relating to the liquidation or dissolution
of Holdings or the Company, (iii) any Person or group (as defined above), other
than the Principals or their Related Parties, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 40% of the total voting power of the Voting Stock of the Company, including
by way of merger, consolidation or otherwise; PROVIDED that the Principals or
their Related Parties "beneficially own" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company than
such other Person (for the purposes of this clause (iii), any Person shall be
deemed to beneficially own any Voting Stock of a corporation (the "specified
corporation"), held by any other corporation (the "parent corporation"), if such
Person "beneficially owns" (with respect to any Person or group other than the
Principals or their Related Parties, as defined in clause (iii) above or, with
respect to the Principals or their Related Parties, as defined in the proviso to
clause (iii) above, directly or indirectly,
64
<PAGE>
more than 50% of the voting power of the Voting Stock of such parent
corporation) and (iv) the first day on which a majority of the members of the
Board of Directors of Holdings or the Company are not Continuing Directors.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus (i) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income, plus
(ii) the sum of (A) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued, to the extent
that such expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financing, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of deferred financing fees) and (B) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (C) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon), plus (iii) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (including non-cash charges created by the
application of Statement of Financial Accounting Standards, No. 106 but
excluding any other such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that (i) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of Preferred Stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of
65
<PAGE>
such declaration and payment, but only to the extent of any cash received by
such Person upon issuance of such Preferred Stock, less (x) all write-ups (other
than write-ups resulting from foreign currency translations and write-ups of
tangible assets of a going concern business made within 12 months after the
acquisition of such business) subsequent to the Issue Date in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of Holdings or the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election or with the written approval of Sappi Limited.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of December
20, 1994, as amended and restated as of April 26, 1996, by and among the
Company, Chemical Bank (now known as The Chase Manhattan Bank), as
administrative agent, and the several lenders party thereto, providing for (i)
up to $630.0 million of term loan borrowings, (ii) up to $250.0 million of
revolving credit borrowings (including letters of credit), and (iii) up to
$220.0 million of additional letters of credit, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, extended, modified, renewed,
refunded, replaced, restructured or refinanced from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) so long as the Senior Bank Debt is
outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior Debt
permitted under the Indenture the principal amount of which (or as to which the
commitment to lend) is $50.0 million or more and that has been designated by the
Company as "Designated Senior Debt".
"DISQUALIFIED STOCK" means any Capital Stock that, 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 redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is one year and one day after the date on which the Notes mature; PROVIDED
that "Disqualified Stock" will not include the Senior Preferred Stock or any
other Preferred Stock of the Company which is issued in exchange for or the
proceeds of which are used to redeem or repurchase the Senior Preferred Stock so
long as such other Preferred Stock does not require the Company to pay dividends
with respect to such Preferred Stock, to make a redemption payment or to
repurchase such Preferred Stock in any amount in excess of the amounts thereof
required in the Senior Preferred Stock or at a time earlier than required in the
Senior Preferred Stock.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE DEBENTURES" means the Company's 14% Series A Subordinated Exchange
Debentures due 2006 and the Company's 14% Series B Subordinated Exchange
Debentures due 2006 exchangeable for the Company's Senior Preferred Stock.
"EXCHANGE OFFER" means the exchange offer to be filed with the Commission
relating to the Series B Securities pursuant to the Registration Rights
Agreement with the Initial Purchaser.
"EXISTING INDEBTEDNESS" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement or the Notes)
in existence on the Issue Date.
66
<PAGE>
"FIXED CHARGES" means, with respect to any Person for any period, the sum
(without duplication) of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued, to the
extent that such expense was deducted in computing Consolidated Net Income
(including amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings and net payments (if any) pursuant to Hedging Obligations but
excluding amortization of deferred financing fees), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Restricted Subsidiary) on any series
of Preferred Stock of such Person other than payments to the Company or any of
its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined effective
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or repays,
repurchases or redeems any Indebtedness (other than revolving credit borrowings)
or issues, repurchases or redeems Preferred Stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of such Indebtedness
and such issuance, repurchase or redemption of Preferred Stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
For purposes of making the computation referred to above, all calculations shall
give effect to pro forma adjustments as follows: (i) acquisitions that have been
made by the Company or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date. For purposes of this definition, whenever pro forma effect is to be given
to an acquisition, discontinued operations or operations of businesses disposed
of, the amount of Consolidated Cash Flow relating thereto or the amount of Fixed
Charges associated with any Indebtedness issued in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible financing
or accounting Officer of the Company. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any interest rate protection agreement applicable to such Indebtedness
if such interest rate protection agreement has a remaining term in excess of
twelve months).
"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 have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
67
<PAGE>
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness.
"GUARANTOR" means any Subsidiary of the Company that guarantees the Notes
pursuant to the covenant described under "--Certain Covenants--Guarantee of the
Notes".
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other similar agreements
or arrangements.
"HOLDINGS" means SDW Holdings Corporation and its successors.
"HOLDINGS DEBENTURES" means Holdings' 15% Subordinated Exchange Debentures
due 2011 exchangeable for the Holdings Preferred Stock.
"HOLDINGS PREFERRED STOCK" means Holdings' 15% Senior Exchangeable Preferred
Stock.
"INCUR" means, with respect to any Indebtedness, to incur, create, issue,
assume, guarantee or otherwise become liable for or with respect to the payment
of, contingently or otherwise, such Indebtedness; PROVIDED that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (i)
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (ii) all Indebtedness of others secured
by a Lien on any asset of such Person whether or not such Indebtedness is
assumed by such Person (the amount of such Indebtedness with respect to such
Person being deemed to be the lesser of the value of such asset or the amount of
the Indebtedness of others so secured), (iii) the Guarantee by such Person of
any Indebtedness of any other Person and (iv) Attributable Debt associated with
Sale/Leaseback Transactions.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
guarantees of Indebtedness or other obligations), advances or capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP. For purposes of the covenant described above under "--Certain
Covenants--Restricted Payments", (i) "Investment" in a Subsidiary shall include
the portion (proportionate to the Company's Equity Interest in such Subsidiary)
of the fair market value (as determined in good faith by the Board of Directors)
of such Subsidiary at the time that such Subsidiary is designated an
Unrestricted Subsidiary; PROVIDED that upon a redesignation of such Subsidiary
as a Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's Equity
Interest in such Subsidiary) of the fair market value (as determined in good
faith by the Board of Directors) of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"ISSUE DATE" means the date on which the Old Notes were originally issued.
68
<PAGE>
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement and any lease in the
nature thereof).
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to the
Registration Rights Agreements. When used with respect to the Notes or the
Senior Preferred Stock, "Liquidated Damages" means such liquidated damages
related to the Notes or the Senior Preferred Stock, respectively.
"MERGER" means the merger of SDW Acquisition and S.D. Warren.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (a) any Asset Sale or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries, (ii) any extraordinary gain (or loss), together with any related
provision for taxes on such extraordinary gain (or loss), (iii) any non-cash
product costs resulting from the write-up (if any) of the assigned value of the
Company's inventory at the time of the Merger over the first-in first-out
valuation of such inventory and (iv) any write-off of the fees for the unused
subordinated bridge financing arranged by the Company in anticipation of the
Merger.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including any
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including legal, accounting and investment banking fees, and sales commissions)
and any relocation expenses incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the assets that were the
subject of such Asset Sale, any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP and any other
reserve against liabilities associated with such assets and retained by the
Company or any of its Restricted Subsidiaries established in accordance with
GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the offering of the Notes and the Units pursuant to the
Offering Memorandum dated December 13, 1994.
"PERMITTED BUSINESS" means the business in which the Company and its
Restricted Subsidiaries were engaged in on the date of the Merger (after giving
effect thereto) and businesses incidental, ancillary or related thereto.
"PERMITTED INVESTMENTS" means (i) any Investments in the Company or in a
Restricted Subsidiary of the Company; (ii) any Investments in Cash Equivalents;
(iii) Investments by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of such Investment (a) such Person becomes a Restricted
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted
69
<PAGE>
Subsidiary of the Company that is a Guarantor; (iv) Investments consisting of
consideration received by the Company or a Restricted Subsidiary in an Asset
Sale which consideration is not and is not required to be in the form of Cash
Equivalents pursuant to the covenant described above under "--Repurchase at the
Option of Holders--Asset Sales"; (v) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business;
(vi) stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (vii) endorsements of negotiable
instruments and other similar negotiable documents; and (viii) notes from
employees, officers, directors and their transferees issued to the Company
representing payment of the exercise price of options or other purchase rights
to purchase common stock of the Company.
"PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, restructure, renew, replace, defease or refund
other Indebtedness of the Company or any of its Restricted Subsidiaries;
PROVIDED that: (i) the principal amount of such Permitted Refinancing Debt does
not exceed the principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, restructured, defeased or refunded (plus the amount of
premiums and reasonable fees and expenses incurred in connection therewith);
(ii) such Permitted Refinancing Debt has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; PROVIDED that
this clause (ii) will not be applicable to any Permitted Refinancing Debt with
respect to Indebtedness under the Credit Agreement; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing Debt
is subordinated in right of payment to, the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"PRINCIPALS" means Sappi Limited, DLJ Merchant Banking Partners, L.P., DLJ
Merchant Banking, Inc., DLJ International Partners, C.V., DLJ Offshore Partners,
C.V., DLJ Merchant Banking Funding, Inc. and UBS Capital LLC.
"REGISTRATION RIGHTS AGREEMENTS" means (i) that certain Registration Rights
Agreement dated the Closing Date between the Company and the Initial Purchaser
and (ii) that certain Registration Rights Agreement dated the Closing Date
between the Company and UBSC.
"RELATED PARTY" with respect to any Principal means (i) any controlling
stockholder, majority owned Subsidiary, or spouse or immediate family member (in
the case of an individual) of such Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a majority interest of which consist of such
Principal and/or such other Persons referred to in the immediately preceding
clause (i).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
70
<PAGE>
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property owned
on the Issue Date or thereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and leases it back from such
Person, other than (i) any such arrangement (a) the term of which is for not
more than one year and (b) the Attributable Debt associated with which is less
than $1.0 million (aggregating any series of related transactions), and (ii) any
such arrangement between the Company and a Wholly Owned Restricted Subsidiary or
between Wholly Owned Restricted Subsidiaries.
"SENIOR BANK DEBT" means the Indebtedness outstanding under the Credit
Agreement or any Hedging Obligation entered into with any Senior Bank Lender as
such agreements may be restated, further amended, supplemented or otherwise
modified from time to time.
"SENIOR BANK LENDER" means any of the banks or other financial institutions
from time to time parties to the Credit Agreement.
"SENIOR DEBT" means with respect to the Company or any Guarantor, any
Indebtedness Incurred by the Company or such Guarantor, unless the instrument
under which such Indebtedness is Incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes or, in the case of
a Guarantor, the Guarantee of the Notes by such Guarantor; PROVIDED that Senior
Debt will not include (a) any liability for federal, state, local or other taxes
owed or owing, (b) any Indebtedness owing to any Subsidiaries of the Company,
(c) any trade payables or (d) any Indebtedness that is incurred in violation of
the Indenture. The Senior Bank Debt shall be treated as Senior Debt of the
Company.
"SENIOR PREFERRED STOCK" means the Company's 14% Series A Senior
Exchangeable Preferred Stock due 2006 and the Series B Exchangeable Preferred
Stock.
"SERIES B EXCHANGEABLE PREFERRED STOCK" means the Company's 14% Series B
Senior Exchangeable Preferred Stock due 2006.
"SERIES B EXCHANGE DEBENTURES" means the Company's 14% Series B Subordinated
Exchange Debentures due 2006.
"SERIES B NOTES" means the Company's 12% Series B Senior Subordinated Notes
due 2004 issued pursuant to the Indenture.
"SERIES B SECURITIES" means the Series B Notes and the Series B Exchangeable
Preferred Stock or the Series B Exchange Debentures, as applicable.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TAX SHARING AGREEMENT" means any tax sharing agreement between the Company
and Holdings or any other person with which the Company is required to, or is
permitted to, file a consolidated tax return or with which the Company is or
could be part of a consolidated group for tax purposes.
"TRANSACTION COSTS" means the aggregate transaction costs of the Company and
Holdings incurred in connection with the Merger or related financings and in an
aggregate amount not to exceed $87.7 million.
"UNITS" means 3,000,000 units, each consisting of one share of Senior
Preferred Stock and one Warrant.
71
<PAGE>
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution
and (ii) any Subsidiary of an Unrestricted Subsidiary; but, in each case, only
to the extent that such Subsidiary: (a) has no Indebtedness other than Non-
Recourse Debt; PROVIDED that the Company or any of its Restricted Subsidiaries
may Guarantee, endorse, agree to provide funds for the payment or maintenance
of, or otherwise become directly or indirectly liable with respect to,
Indebtedness of an Unrestricted Subsidiary but only to the extent that the
Company or such Restricted Subsidiary could make an Investment in such
Unrestricted Subsidiary pursuant to the covenant described above under "Certain
Covenants--Restricted Payments" and any such arrangement shall be deemed an
Incurrence of Indebtedness by the Company or such Restricted Subsidiary for
purposes of the covenant described above under "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock"; (b) subject to clause (a) above,
is a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (c) has at least one director on its board of directors
that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants--Restricted Payments". If, at any time, any Unrestricted Subsidiary
would fail to meet the requirements of an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be Incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be Incurred as of such date under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock", the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock", and (ii) no Default would be in
existence following such designation. To the extent applicable, such newly
designated Restricted Subsidiary shall comply with the covenant described under
the caption "Certain Covenants--Guarantee of the Notes".
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WARRANTS" means the warrants to purchase 898,440 shares of Common Stock of
Holdings to be issued as part of the Units and Class B Warrants to purchase
6,289,060 shares of Common Stock of Holdings to be issued contemporaneously
therewith.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of the Closing Date
between Holdings and The Bank of New York pursuant to which the Warrants to be
issued as part of the Units are issued.
"WARRANT SHARES" means the Common Stock of Holdings issuable upon the
exercise of the Warrants.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the sum of all such payments.
72
<PAGE>
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
DESCRIPTION OF THE SENIOR PREFERRED STOCK
The Senior Preferred Stock was issued pursuant to a Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (the "CERTIFICATE OF DESIGNATIONS"), a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus
constitutes a part. The following summary of the material provisions of the
Senior Preferred Stock is qualified in its entirety by reference to the
provisions of the Certificate of Designations relating thereto. The definitions
of certain terms used in the Certificate of Designations and in the following
summary are substantially the same as those used in the Indenture. For a
description thereof, see "Description of the Notes--Certain Definitions".
GENERAL
Pursuant to the Certificate of Designations, 3,000,000 shares of the Senior
Preferred Stock with a liquidation preference of $25.00 per share were
authorized for issuance. The Senior Preferred Stock is fully paid and
nonassessable and holders thereof will have no preemptive rights in connection
therewith.
The Old Senior Preferred Stock was initially issued as part of the Unit
Offering. Each Unit offered thereby consisted of one share of Old Senior
Preferred Stock of the Company and one Warrant to purchase 0.29948 shares of
Common Stock of Holdings. As of March 29, 1995, the Old Senior Preferred Stock
and the Warrants became separately transferable. Effective upon consummation of
the Exchange Offer on May 31, 1995, the Senior Preferred Stock was issued by the
Company in exchange for the Old Senior Preferred Stock.
The liquidation preference or Specified Amount of the Senior Preferred Stock
is not necessarily indicative of the price at which shares of the Senior
Preferred Stock will actually trade at or after the time of their issuance, and
the Senior Preferred Stock may trade at prices below its liquidation preference
or Specified Amount. The market price of the Senior Preferred Stock can be
expected to fluctuate with changes in the financial markets and economic
conditions, the financial condition and prospects of the Company and other
factors that generally influence the market prices of securities.
All "distributions" with respect to the Senior Preferred Stock, including
the payment of dividends, the accrual of Accumulated Dividends, the exchange of
the Senior Preferred Stock for Exchange Debentures, redemptions, repurchases and
distributions upon a liquidation, dissolution or winding up of the Company, are
subject to the provisions of the Pennsylvania Business Corporation Law,
including provisions which prohibit any "distributions" if, after giving effect
thereto, the Company would be unable to pay its debts as they become due in the
usual course of its business or the total assets of the Company would be less
than its total liabilities.
RANK
The Senior Preferred Stock, with respect to dividend rights and rights on
liquidation, winding up and dissolution, ranks: (i) senior to all classes of
common stock of the Company and each other class of capital stock or series of
preferred stock issued by the Company after the Offerings the terms of which
provide that such series will rank junior to the Senior Preferred Stock or which
do not specify their rank (collectively referred to with the common stock of the
Company as "JUNIOR SECURITIES"); (ii) on a parity with each other class of
capital stock or series of preferred stock issued by the Company after the
Offerings that specifically provides that such series will rank on a parity with
the Senior Preferred Stock (collectively referred to as "PARITY SECURITIES");
and (iii) junior to each other class of capital stock or series of preferred
stock issued by the Company after the Offering that specifically provides that
such series will rank senior to the Senior Preferred Stock (collectively
referred to as "SENIOR SECURITIES"). In addition, creditors and stockholders of
the Company's subsidiaries will have priority over the Senior Preferred Stock
with respect to claims on the assets of such subsidiaries. The Company may not
issue any Parity Securities or Senior Securities or any obligation
73
<PAGE>
or security convertible into or evidencing the right to purchase Parity
Securities or Senior Securities without the approval of the holders of a
majority of the outstanding shares of Senior Preferred Stock then outstanding,
voting as a separate class, except that without the approval of the holders of
Senior Preferred Stock, the Company may issue or have outstanding shares of
Parity Securities issued from time to time in exchange for, or the proceeds of
which are used to redeem or repurchase, any or all of the shares of Senior
Preferred Stock or any other Parity Securities. See "--Voting Rights".
DIVIDENDS
Holders of Senior Preferred Stock will be entitled to receive, when, as and
if declared by the board of directors of the Company, out of funds legally
available therefor, dividends on the Senior Preferred Stock, at the rate of 14%
per annum of the Specified Amount (as defined below). Dividend accrual periods
will end on March 15, June 15, September 15 and December 15 of each year (each,
a "Dividend Accrual Date"). It is not expected that the Company will pay any
dividends in cash for any period ending on or prior to December 15, 1999, and in
any event, the Company will be restricted from paying such dividends in cash by
the terms of its debt instruments. See "Risk Factors--Restrictions Imposed by
Credit Agreement;--Limitation on Cash Dividends; Obligations with Respect to
Holdings Preferred Stock". Cash dividends paid by the Company from time to time
will be applied to unpaid dividends in the order in which such dividends
accrued; PROVIDED, that to the extent cash dividends are not paid currently on
the Senior Preferred Stock for a dividend accrual period ending on or prior to
December 15, 1999, the Company may pay such dividends thereafter only insofar as
the Company repurchases or redeems such Senior Preferred Stock. Dividends
payable for any period less than a full dividend period will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Accrued and unpaid
dividends, if any, will not bear interest or, except to the extent included in
clause (ii) of the first sentence of this paragraph, bear dividends thereon.
Dividends will cease to accrue in respect of shares of the Senior Preferred
Stock on the Exchange Date (as defined below) or on the date of their earlier
redemption or repurchase by the Company. See "Certain Federal Income Tax
Considerations".
REDEMPTION OF SENIOR PREFERRED STOCK
OPTIONAL. Except as set forth in the following paragraph, the Senior
Preferred Stock will not be redeemable at the Company's option prior to December
15, 2001. Thereafter, the Senior Preferred Stock may be redeemed, in whole or in
part, at the option of the Company at the redemption prices (expressed as a
percent of the Specified Amount) set forth in the table below, plus all accrued
and unpaid Liquidated Damages and dividends (excluding any Accumulated Dividends
but including an amount equal to a prorated dividend from the immediately
preceding Dividend Accrual Date to the redemption date), if any, if redeemed
during the 12-month period beginning on December 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2001................................................................... 104.200%
2002................................................................... 102.800%
2003................................................................... 101.400%
2004 and thereafter.................................................... 100.000%
</TABLE>
"Specified Amount" on any specific date with respect to any share of Senior
Preferred Stock means the sum of (i) the liquidation preference with respect to
such share and (ii) the dividends that accrued in dividend accrual periods
ending on or prior to December 15, 1999 and on or prior to such specific date
that have not previously been paid in cash (the dividends described in this
clause (ii) being herein called "Accumulated Dividends"). As of July 3, 1996,
the Specified Amount was $30.97 per share.
On or prior to December 15, 1997, the Company may from time to time redeem
Senior Preferred Stock at a redemption price equal to 113.0% of the Specified
Amount thereof plus all accrued and unpaid Liquidated Damages and dividends
(excluding any Accumulated Dividends but including an amount equal to the
prorated dividend from the immediately preceding Dividend Accrual Date to the
redemption date), if any, with the proceeds of one or more public offerings of
the common stock of Holdings; PROVIDED that at least $50.0 million in aggregate
Specified Amount of Senior Preferred Stock remains outstanding immediately after
the occurrence of such redemption; and PROVIDED FURTHER that such redemption
shall occur within 45 days of the date of the closing of any such public
offering.
74
<PAGE>
MANDATORY. On December 15, 2006, the Company will be required to redeem
(subject to the legal availability of funds therefor) all outstanding shares of
Senior Preferred Stock at a price equal to the Specified Amount thereof plus an
amount in cash equal to all accrued and unpaid Liquidated Damages and dividends
(excluding Accumulated Dividends), if any, to the date of redemption.
EXCHANGE
On any Dividend Payment Date, the Company may, at its option, exchange all
but not less than all shares of Senior Preferred Stock then outstanding for
Exchange Debentures (the date of such exchange being herein called the "Exchange
Date"). See "Description of the Exchange Debentures" for a summary of the terms
of the Exchange Debentures. Notwithstanding anything to the contrary in the
foregoing, the Company will not be entitled to make the exchange if a default
under the Exchange Debenture Indenture would result from the exchange. Holders
of the outstanding shares of the Senior Preferred Stock will be entitled to
receive a principal amount of Exchange Debentures equal to the Specified Amount
of the Senior Preferred Stock held by such holder at the time of exchange plus
cash in an amount equal to all accrued and unpaid Liquidated Damages and
dividends (excluding any Accumulated Dividends), if any, thereon to the Exchange
Date.
The Exchange Debentures will be issuable in denominations of $1,000 and
integral multiples thereof. An amount in cash will be paid to holders for any
principal amount of Exchange Debentures otherwise issuable which is less than
$1,000. Notice of the intention to exchange will be sent by or on behalf of the
Company not more than 60 days nor less than 30 days prior to the Exchange Date,
by first class mail, postage prepaid, to each holder of record of Senior
Preferred Stock at its registered address. In addition to any information
required by law or by the applicable rules of any exchange upon which Senior
Preferred Stock may be listed or admitted to trading, such notice will state:
(i) the Exchange Date; (ii) the place or places where certificates for such
shares are to be surrendered for exchange; and (iii) that dividends on the
shares to be exchanged will cease to accrue on the Exchange Date. If notice of
any exchange has been properly given, and if on or before the Exchange Date the
Exchange Debentures will have been duly executed and authenticated and an amount
in cash equal to all accrued and unpaid Liquidated Damages and dividends
(excluding any Accumulated Dividends), if any, thereon to the Exchange Date has
been deposited with the transfer agent, then on and after the close of business
on the Exchange Date, the shares of Senior Preferred Stock to be exchanged will
no longer be deemed to be outstanding and will not have the status of shares of
Senior Preferred Stock, and all rights of the holders thereof as shareholders of
the Company will cease, except the right of the holder thereof to receive upon
surrender of their certificates the Exchange Debentures and all accrued and
unpaid Liquidated Damages and dividends (excluding any Accumulated Dividends),
if any, thereon to the Exchange Date.
The Credit Agreement and the Indenture will contain limitations with respect
to the Company's ability to issue the Exchange Debentures, and any future credit
agreements or other agreements relating to its indebtedness to which the Company
becomes a party may contain similar limitations.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of Senior Preferred Stock will be entitled to payment out
of the assets of the Company available for distribution the Specified Amount per
share of Senior Preferred Stock held by such holder, plus accrued and unpaid
Liquidated Damages and dividends (excluding Accumulated Dividends), if any, to
the date fixed for liquidation, dissolution or winding up (including an amount
equal to a prorated dividend from the last payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Securities, including, without limitation, common stock of the Company.
If upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the application of all amounts available for payments with respect
to the Senior Preferred Stock and all other Parity Securities would not result
in payment in full of the Senior Preferred Stock and such other Parity
Securities, holders of the Senior Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of the Company in
proportion to the full amount payable upon liquidation to which each is
entitled. After payment in full of all amounts to which holders of Senior
Preferred Stock are entitled, such holders will not be entitled
75
<PAGE>
to any further participation in any distribution of assets of the Company.
However, neither the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or assets of the Company nor the consolidation or merger of the
Company with one or more corporations will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Company, unless such
sale, conveyance, exchange or transfer shall be in connection with a dissolution
or winding up of the business of the Company.
The Certificate of Designations does not contain any provision requiring
funds to be set aside to protect the liquidation preference or Specified Amount
of the Senior Preferred Stock, although such liquidation preference and
Specified Amount will be substantially in excess of the par value of such shares
of the Senior Preferred Stock. In addition, the Company is not aware of any
provision of Pennsylvania law or any controlling decision of the courts of the
State of Pennsylvania that requires a restriction upon the surplus of the
Company solely because the liquidation preference or other amount payable upon
liquidation of the Senior Preferred Stock will exceed the par value.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of shares of Senior
Preferred Stock will have the right to require the Company to repurchase all or
any part of such holder's shares of Senior Preferred Stock pursuant to the offer
described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal
to 101% of the Specified Amount of the Senior Preferred Stock plus accrued and
unpaid Liquidated Damages and dividends (excluding any Accumulated Dividends but
including an amount equal to a prorated dividend from the immediately preceding
Dividend Accrual Date to the Change of Control Payment Date (as defined)), if
any, thereon to the date of purchase (the "CHANGE OF CONTROL PAYMENT"). Within
30 days following any Change of Control, the Company will mail a notice to each
holder stating: (1) that the Change of Control Offer is being made pursuant to
the covenant entitled "Change of Control" and that all shares of Senior
Preferred Stock properly tendered will be accepted for payment; (2) the purchase
price and the purchase date, which will be no earlier than 75 days nor later
than 105 days from the date such notice is mailed (the "CHANGE OF CONTROL
PAYMENT DATE"); PROVIDED that the Change of Control Purchase Date will not occur
until at least 15 days after any Change of Control Purchase Date pursuant to the
covenant entitled "Change of Control" in the Indenture relating to any such
Change of Control; (3) that any shares of Senior Preferred Stock not properly
tendered will continue to accrue Liquidated Damages and dividends, if any; (4)
that, unless the Company defaults in the payment of the Change of Control
Payment, all shares of Senior Preferred Stock accepted for payment pursuant to
the Change of Control Offer will cease to accrue Liquidated Damages and
dividends after the Change of Control Payment Date; (5) that holders electing to
have any shares of Senior Preferred Stock purchased pursuant to a Change of
Control Offer will be required to surrender the shares of Senior Preferred Stock
or transfer the shares of Senior Preferred Stock by book-entry, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third Business Day preceding 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 close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the amount of
Senior Preferred Stock delivered for purchase, and a statement that such holder
is withdrawing its election to have such shares of Senior Preferred Stock
purchased; and (7) that holders whose shares of Senior Preferred Stock are being
purchased only in part will be issued new certificates of Senior Preferred Stock
equal in amount to the unpurchased portion of the Senior Preferred Stock
surrendered (or transferred by book-entry).
On the Change of Control Payment Date, the Company will, to the extent
lawful: (1) accept for payment all shares of Senior Preferred Stock or portions
thereof properly tendered pursuant to the Change of Control Offer, (2) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all shares of Senior Preferred Stock or portions thereof so tendered
and (3) deliver or cause to be delivered to the holders of Senior Preferred
Stock so accepted an Officers' Certificate stating the aggregate amount of
Senior Preferred Stock or portions thereof being purchased by the Company. The
Company will promptly mail to each holder of shares of Senior Preferred Stock so
tendered the Change of Control Payment for such shares of Senior Preferred Stock
and will promptly mail (or cause to be transferred by book-entry) to each
76
<PAGE>
such holder a new share of Senior Preferred Stock equal in amount to any
unpurchased portion of the Senior Preferred Stock surrendered, if any. The
Certificate of Designations provides that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will either repay all of its outstanding indebtedness or
obtain the requisite consents, if any, under all agreements governing its
outstanding indebtedness to permit the repurchase of the shares of Senior
Preferred Stock required by this covenant. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The Credit Agreement and the Indenture prohibit the Company from purchasing
any shares of Senior Preferred Stock, except in certain circumstances, and, in
the case of the Credit Agreement, also provide that a Change of Control would
constitute a default thereunder. Any future credit agreements or other
agreements relating to its indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Senior
Preferred Stock, the Company could seek the consent of its lenders to the
purchase of the Senior Preferred Stock or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Senior Preferred Stock. The ability of the Company to purchase
the Senior Preferred Stock upon a Change of Control may also be limited by the
Company's then existing financial resources. See "Risk Factors--Restrictions on
Making a Change of Control Offer; Antitakeover Effects of Change of Control
Provisions".
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rules 13e-4 and 14e-1, in connection
with any offer required to be made by the Company to repurchase the Senior
Preferred Stock as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
Certificate of Designation, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Certificate of Designation by virtue thereof.
The provisions relative to the Company's obligation to make an offer to
repurchase the Senior Preferred Stock as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
liquidation preference of the Senior Preferred Stock.
VOTING RIGHTS
Holders of the Senior Preferred Stock will have limited voting rights,
including (i) those required by law, (ii) that holders of a majority of the
outstanding shares of Senior Preferred Stock, voting as a separate class, will
(a) upon the failure of the Company (1) with respect only to dividend accrual
periods ending after December 15, 1999, to pay, in whole or in part, for more
than six consecutive dividend accrual periods, dividends in cash equal to the
dividend that accrued during each such dividend accrual period, (2) to satisfy
any mandatory redemption or repurchase obligation (including, without
limitation, pursuant to any required Change of Control Offer) with respect to
the Senior Preferred Stock, (3) to make a Change of Control Offer within 30 days
following any Change of Control or (4) to comply with the covenants set forth
below under the caption "Certain Covenants", (each of the events described in
clauses (1), (2), (3) and (4) being referred to herein as a "VOTING RIGHTS
TRIGGERING EVENT"), be entitled to elect two members to the Board of Directors
of the Company and (b) have the right to approve each issuance by the Company of
any Senior Securities or Parity Securities (other than Senior Preferred Stock),
except that without the approval of the holders of Senior Preferred Stock, the
Company may issue and have outstanding shares of Parity Securities issued from
time to time in exchange for, or the proceeds of which are used to redeem or
repurchase, any or all of the shares of Senior Preferred Stock or other Parity
Securities and (c) have the right to approve any merger, consolidation or sale
of assets of the Company except as permitted pursuant to the covenant entitled
"Merger, Consolidation and Sale of Assets" as set forth below and (iii) the
holders of a majority of the outstanding shares of Senior Preferred Stock,
voting as a class, will be required for modification to the Exchange Debenture
Indenture. Voting rights arising as a result of a Voting Rights Triggering Event
will continue until such time as all dividends in arrears on the Senior
Preferred Stock are paid in full or such other Voting Rights Triggering Event
has been cured or waived. Under Pennsylvania law, holders of the
77
<PAGE>
Senior Preferred Stock are entitled to vote as a class upon a proposed amendment
to the Articles of Incorporation, whether or not entitled to vote thereon by the
Articles of Incorporation, if the amendment would make any change in the
preferences, limitations or certain special rights of the shares of such class
adverse to such class or authorize, or increase the number of authorized shares
of, any class or series having a preference as to dividends or assets.
CERTAIN COVENANTS
MERGER, CONSOLIDATION AND SALE OF ASSETS. Without the consent of holders of
a majority of the outstanding shares of Senior Preferred Stock, voting as a
class, the Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless: (i) the resulting,
surviving or transferee person (the "Successor Company") is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Senior Preferred Stock shall be converted
into or exchanged for and shall become shares of the Successor Company having in
respect of the Successor Company substantially the same powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Senior Preferred
Stock had immediately prior to such transaction; (iii) the Successor Company
will have Consolidated Net Worth (immediately after the transaction on a pro
forma basis but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction; and (iv) the Company shall deliver to the
transfer agent prior to the consummation of the proposed transaction an
Officers' Certificate and an opinion of counsel to the effect that such sale,
assignment, transfer, lease, conveyance or other disposition complies with the
terms of the Certificate of Designations and that all conditions precedent to
such sale, assignment, transfer, lease, conveyance or other disposition have
been satisfied.
JUNIOR PAYMENTS. So long as any shares of Senior Preferred Stock are
outstanding, the Company will not declare, pay or set apart for payment on any
Junior Securities or Parity Securities any dividends whatsoever, whether in
cash, property or otherwise (other than dividends payable in shares of the class
or series upon which such dividends are declared or paid, or payable in shares
of Common Stock with respect to Junior Securities other than Common Stock,
together with cash in lieu of fractional shares), nor will the Company make any
distribution on any Junior Securities or Parity Securities, nor will any Junior
Security or Parity Security be purchased, redeemed or otherwise acquired or
retired for value by the Company or any of its Restricted Subsidiaries, nor will
any monies be paid or made available for a sinking fund for the purchase or
redemption of any Junior Security or Parity Security (each, a "JUNIOR PAYMENT"),
unless all dividends (other than dividends accruing on or prior to December 15,
1999), redemption payments, Change of Control Payments or other payments and
Liquidated Damages, if any, to which the holders of Senior Preferred Stock will
have been entitled at the time of such Junior Payment will have been paid or
declared and a sum of money sufficient for the payment thereof has been set
apart. Notwithstanding the foregoing, if the Company is unable to meet its
payment obligations with respect to dividends, redemption payments, Change of
Control Payments or other payments and Liquidated Damages, if any, with respect
to the Senior Preferred Stock and other Parity Securities as described herein,
holders of Senior Preferred Stock and Parity Securities will share equally and
ratably in any payments by the Company with respect thereto. The foregoing
provisions will not prohibit: (i) the redemption, repurchase, retirement or
other acquisition of any Junior Securities or Parity Securities of the Company
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of Junior Securities of the Company
(other than any Disqualified Stock) or out of the proceeds of a substantially
concurrent cash capital contribution received by the Company; (ii) the
repurchase, redemption or other acquisition or retirement for value of (or
payments to Holdings which are used by Holdings to repurchase, redeem or
otherwise acquire or retire for value) any Equity Interests of Holdings held by
employees of Holdings, the Company or its Subsidiaries pursuant to any employee
equity subscription agreement, stock option agreement or stock ownership
arrangement; PROVIDED that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $5.0 million in
any twelve-month period plus the aggregate cash proceeds
78
<PAGE>
received by the Company during such twelve-month period from any reissuance of
Equity Interests of Holdings to employees of Holdings, the Company and its
Subsidiaries; (iii) the payment of distributions to Holdings pursuant to the Tax
Sharing Agreement; or (iv) upon exercise of the Warrants, a distribution to
Holdings equal to any cash payments made by Holdings in lieu of the issuance of
fractional Warrant Shares.
TRANSACTIONS WITH AFFILIATES. The provision of the Certificate of
Designations relating to transactions with Affiliates are substantially the same
as the provisions of the Indenture relating to such matters. For a description
thereof, see "Description of the Notes--Certain Covenants--Transactions with
Affiliates".
REPORTS. The provisions of the Certificate of Designations relating to the
provision of reports and information by the Company are substantially the same
as the provisions of the Indenture relating to such matters. For a description
thereof, see "Description of the Notes--Certain Covenants--Reports".
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for the Senior
Preferred Stock.
79
<PAGE>
DESCRIPTION OF THE EXCHANGE DEBENTURES
GENERAL
The Exchange Debentures will, if and when issued, be issued pursuant to an
Indenture (the "EXCHANGE DEBENTURE INDENTURE") between the Company and United
States Trust Company of New York, as trustee (the "EXCHANGE DEBENTURE TRUSTEE")
a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part. The terms of the Exchange Debentures include
those stated in the Exchange Debenture Indenture and those made part of the
Exchange Debenture Indenture by reference to the Trust Indenture Act). The
Exchange Debentures will be subject to all such terms, and Holders of Exchange
Debentures are referred to the Exchange Debenture Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Exchange Debenture Indenture is qualified in its entirety by
reference to the Exchange Debenture Indenture, including the definitions therein
of certain terms used below, and the Trust Indenture Act. The definitions of
certain terms used in the Exchange Debenture Indenture and in the following
summary are substantially the same as those used in the Indenture. For a
description thereof, see "Description of the Notes--Certain Definitions". For a
description of the registration rights with respect to the Exchange Debentures,
see "Registration Rights".
The Exchange Debentures will be general unsecured obligations of the Company
and will be subordinated to all existing and future Senior Debt of the Company
(as defined in the Exchange Debenture Indenture), including the obligations of
the Company under the Credit Agreement and the Notes. See
"--Subordination". In addition, the Exchange Debentures will be effectively
subordinated to all indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of the Company's Subsidiaries.
Any right of the Company to receive assets of any of its Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the holders
of the Exchange Debentures to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such Subsidiary, in which
case the claims of the Company would still be subordinate to any security in the
assets of such Subsidiary and any indebtedness of such Subsidiary senior to that
held by the Company. The principal amount of Senior Debt of the Company
outstanding as of July 3, 1996 (including the Indebtedness of the Company under
the Notes) was approximately $567.2 million.
MATURITY AND INTEREST
The Exchange Debentures will be limited in aggregate principal amount to the
Specified Amount of the Senior Preferred Stock exchanged therefor, plus such
principal amount of additional Exchange Debentures as may be issued in lieu of
cash interest, and will mature on December 15, 2006. Interest on the Exchange
Debentures will accrue at the rate of 14% per annum and will be payable
semiannually in arrears on June 15 and December 15, commencing with the first
such date to occur after the date of exchange, to Holders of record on the
immediately preceding June 1 and December 1. Interest on the Exchange Debentures
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Exchange
Debentures will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of the Exchange Debentures at their respective
addresses set forth in the register of Holders of Exchange Debentures; PROVIDED
that all payments with respect to Global Notes will be required to be made by
wire transfer of immediately available same day funds to the accounts specified
by the holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Exchange Debenture
Trustee maintained for such purpose. On or prior to December 15, 1999, the
Company may pay all or a portion of any installment of interest on the Exchange
Debentures by issuing additional Exchange Debentures valued at 100% of their
principal amount. See "Certain Federal Income Tax Considerations". After
December 15, 1999, interest may only be paid in cash. The Company does not
expect to pay interest on the Exchange Debentures in cash prior to June 15,
2000. The Exchange Debentures will be issued in denominations of $1,000 and
integral multiples thereof.
80
<PAGE>
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Debentures will
not be redeemable at the Company's option prior to December 15, 2001.
Thereafter, the Exchange Debentures will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and Liquidated Damages
(if applicable) thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2001................................................................... 104.200%
2002................................................................... 102.800%
2003................................................................... 101.400%
2004 and thereafter.................................................... 100.000%
</TABLE>
On or prior to December 15, 1997, the Company may redeem from time to time
Exchange Debentures at a redemption price equal to 113.0% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon
to the redemption date, with the net proceeds of one or more public offerings of
common stock of Holdings; PROVIDED that at least $50.0 million in aggregate
principal amount of Exchange Debentures remain outstanding immediately after
such redemption; and PROVIDED FURTHER that such redemption shall occur within 45
days of the date of the closing of any such public offering.
SUBORDINATION
The provisions of the Exchange Debenture Indenture relating to the
subordination of the Exchange Debentures are substantially the same as the
provisions of the Indenture relating to such matters. For a description thereof,
see "Description of the Notes--Subordination".
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange
Debentures will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange
Debentures at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon
to the date of purchase. The provisions of the Exchange Debenture Indenture
relating to the procedures, definitions and limitations on the Company's ability
to satisfy its obligations with respect to a Change of Control are substantially
the same as the provisions of the Indenture relating to such matters. For a
description thereof, see "Description of the Notes--Repurchase at the Option of
the Holders--Change of Control".
Except as described above with respect to a Change of Control, the Exchange
Debenture Indenture does not contain provisions that permit the Holders of the
Exchange Debentures to require that the Company repurchase or redeem the
Exchange Debentures in the event of a takeover, recapitalization or similar
restructuring.
The Credit Agreement and the Indenture prohibit the Company from purchasing
any Exchange Debentures, except in certain circumstances and, in the case of the
Credit Agreement, also provide that a Change of Control will constitute a
default thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Exchange Debentures, the Company
could seek the consent of its lenders to the purchase of Exchange Debentures or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Exchange Debentures. In such case, the
Company's failure to purchase tendered Exchange Debentures would constitute an
Event of Default under the Exchange Debenture Indenture which would, in turn,
constitute a default under the Credit Agreement. In such circumstances, the
subordination provisions in the Exchange Debenture Indenture would likely
restrict payments to the Holders of Exchange Debentures. See "Risk
Factors--Restrictions on Making a Change of Control Offer, Antitakeover Effects
of Change of Control Provisions".
81
<PAGE>
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with any offer
required to be made by the Company to repurchase the Exchange Debentures as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the Exchange
Debenture Indenture, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the Exchange Debenture Indenture by virtue thereof.
The provisions relative to the Company's obligation to make an offer to
repurchase the Exchange Debentures as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the Exchange Debentures.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The provisions of the Exchange Debenture Indenture relating to limitations
on Restricted Payments are substantially the same as the provisions of the
Indenture relating to such matters, except that the Exchange Debenture Indenture
(i) permits the purchase, redemption or other acquisition or retirement for
value of any Indebtedness that is PARI PASSU with the Exchange Debentures and
(ii) does not limit Restricted Investments other than Investments in
Unrestricted Subsidiaries. For a description of the provisions thereof, see
"Description of the Notes--Certain Covenants--Restricted Payments".
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The provisions of the Exchange Debenture Indenture relating to limitations
on the incurrence of Indebtedness and issuance of preferred stock by the Company
and its subsidiaries are substantially the same as the provisions of the
Indenture relating to such matters; PROVIDED, that the Exchange Debenture
Indenture provides that the Company or any Subsidiary may Incur Indebtedness
(including Acquired Debt) or the Company may issue Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is Incurred
or such Disqualified Stock is issued would have been at least 1.75 to 1. For a
description thereof, see "Description of the Notes--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock".
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The provisions of the Exchange Debenture Indenture relating to mergers,
consolidations, or sale of assets of the Company are substantially the same as
the provisions of the Indenture relating to such matters except that the
Successor Corporation will not be required to be able to incur an additional
$1.00 of Indebtedness. For a description thereof, see "Description of the
Notes--Certain Covenants--Merger, Consolidation or Sale of Assets".
TRANSACTIONS WITH AFFILIATES
The provisions of the Exchange Debenture Indenture relating to transactions
with Affiliates are substantially the same as the provisions of the Indenture
relating to such matters. For a description thereof, see "Description of the
Notes--Certain Covenants--Transactions with Affiliates".
REPORTS
The provisions of the Exchange Debenture Indenture relating to the provision
of reports and information by the Company are substantially the same as the
provisions of the Indenture relating to such matters. For a description thereof,
see "Description of the Notes--Certain Covenants--Reports".
EVENTS OF DEFAULT AND REMEDIES
The provisions of the Exchange Debenture Indenture relating to events of
defaults and remedies are substantially the same as the provisions of the
Indenture relating to such matters. For a description thereof, see "Description
of the Notes--Certain Covenants--Events of Default and Remedies".
82
<PAGE>
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Exchange Debentures and the Exchange Debenture Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Exchange Debentures by accepting an Exchange Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Debentures. Such waiver may not be
effective to waive liabilities under the federal securities laws and does not
affect any Holder's right to sue under federal securities laws for violations
thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The provisions of the Exchange Debenture Indenture relating to legal
defeasance and covenant defeasance are substantially the same as the provisions
of the Indenture relating to such matters. For a description thereof, see
"Description of the Notes--Legal Defeasance and Covenant Defeasance".
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Debentures in accordance with the
Exchange Debenture Indenture. The Registrar and the Exchange Debenture Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Exchange Debenture Indenture. The
Company is not required to transfer or exchange any Exchange Debenture selected
for redemption. Also, the Company is not required to transfer or exchange any
Exchange Debenture for a period of 15 days before a selection of Exchange
Debentures to be redeemed.
The registered Holder of an Exchange Debenture will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
The provisions of the Exchange Debenture Indenture relating to amendment,
supplement and waiver are substantially the same as the provisions of the
Indenture relating to such matters. For a description thereof, see "Description
of the Notes--Amendment, Supplement and Waiver".
CONCERNING THE EXCHANGE DEBENTURE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the rights
of the Exchange Debenture Trustee, should it become a creditor of the Company,
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Exchange
Debenture Trustee will be permitted to engage in other transactions with the
Company and its Affiliates; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Exchange
Debenture Trustee, subject to certain exceptions. The Exchange Debenture
Indenture provides that in the case an Event of Default shall occur (which shall
not be cured), the Exchange Debenture Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Exchange Debenture Trustee will be
under no obligation to exercise any of its rights or powers under the Exchange
Debenture Indenture at the request of any Holder of Exchange Debentures, unless
such Holder shall have offered to the Exchange Debenture Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
83
<PAGE>
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK OF THE COMPANY
The following description of the capital stock of the Company and the
description of the Company's Articles of Incorporation and By-laws containing
all material provisions thereof is qualified in its entirety by reference to the
Articles of Incorporation and By-laws of the Company, copies of which are filed
as exhibits to the Registration Statement of which this Prospectus constitutes a
part.
The Company was incorporated in 1985 under the Pennsylvania Business
Corporation Law (the "PBCL"). The authorized capital stock of the Company
currently consists of (i) 1,000 shares of Common Stock, par value $.01 per
share, of which 100 shares are issued and outstanding and held by Holdings and
(ii) 10,000,000 shares of Preferred Stock, par value $.01 per share, of which
3,000,000 shares are issued and outstanding as Senior Preferred Stock.
The Company's Articles of Incorporation and By-laws contain provisions
relating to the limitation of liability of directors and indemnification of
directors and officers. The Company's Articles of Incorporation and By-laws
provide that directors shall not be personally liable, as such, for monetary
damages for any action taken, to the fullest extent permitted by the PBCL. In
addition, the Company's Articles of Incorporation and By-laws provide that the
Company shall indemnify its directors and officers to the fullest extent
authorized by applicable law, including circumstances in which indemnification
is otherwise discretionary.
In addition, in the future, the Board of Directors of the Company may,
solely by action of the Board of Directors, issue shares of preferred stock in
one or more series and determine the designation and fix the number of shares of
each series. The Board of Directors of the Company is further authorized to fix
and determine, solely by action of the Board of Directors, the dividend rate,
premium or redemption rate, conversion rights, voting rights, preferences,
privileges, restrictions and other variations granted to or imposed on any
unissued series of such preferred stock.
DESCRIPTION OF THE CREDIT AGREEMENT AND THE A/R FACILITY
On September 30, 1994, SDW Acquisition, the Investor Group and Chemical Bank
(now known as The Chase Manhattan Bank), and Chemical Securities Inc. (now known
as Chase Securities Inc.) (together "Chase") signed a commitment letter pursuant
to which, on December 20, 1994, the aforementioned parties entered into the
Credit Agreement pursuant to which the Company was entitled to borrow up to an
aggregate principal amount of $1.1 billion. The loan facilities were arranged by
Chase and consist of (i) the Term Loan Facilities, consisting of a seven-year
senior secured term loan facility originally in an aggregate principal amount of
$305.0 million (the "Tranche A Term Loan"), and an eight-year senior secured
term loan facility originally in an aggregate principal amount of $325.0 million
(the "Tranche B Term Loan"), (ii) the Revolving Credit Facility and (iii) the
Letter of Credit Facility. At July 3, 1996, the aggregate principal amount
outstanding of Tranche A Term Loans was $268.7 million, the aggregate principal
amount outstanding of Tranche B Term Loans was $185.0 million and the Letter of
Credit Facility utilization was $170.5 million. The Term Loan Facilities, the
Revolving Credit Facility and the Letter of Credit Facility are collectively
referred to herein as the "Credit Facilities". On April 26, 1996, the Company
amended its Credit Agreement to include changes to certain provisions relating
to restrictive covenants including, among other things, the ability to incur
debt, pay dividends and sell certain assets. In addition, certain provisions
relating to interest rates, fees, collateral, prepayments and affirmative
covenants also have been amended. Concurrently with the above, the Company, a
newly established subsidiary, S.D. Warren Finance Co. ("SDWF"), the Bank of
Montreal ("BOM") and its securities unit, Nesbitt Burns Securities ("Nesbitt"),
as agent, entered into a receivables purchase agreement whereby BOM through
Nesbitt has agreed to provide a five-year, $110.0 million revolving accounts
receivable securitization facility (the "A/R Facility"). Under this facility the
Company sells to SDWF, pursuant to a purchase and contribution agreement between
the Company and SDWF, on a nonrecourse basis, all its rights and interests in
its accounts receivable. SDWF in turn sells certain accounts receivable to an
unrelated financial institution under similar terms. The proceeds from the A/R
Facility were used to prepay $100.0 million of the final installment of the
Tranche B Term Loan under
84
<PAGE>
the Credit Agreement. The following summary containing all the material
provisions of the Credit Agreement and the A/R Facility is qualified in its
entirety by reference to the complete text of the documents entered into in
connection therewith, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus constitutes a part. Certain defined terms
used herein have the meaning ascribed thereto in such documents.
AMOUNT AND MATURITY OF FACILITIES
The Tranche A Term Loan will mature in twelve consecutive semiannual
installments commencing June 30, 1996 with a final maturity in December 2001.
The Tranche B Term Loan will mature in fourteen consecutive semiannual
installments commencing June 30, 1996 with a final maturity in December 2002.
The installments of the Tranche A Term Loan and the Tranche B Term Loan due
in each calendar year will be the following respective aggregate amounts as of
July 3, 1996:
<TABLE>
<CAPTION>
TRANCHE A TERM TRANCHE B TERM
LOAN ANNUAL LOAN ANNUAL
YEAR AMOUNT AMOUNT
- ---------------------------------------------------------- -------------- --------------
<S> <C> <C>
1996...................................................... $ 16,357,777 $ 1,231,647
1997...................................................... 46,736,505 2,643,294
1998...................................................... 51,410,155 2,643,294
1999...................................................... 51,410,155 2,643,294
2000...................................................... 51,410,155 13,216,471
2001...................................................... 51,410,155 35,243,922
2002...................................................... -- 127,323,295
</TABLE>
Loans under the Revolving Credit Facility ("Revolving Credit Loans)" will be
made, and letters of credit ("Letters of Credit") will be issued at any time
during the period from and including the Closing Date until the Revolving Credit
Facility matures in December 2001 (the "Revolving Credit Termination Date"). No
Letter of Credit shall have an expiration date later than the Revolving Credit
Termination Date.
Standby letters of credit ("Facility Letters of Credit") were issued under
the Letter of Credit Facility on the Closing Date to support an existing letter
of credit arranged by Scott and to support the Company's obligations with
respect to certain indebtedness and capital and operating leases existing at the
time of the Acquisition including certain obligations of Scott with respect to
Warren's business that continue after the consummation of the Acquisition. The
amount available under the Letter of Credit Facility will be reduced as the
Company's obligations in respect of such indebtedness and leases reduce until
such Facility matures on the Revolving Credit Termination Date. The Facility
Letters of Credit may be drawn upon from time to time in accordance with their
terms. If any such Facility Letter of Credit is drawn upon as a result of the
bankruptcy or insolvency of Scott, the Company's obligations with respect to
such amount of indebtedness may be shortened as to maturity (from up to 20
years, in the case of certain tax exempt obligations, to the remaining term of
the Letter of Credit Facility) and increased as to interest rate (from a
tax-exempt rate to the rate provided for borrowings under the Credit Agreement).
The Company is required to prepay the Term Loan Facilities with (i) 100% of
the net proceeds of certain asset sales, (ii) 100% of the net proceeds of
incurrences of indebtedness and (iii) 50% of the net proceeds from issuances of
equity after the Closing Date by Holdings or any of its subsidiaries. The
Company is also required to prepay the Term Loan Facilities annually in an
amount equal to 75% of the Excess Cash Flow (as defined therein) of the Company
and its subsidiaries for the prior fiscal year; PROVIDED that the Company will
be required to prepay annually an amount equal to only 50% of such Excess Cash
Flow if (a) the aggregate outstanding principal amount of the Term Loan
Facilities is less than $250.0 million and (b) the Consolidated Interest Expense
Ratio (as defined therein) as of the last day of the fiscal quarter immediately
preceding the date of such prepayment (calculated on a rolling four quarter
basis) exceeds 3.00 to 1.00. The Company may also make optional prepayments
without premium or penalty at any time (subject to payment of certain breakage
costs if other than on the last day of an interest period under certain
circumstances). Optional prepayments shall be applied pro rata to the Tranche A
Term Loan and the Tranche B Term Loan based on the respective amounts
outstanding and shall be applied to installments
85
<PAGE>
thereof on a pro rata basis, and may not be reborrowed, except that the amount
of any optional prepayments funded with the portion of Excess Cash Flow which is
not otherwise required to be used to prepay Term Loans and/or the Letter of
Credit Facility Loans may, at the Company's option, be applied to prepay the
Tranche A Term Loan and/or the Tranche B Term Loan in such amounts as the
Company may determine with any such prepayment to be applied first to any
scheduled installment due within six months of the date of prepayment and then
to the remaining installments of the Tranche A Term Loan and/or the Tranche B
Term Loan, as the case may be, on a pro rata basis.
INTEREST RATE
The loans under the Credit Agreement bear interest at a rate equal to, at
the Company's option, (i) the Base Rate plus the Applicable Margin ("Base Rate
Loans") or (ii) the Eurodollar Rate (adjusted for reserves) as determined by
Chase for the respective interest period plus the Applicable Margin ("Eurodollar
Loans"). "Applicable Margin" means a percentage per annum ranging (a) in the
case of Base Rate Loans, from 1.50% to 0.00% (2.00% in the case of Tranche B
Term Loans), and (b) in the case of Eurodollar Loans, from 2.50% to 1.00% (3.00%
in the case of Tranche B Term Loans), in each case based upon the Company's
ability to maintain certain financial ratios determined from the most recent
financial statements of the Company calculated as of the last day of each fiscal
quarter on a rolling four quarter basis. "Base Rate" means the highest of (1)
the rate of interest publicly announced by Chase as its prime rate in effect at
its principal office in New York City, (2) the secondary market rate for three
month certificates of deposit (adjusted for reserves) plus 1% and (3) the
federal funds rate in effect from time to time plus 0.5%.
The loans under the A/R Facility bear interest at a rate equal to the
commercial paper rate (the "CP Rate"). CP Rate is defined as a rate per annum
equal to the rate at which the purchaser of the accounts receivable can issue
commercial paper plus any commissions and charges charged by a placement agent
or commercial paper dealer. If the rate agreed to by such placement agent or
commercial paper dealer is a discount rate then the CP Rate shall mean the rate
resulting from converting such discount rate to an interest-bearing equivalent
rate.
Overdue loans payable under the Credit Agreement bear interest at a rate per
annum equal to the rate which is 2% in excess of the rate then otherwise
applicable to such borrowings. Such interest is payable on demand.
FEES
The Company is required to pay commitment fees from 0.5% to 0.375% per annum
based upon the Company's ability to maintain a certain financial ratio
determined from the most recent financial statements of the Company calculated
as of the last day of each fiscal quarter on a rolling four-quarter basis on the
average daily unused commitments available to be drawn under the Revolving
Credit Facility, as in effect from time to time, to Chase for the account of the
arranged syndicate of lenders (the "Lenders") for the period commencing on the
Closing Date through the maturity date of the Revolving Credit Facility. The
Company is also required to pay letter of credit fees with respect to each
letter of credit equal to the Eurodollar Rate Applicable Margin (as defined
therein) in effect from time to time, plus an issuance fee of between 0.20% and
0.25%, in the case of both such fees, based on the Company's ability to maintain
a certain financial ratio. Chase and the Lenders shall receive such other fees
as have been separately agreed upon with Chase and the Lenders. With respect to
the A/R Facility, S.D. Warren is required to pay certain fees associated with
such facility. Such fees include an annual Program Fee based upon the unused
portion of the A/R Facility and an annual Facility Fee based on the size of the
A/R Facility.
GUARANTEES AND COLLATERAL SECURITY
The Credit Facilities are guaranteed by Holdings and each of the Company's
U.S. subsidiaries. The Credit Facilities and such guarantees are secured by
security interests (subject to other liens permitted by the terms of the Credit
Facilities), to the extent permissible under applicable laws and regulations, in
(a) all of the capital stock of the Company and each of its U.S. subsidiaries
and 65% of the common stock and 100% of the preferred stock of each foreign
subsidiary and (b) all assets (subject to certain limitations), except certain
accounts receivable, owned by the Company and its subsidiaries.
86
<PAGE>
COVENANTS
The Credit Agreement contains restrictive covenants which limit Holdings and
the Company and its subsidiaries with respect to certain matters including,
among other things, the ability to incur debt, pay dividends, make acquisitions,
sell assets, merge, grant or incur liens, guarantee obligations, make
investments or loans, make capital expenditures, create subsidiaries or change
its line of business. The Credit Agreement also restricts the Company from
prepaying certain of its indebtedness. Under the Credit Agreement, the Company
is required to satisfy certain financial covenants which require the Company to
maintain specified financial ratios and comply with certain financial tests,
including a minimum interest coverage ratio, a minimum debt service ratio and a
net worth test.
The A/R Facility contains restrictive covenants which limit SDWF with
respect to certain matters including, among other things, the maintenance of a
certain net worth and its ability to incur liens, extend credit terms beyond
their stated maturity, change its credit policy, create subsidiaries or change
its line of business. The A/R Facility also limits SDWF's ability to pay
dividends, incur indebtedness or amend other agreements related to the A/R
Facility without the consent of the Agent. In addition, the A/R Facility
requires that SDWF maintain certain ratios related to the performance of the
underlying accounts receivable, including a delinquency ratio, a default ratio
and a loss-to-liquidation ratio.
EVENTS OF DEFAULT; TERMINATION EVENTS
The Credit Agreement contains customary Events of Default as well as Events
of Default particular to the ownership of the Company and the Transactions,
including (i) if Sappi or any of its majority owned subsidiaries fails to
beneficially own at least a majority of the issued and outstanding capital stock
of the Company (on a fully diluted basis) and fails to have the right to appoint
a majority of the members of the board of directors of Holdings, (ii) if
Holdings ceases to own all the capital stock of the Company or (iii) the
occurrence of a Change in Control under the Indenture.
The A/R Facility contains certain events ("Termination Events") particular
to SDWF including (1) any event under the Credit Agreement which causes an
acceleration of the maturity of the debt under the Credit Agreement or any
redemption, defeasance, purchase or repayment of debt under the Credit Agreement
other than those required to be made in each case prior to the stated maturity
thereof, (2) any bankruptcy proceeding or declaration by the Company or SDWF
that it is unable to pay its debts generally, (3) the inability, or any action
that would cease, to create a valid and enforceable undivided percentage
ownership interest in any receivable and (4) a violation of any of the
performance ratios set forth above relating to SDWF's accounts receivable.
87
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
NOTES
INTEREST
Interest on the Notes will ordinarily be taxable to a holder as ordinary
income in accordance with a holder's regular method of tax accounting.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION OF NOTES
Generally, any sale, redemption or other taxable disposition of Notes by a
holder will result in taxable gain or loss equal to the difference between (1)
the sum of the amount of cash and the fair market value of any property received
with respect to such sale, redemption or other taxable disposition (except to
the extent such cash or other property is attributable to accrued interest) and
(2) the holder's tax basis in such Notes. A holder's tax basis in such Notes
will equal their purchase price. Such gain or loss will be capital gain or loss,
and will be long-term capital gain or loss if the Notes had been held by the
holder for more than one year at the time of the sale, redemption or other
taxable disposition.
SENIOR PREFERRED STOCK
DISTRIBUTIONS IN GENERAL
Dividends on the Senior Preferred Stock will be taxable for Federal income
tax purposes as ordinary dividend income to the extent paid out of the current
or accumulated earnings and profits of the Company as determined for Federal
income tax purposes. To the extent that the amount of such a distribution
exceeds the current and accumulated earnings and profits of the Company, such
excess will be treated as a non-taxable recovery of the holder's basis in the
stock in respect of which the distribution is made (to the extent thereof), with
any remaining excess treated as gain from the sale or exchange of such stock.
Although it is possible that cash dividends will be paid on or prior to
December 15, 1999, it is not expected that the Company will pay any dividends on
the Senior Preferred Stock in cash for any period ending on or prior to December
15, 1999. Any unpaid dividends will accrue and compound and will be payable upon
the optional or mandatory redemption of the Stock or the exchange of Exchange
Debentures for Senior Preferred Stock. The tax treatment of such accruing and
compounding dividends ("Accrued Dividends") is not free from doubt. Under
current law, it would appear that Accrued Dividends would not be treated as
having been received by holders of the Senior Preferred Stock until such Accrued
Dividends were actually paid in cash (and would then be taxable for Federal
income tax purposes as a dividend to the extent of the Company's current and
accumulated earnings and profits at such time). The legislative history to the
1990 amendments to Section 305(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), however, grants the Service authority to issue regulations
(possibly with retroactive effect) which would treat such Accrued Dividends as
part of the redemption price of the stock. If Accrued Dividends were included in
the redemption price of the Senior Preferred Stock, a holder would be required
to take such Accrued Dividends into account in determining the amount that
constitutes an excessive redemption price for purposes of Section 305(c) of the
Code, as described below under "Excessive Redemption Price". The effect of such
treatment would be to treat such holder as having received such Accrued
Dividends as constructive distributions at the time they accrue, rather than at
the time they are paid in cash. Until regulations requiring such treatment with
respect to Accrued Dividends are issued, however, the Company intends to take
the position that Accrued Dividends on the Senior Preferred Stock need not be
treated as received by a holder until such time as such Accrued Dividends are
actually paid to such holder in cash and will report to the Service on that
basis.
Payments of Liquidated Damages with respect to Senior Preferred Stock will
be taxable to holders thereof as ordinary income according to their usual method
of tax accounting. A corporate holder will not be entitled to the
dividends-received deduction (discussed below) with respect to such Liquidated
Damages.
PROSPECTIVE PURCHASERS OF SENIOR PREFERRED STOCK ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE TAX TREATMENT OF ACCRUED DIVIDENDS.
88
<PAGE>
EXCESSIVE REDEMPTION PRICE
Under Section 305 of the Code and Treasury Regulations authorized
thereunder, if the redemption price of preferred stock that is subject to
mandatory redemption, such as the Senior Preferred Stock, exceeds its issue
price (I.E., its fair market value at its date of issue) by more than a DE
MINIMIS amount, such excess will be taxable as a constructive distribution to
the holder (treated as a dividend to the extent of the Company's current and
accumulated earnings and profits and otherwise subject to the treatment
described above for distributions in excess of current and accumulated earnings
and profits). Such excess will be considered DE MINIMIS if it is less than the
product of (x) 0.25%, (y) the number of complete years to maturity of the
preferred stock, and (z) the redemption price of the preferred stock. If such
excess is greater than a DE MINIMIS amount, a holder of such preferred stock
would be required to treat such excess as a constructive distribution received
by the holder over the life of the preferred stock under a constant interest
(economic yield) method that takes into account the compounding of yield.
Because the Senior Preferred Stock was sold with a Warrant as part of a
Unit, the two instruments will likely be treated by the Internal Revenue Service
(the "Service") as constituting an "investment unit" for Federal income tax
purposes. In such case, the offering price of a Unit will be allocated to the
Senior Preferred Stock and associated Warrant comprising such Unit based on
their relative fair market values. The Company has allocated $22.6042 of the
offering price for a Unit to the Senior Preferred Stock and $2.3958 of such
offering price to the associated Warrant. That allocation by the Company will be
binding on each holder, unless the holder explicitly discloses (on a statement
attached to the holder's timely filed Federal income tax return for the year
that includes the acquisition date of the Unit) that his allocation of a Unit's
issue price between the Senior Preferred Stock and the Warrant is different from
the Company's allocation. Accordingly, the mandatory redemption price of the
Senior Preferred Stock will exceed such Stock's issue price by more than a DE
MINIMIS amount and holders will be required to treat such excess as a
constructive distribution received over the life of the Senior Preferred Stock,
as described above.
DIVIDENDS TO CORPORATE SHAREHOLDERS
In general, an actual or constructive distribution that is treated as a
dividend for Federal income tax purposes and that is made to a corporate
shareholder with respect to the Senior Preferred Stock will qualify for the 70%
dividends-received deduction.
Under Section 1059 of the Code, the tax basis of Senior Preferred Stock that
has been held by a corporate shareholder for two years or less (ending on the
earliest of the date on which the Company declares, announces or agrees to the
payment of such actual or constructive dividend) is reduced (but not below zero)
by the non-taxed portion of an "extraordinary dividend" for which a
dividends-received deduction is allowed. To the extent a corporate holder's tax
basis would have been reduced below zero but for the foregoing limitation, such
holder must increase the amount of gain recognized on the ultimate sale or
exchange of such Senior Preferred Stock. Generally, an "extraordinary dividend"
is a dividend that (1) equals or exceeds 5% of the holder's adjusted basis in
the Senior Preferred Stock (treating all dividends having ex-dividend dates
within an 85-day period as a single dividend) or (2) exceeds 20% of the holder's
adjusted basis in the Senior Preferred Stock (treating all dividends having
ex-dividend dates within a 365-day period as a single dividend). If an election
is made by the holder, under certain circumstances the fair market value of the
Senior Preferred Stock as of the day before the ex-dividend date may be
substituted for the holder's basis in applying these tests.
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO THEIR OWNERSHIP AND
DISPOSITION OF THE SENIOR PREFERRED STOCK.
A corporate stockholder's liability for alternative minimum tax may be
affected by the portion of dividends received which such corporate stockholder
deducts (pursuant to the dividends-received deduction) in computing taxable
income. This results from the fact that corporate stockholders are required to
increase alternative minimum taxable income by 75% of the excess of current
earnings and profits (with certain adjustments, but determined without regard to
the dividends-received deduction), over alternative minimum taxable income
(determined without regard to this earnings and profits adjustment or the
alternative tax net operating loss deduction, but taking into account the
dividends-received deduction).
89
<PAGE>
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION
Upon a sale, redemption or other taxable disposition of Senior Preferred
Stock (including an exchange of Exchange Debentures for Senior Preferred Stock),
a holder generally will recognize capital gain or loss for Federal income tax
purposes (except to the extent of cash payments received on the disposition that
are attributable to declared dividends, which will be treated in the same manner
as distributions described above under "Distributions in General") in an amount
equal to the difference between (1) the sum of the amount of cash and the fair
market value of any property received upon such sale, redemption or other
taxable disposition (the "amount realized") and (2) the holder's adjusted tax
basis in the stock being disposed of. Such capital gain or loss will be
long-term capital gain or loss if the stock had been held by the holder for more
than one year at the time of the disposition. Notwithstanding the foregoing, it
is possible that the Service may require a holder to treat amounts received upon
the redemption of Senior Preferred Stock or the exchange of Exchange Debentures
for Senior Preferred Stock that are attributable to Accrued Dividends (and not
previously treated as received by a holder as a constructive distribution as
described above under "Distributions in General") as a constructive
distribution, regardless of whether the Company declares a dividend of such
Accrued Dividends in connection with such redemption or exchange. In such case,
such amounts would be taxable for Federal income tax purposes as ordinary
dividend income to the extent of the Company's current and accumulated earnings
and profits for Federal income tax purposes at such time (and any amounts in
excess thereof would be taxable as described above under "Distributions in
General".)
A holder's initial tax basis in the Senior Preferred Stock will equal the
portion of the offering price of the Unit allocable to the Senior Preferred
Stock, as described above under "Excessive Redemption Price". Thereafter, such
initial tax basis will be (i) increased by the amount (if any) of any
constructive distributions the holder is treated as having received pursuant to
the rules described above under "Distributions in General" and "Excessive
Redemption Price", and (ii) decreased by the portion of any (actual or
constructive) distribution that is treated as a tax-free recovery of basis as
described above under "Distributions in General".
If the Company elects to exchange Exchange Debentures for Senior Preferred
Stock on a dividend date, the amount realized on the exchange will depend on
whether the Exchange Debentures and/or the Senior Preferred Stock is traded on
an established market (as defined in applicable Treasury Regulations) at the
time of the exchange. The amount realized will equal (i) the fair market value
of the Exchange Debentures as of the exchange date if the Exchange Debentures
are traded on an established market at such time or (ii) the fair market value
of the Senior Preferred Stock as of the exchange date if such Senior Preferred
Stock is traded on an established market at such time but the Exchange
Debentures are not. If neither the Senior Preferred Stock nor the Exchange
Debentures are so traded, the amount realized will equal the stated principal
amount of the Exchange Debentures provided that the yield on the Exchange
Debentures is equal to or greater than the relevant "applicable Federal rate".
(The applicable Federal rate is a rate announced monthly by the Treasury that is
intended to reflect the average yield of United States government obligations.)
If neither the Exchange Debentures nor the Senior Preferred Stock is so traded
and the yield on the Exchange Debentures is less than the applicable Federal
rate, the amount realized will equal the present value as of the exchange date
of all payments to be made on the Exchange Debentures, discounted at the
applicable Federal rate. It cannot be determined at the present time whether the
Senior Preferred Stock or the Exchange Debentures will be, at the relevant time,
traded on an established market within the meaning of the Treasury Regulations.
Depending upon a holder's particular circumstances, the tax consequences of
holding Exchange Debentures (described below) may be less advantageous than the
tax consequences of holding Senior Preferred Stock because, for example,
payments of interest on the Exchange Debentures will not be eligible for any
dividends-received deduction that may be available to corporate holders and
because, as discussed below, the Exchange Debentures permit the distribution of
Additional Exchange Debentures in lieu of the payment of interest in cash, such
Exchange Debentures will be issued with OID.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE LIKELIHOOD
OF CAPITAL GAIN TREATMENT (IN WHOLE OR PART) ON THE REDEMPTION OF SENIOR
PREFERRED STOCK OR ITS EXCHANGE FOR EXCHANGE DEBENTURES.
90
<PAGE>
EXCHANGE DEBENTURES
CONSEQUENCES OF OWNING EXCHANGE DEBENTURES
The consequences of owning Exchange Debentures will depend in part upon the
facts existing at the time of issuance, as described below. Accordingly, the
ultimate Federal income tax treatment of the ownership of the Exchange
Debentures may differ substantially from that described below. If any Exchange
Debentures are issued, the Company will report to holders on a timely basis the
reportable amount of original issue discount ("OID") and interest income with
respect to the Exchange Debentures, based on its understanding of then
applicable law.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES OF OWNING EXCHANGE DEBENTURES.
ORIGINAL ISSUE DISCOUNT
Because interest on the Exchange Debentures can, at the option of the
Company, be paid in cash or in additional Exchange Debentures, the Exchange
Debentures will be treated, for Federal income tax purposes, as having been
issued with OID. Under the provisions of the Treasury Regulations dealing with
OID (the "OID Regulations") (i) the distribution of additional Exchange
Debentures in lieu of the payment of interest in cash ("Additional Exchange
Debentures") will not be treated as the payment of interest and accordingly,
(ii) an Exchange Debenture and all Additional Exchange Debentures that could be
issued with respect thereto (if all interest payments that could be satisfied in
Additional Exchange Debentures were satisfied in Additional Exchange Debentures)
will be treated as single OID obligation. Accordingly, under the provisions of
the OID Regulations (i) the stated redemption price at maturity of an Exchange
Debenture will be equal to the sum of all cash payments due on such Exchange
Debentures and on all Additional Exchange Debentures that could be issued with
respect to such Exchange Debenture or Additional Exchange Debentures (if all
interest payments that could be satisfied in Additional Exchange Debentures were
satisfied in Additional Exchange Debentures), (ii) each Exchange Debenture will
be issued with OID in an amount equal to the excess of such stated redemption
price at maturity over the issue price of such Exchange Debenture and (iii) no
interest payment on the Exchange Debentures or on any Additional Exchange
Debentures distributed with respect thereto will be treated as qualified stated
interest and therefore no such interest will be included in income when paid
(because equivalent amounts will be included in income as OID).
The holder of an Exchange Debenture issued with OID will be required to
include such OID in income as interest over the term of the Exchange Debenture,
in advance of the receipt of the cash attributable to such income, under a
constant interest rate method described below that takes account of the
compounding of interest.
The amount of OID accruing with respect to any Exchange Debenture will be
the sum of the "daily portions" of OID with respect to such Exchange Debenture
for each day during the taxable year in which a holder owns an Exchange
Debenture ("accrued OID"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. An accrual period may be of any length and may vary in length
over the term of an Exchange Debenture provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
either on the final day of an accrual period or on the first day of an accrual
period. The amount of OID accruing during any accrual period with respect to an
Exchange Debenture will be equal to the following amount: (i) the "adjusted
issue price" of such Exchange Debenture at the beginning of that accrual period,
MULTIPLIED BY (ii) the yield to maturity of such Exchange Debenture. OID
allocable to a final accrual period is the difference between the amount payable
at maturity and the adjusted issue price at the beginning of the final accrual
period. If all accrual periods are of equal length, except for an initial short
accrual period, the amount of OID allocable to the initial short accrual period
may be computed under any reasonable method. The adjusted issue price of an
Exchange Debenture at the beginning of its first accrual period will be equal to
its issue price. An Exchange Debenture's issue price will equal the amount
realized upon the exchange of Exchange Debentures for Senior Preferred Stock, as
described above under "Sale or Exchange". The adjusted issue price at the
beginning of any subsequent accrual period will be equal to (i) the adjusted
issue
91
<PAGE>
price at the beginning of the preceding accrual period, PLUS (ii) the amount of
OID allocable to the preceding accrual period, MINUS(iii) any payments
(including payments of cash interest) made during the preceding accrual period
and on the first day of such subsequent accrual period.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Pursuant to Section 163 of the Code, a portion of the OID accruing on
certain debt instruments will be treated as a dividend eligible for the
dividends-received deduction, and the corporation issuing such debt instrument
will not be entitled to deduct such portion of the OID and will be allowed to
deduct the remainder of the OID only when paid.
This treatment would apply to "applicable high yield discount obligations"
("AHYDO"), that is, debt instruments that have a term of more than five years,
have a yield to maturity that equals or exceeds five percentage points over the
"applicable Federal rate" and have "significant" OID. A debt instrument is
treated as having "significant" OID if the aggregate amount that would be
includible in gross income with respect to such debt instrument for periods
before the close of any accrual period ending after the date five years after
the date of issue exceeds the sum of (i) the aggregate amount of interest to be
paid in cash under the debt instrument before the close of such accrual period
and (ii) the product of the initial issue price of such debt instrument and its
yield to maturity. Because the amount of OID attributable to the Exchange
Debentures will be determined at the time such Exchange Debentures are issued
and the applicable Federal rate at the time the Exchange Debentures are issued
is not predictable, it is impossible to determine at the present time whether
the Exchange Debentures will be treated as an AHYDO.
If the Exchange Debentures are treated as AHYDO's, a holder would be treated
as receiving dividend income (to the extent of the Company's current and
accumulated earnings and profits) solely for purposes of the dividends-received
deduction in an amount equal to the "disqualified portion" of the OID of such
AHYDO. The "disqualified portion" of the OID is equal to the lesser of (i) the
amount of the OID or (ii) the portion of the "total return" (the excess of all
payments to be made with respect to the Exchange Debenture obligation over its
issue price) on the Exchange Debenture that bears the same ratio to the Exchange
Debenture's total return as the "disqualified yield" (the extent to which the
yield exceeds the applicable Federal rate plus 6%) bears to the Exchange
Debenture's yield to maturity. To the extent the Company's earnings and profits
are insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends-received deduction
will continue to be taxed as ordinary OID income in accordance with the rules
described above. The Company's deduction for OID will be substantially deferred
with respect to an Exchange Debenture that is treated as an AHYDO. In addition,
such deduction will be disallowed to the extent that the yield on such AHYDO
exceeds the applicable Federal rate by more than 6%.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION OF EXCHANGE DEBENTURES
Generally, any sale, redemption other taxable disposition of Exchange
Debentures by a holder will result in taxable gain or loss equal to the
difference between (1) the sum of the amount of cash and the fair market value
of any property received upon such sale, redemption or disposition and (2) the
holder's adjusted tax basis in such Exchange Debentures. The adjusted tax basis
of a holder in such Exchange Debentures will equal the issue price of such
Exchange Debentures, increased by any OID on the Exchange Debentures previously
included in such holder's income, and reduced by any payments (including
payments of cash interest) previously made on the Exchange Debentures. Such gain
or loss will be capital gain or loss, and will be long-term capital gain or loss
if the Exchange Debentures had been held by the holder for more than one year at
the time of the sale, redemption or disposition.
BACKUP WITHHOLDING
In general, a noncorporate holder of Securities will be subject to backup
withholding at the rate of 31% with respect to reportable payments of dividends,
interest, or OID accrued with respect to, or the proceeds of a sale, exchange or
redemption of, Securities, as the case may be, if the holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income. Amounts paid as
backup withholding do not constitute an additional tax and will be credited
against the holder's Federal income tax liabilities.
92
<PAGE>
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER OF SECURITIES SHOULD CONSULT WITH ITS OWN TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND
DISPOSITION OF SUCH SECURITIES, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by DLJSC in connection with offers
and sales of the Securities in market making transactions. DLJSC may act as
principal or agent in such transactions. DLJSC has advised the Company that it
currently makes a market in the Securities, but it is not obligated to do so and
may discontinue any such market making at any time without notice. Accordingly,
there can be no assurance that an active trading market will be maintained for
the Securities.
DLJSC is an affiliate of certain stockholders of Holdings, of which S.D.
Warren is a wholly owned subsidiary. As of the date of this Prospectus, these
affiliates owned an aggregate of 6,593,749 shares of Common Stock (including
3,468,749 shares subject to Class B Warrants) or 18.35% of the outstanding
Common Stock on a fully diluted basis. In addition, John S. Chalsty, the
president and chief executive officer of Donaldson, Lufkin & Jenrette, Inc., an
affiliate of DLJSC, and Peter T. Grauer, Managing Director of DLJMB an affiliate
of DLJSC, are members of the board of directors of Holdings. See "Security
Ownership of Certain Beneficial Owners and Management".
Pursuant to the Shareholders Agreement, certain affiliates of DLJSC are
entitled to designate one of Holdings' directors and have certain other rights.
See "Security Ownership of Certain Beneficial Owners and
Management--Shareholders Agreement". Certain benefits to each party under the
Shareholders Agreement terminate, however, if such party no longer owns
specified minimum amounts of Common Stock.
PRIOR RELATIONSHIPS
In connection with the Acquisition the Company sold to DLJSC $375 million of
the SDW Acquisition Notes, $75 million of SDW Acquisition Senior Preferred Stock
and 898,440 Class A Warrants, less the aggregate discount to DLJSC of
$13,950,000. DLJSC was also reimbursed for certain out-of-pocket expenses
incurred by DLJSC in connection therewith.
Pursuant to a letter agreement dated October 6, 1994, DLJ Bridge Funding
Inc., an affiliate of DLJSC made a commitment to purchase $375 million of senior
subordinated bridge notes in connection with the Acquisition, in the event the
Note Offering did not occur. DLJ Bridge Funding Inc., received customary fees
for making such commitment
The Company also agreed to pay certain fees, reimburse expenses for and
provide indemnification to members of the Investor Group and transferees, which
group includes certain affiliates of DLJSC, in connection with the Acquisition
and related transactions including various registration rights. See "Certain
Relationships and Related Transactions".
EXPERTS
The balance sheet data as of September 24, 1994, and September 27, 1995, the
statements of operations, changes in parent's equity and cash flows for the
twelve months ended December 25, 1993, the nine months ended September 24, 1994
and the three months ended December 20, 1994, and the statements of operations,
changes in stockholder's equity and cash flows for the nine months ended
September 27, 1995 included in this Prospectus and the related Financial
Statement Schedule included elsewhere in this Registration Statement have been
so included herein in reliance upon the report of Deloitte & Touche LLP,
independent accountants, which expresses an unqualified opinion and includes an
explanatory paragraph relating to the comparability of the Predecessor
Corporation's Financial Statements given upon the authority of that firm as
experts in accounting and auditing.
93
<PAGE>
S.D. WARREN COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Financial Statements of S.D. Warren Company
Statements of Operations for the twelve months ended December 25, 1993, the nine months ended September
24, 1994, the period September 25, 1994 through December 20, 1994 and the period December 21, 1994
through September 27, 1995.............................................................................. F-3
Balance Sheets as of September 24, 1994 and September 27, 1995........................................... F-4
Statements of Cash Flows for the twelve months ended December 25, 1993, the nine months ended September
24, 1994, the period September 25, 1994 through December 20, 1994 and the period December 21, 1994
through September 27, 1995.............................................................................. F-5
Statements of Changes in Parent's Equity for the twelve months ended December 25, 1993, the nine months
ended September 24, 1994 and the period September 25, 1994 through December 20, 1994.................... F-6
Statement of Changes in Stockholder's Equity for the period December 21, 1994 through September 27,
1995.................................................................................................... F-7
Notes to Financial Statements............................................................................ F-8
Financial Statement Schedule
II--Valuation and Qualifying Accounts.................................................................... F-31
Unaudited Condensed Financial Statements of S.D. Warren Company
Unaudited Condensed Statements of Operations for the period September 25, 1994 through December 20, 1994,
the period December 21, 1994 through June 28, 1995 and the nine months ended July 3, 1996............... F-32
Unaudited Condensed Balance Sheets as of September 27, 1995 and July 3, 1996............................. F-33
Unaudited Condensed Statements of Cash Flows for the period September 25, 1994 through December 20, 1994,
the period December 21, 1994 through June 28, 1995 and the nine months ended July 3, 1996............... F-34
Notes to Unaudited Condensed Financial Statements........................................................ F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
S.D. Warren Company and subsidiaries:
We have audited the consolidated balance sheet of S.D. Warren Company and
subsidiaries (the "Company") as of September 27, 1995 and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the period December 21, 1994 (commencing with the acquisition) through
September 27, 1995. We have also audited the combined balance sheet of S.D.
Warren Company and certain related affiliates (the "Predecessor Corporation") as
of September 24, 1994 and the related combined statements of operations, changes
in parent's equity, and cash flows for the twelve month period ended December
25, 1993, the nine month period ended September 24, 1994 and for the period
September 25, 1994 through December 20, 1994. Our audits also included the
financial statement schedule listed in the Index. These financial statements and
financial statement schedule 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.
As discussed in Note 1 to the financial statements, S.D. Warren Company and
certain related affiliates were acquired effective December 20, 1994. The
transaction was accounted for using the purchase method of accounting whereby
the purchase price was allocated to the assets acquired and liabilities assumed
based on their respective fair values. Accordingly, the balance sheet and the
statements of operations, changes in parent's equity and cash flows of the
Predecessor Corporation for the periods referred to in the first paragraph of
this report are not comparable with those presented for the Company.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 27,
1995 and the results of their operations and their cash flows for the period
December 21, 1994 (commencing with the acquisition) through September 27, 1995
in conformity with generally accepted accounting principles. Also, in our
opinion, the combined financial statements of the Predecessor Corporation
present fairly, in all material respects, the financial position of the
Predecessor Corporation at September 24, 1994 and the results of their
operations, and their cash flows for the twelve month period ended December 25,
1993, the nine month period ended September 24, 1994 and for the period
September 25, 1994 through December 20, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 11, 1996
F-2
<PAGE>
S.D. WARREN COMPANY
STATEMENTS OF OPERATIONS
(in millions, except share data)
<TABLE>
<CAPTION>
PERIOD PERIOD
TWELVE MONTHS SEPTEMBER 25, DECEMBER 21,
ENDED NINE MONTHS ENDED 1994 1994
DECEMBER25, SEPTEMBER 24, THROUGH THROUGH
1993 1994 DECEMBER20, 1994 SEPTEMBER27,
--------------- ----------------- ----------------- 1995
S.D. WARREN S.D. WARREN S.D. WARREN ---------------
COMPANY AND COMPANY AND COMPANY AND S.D. WARREN
CERTAIN RELATED CERTAIN RELATED CERTAIN RELATED COMPANY AND
AFFILIATES AFFILIATES AFFILIATES SUBSIDIARIES
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
--------------- ----------------- ----------------- ---------------
Sales............................ $ 1,143.6 $ 828.8 $ 313.6 $ 1,155.8
<S> <C> <C> <C> <C>
Cost of goods sold............... 975.5 722.4 263.7 886.0
--------------- ------ ------ ---------------
Gross profit..................... 168.1 106.4 49.9 269.8
Selling, general and
administrative expense......... 91.7 72.1 22.2 96.7
Restructuring.................... 66.1 -- -- --
--------------- ------ ------ ---------------
Income from operations........... 10.3 34.3 27.7 173.1
Other income (expense), net...... 0.1 0.1 (0.5) 3.2
Interest expense................. 8.5 6.4 2.3 106.0
--------------- ------ ------ ---------------
Income before income taxes....... 1.9 28.0 24.9 70.3
Income tax expense............... 6.5 11.2 9.9 28.2
--------------- ------ ------ ---------------
Net income (loss)................ (4.6) 16.8 15.0 42.1
Dividends and accretion on
preferred stock................ -- -- -- 9.1
--------------- ------ ------ ---------------
Net income (loss) applicable to
common stockholder............. $ (4.6) $ 16.8 $ 15.0 $ 33.0
--------------- ------ ------ ---------------
--------------- ------ ------ ---------------
Net earnings per common share (in
millions)...................... $ 0.33
---------------
---------------
Weighted average number of shares
outstanding.................... 100
---------------
---------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
S.D. WARREN COMPANY
BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 24,
1994 SEPTEMBER 27,
--------------- 1995
S.D. WARREN ---------------
COMPANY AND S.D. WARREN
CERTAIN RELATED COMPANY AND
AFFILIATES SUBSIDIARIES
(PREDECESSOR) (SUCCESSOR)
--------------- ---------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents................................. $ 4.7 $ 62.2
Trade accounts receivable, net............................ 69.8 129.4
Other receivables......................................... 21.7 24.5
Inventories............................................... 135.7 226.5
Deferred income taxes..................................... 38.5 8.9
Other current assets...................................... 3.6 11.1
--------------- ---------------
Total current assets.................................. 274.0 462.6
Plant assets, net........................................... 1,341.7 1,150.7
Timber resources, at cost less timber harvested............. 28.1 98.4
Goodwill, net............................................... -- 98.1
Deferred financing fees, net................................ -- 53.1
Other assets, net........................................... 33.1 24.7
--------------- ---------------
Total assets.......................................... $ 1,676.9 $ 1,887.6
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long term debt...................... $ 3.0 $ 78.6
Accounts payable.......................................... 73.0 112.2
Accrued and other current liabilities..................... 41.8 94.2
--------------- ---------------
Total current liabilities............................. 117.8 285.0
--------------- ---------------
Long term debt:
Term loans................................................ -- 553.8
Senior subordinated notes................................. -- 375.0
Other..................................................... 116.8 120.0
--------------- ---------------
116.8 1,048.8
--------------- ---------------
Deferred income taxes....................................... 211.9 21.2
--------------- ---------------
Other liabilities........................................... 93.9 93.3
--------------- ---------------
Total liabilities..................................... 540.4 1,448.3
--------------- ---------------
Commitments and contingencies (Note 15)
Series B redeemable exchangeable preferred stock
(liquidation value, $83.5 million)........................ -- 74.5
--------------- ---------------
Stockholder's equity:
Common stock ($.01 par value; 1,000 shares authorized; 100
shares issued and outstanding at September 27, 1995)..... -- --
Capital in excess of par value............................ -- 331.8
Retained earnings......................................... -- 33.0
Parent's equity........................................... 1,136.5 --
--------------- ---------------
Total stockholder's equity............................ 1,136.5 364.8
--------------- ---------------
Total liabilities and stockholder's equity............ $ 1,676.9 $ 1,887.6
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
S.D. WARREN COMPANY
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
PERIOD PERIOD
NINE MONTHS SEPTEMBER 25, DECEMBER 21,
TWELVE MONTHS ENDED 1994 1994
ENDED SEPTEMBER 24, THROUGH THROUGH
DECEMBER 25, 1993 1994 DECEMBER 20, 1994 SEPTEMBER 27,
----------------- ----------------- ----------------- 1995
S.D. WARREN S.D. WARREN S.D. WARREN ---------------
COMPANY AND COMPANY AND COMPANY AND S.D. WARREN
CERTAIN RELATED CERTAIN RELATED CERTAIN RELATED COMPANY AND
AFFILIATES AFFILIATES AFFILIATES SUBSIDIARIES
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
----------------- ----------------- ----------------- ---------------
Cash Flows from Operating
Activities:
<S> <C> <C> <C> <C>
Net income (loss).............. $ (4.6) $ 16.8 $ 15.0 $ 42.1
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation, cost of timber
harvested and
amortization................ 93.1 71.6 28.8 89.8
Deferred income taxes........ 1.0 8.4 15.8 12.3
Gains on asset sales......... (4.6) -- -- --
Changes in assets and
liabilities net of the effect
of the Acquisition:
Trade accounts receivable,
net......................... 2.8 (9.8) (1.7) (23.0)
Inventories.................. (13.4) (13.0) 5.4 (57.6)
Accounts payable, accrued and
other current liabilities... (17.7) (19.3) 18.6 66.3
Accruals for restructuring
programs.................... 65.3 (28.4) (12.7) --
Other assets and
liabilities................. 8.4 1.5 (15.5) 6.1
------ ------ ------ ---------------
Net cash provided by
operating activities...... 130.3 27.8 53.7 136.0
------ ------ ------ ---------------
Cash Flows from Investing
Activities:
Acquisition, net of related
costs......................... -- -- -- (1,455.9)
Investments in plant assets and
timber resources.............. (68.9) (32.3) (14.5) (33.7)
Proceeds from asset sales...... 4.7 -- -- --
Other investing activities..... (9.5) (14.1) -- --
------ ------ ------ ---------------
Net cash used in investing
activities................ (73.7) (46.4) (14.5) (1,489.6)
------ ------ ------ ---------------
Cash Flows from Financing
Activities:
Proceeds from long-term debt... 29.8 0.9 -- 1,105.7
Repayments of long-term debt... (31.2) (5.4) (0.5) (162.1)
Proceeds from equity
contribution.................. -- -- -- 331.8
Proceeds from issuance of
preferred stock, net of
expenses...................... -- -- -- 65.4
Predecessor Corporation's
parent company capital
(withdrawals) infusions,
net........................... (54.1) 25.4 31.6 --
Other financing activities..... (0.3) 0.3 -- --
------ ------ ------ ---------------
Net cash provided by (used
in) financing
activities................ (55.8) 21.2 31.1 1,340.8
------ ------ ------ ---------------
Net change in cash and cash
equivalents.................... 0.8 2.6 70.3 (12.8)
Cash and cash equivalents, at
beginning of period............ 1.3 2.1 4.7 75.0
------ ------ ------ ---------------
Cash and cash equivalents, at end
of period...................... $ 2.1 $ 4.7 $ 75.0 $ 62.2
------ ------ ------ ---------------
------ ------ ------ ---------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
S.D. WARREN COMPANY
STATEMENTS OF CHANGES IN PARENT'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
PARENT'S
EQUITY
---------
<S> <C>
Balance, December 27, 1992............................................................................. $ 1,152.3
Net loss............................................................................................... (4.6)
Foreign currency translation adjustment................................................................ (2.1)
Capital withdrawal, net................................................................................ (54.1)
Minimum pension liability adjustment................................................................... (3.4)
---------
Balance, December 25, 1993............................................................................. 1,088.1
Net income............................................................................................. 16.8
Foreign currency translation adjustment................................................................ 1.2
Capital infusion, net.................................................................................. 25.4
Minimum pension liability adjustment................................................................... 5.0
---------
Balance, September 24, 1994............................................................................ 1,136.5
Net income............................................................................................. 15.0
Foreign currency translation adjustment................................................................ 1.0
Capital infusion, net.................................................................................. 66.6
---------
Balance, December 20, 1994 (Prior to Acquisition)...................................................... $ 1,219.1
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
S.D. WARREN COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF RETAINED
SHARES PAR VALUE PAR VALUE EARNINGS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 21, 1994............................................. 100 $ -- $ -- $ --
Equity contribution from SDW Holdings Corporation...................... -- -- 331.8 --
Net income............................................................. -- -- -- 42.1
Dividends accrued on Senior preferred stock............................ -- -- -- (8.5)
Accretion to liquidation preference value on Senior preferred stock.... -- -- -- (0.6)
--- ----- ----------- -----
Balance, September 27, 1995............................................ 100 $ -- $ 331.8 $ 33.0
--- ----- ----------- -----
--- ----- ----------- -----
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BUSINESS, FORMATION AND ACQUISITION
BUSINESS
S.D. Warren Company ("S.D. Warren", "Warren" or the "Company") manufactures
printing, publishing and specialty papers and has pulp and timberland operations
vertically integrated with certain of its manufacturing facilities. The Company
currently operates four paper mills, a sheeting and distribution facility and
owns approximately 911,000 acres of timberlands in the State of Maine.
FORMATION AND ACQUISITION
As of October8, 1994, SDW Acquisition Corporation ("SDW Acquisition"), a
direct wholly owned subsidiary of SDW Holdings Corporation ("Holdings"), entered
into a definitive agreement (the "Stock Purchase Agreement") pursuant to which,
on December 20, 1994, SDW Acquisition acquired (the "Acquisition") from Scott
Paper Company ("Scott") all of the outstanding capital stock of Warren, then a
wholly owned subsidiary of Scott, and certain related affiliates of Scott
(referred to herein as the "Predecessor Corporation"). Immediately following the
Acquisition, SDW Acquisition merged with and into Warren (the "Merger"), with
Warren (the "Successor Corporation") surviving. Scott has since been acquired by
Kimberly-Clark Corporation.
The Acquisition was accounted for as a purchase, applying the provisions of
Accounting Principles Board Opinion ("APB") No. 16. The final purchase cost is
subject to ongoing negotiations with Scott in accordance with procedures set
forth in the agreement pursuant to which the Acquisition was effected and is
expected to be finalized either through negotiated agreement or arbitration. The
final purchase cost is not expected to be materially different from the
estimates currently included in the Company's financial statements. On a
preliminary basis, the total estimated purchase cost of approximately $1.9
billion, including the effect of liabilities assumed, was allocated to the
assets acquired based on their respective fair values as follows (in millions):
<TABLE>
<S> <C>
Plant assets...................................................... $ 1,186.0
Timber resources.................................................. 98.6
Intangible assets:
Patents......................................................... 23.0
Goodwill........................................................ 100.6
Financing fees and other assets................................... 62.8
Current assets, net realizable value in the case of inventories,
receivables and prepaid expenses................................ 436.7
---------
$ 1,907.7
---------
---------
</TABLE>
Liabilities assumed in the Acquisition, based on their respective fair
market values, were treated as non-cash activity for presentation in the
Statement of Cash Flows. Liabilities assumed are as follows (in millions):
<TABLE>
<S> <C>
Current liabilities................................................. $ 142.6
Long term debt...................................................... 121.9
Other long term liabilities......................................... 80.9
---------
$ 345.4
---------
---------
</TABLE>
To effect the Acquisition, SDW Acquisition issued $75.0 million of 14%
Series A Senior Exchangeable Preferred Stock due 2006 (the "SDW Acquisition
Senior Preferred Stock") and $375.0 million of 12% Series A Senior Subordinated
Notes due 2004 (the "SDW Acquisition Notes") and received $331.8 million from
Holdings as a contribution to capital. Immediately following the Acquisition,
all indebtedness under the SDW Acquisition Notes was assumed by the Company (the
"Series A Notes") and SDW Acquisition Senior Preferred Stock was converted into
an equivalent amount of the Company's 14% Series A Senior
F-8
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--BUSINESS, FORMATION AND ACQUISITION (CONTINUED)
Exchangeable Preferred Stock due 2006 (the "Old Senior Preferred Stock"). The
Old Senior Preferred Stock and the Series A Notes were subject to an exchange
offer discussed in Notes 11 and 19. The remaining purchase price was financed,
in part, through the credit facilities discussed in Note 11.
Subsequent to the Acquisition, Warren and Scott jointly elected to treat the
stock purchase as an asset purchase pursuant to Internal Revenue Code Section
338(h)(10).
PRO FORMA INFORMATION (UNAUDITED)
The following table sets forth pro forma information on the Acquisition of
the Predecessor Corporation as though it had occurred on December 26, 1993 and
September 25, 1994, and presents consolidated statements of operations data for
the nine months ended September 24, 1994 and for the year ended September 27,
1995.
Unaudited Pro Forma Statements of Operations Data (in millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 24, SEPTEMBER27,
1994 1995
------------- -------------
<S> <C> <C>
Net revenues................................................. $ 828.8 $ 1,469.4
------ -------------
------ -------------
Operating income............................................. 28.6 202.4
------ -------------
------ -------------
Net income (loss)............................................ (44.4) 41.0
------ -------------
------ -------------
Net income (loss) applicable to common stockholder........... (53.0) 28.9
------ -------------
------ -------------
Net income (loss) per common share........................... (0.53) 0.29
------ -------------
------ -------------
</TABLE>
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of the Company have been
prepared on the accrual basis of accounting and include the accounts of the
Company and its various subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
As the Acquisition resulted in a new basis of accounting and the adoption of
certain accounting policies which differ from the Predecessor Corporation's
accounting policies, the Company's financial statements for the periods
subsequent to the Acquisition date are not comparable to the Predecessor
Corporation's financial statements for the periods prior to the Acquisition.
The following presents the significant accounting policies of the Company.
Except as discussed in Note 3, the significant accounting policies of the
Predecessor Corporation are comparable to the Company.
FISCAL YEAR
The Company and its subsidiaries' fiscal year ends on the last Wednesday in
September, until otherwise determined by the Company's Board of Directors.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of highly liquid investments
with insignificant interest rate risk and original maturities of three months or
less at the date of acquisition. Similar investments with original maturities
beyond three months are considered short-term marketable securities. At
September 24, 1994 and September 27, 1995 the Company had no short-term
marketable securities.
OTHER RECEIVABLES
Other receivables primarily represent amounts due from the sale of energy
produced by the Company's cogeneration facilities.
F-9
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories at September 27, 1995 are valued at the lower of cost or market,
using the first-in, first-out (FIFO) cost method. Inventories of maintenance
parts and other supplies are based on purchase cost.
PLANT ASSETS
Plant assets are recorded at cost. As of the date of the Acquisition, in
accordance with APB No. 16, the Company revalued the plant assets of the Company
to fair market value and revised the estimated average useful lives used to
compute depreciation for most of its plant and equipment to a range from three
to twenty years. For financial accounting purposes, depreciation is principally
calculated by the straight-line method over the estimated useful lives of the
assets.
Expenditures for renewals and betterments which increase the useful life or
capacity of plant assets are capitalized. On retirements or sales of assets
which have not been fully depreciated, the cost of plant assets is removed from
the asset account. The Company records gains and losses on the retirement or
sale of plant assets when realized.
Interest expense is capitalized on major construction projects, including
timber resources to the extent that such timber has not yet matured. For the
nine months ended September 24, 1994 and the period December 21, 1994 through
September 27, 1995 (the "nine months ended September 27, 1995"), the Company
capitalized interest of approximately $1.4 million and $0.9 million,
respectively. No interest was capitalized for the twelve months ended December
25, 1993 or the period September 25, 1994 through December 20, 1994 (the "three
months ended December 20, 1994").
TIMBER RESOURCES
Timber resources are recorded at cost, which includes original costs, road
construction costs, and reforestation costs, such as site preparation and
planting costs. As of the date of the Acquisition, in accordance with APB No.
16, the Company revalued its timber resources to fair market value. Property
taxes, surveying, fire control and other forest management expenses are charged
to expense as incurred.
GOODWILL
Goodwill, which resulted from the Acquisition, is being amortized for
financial statement purposes on a straight-line basis over 25 years. Pursuant to
Statement of Financial Accounting Standards ("FAS") No. 121, on an ongoing
basis, the carrying value of goodwill at the balance sheet date is evaluated on
the basis of whether anticipated operating cash flows generated by the acquired
businesses will recover the recorded asset balance over the estimated useful
life. The goodwill balance at September 27, 1995 was approximately $98.1
million, net of approximately $3.1 million of accumulated amortization.
DEFERRED FINANCING FEES
Deferred financing fees, primarily resulting from the financing of the
Acquisition are being amortized over the average life of the related debt and
are recorded net of accumulated amortization of approximately $7.2 million at
September 27, 1995.
OTHER ASSETS
Other assets include intangible assets, primarily patents, arising as part
of the purchase price allocation, of $21.5 million at September 27, 1995. These
intangible assets are being amortized over their estimated useful lives of
approximately eleven years. Intangibles are stated net of accumulated
amortization of approximately $1.5 million at September 27, 1995.
FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board has issued FAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments."
This statement requires the disclosure of
F-10
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the fair value of most derivative financial instruments and amends FAS No. 107.
The Company uses interest rate swap agreements ("Swaps") and interest rate cap
agreements ("Caps") as a means of managing interest-rate risk associated with
debt balances. These instruments are matched with either fixed or variable rate
debt and are recorded on a settlement basis as an adjustment to interest
expense. Premiums paid to purchase Caps are amortized as an adjustment to
interest expense over the life of the contract. Cash flows from Swaps and Caps
are classified in the Statements of Cash Flows in the same category as the items
being hedged or on a basis consistent with the nature of the investment.
Derivative financial instruments are not held for trading purposes. The Company
adopted FAS No. 119 during 1995.
INCOME TAXES
The tax provisions reflect the application of FAS No. 109, "Accounting for
Income Taxes", for all periods presented. The standard requires an asset and
liability approach to computing deferred income taxes. This approach 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 approach, deferred income taxes are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
WORKERS' COMPENSATION INSURANCE
The Company is primarily self-insured for workers' compensation insurance.
The self-insurance claim liability for workers' compensation is based on claims
reported and actuarial estimates of adverse developments and claims incurred but
not reported. The Company's workers' compensation liability is discounted as it
is several years before the claims related to a particular year are paid in
full. The liability has been actuarially determined as the Company's obligation
and the timing of payments associated therewith are reasonably estimable. The
present value of such claims was determined using discount rates of 7.0%, 8.25%,
5.5% and 5.5% for the twelve months ended December25, 1993, the nine months
ended September 24, 1994, the three months ended December 20, 1994 and the nine
months ended September 27, 1995, respectively. The current portion of the
liability of $9.0 million and $5.6 million at September 24, 1994 and September
27, 1995, respectively, is included in accrued and other current liabilities.
The noncurrent portion of $23.3 million and $35.0 million at September 24, 1994
and September 27, 1995, respectively, is included in other liabilities.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to current operations or relate to
future revenues are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, that do not contribute to current
or future revenues, are expensed. Environmental accruals are recorded based on
current interpretations of environmental laws and regulations when it is
probable that a liability has been incurred and the amount of such liability can
be reasonably estimated. Amounts accrued are not discounted and do not include
third-party recoveries. Liabilities are recognized for remedial activities when
the cleanup is probable and the cost can be reasonably estimated. All available
information is considered including the results of remedial investigation/
feasibility studies (RI/FS). In evaluating any disposal site environmental
exposure, an assessment is made of the Company's potential share of the
remediation costs by reference to the known or estimated volume of the Company's
waste that was sent to the site and the range of costs to treat similar waste at
other sites if a RI/FS is not available.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, represents interest income on cash and cash
equivalents and other nonoperating income and expense items.
F-11
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted average number of
common shares outstanding during the period. The Company's net income has been
reduced by Series B preferred stock dividends to arrive at net income applicable
to the common stockholder.
CASH PAID FOR INCOME TAXES
Cash paid for income taxes for the nine months ended September 27, 1995 was
$20.6 million. In periods prior to December 21, 1994 the Predecessor
Corporation's income taxes were paid by Scott.
CASH PAID FOR INTEREST
Cash paid for interest during the twelve months ended December 25, 1993, the
nine months ended September 24, 1994, the three months ended December 20, 1994
and the nine months ended September 27, 1995 was $9.9 million, $5.0 million,
$2.9 million and $75.6 million, respectively.
NOTE 3--BASIS OF PRESENTATION AND ACCOUNTING POLICIES--PREDECESSOR CORPORATION
BASIS OF PRESENTATION
The combined financial statements of the Predecessor Corporation consist of
Scott's wholly owned subsidiary S.D. Warren Company and its wholly owned
subsidiaries, as well as the net assets and results of operations of the
printing, publishing, and specialty papers businesses in Bornem, Belgium (the
"Belgium Affiliate") and a mill facility located in Mobile, Alabama that were
owned by Scott. All significant transactions between combined entities have been
eliminated.
To facilitate prompt reporting of the Predecessor Corporation's financial
results, the financial statements of the international operation were based on
the twelve months ended November 30, 1993 for fiscal year 1993, August 31, 1994
for the nine months ended September 24, 1994 and December 20, 1994 for the three
months ended December 20, 1994.
The combined financial statements include allocations of costs for services,
including accounting and tax, treasury and cash management, data processing,
legal and environmental, facility and risk management, human resources and labor
relations, and government and public affairs. These costs are allocated based
upon a variety of methods, including: specific identification, based on
estimates of time and services provided; relative identification, based on
relevant criteria that establishes the Predecessor Corporation's relationship to
the entire pool of beneficiaries and formula driven, not specifically
identifiable to the Predecessor Corporation but incurred for the benefit of all
Scott affiliates.
Management believes the allocations reflected in the Statements of
Operations, while reasonable, may not represent the cost of similar activities
on a separate entity basis.
The Mobile, Alabama facility is located adjacent to a Scott tissue
manufacturing facility and as such had historically purchased pulp, utilities
and other services from Scott based on shared cost arrangements. Amounts
purchased were $101.5 million, $71.0 million and $18.4 million for the twelve
months ended December 25, 1993, the nine months ended September 24, 1994 and the
three months ended December 20, 1994, respectively.
F-12
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BASIS OF PRESENTATION AND ACCOUNTING POLICIES--PREDECESSOR
CORPORATION (CONTINUED)
PREDECESSOR CORPORATION ACCOUNTING POLICIES
The Predecessor Corporation had accounting policies similar to those of the
Company with the following significant exceptions:
Inventory cost was determined using the last-in, first-out (LIFO) method.
For certain major capital assets, the Predecessor Corporation calculated
depreciation on the units-of-production method during the learning curve phase
of the project. On retirements or sales of plant assets which had not been fully
depreciated, the Predecessor Corporation charged gains and losses to the related
depreciation reserve account. The Predecessor Corporation capitalized certain
pre-operating costs on any single capital project for which such costs were
expected to exceed $3.0 million. The capitalized costs were amortized over a
five year period.
Income taxes for the Predecessor Corporation, through December 20, 1994 were
included in the U.S. consolidated federal income tax return of Scott and on a
separate company basis for state tax purposes. For periods prior to December 21,
1994 the financial statements include a charge in lieu of tax which approximates
the federal tax provision assuming the Predecessor Corporation filed a separate
tax return.
Assets and liabilities of the Predecessor Corporation's foreign operations
were translated into U.S. dollars using year-end exchange rates. Revenues and
expenses of foreign operations were translated at the average exchange rates in
effect during the year. Adjustments resulting from financial statement
translations were included as a separate component of parent's equity. Gains and
losses resulting from foreign currency transactions were included in net income.
NOTE 4--ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
--------------- -------------
<S> <C> <C>
Trade accounts receivable.................................... $ 76.1 $ 135.0
Allowance for doubtful accounts.............................. (6.3) (5.6)
----- ------
$ 69.8 $ 129.4
----- ------
----- ------
</TABLE>
The Company had sales to customers outside of the United States ("Export
Sales") of $67.2 million, $60.0 million, $24.7 million and $90.5 million for the
twelve months ended December 25, 1993, the nine months ended September 24, 1994,
the three months ended December 20, 1994 and the nine months ended September 27,
1995, respectively. Export sales are primarily to Canada, Europe and the Far
East. Export Sales prior to the Acquisition were handled by the Belgium
Affiliate. During 1995, the Belgium Affiliate was closed and its property and
equipment sold. Effective with the closure of the Belgium Affiliate, the
Company's sales outside North America are primarily handled by Sappi Limited
("Sappi") (see Note 20). Sappi is the largest investor in Holdings.
Sales to four customers approximated 60.3%, 58.1%, 59.1% and 61.7% of sales
for the twelve months ended December 25, 1993, the nine months ended September
24, 1994, the three months ended December 20, 1994 and the nine months ended
September 27, 1995, respectively. Sales to such customers, which individually,
except as indicated, exceeded 10% of total sales, are indicated as a percentage
of total sales below (in millions):
F-13
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, 1993 SEPTEMBER 24, 1994 DECEMBER 20, 1994 SEPTEMBER 27, 1995
----------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1 21.8% 19.4% 25.9% 25.3%
2 14.2 15.5 * 14.1
3 13.2 12.9 12.9 14.6
4 11.1 10.3 12.3 *
</TABLE>
- ------------------------
* Less than 10% of total sales.
Aggregate trade receivables from these customers, which individually, with
one exception in 1995, exceed 10% of total receivables, were $58.3 million and
$65.8 million as of September 24, 1994 and September 27, 1995, respectively. No
other trade receivables were in excess of 10%. Each of these customers is a
merchant that resells the Company's paper products to a wide range of end users.
The loss of any of these customers could have a material adverse effect on the
Company's business and results of operations.
Prior to the Acquisition, the Predecessor Corporation participated with
Scott in an agreement to sell a percentage ownership interest in a defined pool
of customer receivables. Under terms of the agreement, the Predecessor
Corporation retained substantially the same risk of credit loss as if the
receivables had not been sold. Generally, collections on receivables were
automatically reinvested in new receivables unless either party terminated the
agreement. Proceeds from the initial sale of receivables in 1991 were $35.0
million and this level was maintained for each period through December 7, 1994.
The third party financing agreement was canceled on December 7, 1994 and is
reflected as a $35.0 million non-cash financing activity in the Statement of
Cash Flows. Fees for factored receivables were recorded as interest expense and
were based on the purchaser's level of investment and borrowing costs. During
the twelve months ended December 25, 1993, the nine months ended September 24,
1994 and the three months ended December 20, 1994, such fees aggregated
approximately $1.6 million, $1.2 million and $0.4 million, respectively.
NOTE 5--INVENTORY (IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
Finished products................................ $ 41.5 $ 89.8
<S> <C> <C>
Work in Process.................................. 31.3 51.0
Pulp, logs and pulpwood.......................... 13.2 33.2
Maintenance parts and other supplies............. 49.7 52.5
------ ------
$ 135.7 $ 226.5
------ ------
------ ------
Excess of replacement cost over LIFO valued
inventories.................................... $ 48.7 $ --
------ ------
------ ------
</TABLE>
F-14
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6--PLANT ASSETS
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
<S> <C> <C>
Plant assets, at cost:
Land and buildings......................................... $ 288.5 $ 170.1
Plant and equipment........................................ 2,202.6 1,045.6
------------- -------------
2,491.1 1,215.7
Accumulated depreciation..................................... (1,149.4) (65.0)
------------- -------------
$ 1,341.7 $ 1,150.7
------------- -------------
------------- -------------
</TABLE>
As of the Acquisition, the Company revalued plant assets to fair market
value, based upon independent appraisals, and revised the estimated useful lives
used to calculate depreciation for most plant assets, and as a result, the
Company's plant asset balances as of September 27, 1995 are not comparable to
September 24, 1994.
Plant and equipment includes assets acquired under capital leases of $8.0
million and $2.0 million at September 24, 1994 and September 27, 1995,
respectively. Related allowances for depreciation were $5.7 million and $1.0
million, respectively.
Expenditures for research and development are charged to expense as
incurred. Research and development costs were $15.3 million, $9.5 million, $3.0
million and $10.7 million for the twelve months ended December 25, 1993, the
nine months ended September 24, 1994, the three months ended December 20, 1994
and the nine months ended September 27, 1995, respectively.
NOTE 7--DEPRECIATION AND COST OF TIMBER HARVESTED (IN MILLIONS)
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
Depreciation of plant assets.............. $ 91.9 $ 69.9 $ 27.3 $ 65.0
<S> <C> <C> <C> <C>
Cost of timber harvested and amortization
of logging roads........................ 0.8 0.5 0.2 1.8
----- ----- ----- -----
$ 92.7 $ 70.4 $ 27.5 $ 66.8
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NOTE 8--INCOME TAXES
The domestic and foreign components of income (loss) before taxes on income
are as follows
<TABLE>
<CAPTION>
(in million):
<S> <C> <C> <C> <C>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
Domestic.................................. $ 5.1 $ 24.8 $ 22.4 $ 67.9
Foreign................................... (3.2) 3.2 2.5 2.4
------ ----- ----- -----
$ 1.9 $ 28.0 $ 24.9 $ 70.3
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
F-15
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
The components of the tax provisions are as follows (in millions):
<S> <C> <C> <C> <C>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
Current:
Federal................................ $ 6.7 $ 2.6 $ (5.7) $ 14.9
Foreign................................ (1.2) 1.2 1.0 0.1
State and Local........................ -- (1.0) (1.2) 0.9
------ ----- ----- -----
Total current...................... 5.5 2.8 (5.9) 15.9
------ ----- ----- -----
Deferred:
Federal................................ 0.8 5.8 13.0 8.1
Foreign................................ (0.2) -- -- --
State and Local........................ 0.4 2.6 2.8 4.2
------ ----- ----- -----
Total deferred..................... 1.0 8.4 15.8 12.3
------ ----- ----- -----
$ 6.5 $ 11.2 $ 9.9 $ 28.2
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
The components of the deferred tax provision are comprised of the following
<TABLE>
<CAPTION>
(in millions):
<S> <C> <C> <C> <C>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
Restructuring reserve.................... $ (22.5) $ 22.9 $ 9.9 $ (0.3)
Inventory................................ 0.1 -- 0.1 5.3
Plant assets............................. 30.2 9.3 (17.0) 16.4
General reserves......................... (3.6) (16.6) 28.6 0.2
AMT credit carryforwards................. (8.4) (2.5) (0.8) (9.3)
Tax loss carryforwards................... (0.2) (4.7) (5.0) --
Effect of tax rate change................ 5.4 -- -- --
Valuation allowance...................... -- -- -- --
------ ------ ----- -----
Deferred tax provision................... $ 1.0 $ 8.4 $ 15.8 $ 12.3
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
F-16
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The components of the deferred tax assets and liabilities are as follows (in
<TABLE>
<CAPTION>
millions):
<S> <C> <C>
SEPTEMBER SEPTEMBER 27,
24, 1994 1995
----------- -------------
Current:
Deferred tax assets:
Restructuring reserves........................................... $ 17.5 $ 0.3
General reserves................................................. 19.5 7.9
Inventory........................................................ 1.5 1.3
----------- ------
Total current deferred tax assets............................ 38.5 9.5
----------- ------
Deferred tax liabilities:
Inventory........................................................ -- --
General reserves................................................. -- 0.6
----------- ------
Total current deferred tax liabilities....................... -- 0.6
----------- ------
Net current deferred tax asset..................................... 38.5 8.9
----------- ------
Noncurrent:
Deferred tax assets:
Alternative minimum tax credit carryforwards..................... 52.4 9.3
Tax loss carryforwards........................................... 2.4 --
General reserves................................................. 36.5 21.3
Valuation allowance.............................................. (0.3) --
----------- ------
Total non-current deferred tax assets........................ 91.0 30.6
----------- ------
Deferred tax liabilities:
Property, plant and equipment.................................... (296.6) (13.4)
Other............................................................ (6.3) (38.4)
----------- ------
Total non-current deferred tax liability..................... (302.9) (51.8)
----------- ------
Net noncurrent deferred tax liability.............................. (211.9) (21.2)
----------- ------
Net deferred tax liability................................... $ (173.4) $ (12.3)
----------- ------
----------- ------
</TABLE>
The differences between the U.S. statutory income tax rate and the Company's
<TABLE>
<CAPTION>
effective income tax rate are:
<S> <C> <C> <C> <C>
TWELVE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
U.S. statutory income tax rate............. 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal
benefit.................................. 14.4 3.8 4.2 4.9
International.............................. 3.6 0.4 0.3 0.1
Effect of tax rate increase on deferred
taxes.................................... 292.3 -- -- --
Other factors.............................. (3.2) 0.8 0.3 0.1
------ ----- ----- -----
Effective tax rate......................... 342.1 40.0 39.8% 40.1%
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
As of September 27, 1995, the Company had available an alternative minimum
tax credit carryforward for tax return purposes of $9.3 million. This credit
carries forward to future taxable years indefinitely.
F-17
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--ACCRUED AND OTHER CURRENT LIABILITIES (IN MILLIONS)
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
Accrued salaries, wages and employee benefits...... $ 17.8 $ 49.9
Accrued interest................................... -- 23.8
Accrued workers' compensation...................... 9.0 5.6
Restructuring reserve.............................. 12.7 --
Other accrued expenses............................. 2.3 14.9
----- ------
$ 41.8 $ 94.2
----- ------
----- ------
</TABLE>
NOTE 10--RESTRUCTURING
During the fourth quarter of fiscal year 1993, the Predecessor Corporation
recorded a charge of $66.1 million, primarily for restructuring and productivity
improvement programs. The charge included the estimated effect of future
workforce reductions, as well as actions to consolidate and simplify the
Predecessor Corporation's coated papers business. The remaining reserve balance
of approximately $12.7 million as of September 24, 1994 was fully utilized by
the Predecessor Corporation prior to the date of the Acquisition.
NOTE 11--LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
<S> <C> <C>
Credit Agreement:
Term Loan, Tranche A.......................................... $ -- $ 305.0
Term Loan, Tranche B.......................................... -- 325.0
Series B Senior Subordinated Notes.............................. -- 375.0
Revenue Bonds................................................... 116.7 121.3
Capital Leases.................................................. 3.1 1.1
------ -------------
119.8 1,127.4
Current maturities of long term debt............................ 3.0 78.6
------ -------------
Long term debt.................................................. $ 116.8 $ 1,048.8
------ -------------
------ -------------
</TABLE>
CREDIT AGREEMENT
In connection with the Acquisition, the Company entered into an agreement
(the "Credit Agreement") with Chemical Bank and 43 other domestic and
international lenders on December 20, 1994, which provided for a $1.1 billion
senior secured credit facility consisting of $630.0 million in term loan
facilities, a $250.0 million revolving credit facility ("Revolving Credit
Facility") and a $220.0 million letter of credit facility ("Letter of Credit
Facility") to support certain debt assumed by the Company as part of the
Acquisition. The term loan facilities consist of a Tranche A facility and a
Tranche B facility. The Credit Agreement extends through December 2002.
The interest rates under the Credit Agreement are determined, at the
election of the Company, at either (a) a reference rate (the highest of (i) the
prime rate announced by Chemical Bank, (ii) the secondary market rate for three
month certificates of deposit (adjusted for reserves) plus 1% and (iii) the
federal funds rate in effect from time to time plus 0.5%) plus 1.5% to 2.0% or
(b) LIBOR plus 2.5% to 3.0%. The applicable interest rates for the Revolving
Credit Facility and Tranche A term loans are tied to certain financial ratios
and can be reduced if specified ratios are achieved. At September 27, 1995, the
interest rates on the Tranche A and Tranche B term loans were 8.38% and 8.82%,
respectively.
F-18
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LONG-TERM DEBT (CONTINUED)
Borrowings under the Credit Agreement are guaranteed by Holdings and each of
its U.S. subsidiaries, and such borrowings and guarantees are secured by
security interests (subject to certain other permitted liens) in (a) all the
capital stock of the Company and each of its U.S. subsidiaries and 65% of the
common stock and 100% of the preferred stock of each foreign subsidiary (if any)
and (b) all assets (subject to certain limitations) owned by the Company and its
subsidiaries.
The Company's long-term debt agreements contain covenants which limit the
Company with respect to certain matters including, among other things, the
ability to incur debt, pay dividends, make acquisitions, sell assets, merge,
grant or incur liens, guarantee obligations, make investments or loans, make
capital expenditures, create subsidiaries or change its line of business.
Dividend payments are limited to those amounts necessary to enable Holdings to
pay certain obligations and maintain minimum cash balances. The Company is also
restricted from prepaying certain of its indebtedness and is required to satisfy
certain financial covenants which require the Company to maintain specified
financial ratios and comply with certain financial tests, including a minimum
interest coverage ratio, a minimum debt service ratio and a net worth test. Such
covenants are not considered by the Company to be of a restrictive nature in
conducting its business activities. As a result of extending the filing date of
the Annual Report on Form 10-K from December 26, 1995 to January 10, 1996, the
Company was unable to satisfy specific financial reporting covenants under the
Credit Agreement. As a result, the Company obtained a waiver from the lenders
which extended the requirement to distribute such financial information through
January 17, 1996, at which time management was in compliance with such
covenants.
Under the terms of the Credit Agreement, the Company is required to enter
into interest rate protection agreements. At September 27, 1995, the Company had
entered into two swap agreements, under which the interest rate has been fixed
with respect to $75.0 million of notional principal amount at rates between
7.43% to 9.95%, and two cap agreements, pursuant to which another $130.0 million
of notional principal amount has been capped at rates between 8.0% to 9.5%. Net
receipts or payments under the agreements are recognized as adjustments to
interest expense. The swap and cap agreements expire at varying dates between
December 1997 and January 2000. At September 27, 1995, the Company has
unrealized gains of $0.2 million on its interest rate caps and unrealized losses
of $3.2 million on its interest rate swaps.
TERM LOANS
On the Acquisition date, the Company borrowed $305.0 million under the
Tranche A term loan facility and $325.0 million under the Tranche B term loan
facility. The term loan facilities continued to be fully drawn at September 27,
1995.
The Tranche A loan is payable in semi-annual installments commencing June
30, 1996 with the last installment payable on December 31, 2001. The Tranche B
Loan is payable in semi-annual installments commencing June 30, 1996 with a
balloon payment of $258.0 million in the year 2002.
The Company is required to prepay the term loan facilities with (i) 100% of
the net proceeds of certain asset sales, (ii) 100% of the net proceeds of
certain incurrences of indebtedness and (iii) 50% of the net proceeds from
issuances of equity after December 20, 1994 by Holdings or any of its
subsidiaries. The Company is also required to prepay the term loan facilities
annually in an amount equal to 75% of the Excess Cash Flow (as defined) of the
Company and its subsidiaries for the prior fiscal year, except that the Company
will only be required to prepay an amount equal to 50% of such Excess Cash Flow
if (a) the aggregate outstanding principal amount of the term loan facilities is
less than $250.0 million and (b) certain financial ratios are achieved.
Subsequent to September 27, 1995, the Company made a payment of approximately
$74.9 million in compliance with this Excess Cash Flow prepayment requirement.
Amounts paid in Compliance with the Excess Cash Flow requirement fulfill 100% of
the payment otherwise required to be paid in June, 1996. In addition, additional
amounts reduce future semi-annual installments on a pro rata basis.
F-19
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LONG-TERM DEBT (CONTINUED)
REVOLVING CREDIT FACILITY
Under the Revolving Credit Facility, the Company has a borrowing limit in
the amount of $250.0 million. A portion of the revolving credit commitments is
available to the Company as a swing line commitment in the amount of $25.0
million and a letter of credit commitment in the amount of $75.0 million. At
September 27, 1995, $20.6 million of the available credit line was utilized to
guarantee the issuance of letters of credit and $229.4 million of the facility
remained available. The Company pays a quarterly commitment fee equal to 0.5%
per annum on the unused portion of the Revolving Credit Facility.
LETTER OF CREDIT FACILITY
In accordance with the agreement pursuant to which the Acquisition was
effected, letters of credit in an aggregate face amount of $220.0 million were
issued in favor of Scott for its ongoing obligations under nine separate tax
exempt bond financings and the financing of the Biomass Cogeneration Facility in
Westbrook, Maine. The Company assumed responsibility for Scott's obligations
under the assumed financings. At September 27, 1995, such letters of credit
outstanding aggregated approximately $170.5 million. The decrease to $170.5
million at September 27, 1995 is primarily due to the remarketing of certain
obligations which had previously been guaranteed by Scott (see REVENUE BONDS,
below).
The Company pays a commission of 2.5% per annum on outstanding letters of
credit. After December 20, 1995, the commission will be equal to the Applicable
Margin for LIBOR loans (2.5%, subject to reduction). In addition, the Company
also pays an issuance fee of 0.25% per annum on letters of credit issued.
NOTES AND SENIOR PREFERRED STOCK
In connection with the Acquisition, the Company issued Series A Notes
bearing interest at a rate of 12% payable semiannually. The Series A Notes were
redeemable at the option of the Company, in whole or in part, at any time on or
after December 15, 1999 at a premium declining to par in 2002.
On May 31, 1995, the Company consummated an exchange offer pursuant to which
it offered to (1) exchange the Series A Notes for an equivalent amount of 12%
Series B Senior Subordinated Notes due 2004 (the "Notes") having substantially
identical terms and (2) exchange the Old Senior Preferred Stock for an
equivalent amount of its existing 14% Series B Senior Exchangeable Preferred
Stock due 2006 (the "Senior Preferred Stock") having substantially identical
terms. Such exchange transactions were contemplated in the original issues of
the Series A Notes and the Old Senior Preferred Stock (collectively, the
"Exchanged Securities"), and accordingly, the deferred financing costs for the
Exchanged Securities were not written off upon exchange. Capitalized financing
costs related to the exchange offer were not material.
The Notes are unsecured, subordinated obligations of the Company and rank
(i) junior in right of payment to all existing and future Senior Debt (as
defined for purposes of the Notes), including obligations of the Company under
the Credit Agreement and (ii) senior in right of payment to or pari passu in
right of payment with all existing and future subordinated indebtedness.
REVENUE BONDS
The Company assumed $119.3 million of revenue bonds from Scott. Such debt is
comprised of nine separate tax-exempt municipal bond issues (the "Issues")
relating to certain environmental and solid waste disposal projects. The issues
have various maturities ranging from 1996 through 2022. The Company assumed
responsibility for Scott's obligations under the Issues but with respect to each
Issue (other than the Issue which was remarketed on August 21, 1995, as
described below) Scott remains either contingently liable as a guarantor, or
directly liable as the original obligor. Interest rates on these issues at
September 24, 1994 and September 27, 1995 ranged from 3.3% to 9.4% and 5.75% to
9.375%, respectively. Bonds in an amount of $44.0 million bearing variable
interest rates were re-marketed on August 21, 1995 as fixed interest rate bonds.
The Company became the sole obligor under the bonds and a $49.5 million letter
of credit issued in
F-20
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LONG-TERM DEBT (CONTINUED)
favor of Scott was canceled. The trustee for each Issue has been granted or
assigned the issuer's rights under a sale, lease purchase or loan agreement, as
the case may be, between the relevant issuer and the Company relating to each
respective project and, in respect of two of the Issues, a security interest in
the project financed thereby.
FUTURE MATURITIES OF LONG TERM DEBT
Scheduled maturities of long-term debt, including capital leases and sinking
fund payments, at September 27, 1995 are as follows (in millions):
<TABLE>
<S> <C>
1996...................................................... $ 78.6
1997...................................................... 46.4
1998...................................................... 59.0
1999...................................................... 54.3
2000...................................................... 60.6
Thereafter................................................ 828.5
---------
$ 1,127.4
---------
---------
</TABLE>
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash
equivalents, receivables, accounts payable, and debt. In addition, the Company
uses interest rate caps and swaps, which were required under the terms of the
Credit Agreement, as a means of managing interest rate risk associated with
outstanding debt. Summarized below are the carrying values and fair values of
the Company's financial instruments. The carrying amounts for cash, cash
equivalents, receivables and payables approximate fair value due to the
short-term nature of these instruments. Accordingly, these items have been
excluded from the table below.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
SEPTEMBER 24, 1994 SEPTEMBER 27, 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance Sheet Financial Instruments:
Term Loans, Tranche A and B........................ $ -- $ -- $ 630.0 $ 630.0
Notes.............................................. -- -- 375.0 414.9
Revenue Bonds and Capital Leases................... 119.8 126.0 122.4 119.1
</TABLE>
The fair value of the Notes, Revenue Bonds and Capital Leases was estimated
by the Company based upon discussions with its investment bankers. The principal
amount of the Tranche A and B Term Loans approximate market since they are
variable rate instruments which reprice monthly.
The Company's off-balance sheet financial instruments include the Revolving
Credit Facility, the Letter of Credit Facility and interest rate caps and swaps.
At September 27, 1995, the total carrying amount of these financial instruments
was $1.6 million and unrealized losses thereon approximated $3.0 million.
The fair value of interest rate swaps and caps is the estimated amount that
the Company would pay or receive to terminate the swap agreement at the
reporting date, taking into account current interest rates and the current
credit-worthiness of the swap counterparties. The fair value of the Revolving
Credit Facility and the Letter of Credit Facility are based upon fees currently
charged for similar agreements or on the estimated cost to terminate the
obligation at the reporting date.
As of September 24, 1994, the Predecessor Corporation entered into forward
foreign exchange contracts with a Scott owned affiliate to hedge foreign
currency intercompany transactions and balances for
F-21
<PAGE>
S.D. WARREN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
periods consistent with its committed exposures. The Predecessor Corporation's
forward exchange contracts, which had a gross notional value of approximately
$7.5 million at September 24, 1994, matured during 1994 and 1995 with no
material gain or loss recorded.
A significant portion of the Company's sales and accounts receivable are
from four major customers. None of the Company's other financial instruments
represent a concentration of credit risk because the Company has dealings with a
variety of major banks and customers worldwide. None of the Company's off-
balance sheet financial instruments would result in a significant loss to the
Company if the other party failed to perform according to the terms of its
agreement, as any such loss would generally be limited to the unrealized gain in
any contract.
NOTE 13--LEASES
The Company leases office and warehouse space and various office and
manufacturing equipment under operating leases. Unexpired lease terms for
operating leases range from one to six years. Most leases contain renewal
options and options to purchase such equipment at fair market value. Rental
expense relating to these leases was $9.0 million, $4.9 million, $0.8 million
and $2.4 million for the twelve months ended December 25, 1993, the nine months
ended September 24, 1994, the three months ended December 20, 1994 and the nine
months ended September 27, 1995, respectively.
Additionally, the Company has other commitments, which expire in 2008, to
operate a biomass cogeneration facility adjacent to its Westbrook mill and to
purchase its steam and electricity output on a take-or-pay basis (the
"Cogeneration Obligation"). Under the Cogeneration Obligation, the Company paid
approximately $7.0 million each for the twelve months ended December 25, 1993,
the nine months ended September 24, 1994 and the nine months ended September 27,
1995. No payments were made during the three months ended December 20, 1994.
The future minimum obligations under leases and other commitments having an
initial or remaining noncancelable term in excess of one year as of September
27, 1995 are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER, OPERATING LEASES OTHER COMMITMENTS
- ------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
1996................................................... $ 3.3 $ 7.0
1997................................................... 2.0 7.5
1998................................................... 1.5 7.8
1999................................................... 1.3 7.3
2000................................................... 1.3 7.4
Thereafter............................................. 0.4 71.2
--- ------
$ 9.8 $ 108.2
--- ------
--- ------
</TABLE>
Certain lease obligations and the Cogeneration Obligation contain scheduled
payment increases. The Company is recognizing expenses associated with these
contracts on a straight-line basis over the related contract's terms.
F-22
<PAGE>
NOTE 14--ENVIRONMENTAL AND SAFETY MATTERS
The Company is subject to a wide variety of increasingly stringent
environmental laws and regulations relating to, among other matters, air
emissions, wastewater discharges, past and present landfill operations and
hazardous waste management. These laws include the Federal Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act and their respective
state counterparts. The Company will continue to incur significant capital and
operating expenditures to maintain compliance with applicable federal and state
environmental laws. These expenditures include costs of compliance with federal
worker safety laws, landfill expansions and wastewater treatment system
upgrades.
In addition to conventional pollutants, minute quantities of dioxins and
other chlorinated organic compounds may be contained in the wastewater effluent
of the Company's bleached kraft pulp mills in Somerset and Westbrook, Maine and
Muskegon, Michigan. The most recent National Pollutant Discharge Elimination
System ("NPDES") wastewater permit limits proposed by the EPA would limit dioxin
discharges from the Company's Somerset and Westbrook mills to less than the
level of detectability. The Company is presently meeting the EPA's proposed
dioxin limits but it is not meeting the proposed limits for other parameters
(e.g., temperature and color) and is pursuing efforts to revise these other
wastewater permit limits for its facilities. While the permit limitations at
these two facilities are being challenged, the Company continues to operate
under existing EPA permits, which have technically expired, in accordance with
accepted administrative practice. In addition, the Muskegon mill is involved, as
one of various industrial plaintiffs, in litigation with the County of Muskegon
regarding the mill's wastewater treatment permit. The lawsuit challenges the
permit's effluent limits imposed by local ordinance as arbitrary and
unreasonable. In the meantime, the mill also has applied for alternative
effluent limits. Although the Company believes that it will be successful in its
various administrative and judicial challenges to those limits and in any
negotiations of such limits with environmental regulatory authorities, the
imposition of currently proposed limits could require substantial additional
expenditures, including short-term expenditures, and may lead to substantial
fines for any noncompliance.
In November 1993, the EPA announced proposed regulations that would impose
new air and water quality standards aimed at further reductions of pollutants
from pulp and paper mills, particularly those conducting bleaching operations
(generally referred to as the "cluster rules"). Although the EPA has not made
any commitments, final promulgation of the cluster rules may occur in 1996 and
compliance with the rules may be required beginning in 1998. The Company
believes that compliance with the cluster rules, as proposed, may require
aggregate capital expenditures of approximately $76.0 million through 1999. The
ultimate financial impact to the Company of compliance with the cluster rules
will depend upon the nature of the final regulations, the timing of required
implementation and the cost and availability of new technology. The Company also
anticipates that it will incur an estimated $10.0 million to $20.0 million of
capital expenditures through 1999 related to environmental compliance other than
as a result of the cluster rules.
The Company's mills generate substantial quantities of solid wastes and
by-products that are disposed of at permitted landfills and solid waste
management units at the mills. The Company is currently planning to expand the
landfill at the Somerset mill at a projected total cost of approximately $12.0
million, of which approximately $5.0 million will be spent between 1996 and
1997.
The Muskegon mill has had discussions with the Michigan Department of
Natural Resources ("DNR") regarding a wastewater surge pond adjacent to the
Muskegon Lake. The DNR presently is considering whether the surge pond is in
compliance with Michigan Act 245 (Water Resources Commission Act) regarding
potential discharges from that pond. The matter is now subject to the results of
a pending engineering investigation. There is a possibility that, as a result of
DNR requirements, the surge pond may be closed in the future. The Company
estimates the cost of closure will be approximately $2.0 million. In addition,
if it is necessary to replace the functional capacity of the surge pond with
above-grade structures, the Company preliminarily estimates that up to an
additional $8.0 million may be required for such construction costs.
F-23
<PAGE>
NOTE 14--ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
The Company has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage share
in each proceeding, and the number of potentially responsible parties at each
site, the Company presently believes that its aggregate exposure for these
matters is not material. Moreover, as a result of the Acquisition, Scott agreed
to indemnify and defend the Company for and against, among other things, the
full amount of any damages or costs resulting from the off-site disposal of
hazardous substances occurring prior to the date of closing, including all
damages and costs related to these seven sites. Since the date of closing of the
Acquisition, Scott has been performing under the terms of this environmental
indemnity and defense provision and, therefore, the Company has not expended any
funds with respect to these seven sites.
The Company must comply with a number of federal and state regulations that
govern health and safety in the workplace, the most significant of which is the
Federal Occupational Safety and Health Act ("OSHA"). Pursuant to a voluntary
OSHA program piloted in the State of Maine, in 1993, the Predecessor Corporation
performed a self-assessment audit with respect to OSHA mandates at its Somerset
and Westbrook mills and submitted a compliance plan to address certain health
and safety matters. The Company anticipates that the total cost of implementing
the compliance plan will be approximately $19.0 million. As of September 27,
1995, approximately $14.4 million of the total estimated $19.0 million had been
expended. The Company expects that the majority of the remaining costs will be
expended during fiscal years 1996 and 1997. The Company recognizes these costs
as they are incurred.
The Company currently has a five-year demolition project in progress at its
Westbrook facility for health and safety reasons. Total costs of the project are
estimated to be approximately $9.0 million, of which approximately $4.5 million
had been spent as of September 27, 1995. The Company recognizes these costs as
they are incurred.
The Company does not believe that it will have any liability under recent
emergency legislation enacted by the State of Maine to cover a significant
shortfall in the Maine workers' compensation system through assessments of
employers and insurers; however, there can be no assurance that the existing
legislation will fully address the shortfall.
None of these matters, individually or in the aggregate, is expected to have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
NOTE 15--COMMITMENTS AND CONTINGENCIES
The Mobile, Alabama paper mill was historically operated by Scott as part of
an integrated facility (including a tissue mill, a pulp mill and energy
facility). In connection with the Acquisition, the Company entered into
long-term (25 years initially, subject to mill closures and certain FORCE
MAJEURE events) supply agreements with Scott for the supply of pulp and water
and the treatment of effluent at the Mobile Mill. Wood pulp will be supplied
generally at market prices. Pulp prices will be discounted, primarily because of
the lower delivery costs due to the elimination of freight costs associated with
delivering pulp to Warren's Mobile paper mill and pulp qualities will be subject
to minimum (170,000 to 182,400 tons per year) and maximum (220,000 to 233,400
tons per year) limits. Prices for other services to be provided by Scott will
generally be based upon cost. Prior to the Acquisition, Scott sold its energy
facility at Mobile to Mobile Energy Services Corporation ("MESC"). In connection
with the sale of the energy facility, MESC entered into a long-term agreement
with the Company to provide electric power and steam to the paper mill at rates
generally comparable to market tariffs, including fuel cost and capital recovery
components. Scott, MESC and the Company have also entered into a long-term
shared facilities and services agreement (the "Shared Facilities Agreement")
with respect to medical and security services, common roads and parking areas,
office space and similar items and a comprehensive master operating agreement
providing for the coordination of services and integration of operations among
the energy facility, the paper mill, the pulp mill and the
F-24
<PAGE>
NOTE 15--COMMITMENTS AND CONTINGENCIES (CONTINUED)
tissue mill. Annual fees under the Shared Facilities Agreement are expected to
be approximately $1.5 million per year through the 25 year term of the
agreement. The Company has the option to cancel certain non-essential services
covered by the Shared Services Agreement at any time prior to the end of the 25
year term.
A substantial portion of the Company's electricity requirements are
satisfied through cogeneration agreements ("Power Purchase Agreements" or
"Agreements") whereby the Somerset and Westbrook mills each cogenerate
electricity and sell the output to Central Maine Power Company ("CMP"). The
Westbrook and Somerset Agreements require CMP to purchase such energy produced
by these cogeneration facilities at above market rates which has reduced the
Company's historical cost of electrical energy. The Westbrook Agreement expires
October 31, 1997 and the Somerset Agreement expires in the year 2012. The
favorable pricing element of the Somerset Agreement will end on November 30,
1997. The agreements also require the mills to purchase electricity from CMP at
the standard industrial tariff rate.
To properly reflect the fair market value of the acquired Power Purchase
Agreements as of the Acquisition date, the Company established a deferred asset
of approximately $32.3 million, in accordance with APB No. 16. This deferred
asset is recorded with other contracts valued at the Acquisition date as a net
long-term liability. This deferred asset is being amortized over the remaining
life of the favorable Power Purchase Agreements. For the nine months ended
September 27, 1995, amortization expense related to this asset approximated
$10.8 million.
The Company is also involved in various other lawsuits and administrative
proceedings. The relief sought in such lawsuits and proceedings include
injunctions, damages and penalties. Although the final results in these suits
and proceedings cannot be predicted with certainty, it is the present opinion of
the Company, after consulting with legal counsel, that they will not have a
material effect on the Company's financial position, results of operations or
cash flows.
NOTE 16--RETIREMENT BENEFITS
PENSION PLANS
Prior to the Acquisition, employees participated in two (Company sponsored)
hourly pension plans and a salaried pension plan and two Scott sponsored hourly
pension plans. The assets and related benefit obligations of employees electing
retirement prior to the Acquisition were transferred from the Company sponsored
plans to Scott plans prior to December 20, 1994 and remain assets and
obligations of Scott. During 1994 the assets and obligations relating to S.D.
Warren's active employees were allocated to four newly formed pension plans
based on the requirements of Section 414(l) of the Internal Revenue Code and the
regulations thereunder. Management and the Plan's trustees believe such
allocation is reasonable.
The four defined-benefit, trusteed pension plans provide retirement benefits
for substantially all employees. Benefits provided are primarily based on
employees' years of service and compensation. The Company's funding policy
complies with the requirements of Federal law and regulations. Plan assets
consist of equity securities, bonds and short-term investments.
F-25
<PAGE>
NOTE 16--RETIREMENT BENEFITS (CONTINUED)
The funded status of the company-sponsored pension plans is shown below (in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
Actuarial present value of benefit obligation:
<S> <C> <C>
Vested........................................................... $ 115.2 $ 71.3
Nonvested........................................................ 5.3 18.0
------ ------
Accumulated benefit obligation................................. 120.5 89.3
Additional obligation for future salary increases.................. 2.0 27.2
------ ------
Projected benefit obligation....................................... 122.5 116.5
Plan assets at fair value.......................................... 105.3 102.5
------ ------
Projected benefit obligation in excess of plan assets.............. (17.2) (14.0)
Unrecognized amounts
Transition obligation............................................ 5.0 --
Prior service cost............................................... 8.1 --
Unrecognized net gain............................................ (1.7 ) (8.5 )
------ ------
Accrued pension cost............................................... (5.8 ) (22.5 )
Adjustment for minimum liability................................... (10.4 ) --
------ ------
Net pension liability (amount is included in other long-term
liabilities)..................................................... $ (16.2 ) $ (22.5 )
------ ------
------ ------
</TABLE>
The net pension cost for the Company sponsored plans include the following
components (in millions):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, SEPTEMBER 27,
1993 1994 1994 1995
------------- ------------- ------------- -------------
Service cost-benefits earned during the
period................................... $ 1.5 $ 1.5 $ 0.4 $ 4.5
<S> <C> <C> <C> <C>
Interest cost on projected benefit
obligation............................... 8.4 6.5 2.1 6.9
Actual return on plan assets............... (18.9) (0.8) 2.7 (10.4)
Net deferral............................... 10.7 (5.4) (4.7) 4.2
------ ----- ----- ------
Net pension cost........................... $ 1.7 $ 1.8 $ 0.5 $ 5.2
------ ----- ----- ------
------ ----- ----- ------
</TABLE>
Pension expense allocated to the Company relating to its participation in
the Scott plans was $5.5 million, $5.7 million and $1.9 million for the year
ended December 25, 1993, the nine months ended September 24, 1994 and the three
months ended December 20, 1994, respectively.
The projected benefit obligation at September 24, 1994 and September 27,
1995 was determined using an assumed discount rate of 8.25% and 8.0%,
respectively, and an assumed long-term rate of compensation increase of 5.5% and
5.25% respectively. The assumed rate of return on plan assets (on an annualized
basis) was 10.5%, 10.5%, 10.5% and 9.0% for the twelve months ended December 25,
1993, the nine months ended September 24, 1994, the three months ended December
20, 1994 and the nine months ended September 27, 1995, respectively.
SAVINGS PLAN
The Predecessor Corporation's contributions to various savings plans were
based on employee contributions and compensation and totaled $5.5 million, $3.8
million and $0.6 million for the twelve months ended December 25, 1993, the nine
months ended September 24, 1994 and the three months ended December 20, 1994,
respectively. The Company currently sponsors two 401(k) deferred contribution
plans covering substantially all Company employees pursuant to which the Company
is obligated to match, up to specified amounts, employee contributions. Company
contributions to these plans totaled $3.8 million for the nine months ended
September 27, 1995.
F-26
<PAGE>
NOTE 17--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
FAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" requires the accrual of postretirement benefits other than pensions
(such as health care benefits) during the years of employee service. The Company
sponsors a defined benefit postretirement plan that provides health care and
life insurance benefits to eligible retired employees. Employees are generally
eligible for benefits upon retirement and completion of a specified number of
years of service. Obligations relating to employees electing retirement prior to
December 20, 1994 were not assumed by the Company at Acquisition. Such
obligations remain the obligations of Scott.
The following schedule provides the plan's funded status and obligations (in
millions):
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER 27,
24, 1994 1995
----------- -------------
Accumulated postretirement benefit obligations
(APBO):
<S> <C> <C>
Retirees......................................... $ 65.3 $ --
Active Participants.............................. 38.6 25.7
----------- ------
Total APBO....................................... 103.9 25.7
Plan assets at fair value.......................... -- --
----------- ------
APBO in excess of plan assets...................... (103.9) (25.7)
Unrecognized transition obligation............... 63.9 --
Unrecognized net actuarial gain.................. (13.1) (1.8)
----------- ------
Net postretirement liability....................... $ (53.1) $ (27.5)
----------- ------
----------- ------
</TABLE>
Components of the net periodic postretirement benefit expense are as follows
(in millions):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED NINE MONTHS
DECEMBER 25, SEPTEMBER 24, DECEMBER 20, ENDED SEPTEMBER
1993 1994 1994 27, 1995
------------- ------------- ------------- ---------------
Service cost.............. $ 3.2 $ 2.7 $ 0.9 $ 2.0
<S> <C> <C> <C> <C>
Interest cost on APBO.... 7.9 5.0 1.7 1.6
Net amortization and
deferral................ 6.0 4.0 1.3 --
----- ----- --- ---
Net postretirement
benefit cost............ $ 17.1 $ 11.7 $ 3.9 $ 3.6
----- ----- --- ---
----- ----- --- ---
</TABLE>
The discount rates used to estimate the accumulated benefit obligations as
of September 24, 1994 and September 27, 1995 were 8.25% and 8.0% respectively.
The health care cost trend rates used to value APBO were 12.4%, 10.5%, 10.5% and
9.0% at December 25, 1993, September 24, 1994, December 20, 1994 and September
27, 1995, respectively, decreasing gradually to an ultimate rate of 5.0% in the
year 2007. A one-percentage point increase in the assumed health care trend rate
for each future year would increase the APBO by approximately 8.7% at September
27, 1995 and would increase the sum of the benefits earned and interest cost
components of net postretirement benefit cost for 1995 by approximately 14.7%.
Effective December 26, 1993, Scott adopted FAS No. 112, "Employers'
Accounting for Postemployment Benefits." This standard requires employers to
recognize and when necessary, accrue for the estimated cost of benefits provided
to former or inactive employees after employment but before retirement. The
effect on the Company of adopting this statement was not material.
F-27
<PAGE>
NOTE 18--OTHER LIABILITIES (IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 24, SEPTEMBER 27,
1994 1995
------------- -------------
Accrued workers' compensation...................... $ 23.3 $ 35.0
<S> <C> <C>
Accrued pension & other postretirement benefits.... 62.3 50.0
Other accrued liabilities.......................... 8.3 8.3
----- -----
$ 93.9 $ 93.3
----- -----
----- -----
</TABLE>
NOTE 19--SENIOR PREFERRED STOCK
The Company has authorized 10.0 million shares of redeemable exchangeable
preferred stock from which the Company's Board of Directors designated a series
consisting of 3.0 million shares of Old Senior Preferred Stock. The Old Senior
Preferred Stock was issued in connection with the financing of the Acquisition.
The Old Senior Preferred Stock was exchanged for Senior Preferred Stock on May
31, 1995.
The Senior Preferred Stock has a liquidation preference of $25.00 per share
(aggregate liquidation preference is $75.0 million, plus accumulated dividends).
The Senior Preferred Stock was recorded at the net proceeds of $65.4 million
received from the issuance after deducting stock issuance costs and
approximately $6.9 million paid to Holdings for Class A Warrants which were
issued in conjunction with the Old Senior Preferred Stock. The excess of the
liquidation preference over the carrying value is being accreted by periodic
charges to retained earnings over the life of the issue.
Dividends are cumulative and accrue quarterly at a rate of 14% per annum of
(a) the liquidation preference amount and (b) the amount of accrued but unpaid
dividends from prior dividend accrual periods ending on or prior to December 15,
1999 ("Accumulated Dividends"). The Company does not expect to pay dividends on
the Senior Preferred Stock in cash for any period ending on or prior to December
15, 1999. Cumulative dividends on Senior Preferred Stock that have not been paid
at September 27, 1995 are $8.5 million and are included in the carrying amount
of the Senior Preferred Stock as indicated below (in millions):
<TABLE>
<S> <C>
Issuance on December 21, 1994 for cash (at fair value on date
of issuance)................................................ $ 65.4
Accretion to redemption value................................ 0.6
Dividends on Senior Preferred Stock.......................... 8.5
---------
Balance, September 27, 1995.................................. $ 74.5
---------
---------
</TABLE>
REDEMPTION
The Senior Preferred Stock is redeemable at the option of the Company, in
whole or in part, at any time on or after December 15, 2001 at the redemption
prices (expressed as a percentage of the Specified Amount) with respect to the
Senior Preferred Stock set forth below plus all accrued and unpaid liquidated
damages and dividends (excluding any Accumulated Dividends but including an
amount equal to a pro rated dividend from the immediately preceding dividend
accrual date to the redemption date), if any, if redeemed during the
twelve-month period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -------------
<S> <C>
2001.................................................................... 104.2%
2002.................................................................... 102.8%
2003.................................................................... 101.4%
2004.................................................................... 100.0%
</TABLE>
"Specified Amount" on any specific date with respect to any share of Senior
Preferred Stock means the sum of (i) the liquidation preference with respect to
such share and (ii) the Accumulated Dividends with respect to such share.
F-28
<PAGE>
NOTE 19--SENIOR PREFERRED STOCK (CONTINUED)
In the event that Holdings consummates one or more public offerings of its
common stock on or before December 15, 1997, the Company may, at its option,
redeem the Senior Preferred Stock with the proceeds therefrom at a redemption
price equal to 113% of the Specified Amount, plus all accrued and unpaid
liquidated damages and dividends (excluding any Accumulated Dividends but
including an amount equal to a pro rated dividend from the immediately preceding
dividend accrual date to the redemption date), if any, through the redemption
date; PROVIDED that at least $50.0 million in aggregate specified amount of
Senior Preferred Stock remains outstanding immediately following such
redemption.
The Company is required to redeem the Senior Preferred Stock on December 15,
2006 at the Specified Amount plus all accrued and unpaid damages and dividends
(excluding any Accumulated Dividends but including an amount equal to a pro
rated dividend from the immediately preceding dividend accrual date to the
redemption date).
At any scheduled dividend payment date, the Company may, at its option,
exchange all of the shares of the Senior Preferred Stock then outstanding for
the Company's 14% Series B Subordinated Exchange Debentures due 2006.
In the event of a Change of Control, as defined, the holders of Senior
Preferred Stock will have the right to require the Company to redeem such Senior
Preferred Stock, in whole or in part, at a price equal to 101% of the Specified
Amount thereof, plus accrued and unpaid liquidated damages and dividends
(excluding any Accumulated Dividends but including an amount equal to a pro
rated dividend from the immediately preceding dividend accrual date to the
redemption date).
Holders of the Senior Preferred Stock have limited voting rights, customary
for preferred stock, and the right to elect two additional directors upon
certain events such as the Company failing to pay dividends in cash for more
than six consecutive dividend accrual periods ending after December 15, 1999.
NOTE 20--RELATED PARTY TRANSACTIONS
Pursuant to the limitations on restricted payments outlined in the Credit
Agreement, the indenture relating to the Notes and the Senior Preferred Stock,
the Company may make cash payments to Holdings, including, among other things,
(i) amounts under a tax sharing agreement to be entered into between the Company
and Holdings necessary to enable Holdings to pay the Company's taxes and (ii)
administrative fees to Holdings and amounts to cover various specified costs and
expenses of Holdings. The associated administrative fee expensed during the nine
months ended September 27, 1995 was approximately $0.8 million.
The Company has contracted through a management services agreement (the
"Management Services Agreement") and central cost allocation agreement (the
"Central Cost Allocation Agreement") with two subsidiaries of Sappi, Sappi
Trading AG (referred to as "SIM" as the company is in the process of changing
its name to Sappi International Management AG) and Sappi Management Services
Limited ("SMS") to provide management advisory services. The aggregate fee to be
charged to the Company by SIM and SMS is limited to an annual amount of $1.0
million. For the nine months ended September 27, 1995, the Company incurred a
related management fee expense of approximately $0.8 million.
The Management Services Agreement with SIM establishes an agreement whereby
SIM provides strategic and corporate planning advice, financial and legal
services and services relating to public affairs and human resources. The
Company agrees to pay a service fee to SIM which is determined based upon the
Company's proportionate share in the aggregate amount of costs which SIM incurs
in providing services to the entire number of group companies which have entered
into agreements of this nature with SIM, plus a profit mark-up of 10%. The
Company's proportionate share is based upon the time spent on Company services
divided by total time spent by SIM on total group company services. This
agreement commenced on January 1, 1995 and is effective until terminated by
either party with six months' written notice.
The Central Cost Allocation Agreement with SMS provides for general
technical and administrative support services to supplement the services
provided by SIM. The Company has agreed to pay a service fee to SMS which is
determined based upon the Company's proportionate share in the aggregate amount
of
F-29
<PAGE>
NOTE 20--RELATED PARTY TRANSACTIONS (CONTINUED)
costs which SMS incurs in providing services to the entire number of group
companies which have entered into agreements of this nature with SMS, plus a
profit mark-up of 10%. The Company's proportionate share is based upon the
Company's inventory turnover divided by total inventory turnover of SMS group
companies. This agreement commenced on January 1, 1995 and is effective for one
year unless terminated by either party with six months' written notice.
Warren has also entered into a cross licensing agreement with Sappi
Deutschland, the worldwide holding company for all European and U.S. business
operations of the Sappi group, and Hannover Papier AG ("Hannover"), a subsidiary
of Sappi. Pursuant to this agreement, the Company and Hannover have agreed to
enter into specific written agreements to share paper processing techniques and
have also agreed to enter into specific distribution agreements whereby the
Company has agreed to use its distribution network in the United States to
facilitate and increase Hannover's exports. Sappi Deutschland will facilitate
the licensing process. No specific agreements have been entered into in
connection with this cross licensing agreement as of September 27, 1995.
During fiscal 1995, the Company sold products to certain Sappi subsidiaries
(Sappi Europe, SA and Specialty Pulp Services) at market rates. These
subsidiaries then sold the Company's product to external customers and remitted
the proceeds from such sales to Warren, net of a sales commission. The Company
sold $33.0 million to Sappi subsidiaries and expensed fees of approximately $1.1
million relating to these sales for the nine months ended September 27, 1995.
Trade accounts receivable at September 27, 1995 includes approximately $12.4
million due from subsidiaries of Sappi. The Company is in the process of
formalizing a written agreement for this relationship.
F-30
<PAGE>
SCHEDULE II
S.D. WARREN COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND (PRINCIPALLY END OF
PERIOD EXPENSES WRITE-OFFS) PERIOD
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Nine months ended September 27, 1995........................ $ 5.4 $ 0.2 $ -- $ 5.6
Three months ended December 20, 1994........................ 6.3 -- 0.9 5.4
Nine months ended September 24, 1994........................ 5.4 0.9 -- 6.3
Twelve months ended December 25, 1993....................... 4.7 0.7 -- 5.4
Allowance for inventory obsolescence:
Nine months ended September 27, 1995........................ $ -- $ 4.1 $ -- $ 4.1
Three months ended December 20, 1994........................ 2.1 0.5 -- 2.6
Nine months ended September 24, 1994........................ 2.3 0.6 0.8 2.1
Twelve months ended December 25, 1993....................... 2.6 -- 0.3 2.3
Reserve for restructuring:
Three months ended December 20, 1994........................ $ 12.7 $ -- $ 12.7 $ --
Nine months ended September 24, 1994........................ 91.7 -- 79.0 12.7
Twelve months ended December 25, 1993....................... 26.4 66.1 0.8 91.7
</TABLE>
F-31
<PAGE>
S.D. WARREN COMPANY
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PERIOD RESTATED RESTATED
SEPTEMBER 25, PERIOD NINE MONTHS
1994 THROUGH DECEMBER 21, 1994 ENDED
DECEMBER 20, 1994 THROUGH JULY 3,
----------------- JUNE 28, 1995 1996
S.D. WARREN ----------------- -----------
COMPANY AND S.D. WARREN S.D. WARREN
CERTAIN RELATED COMPANY AND COMPANY AND
AFFILIATES SUBSIDIARIES SUBSIDIARIES
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
----------------- ----------------- -----------
Sales............................................ $ 313.6 $ 764.3 $ 1,066.8
<S> <C> <C> <C>
Cost of goods sold............................... 263.7 590.0 874.1
------ ------ -----------
Gross profit..................................... 49.9 174.3 192.7
Selling, general and administrative expense...... 22.2 59.4 98.1
------ ------ -----------
Income from operations........................... 27.7 114.9 94.6
Other income (expense), net...................... (0.5) 2.2 (1.3)
Interest expense................................. 2.3 74.0 84.3
------ ------ -----------
Income before income taxes and extraordinary
item............................................ 24.9 43.1 9.0
Income tax expense............................... 9.9 17.2 3.6
------ ------ -----------
Income before extraordinary item................. $ 15.0 25.9 5.4
------
------
Extraordinary item, net of tax (Note 6).......... -- (2.0)
------ -----------
Net income....................................... 25.9 3.4
Dividends and accretion on Series B preferred
stock........................................... 5.7 10.0
------ -----------
Net income (loss) applicable to common
stockholder..................................... $ 20.2 $ (6.6)
------ -----------
------ -----------
Earnings (loss) per common share (in millions):
Income before extraordinary item............... $ 0.26 $ 0.05
------ -----------
------ -----------
Net income..................................... $ 0.26 $ 0.03
------ -----------
------ -----------
Net income (loss) applicable to common
stockholder.................................. $ 0.20 $ (0.07)
------ -----------
------ -----------
Weighted average number of shares outstanding.... 100 100
------ -----------
------ -----------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-32
<PAGE>
S.D. WARREN COMPANY
UNAUDITED CONDENSED BALANCE SHEETS
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
RESTATED RESTATED
SEPTEMBER27, 1995 JULY3, 1996
------------------ ---------------
S.D. WARREN S.D. WARREN
COMPANY AND COMPANY AND
SUBSIDIARIES SUBSIDIARIES
(SUCCESSOR) (SUCCESSOR)
------------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 62.2 $ 1.8
Trade accounts receivable, net............................................ 129.4 37.8
Other receivables......................................................... 24.5 21.0
Inventories............................................................... 226.5 220.6
Deferred income taxes..................................................... 8.9 8.9
Other current assets...................................................... 11.1 13.7
-------- ---------------
Total current assets.................................................... 462.6 303.8
Plant assets, net........................................................... 1,150.7 1,115.7
Timber resources, net....................................................... 98.4 98.3
Goodwill, net............................................................... 98.1 95.1
Deferred financing fees, net................................................ 53.1 46.3
Other assets, net........................................................... 24.7 21.8
-------- ---------------
Total assets............................................................ $ 1,887.6 $ 1,681.0
-------- ---------------
-------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt...................................... $ 78.6 $ 46.6
Accounts payable.......................................................... 112.2 88.3
Accrued and other current liabilities..................................... 94.2 80.2
-------- ---------------
Total current liabilities............................................... 285.0 215.1
-------- ---------------
Long-term debt:
Term loans................................................................ 553.8 411.4
Senior subordinated notes................................................. 375.0 375.0
Other..................................................................... 120.0 116.4
-------- ---------------
1,048.8 902.8
-------- ---------------
Deferred income taxes....................................................... 21.2 22.3
-------- ---------------
Other liabilities........................................................... 93.3 98.1
-------- ---------------
Total liabilities....................................................... 1,448.3 1,238.3
-------- ---------------
Commitments and contingencies (Note7).......................................
SeriesB redeemable exchangeable preferred stock (liquidation value, $83.5
and $92.9, respectively)................................................... 74.5 84.5
-------- ---------------
Stockholder's equity:
Common stock.............................................................. -- --
Capital in excess of par value............................................ 331.8 331.8
Retained earnings......................................................... 33.0 26.4
-------- ---------------
Total stockholder's equity.............................................. 364.8 358.2
-------- ---------------
Total liabilities and stockholder's equity.............................. $ 1,887.6 $ 1,681.0
-------- ---------------
-------- ---------------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-33
<PAGE>
S.D. WARREN COMPANY
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
RESTATED
PERIOD PERIOD RESTATED
SEPTEMBER25, 1994 DECEMBER 21, NINE MONTHS
THROUGH 1994 ENDED
DECEMBER20, 1994 THROUGH JULY 3,
----------------- JUNE 28, 1995 1996
S.D. WARREN -------------- -----------
COMPANY AND S.D. WARREN S.D. WARREN
CERTAIN RELATED COMPANY AND COMPANY AND
AFFILIATES SUBSIDIARIES SUBSIDIARIES
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
----------------- -------------- -----------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income................................... $ 15.0 $ 25.9 $ 3.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization.............................. 28.8 56.3 86.4
Inventory market value adjustments......... -- -- 10.5
Deferred income taxes...................... 15.8 -- --
Other...................................... -- 3.6 2.0
Changes in assets and liabilities:
Trade accounts receivable, net............. (1.7) (22.0) 91.6
Inventories................................ 5.4 (48.7) (4.6)
Accounts payable, accrued and other
current liabilities....................... 18.6 37.5 (41.6)
Accruals for restructuring programs........ (12.7) -- --
Other assets and liabilities............... (15.5) 1.8 (0.3)
------ -------------- -----------
Net cash provided by operating
activities.............................. 53.7 54.4 147.4
------ -------------- -----------
Cash Flows from Investing Activities:
Acquisition, net of related costs............ -- (1,493.7) --
Proceeds from disposals of plant assets...... -- 0.6 2.2
Investments in plant assets and timber
resources................................... (14.5) (14.9) (32.2)
------ -------------- -----------
Net cash used in investing activities.... (14.5) (1,508.0) (30.0)
------ -------------- -----------
Cash Flows from Financing Activities:
Proceeds from debt........................... -- 1,130.1 --
Repayments of debt........................... (0.5) (161.7) (177.8)
Proceeds from equity contribution............ -- 331.8 --
Proceeds from issuances of preferred stock,
net of expenses............................. -- 65.4 --
Bank overdraft............................... -- 13.0 --
Predecessor Corporation's parent company
capital infusions, net...................... 31.6 -- --
------ -------------- -----------
Net cash provided by (used in) financing
activities.............................. 31.1 1,378.6 (177.8)
------ -------------- -----------
Net change in cash and cash equivalents........ 70.3 (75.0) (60.4)
Cash and cash equivalents, at beginning of
period........................................ 4.7 75.0 62.2
------ -------------- -----------
Cash and cash equivalents, at end of period.... $ 75.0 $ -- $ 1.8
------ -------------- -----------
------ -------------- -----------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-34
<PAGE>
S.D. WARREN COMPANY
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements include the
accounts of S. D. Warren Company and its subsidiaries ("S. D. Warren", "Warren"
or the "Company"). Intercompany balances and transactions have been eliminated
in the preparation of the accompanying unaudited condensed financial statements.
The Company manufactures printing, publishing and specialty papers and has
pulp and timberland operations vertically integrated with certain of its
manufacturing facilities. The Company currently operates four paper mills, a
sheeting and distribution facility and owns approximately 911,000 acres of
timberlands in the state of Maine.
FORMATION AND ACQUISITION
On October 8, 1994, SDW Acquisition Corporation ("SDW Acquisition"), a
direct wholly owned subsidiary of SDW Holdings Corporation ("Holdings"), entered
into a definitive agreement pursuant to which, on December 20, 1994, SDW
Acquisition acquired (the "Acquisition") from Scott Paper Company ("Scott") all
of the outstanding capital stock of Warren, then a wholly owned subsidiary of
Scott, and certain related affiliates of Scott (referred to hereinafter as the
"Predecessor Corporation"). Immediately following the Acquisition, SDW
Acquisition merged with and into Warren, with Warren (the "Successor
Corporation") surviving. The Company is wholly owned by Holdings which in turn
is majority owned by Sappi Limited ("Sappi").
The Acquisition has resulted in a new basis of accounting, the adoption of
certain accounting policies which differ from the accounting policies of the
Predecessor Corporation and increases to certain manufacturing costs (purchased
pulp and energy within the Company's Mobile, Alabama facility) resulting from
obtaining these manufacturing resources on a third party versus affiliate basis.
As a result, the Company's financial statements for the periods subsequent to
the Acquisition date are not comparable to the Predecessor Corporation's
financial statements for periods prior to the Acquisition.
PREDECESSOR CORPORATION
The unaudited interim condensed combined financial information for the
period September 25, 1994 through December 20, 1994 refers to the Predecessor
Corporation. The unaudited condensed combined financial information for such
period of the Predecessor Corporation is derived from the audited financial
statements for such period included in the Company's 1995 Annual Report on Form
10-K. The unaudited condensed combined financial statements of the Predecessor
Corporation are based upon financial information made available to the Company
by Scott, which until December 20, 1994 owned the Company and accounted for the
Company as part of Scott's consolidated financial statements.
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary for the fair presentation of the Company's financial
position and results of operations. The accompanying unaudited condensed
financial statements together with the interim condensed financial statements of
the Predecessor Corporation should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K/A. The
unaudited condensed results of operations for the nine months ended July 3, 1996
are not necessarily indicative of results that could be expected for a full
year.
The Company's income before income taxes for the period December 21, 1994
through June 28, 1995 has been increased by $8.2 million from the amount
previously reported as a result of the finalization of purchase accounting
adjustments made in the last quarter of fiscal 1995. In addition, certain prior
period amounts have been reclassified to conform to their current presentation.
F-35
<PAGE>
S.D. WARREN COMPANY
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RESTATEMENTS
For purposes of the following discussion, the nine months ended June 28,
1995 refers to the Predecessor Corporation for the period September 25, 1994
through December 20, 1994 combined with the Successor Corporation for the period
December 21, 1994 through June 28, 1995. The "Company" refers to both the
Predecessor and Successor Corporations.
Subsequent to discussions with the staff of the Securities and Exchange
Commission, the Company has reconsidered its accounting policy with respect to
accounting for certain costs relating to compliance with safety and other
governmental laws and regulations and has adopted a policy of accounting for
these costs on an as-incurred basis. Accordingly, the financial statements for
the nine months ended June 28, 1995 and July 3, 1996 have been restated to
reflect the effect of this change in accounting for these costs. The effects of
the restatements were as follows (in millions):
<TABLE>
<CAPTION>
PERIOD NINE
DECEMBER 21, 1994 MONTHS
THROUGH ENDED
JUNE 28, 1995 JULY 3, 1996
------------------- -------------
<S> <C> <C>
Income (loss) before income taxes
As previously recorded in the Company's Form 10-Q.......... $ 48.1 $ 9.9
As restated................................................ 43.1 9.0
Net income (loss)
As previously recorded in the Company's Form 10-Q.......... 28.9 3.9
As restated................................................ 25.9 3.4
Stockholder's equity
As previously recorded in the Company's Form 10-Q.......... 363.1
As restated................................................ 358.2
</TABLE>
In addition to the aforementioned restatements, certain prior period amounts
have been reclassified to conform to their current presentation.
NOTE 3--ACCOUNTS RECEIVABLE
On April 23, 1996, in conjunction with an amendment to the Company's credit
facility, the Company entered into a five-year agreement which provides for the
sale of all of the Company's trade accounts receivable, net of all related
allowances, through a bankruptcy remote subsidiary to an unrelated financial
institution (the "A/R facility"). The cash proceeds from the sale are based upon
a computation of eligible trade accounts receivable and the subsidiary retains
an undivided interest in the remaining "ineligible" trade accounts receivable.
As collections reduce the trade accounts receivable sold, participating
interests in new trade accounts receivable are sold. As of July 3, 1996, $130.9
million of trade accounts receivable had been sold to the unrelated financial
institution and the Company's subsidiary retained an undivided interest in $37.8
million of trade accounts receivable, net. The sale is reflected as a reduction
in accounts receivable in the accompanying Condensed Balance Sheet and as
operating cash flows in the accompanying Condensed Statement of Cash Flows. Fees
associated with this transaction are recorded in other income (expense) in the
Company's Condensed Statement of Operations.
NOTE 4--RELATED PARTY TRANSACTIONS
During the nine months ended July 3, 1996, the Company sold products to
certain subsidiaries of Sappi ("affiliates") at market prices primarily in U.S.
Dollars. These affiliates then sold the Company's products to external
customers. Proceeds from sales to affiliates are remitted to Warren net of sales
commissions. The Company sold approximately $71.1 million to affiliates and
incurred fees of approximately $4.3 million relating to these sales for the nine
months ended July 3, 1996, respectively. Trade accounts receivable from
affiliates at July 3, 1996, including amounts sold (see Note 3), were
approximately $24.3 million. The Company expects to finalize the written
agreements for transactions with these affiliates in the near future.
F-36
<PAGE>
S.D. WARREN COMPANY
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
During the third quarter of fiscal 1996, the Company commenced transacting
business in currencies other than the U.S. Dollar, primarily the Japanese Yen.
The Company manages the potential exposure associated with transacting in
foreign currencies through the use of foreign currency forward contracts. These
contracts are used to offset the effects of exchange rate fluctuations on a
portion of the underlying Yen denominated exposure. These exposures include firm
intercompany trade accounts receivable. Realized and unrealized gains and losses
on these contracts at July 3, 1996 were immaterial.
During fiscal year 1996, the Company began purchasing products from certain
affiliates in U.S. Dollars primarily for sale to external customers. The Company
receives commissions from the affiliates on such sales. These transactions to
date have not been material.
NOTE 5--INVENTORIES (IN MILLIONS)
<TABLE>
<CAPTION>
JULY 3,
SEPTEMBER 27, 1995 1996
------------------- -----------
<S> <C> <C>
Finished products................................................................ $ 89.8 $ 111.3
Work in process.................................................................. 51.0 38.4
Pulp, logs and pulpwood.......................................................... 33.2 20.8
Maintenance parts and other supplies............................................. 52.5 50.1
------ -----------
$ 226.5 $ 220.6
------ -----------
------ -----------
</TABLE>
NOTE 6--LONG-TERM DEBT
The Company amended its credit agreement on April 26, 1996 and changed
certain provisions relating to restrictive covenants including, among other
things, the ability to incur additional debt, pay dividends and sell certain
assets. In addition, certain provisions relating to interest rates, fees,
collateral, prepayments and affirmative covenants were also amended.
In April 1996, the proceeds from the A/R facility, along with $10.0 million
of available cash on hand, were used to prepay $100.0 million of the term loans
under the credit agreement. Approximately $3.3 million of financing fees that
had previously been deferred were written off as a result of this prepayment and
recorded as an extraordinary item in the accompanying Condensed Statement of
Operations net of a $1.3 million tax effect. In addition, during the nine months
ended July 3, 1996, payments totaling approximately $74.9 million were made
pursuant to an excess cash flow requirement, as defined. Amounts paid pursuant
to the excess cash flow requirement during the nine months ended July 3, 1996
fulfill the majority of the term loan payments that otherwise would have been
required to be paid in June 1996 and reduce future semiannual installments on a
pro rata basis. The current maturities of long-term debt balance of $46.6
million at July 3, 1996 primarily represents the amounts payable in December
1996 and June 1997 under the Company's term loan facilities.
NOTE 7--ENVIRONMENTAL AND SAFETY MATTERS
The Company is subject to a wide variety of increasingly stringent
environmental laws and regulations relating to, among other matters, air
emissions, wastewater discharges, past and present landfill operations and
hazardous waste management. These laws include the Federal Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act and their respective
state counterparts. The Company will continue to incur significant capital and
operating expenditures to maintain compliance with applicable federal and state
environmental laws. These expenditures include costs of compliance with federal
worker safety laws, landfill expansions and wastewater treatment system
upgrades. None of these expenditures, individually or in the aggregate, are
expected to have a material adverse effect on the Company's business or
financial condition.
In addition to conventional pollutants, minute quantities of dioxins and
other chlorinated organic compounds may be contained in the wastewater effluent
of the Company's bleached kraft pulp mills in
F-37
<PAGE>
S.D. WARREN COMPANY
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
Somerset and Westbrook, Maine and Muskegon, Michigan. The most recent National
Pollutant Discharge Elimination System ("NPDES") wastewater permit limits
proposed by the EPA would limit dioxin discharges from the Company's Somerset
and Westbrook mills to less than the level of detectability. The Company is
presently meeting the EPA's proposed dioxin limits but it is not meeting the
proposed limits for other parameters (e.g., temperature and color) and is
pursuing efforts to revise these other wastewater permit limits for its
facilities. While the permit limitations at these two facilities are being
challenged, the Company continues to operate under existing EPA permits, which
have technically expired, in accordance with accepted administrative practice.
In addition, the Muskegon mill is involved, as one of various industrial
plaintiffs, in litigation with the County of Muskegon regarding the County's
1994 ordinance governing its industrial wastewater pretreatment program. The
lawsuit challenges, among other things, the treatment capacity availability and
local effluent limit provisions of the ordinance. In July 1996, the Court
rendered a decision substantially in favor of the Company and the other
plaintiffs, but the County is expected to appeal the Court's decision. If the
Company and the other plaintiffs do not prevail in that appeal, the Company may
not be able to obtain additional treatment capacity for future expansions and
the County could impose stricter permit limits. In the meantime, the County has
issued a permit with effluent limits that the Company is able to meet without
additional pretreatment. The imposition of currently proposed permit limits or
the failure of the Muskegon lawsuit could require substantial additional
expenditures, including short-term expenditures, and may lead to substantial
fines for any noncompliance.
In November 1993, the EPA announced proposed regulations that would impose
new air and water quality standards aimed at further reductions of pollutants
from pulp and paper mills, particularly those conducting bleaching operations
(generally referred to as the "cluster rules"). Although the EPA has not made
any commitments, final promulgation of the cluster rules may occur in 1996 and
compliance with the rules may be required beginning in 1998. The Company
believes that compliance with the cluster rules, as proposed, may require
aggregate capital expenditures of approximately $76.0 million through 1999. The
ultimate financial impact to the Company of compliance with the cluster rules
will depend upon the nature of the final regulations, the timing of required
implementation and the cost and availability of new technology. The Company also
anticipates that it will incur an estimated $10.0 million to $20.0 million of
capital expenditures through 1999 related to environmental compliance other than
as a result of the cluster rules.
The Company's mills generate substantial quantities of solid wastes and
by-products that are disposed of at permitted landfills and solid waste
management units at the mills. The Company is currently planning to expand the
landfill at the Somerset mill at a projected total cost of approximately $12.0
million, of which approximately $5.0 million will be spent between 1996 and
1997.
The Muskegon mill has had discussions with the Michigan Department of
Natural Resources ("DNR") regarding a wastewater surge pond adjacent to the
Muskegon Lake. The DNR is presently considering whether the surge pond is in
compliance with Michigan Act 245 (Water Resources Commission Act) regarding
potential discharges from that pond. The matter is now subject to the results of
a pending engineering investigation. There is a possibility that, as a result of
DNR requirements, the surge pond may be closed in the future. The Company
estimates the cost of closure will be approximately $2.0 million. In addition,
if it is necessary to replace the functional capacity of the surge pond with
above-grade structures, the Company preliminarily estimates that up to an
additional $8.0 million may be required for such construction costs.
The Company has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based upon the Company's understanding of the
total amount of costs at each site, its calculation of its percentage share in
each proceeding, and the number of potentially responsible parties at each site,
the Company presently believes
F-38
<PAGE>
S.D. WARREN COMPANY
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
that its aggregate exposure for these matters will not be material. Moreover, in
accordance with the agreement pursuant to which the Company was acquired, the
Company's former parent, Scott, agreed to indemnify and defend the Company for
and against, among other things, the full amount of any damages or costs
resulting from the off-site disposal of hazardous substances occurring prior to
the date of closing, including all damages and costs related to these seven
sites. Since the date of closing of the acquisition agreement, Scott, or its
successor, has been performing under the terms of this environmental indemnity
and defense provision and, therefore, the Company has not expended any funds
with respect to these seven sites.
None of these environmental matters, individually or in the aggregate, is
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
The Company does not believe that it will have any liability under emergency
legislation enacted in 1995 by the State of Maine to cover a significant
shortfall in the Maine workers' compensation system through assessments of
employers and insurers; however, there can be no assurance that the existing
legislation will fully address the shortfall.
NOTE 8--SUBSEQUENT EVENTS
On October 17, 1996, a fire occurred at an outside warehouse location in
Muskegon, Michigan, which resulted in the loss of approximately 8,000 tons of
inventory valued in excess of $5.5 million. While the Company cannot reasonably
estimate at this time the total loss experienced, or the amount to be recovered
under its insurance policies, it does not expect that total losses will exceed
its insurance coverage limits.
Due to exceptionally heavy rains, the Presumpscot River flooded the
Westbrook mill on October 21, 1996. The flooding resulted in the temporary
closure of the mill. Damage to mill equipment is being repaired and normal
operating mill conditions are being restored. While the mill is not yet
operating at full production, the Company anticipates that it will be in the
near future. While the Company cannot reasonably estimate at this time the total
loss experienced, or the amount to be recovered under its insurance policies,
early indications suggest that such amounts may be significant. However, total
losses are not expected to exceed the Company's insurance coverage limits.
On October 24, 1996 the Company announced a restructuring plan that will
likely result in a pretax charge of approximately $10.0 million in the first
quarter of fiscal 1997. The charge will be taken to cover the one-time costs
related to the reduction of up to approximately 200 salaried positions, or
approximately 14% of the Company's salaried workforce.
On November 5, 1996, a proposed binding referendum measure to eliminate
clearcutting in unincorporated areas in the State of Maine was defeated. A
competing measure, which could establish new forestry standards stricter than
current law, but which would not completely ban clearcutting, received a
plurality vote. This competing measure was supported by the Company, other major
timber interests in Maine, several environmental groups as well as the Governor
of Maine. Under Maine law, this competing measure will not automatically become
law unless it receives a simple majority of the votes cast in a special election
to be held in 1997. If this competing measure does become law, the consequence
to the Company is not expected to be material, because such measure generally
reflects sustainable forestry initiatives voluntarily adopted by the Company.
See "Risk Factors--Stringent Environmental Regulation; Potential Timber
Regulation".
F-39
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information......................... 2
Prospectus Summary............................. 3
Forward-Looking Statements..................... 9
Risk Factors................................... 9
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Selected Historical Financial Data............. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
Business....................................... 28
Management..................................... 36
The Acquisition................................ 41
Security Ownership of Certain Beneficial Owners
and Management............................... 42
Certain Relationships and Related
Transactions................................. 46
Description of the Notes....................... 48
Description of the Senior Preferred Stock...... 73
Description of the Exchange Debentures......... 80
Description of Capital Stock................... 84
Description of the Credit Agreement and the A/R
Facility..................................... 84
Certain Federal Income Tax Considerations...... 88
Plan of Distribution........................... 93
Experts........................................ 93
Index to Financial Statements.................. F-1
</TABLE>
S.D. WARREN COMPANY
12% SERIES B SENIOR
SUBORDINATED
NOTES DUE 2004
AND
14% SERIES B SENIOR
EXCHANGEABLE
PREFERRED STOCK DUE 2006
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NOVEMBER , 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL")
provides that the Company, unless otherwise restricted by its by-laws, may
indemnify a person that is or was a party to any threatened, pending or
completed action or proceeding (an "Action") because that person is or was a
representative of the Company, or is or was serving at the request of the
Company as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise
(a "Company Representative") under the circumstances set forth herein. Section
1741 of PBCL permits the Company to indemnify any Company Representative who was
or is a party to an Action whether civil, criminal, administrative or
investigative (other than an Action by or in the right of the Company), against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by that Company Representative in
connection with the Action if that Company Representative acted in good faith
and in a manner that Company Representative reasonably believed to be in, or not
opposed to, the best interests of the Company and, with respect to any criminal
Action, had no reason to believe was unlawful. Section 1742 of the PBCL permits
the Company to indemnify any Company Representative who was or is a party to an
Action by or in the right of the Company to procure a judgment in its favor
against expenses (including attorney's fees) actually and reasonably incurred by
that Company Representative in connection with the defense or settlement of the
Action if that Company Representative acted in good faith and in a manner that
Company Representative reasonably believed to be in, or not opposed to, the best
interests of the Company. However, if a Company Representative is or was a party
to an Action by or in the right of the Company and is adjudged to be liable to
the Company, then that Company Representative is not entitled to indemnification
unless, but only to the extent that, the court of common pleas of the judicial
district in the county in which the registered office of the Company is located,
or the court in which the action was brought, determines upon application, that
despite the adjudication of liability but in view of all the circumstances of
the case, the Company Representative is fairly and reasonably entitled to
indemnity for the expenses that such court deems proper. Finally, Section 1743
of the PBCL provides that to the extent that a Company Representative has been
successful on the merits or otherwise in defense of any Action referred to above
or in defense of any claim, issue or matter therein, that Company Representative
shall be indemnified against expenses (including attorney fees) actually and
reasonably incurred.
The Company's By-laws and Articles of Incorporation provide that the Company
shall indemnify to the fullest extent permitted by law any person who was or is
a party or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that such person is or was a Director or Officer of the Company, or is or
was serving at the request of the Company as a Director or Officer of another
corporation or of a partnership, joint venture, trust or other enterprise or
entity, whether or not for profit, whether domestic or foreign, including
service with respect to an employee benefit plan, its participants or
beneficiaries, against all liability, loss and expense (including attorneys'
fees and amounts paid in settlement) actually and reasonably incurred by such
person in connection with such Proceeding, whether or not the indemnified
liability arises or arose from any Proceeding by or in the right of the Company.
The Company has obtained directors' and officers' liability insurance that
covers certain liabilities and expenses of the Company's directors and officers.
The Company intends to enter into indemnification agreements with each of its
directors and certain of its officers.
Sappi carries directors' and officers' liability insurance that covers
certain liabilities and expenses of directors and officers of subsidiaries of
Sappi. Directors and officers of the Company who are employees of Sappi have the
benefit of the coverage, subject to the limitations of such insurance.
Directors of the Company who are also employees of Sappi may be entitled to
indemnification from Sappi for certain liabilities and expenses incurred as a
result of serving as directors of the Company.
II-1
<PAGE>
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement dated as of December 13, 1994, among SDW Holdings Corporation, SDW Acquisition
Corporation, Sappi Limited, DLJ Merchant Banking, Inc. and certain of its affiliates, UBS Capital
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (the "Purchase Agreement").*
1.2 Amendment Number 1 to the Purchase Agreement, dated as of December 19, 1994, among SDW Holdings
Corporation, SDW Acquisition Corporation, Sappi Limited, DLJ Merchant Banking, Inc. and certain of
its affiliates, UBS Capital Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.*
1.3 Amendment Number 2 to the Purchase Agreement, dated as of December 20, 1994, among SDW Holdings
Corporation, S.D. Warren Company and Donaldson, Lufkin & Jenrette Securities Corporation.*
1.4 Registration Rights Agreement, dated as of December 20, 1994 by and between SDW Acquisition
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (the "Registration Agreement").*
1.5 Amendment Number 1 to the Registration Agreement, dated as of December 20, 1994, by and between S.D.
Warren Company and Donaldson, Lufkin & Jenrette Securities Corporation.*
1.6 Registration Rights Agreement, dated as of December 20, 1994 by and between SDW Acquisition
Corporation and UBS Capital Corporation (the "UBSC Registration Agreement").*
1.7 Amendment Number 1 to the UBSC Registration Agreement, dated as of December 20, 1994, by and between
S.D. Warren Company and UBS Capital Corporation.*
1.8 Lock-up Agreement, dated as of December 12, 1994, between Donaldson, Lufkin & Jenrette Securities
Corporation and UBS Capital Corporation.*
1.9 Side Letter, dated as of December 19, 1994, between Donaldson, Lufkin & Jenrette Securities
Corporation and UBS Capital Corporation.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.*
3.2 By-laws of the Registrant.*
4.1 Indenture, dated as of December 20, 1994, between SDW Acquisition Corporation and the Bank of New
York, as trustee, relating to the 12% Series A Senior Subordinated Notes due 2004 and the 12% Series
B Senior Subordinated Notes due 2004.*
4.2 First Supplemental Indenture, dated as of December 20, 1994 between S.D. Warren Company and Bank of
New York, as trustee, relating to the 12% Series A Senior Subordinated Notes due 2004 and the 12%
Series B Senior Subordinated Notes due 2004.*
4.3 Certificate of Designations, Preferences and Relative, Participating, Optional and other Special
Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof of 14% Series A
Senior Exchangeable Preferred Stock due 2006 and 14% Series B Senior Exchangeable Preferred Stock due
2006 of S.D. Warren Company, dated as of December 20, 1994.*
4.4 Form of the Exchange Debenture Indenture between S.D. Warren Company and the United States Trust
Company of New York relating to S.D. Warren Company's 14% Series A Subordinated Exchange Debentures
due 2006 and 14% Series B Subordinated Exchange Debentures due 2006.*
5.1 Opinions of Cravath, Swaine & Moore and Dechert Price & Rhoads, regarding the legality of the New
Securities.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.1 Credit and Guarantee Agreement dated as of December 20, 1994, as amended and restated as of April 26,
1996, among SDW Holdings Corporation, S.D. Warren Company, the Lenders (as defined therein) and
Chemical Bank, as Agent.
<C> <S>
10.2 Receivables Purchase Agreement dated as of April 19, 1996, among S.D. Warren Finance Co., S.D. Warren
Company, Bank of Montreal and Nesbitt Burns Securities Inc.
10.2(a) Purchase and Contribution Agreement dated as of April 19, 1996, between S.D. Warren Company and S.D.
Warren Finance Co.
10.3 Securities Subscription Agreement, dated as of December 20, 1994, among SDW Holdings Corporation, SDW
Acquisition Corporation (and following the merger, S.D. Warren Company as successor thereto), and
each of Sappi Limited, Sappi Deutschland GmbH, DLJ Merchant Banking Partner, L.P. and certain of its
affiliates and UBS Capital Corporation.*
10.4 Second Amended and Restated Shareholders Agreement dated as of December 20, 1994, among Sappi
Limited, Sappi Deutschland GmbH, DLJ Merchant Banking Partners, L.P. and certain of its affiliates,
UBS Capital Corporation, SDW Holdings Corporation and S.D. Warren Company as successor to SDW
Acquisition Corporation.*
10.5 Participation Agreement dated as of January 1, 1982 among Scott Paper Company, as Purchaser, General
Electric Credit Corporation, as Owner Participant and The Connecticut Bank and Trust Company, as
Owner Trustee.*
10.6 Refinancing Participation Agreement dated as of December 15, 1986, among Scott Paper Company, as
Purchaser, General Electric Credit Corporation, as Owner Participant, and The Connecticut Bank and
Trust Company National Association, as Owner Trustee.*
10.7 Power Sales Agreement dated as of January 1, 1982, between The Connecticut Bank and Trust Company,
Owner Trustee, as Seller, and Scott Paper Company, as Purchaser, as amended by the First Amendment
dated as of December 15, 1986.*
10.8 Ground Lease Agreement dated as of January 1, 1982 between Scott Paper Company, as Lessor, and The
Connecticut Bank and Trust Company, Owner Trustee, as Lessee, as amended by First Amendment dated as
of December 15, 1986.*
10.9 Operating Agreement dated as of January 1, 1982 between The Connecticut Bank and Trust Company, as
Owner Trustee, and Scott Paper Company, as Operator, as amended by First Amendment dated as of
December 15, 1986.*
10.10 Tax Indemnification Agreement dated as of January 1, 1982, among General Electric Credit Corporation,
Owner Participant, The Connecticut Bank and Trust Company, as Owner Trustee, and Scott Paper Company,
Purchaser, as amended by the Amendment dated as of November 25, 1986.*
10.11 Facilities Agreement dated as of January 1, 1982 between Scott Paper Company and The Connecticut Bank
and Trust Company, as Owner Trustee, as amended by First Amendment dated as of December 15, 1986.*
10.12 Indenture and Security Agreement dated as of December 15, 1986, among The Connecticut Bank and Trust
Company, National Association, as Westbrook Owner Trustee and Winslow Owner Trustee, Scott Paper
Company, and The Bank of New York, as Indenture Trustee.*
10.13 Transfer Agreement dated as of June 29, 1986 between Scott Paper Company and S.D. Warren Company, as
amended October 25, 1990, as further amended November 1, 1993.*
10.14 Stock Purchase Agreement by and among Scott Paper Company, Sappi Limited and SDW Acquisition
Corporation dated as of October 8, 1994.*
10.15 Supplemental Agreement to Stock Purchase Agreement dated as of October 8, 1994 by and among Scott
Paper Company, Sappi Limited and SDW Acquisition Corporation dated as of December 19, 1994.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.15(a) Extension of Time Period specified in Section 1.6(e) of the Stock Purchase Agreement dated as of
October 8, 1994 by and among Scott Paper Company, Sappi Limited and SDW Acquisition Corporation.*
<C> <S>
10.16 Assignment and Assumption Agreement (relating to Westbrook Biomass Financing) dated as of December
20, 1994 between Scott Paper Company and S.D. Warren Company.*
10.17 General Assignment and Assumption Agreement dated as of December 20, 1994 by and between Scott Paper
Company, Scott Continental N.V. and S.D. Warren Company.*
10.18 Contract dated as of August 1, 1978 between Central Maine Power Company ("CMP") and S.D. Warren
Company, as amended by Amendment dated as of May 15, 1982, as further amended by Amendment dated as
of October 27, 1982.*
10.19 Westbrook Long-term Contract for the Sale of Electricity to CMP, dated October 27, 1982 between CMP
and Scott Paper Company, S.D. Warren Division.*
10.20 Agreement for Electric Service for the Westbrook Mill of S.D. Warren Company dated as of August 1,
1983 between CMP and S.D. Warren Company.*
10.21 Agreement for Electric Service for Scott Paper Company, S.D. Warren Division, Somerset County, dated
as of December 1, 1982 between CMP and S.D. Warren, as amended by Amendment dated as of July 9,
1990.*
10.22 Power Purchase Agreement between Scott Paper Company, S.D. Warren Division (Somerset) and CMP dated
as of December 1, 1982, as amended by Amendment dated April 11, 1983, as further amended by Amendment
dated July 9, 1990.*
10.23 Pulp Supply Agreement between Scott Paper Company and S.D. Warren Company dated as of December 20,
1994.*
10.24 Paper Mill Energy Services Agreement between S.D. Warren Company and Mobile Energy Services Company,
Inc. dated as of December 12, 1994.*
10.25 Master Operating Agreement among Scott Paper Company, S.D. Warren Company and Mobile Energy Services
Company, Inc. dated as of December 12, 1994.*
12.1 Statements regarding the computation of ratio of earnings to fixed charges and ratio of earnings to
fixed charges and preferred stock dividends for the Registrant.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Deloitte & Touche LLP, independent accountants.
23.2 Consents of Cravath, Swaine & Moore and Dechert Price & Rhoads, included in Exhibit 5.1.*
24.1 Powers of Attorney.*
24.2 Certified copy of a Resolution adopted by the Company's Board of Directors authorizing execution of
the Registration Statement by Power of Attorney.*
25.1 Statement of Eligibility and Qualification on Form T-1 of the Bank of New York, as Trustee under the
Indenture relating to the New Notes.*
</TABLE>
- ------------------------
* Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
II-4
<PAGE>
"Securities Act"), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 under the Securities Act, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceedings) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
(d) The undersigned registrant hereby undertakes 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Post-Effective Amendment No. 2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, on November 8,
1996.
S.D. Warren Company
By: /s/ TREVOR L. LARKAN
-----------------------------------
Trevor L. Larkan
DIRECTOR, CHIEF FINANCIAL OFFICER,
VICE PRESIDENT,
TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 2 has been signed by the following persons in the
capacities indicated on the dates indicated below.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
* Director
-------------------------------------------
(Eugene van As)
* Director, President, Chief
------------------------------------------- Executive Officer
(Monte R. Haymon) (principal executive officer)
* Director and Vice President
-------------------------------------------
(E. Dannis Herring)
* Director and Vice President
-------------------------------------------
(James H. Frick, Jr.)
* Director and Vice President
-------------------------------------------
(O. Harley Wood)
* Director and Vice President
-------------------------------------------
(William E. Hewitt)
* Director, Chief Financial
------------------------------------------- Officer, Vice President,
(Trevor L. Larkan) Treasurer and Secretary
(principal financial and
accounting officer)
*By: /s/TREVOR L. LARKAN Attorney-in-Fact November 8, 1996
(Trevor L. Larkan)
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- ---------- -------------------
<C> <S> <C>
1.1 Purchase Agreement dated as of December 13, 1994, among SDW Holdings Corporation, SDW
Acquisition Corporation, Sappi Limited, DLJ Merchant Banking, Inc. and certain of its
affiliates, UBS Capital Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Purchase Agreement").*
1.2 Amendment Number 1 to the Purchase Agreement, dated as of December 19, 1994, among
SDW Holdings Corporation, SDW Acquisition Corporation, Sappi Limited, DLJ Merchant
Banking, Inc. and certain of its affiliates, UBS Capital Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation.*
1.3 Amendment Number 2 to the Purchase Agreement, dated as of December 20, 1994, among
SDW Holdings Corporation, S.D. Warren Company and Donaldson, Lufkin & Jenrette
Securities Corporation.*
1.4 Registration Rights Agreement, dated as of December 20, 1994 by and between SDW
Acquisition Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Registration Agreement").*
1.5 Amendment Number 1 to the Registration Agreement, dated as of December 20, 1994, by
and between S.D. Warren Company and Donaldson, Lufkin & Jenrette Securities
Corporation.*
1.6 Registration Rights Agreement, dated as of December 20, 1994 by and between SDW
Acquisition Corporation and UBS Capital Corporation (the "UBSC Registration
Agreement").*
1.7 Amendment Number 1 to the UBSC Registration Agreement, dated as of December 20, 1994,
by and between S.D. Warren Company and UBS Capital Corporation.*
1.8 Lock-up Agreement, dated as of December 12, 1994, between Donaldson, Lufkin &
Jenrette Securities Corporation and UBS Capital Corporation.*
1.9 Side Letter, dated as of December 19, 1994, between Donaldson, Lufkin & Jenrette
Securities Corporation and UBS Capital Corporation.*
3.1 Amended and Restated Articles of Incorporation of the Registrant.*
3.2 By-laws of the Registrant.*
4.1 Indenture, dated as of December 20, 1994, between SDW Acquisition Corporation and the
Bank of New York, as trustee, relating to the 12% Series A Senior Subordinated Notes
due 2004 and the 12% Series B Senior Subordinated Notes due 2004.*
4.2 First Supplemental Indenture, dated as of December 20, 1994 between S.D. Warren
Company and Bank of New York, as trustee, relating to the 12% Series A Senior
Subordinated Notes due 2004 and the 12% Series B Senior Subordinated Notes due 2004.*
4.3 Certificate of Designations, Preferences and Relative, Participating, Optional and
other Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions thereof of 14% Series A Senior Exchangeable Preferred Stock due 2006 and
14% Series B Senior Exchangeable Preferred Stock due 2006 of S.D. Warren Company,
dated as of December 20, 1994.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- ---------- -------------------
4.4 Form of the Exchange Debenture Indenture between S.D. Warren Company and the United
States Trust Company of New York relating to S.D. Warren Company's 14% Series A
Subordinated Exchange Debentures due 2006 and 14% Series B Subordinated Exchange
Debentures due 2006.*
<C> <S> <C>
5.1 Opinions of Cravath, Swaine & Moore and Dechert Price & Rhoads, regarding the
legality of the New Securities.*
10.1 Credit and Guarantee Agreement dated as of December 20, 1994, as amended and restated
as of April 26, 1996, among SDW Holdings Corporation, S.D. Warren Company, the
Lenders (as defined therein) and Chemical Bank, as Agent.
10.2 Receivables Purchase Agreement dated as of April 19, 1996, among S.D. Warren Finance
Co., S.D. Warren Company, Bank of Montreal and Nesbitt Burns Securities Inc.
10.2(a) Purchase and Contribution Agreement dated as of April 19, 1996, between S.D. Warren
Company and S.D. Warren Finance Co.
10.3 Securities Subscription Agreement, dated as of December 20, 1994, among SDW Holdings
Corporation, SDW Acquisition Corporation (and following the merger, S.D. Warren
Company as successor thereto), and each of Sappi Limited, Sappi Deutschland GmbH, DLJ
Merchant Banking Partner, L.P. and certain of its affiliates and UBS Capital
Corporation.*
10.4 Second Amended and Restated Shareholders Agreement dated as of December 20, 1994,
among Sappi Limited, Sappi Deutschland GmbH, DLJ Merchant Banking Partners, L.P. and
certain of its affiliates, UBS Capital Corporation, SDW Holdings Corporation and S.D.
Warren Company as successor to SDW Acquisition Corporation.*
10.5 Participation Agreement dated as of January 1, 1982 among Scott Paper Company, as
Purchaser, General Electric Credit Corporation, as Owner Participant and The
Connecticut Bank and Trust Company, as Owner Trustee.*
10.6 Refinancing Participation Agreement dated as of December 15, 1986, among Scott Paper
Company, as Purchaser, General Electric Credit Corporation, as Owner Participant, and
The Connecticut Bank and Trust Company National Association, as Owner Trustee.*
10.7 Power Sales Agreement dated as of January 1, 1982, between The Connecticut Bank and
Trust Company, Owner Trustee, as Seller, and Scott Paper Company, as Purchaser, as
amended by the First Amendment dated as of December 15, 1986.*
10.8 Ground Lease Agreement dated as of January 1, 1982 between Scott Paper Company, as
Lessor, and The Connecticut Bank and Trust Company, Owner Trustee, as Lessee, as
amended by First Amendment dated as of December 15, 1986.*
10.9 Operating Agreement dated as of January 1, 1982 between The Connecticut Bank and
Trust Company, as Owner Trustee, and Scott Paper Company, as Operator, as amended by
First Amendment dated as of December 15, 1986.*
10.10 Tax Indemnification Agreement dated as of January 1, 1982, among General Electric
Credit Corporation, Owner Participant, The Connecticut Bank and Trust Company, as
Owner Trustee, and Scott Paper Company, Purchaser, as amended by the Amendment dated
as of November 25, 1986.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- ---------- -------------------
10.11 Facilities Agreement dated as of January 1, 1982 between Scott Paper Company and The
Connecticut Bank and Trust Company, as Owner Trustee, as amended by First Amendment
dated as of December 15, 1986.*
<C> <S> <C>
10.12 Indenture and Security Agreement dated as of December 15, 1986, among The Connecticut
Bank and Trust Company, National Association, as Westbrook Owner Trustee and Winslow
Owner Trustee, Scott Paper Company, and The Bank of New York, as Indenture Trustee.*
10.13 Transfer Agreement dated as of June 29, 1986 between Scott Paper Company and S.D.
Warren Company, as amended October 25, 1990, as further amended November 1, 1993.*
10.14 Stock Purchase Agreement by and among Scott Paper Company, Sappi Limited and SDW
Acquisition Corporation dated as of October 8, 1994.*
10.15 Supplemental Agreement to Stock Purchase Agreement dated as of October 8, 1994 by and
among Scott Paper Company, Sappi Limited and SDW Acquisition Corporation dated as of
December 19, 1994.*
10.15(a) Extension of Time Period specified in Section 1.6(e) of the Stock Purchase Agreement
dated as of October 8, 1994 by and among Scott Paper Company, Sappi Limited and SDW
Acquisition Corporation.*
10.16 Assignment and Assumption Agreement (relating to Westbrook Biomass Financing) dated
as of December 20, 1994 between Scott Paper Company and S.D. Warren Company.*
10.17 General Assignment and Assumption Agreement dated as of December 20, 1994 by and
between Scott Paper Company, Scott Continental N.V. and S.D. Warren Company.*
10.18 Contract dated as of August 1, 1978 between Central Maine Power Company ("CMP") and
S.D. Warren Company, as amended by Amendment dated as of May 15, 1982, as further
amended by Amendment dated as of October 27, 1982.*
10.19 Westbrook Long-term Contract for the Sale of Electricity to CMP, dated October 27,
1982 between CMP and Scott Paper Company, S.D. Warren Division.*
10.20 Agreement for Electric Service for the Westbrook Mill of S.D. Warren Company dated as
of August 1, 1983 between CMP and S.D. Warren Company.*
10.21 Agreement for Electric Service for Scott Paper Company, S.D. Warren Division,
Somerset County, dated as of December 1, 1982 between CMP and S.D. Warren, as amended
by Amendment dated as of July 9, 1990.*
10.22 Power Purchase Agreement between Scott Paper Company, S.D. Warren Division (Somerset)
and CMP dated as of December 1, 1982, as amended by Amendment dated April 11, 1983,
as further amended by Amendment dated July 9, 1990.*
10.23 Pulp Supply Agreement between Scott Paper Company and S.D. Warren Company dated as of
December 20, 1994.*
10.24 Paper Mill Energy Services Agreement between S.D. Warren Company and Mobile Energy
Services Company, Inc. dated as of December 12, 1994.*
10.25 Master Operating Agreement among Scott Paper Company, S.D. Warren Company and Mobile
Energy Services Company, Inc. dated as of December 12, 1994.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- ---------- -------------------
12.1 Statements regarding the computation of ratio of earnings to fixed charges and ratio
of earnings to fixed charges and preferred stock dividends for the Registrant.*
<C> <S> <C>
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Deloitte & Touche LLP, independent accountants.
23.2 Consents of Cravath, Swaine & Moore and Dechert Price & Rhoads, included in Exhibit
5.1.*
24.1 Powers of Attorney.*
24.2 Certified copy of a Resolution adopted by the Company's Board of Directors
authorizing execution of the Registration Statement by Power of Attorney.*
25.1 Statement of Eligibility and Qualification on Form T-1 of the Bank of New York, as
Trustee under the Indenture relating to the New Notes.*
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
CONFORMED COPY
EXHIBIT 10.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SDW HOLDINGS CORPORATION
S.D. WARREN COMPANY
--------------------------------
$875,576,698.39
AMENDED AND RESTATED
CREDIT AND GUARANTEE
AGREEMENT
April 26, 1996
--------------------------------
CHEMICAL BANK,
as Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS...................................................... 1
1.1 DEFINED TERMS.................................................... 1
1.2 OTHER DEFINITIONAL PROVISIONS; FINANCIAL CALCULATIONS............ 22
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS........................ 23
2.1 TERM LOANS....................................................... 23
2.2 PROCEDURE FOR TERM LOAN BORROWING................................ 23
2.3 REPAYMENT OF TRANCHE A TERM LOANS................................ 23
2.4 REPAYMENT OF TRANCHE B TERM LOANS................................ 24
2.5 EVIDENCE OF TERM LOAN DEBT....................................... 24
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS................. 25
3.1 REVOLVING CREDIT COMMITMENTS..................................... 25
3.2 PROCEDURE FOR REVOLVING CREDIT BORROWING......................... 25
3.3 COMMITMENT FEE................................................... 26
3.4 TERMINATION OR REDUCTION OF COMMITMENTS.......................... 26
3.5 REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT............ 26
3.6 SWING LINE COMMITMENT............................................ 27
3.7 REPAYMENT OF SWING LINE LOANS; EVIDENCE OF DEBT.................. 27
3.8 PROCEDURE FOR BORROWING SWING LINE LOANS......................... 28
3.9 SWING LINE LOAN PARTICIPATIONS................................... 28
3.10 L/C COMMITMENT................................................... 29
3.11 PROCEDURE FOR ISSUANCE OF REVOLVING CREDIT LETTERS OF CREDIT..... 29
3.12 FEES, COMMISSIONS AND OTHER CHARGES.............................. 30
3.13 L/C PARTICIPATIONS............................................... 30
3.14 REIMBURSEMENT OBLIGATION OF THE BORROWER......................... 31
3.15 OBLIGATIONS ABSOLUTE............................................. 31
3.16 LETTER OF CREDIT PAYMENTS........................................ 32
3.17 APPLICATION...................................................... 32
3.18 QUARTERLY REPORTS................................................ 32
SECTION 4. AMOUNT AND TERMS OF LOC LETTER OF CREDIT FACILITY................ 32
4.1 LOC LETTER OF CREDIT FACILITY.................................... 32
4.2 PROCEDURE FOR ISSUANCE OF LOC LETTERS OF CREDIT.................. 33
4.3 FEES, COMMISSIONS AND OTHER CHARGES.............................. 33
4.4 LOC PARTICIPATIONS............................................... 34
4.5 REIMBURSEMENT OBLIGATION OF THE BORROWER; LOC LOANS.............. 34
4.6 REPAYMENT OF LOC LOANS; EVIDENCE OF DEBT......................... 35
4.7 OBLIGATIONS ABSOLUTE............................................. 36
4.8 LOC LETTER OF CREDIT PAYMENTS.................................... 36
4.9 APPLICATION...................................................... 37
SECTION 5. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT..... 37
5.1 OPTIONAL AND MANDATORY PREPAYMENTS............................... 37
5.2 CONVERSION AND CONTINUATION OPTIONS.............................. 40
5.3 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES................... 40
5.4 INTEREST RATES AND PAYMENT DATES................................. 41
5.5 COMPUTATION OF INTEREST AND FEES................................. 41
5.6 INABILITY TO DETERMINE INTEREST RATE............................. 41
5.7 PRO RATA TREATMENT AND PAYMENTS.................................. 42
5.8 ILLEGALITY....................................................... 42
<PAGE>
Page
5.9 REQUIREMENTS OF LAW.............................................. 43
5.10 TAXES............................................................ 44
5.11 INDEMNITY........................................................ 45
5.12 CHANGE OF LENDING OFFICE; FILING OF CERTIFICATES OR DOCUMENTS.... 46
5.13 REPLACEMENT LENDERS.............................................. 46
SECTION 6. REPRESENTATIONS AND WARRANTIES................................... 46
6.1 FINANCIAL CONDITION.............................................. 46
6.2 NO CHANGE........................................................ 47
6.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW......................... 47
6.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.......... 47
6.5 NO LEGAL BAR..................................................... 48
6.6 NO MATERIAL LITIGATION........................................... 48
6.7 NO DEFAULT....................................................... 48
6.8 OWNERSHIP OF PROPERTY; LIENS..................................... 48
6.9 INTELLECTUAL PROPERTY............................................ 48
6.10 NO BURDENSOME RESTRICTIONS....................................... 49
6.11 TAXES............................................................ 49
6.12 FEDERAL REGULATIONS.............................................. 49
6.13 ERISA............................................................ 49
6.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS........................ 49
6.15 SUBSIDIARIES..................................................... 49
6.16 PURPOSE OF LOANS................................................. 49
6.17 ENVIRONMENTAL MATTERS............................................ 50
6.18 REGULATION H..................................................... 50
6.19 ACCURACY OF INFORMATION.......................................... 50
6.20 SOLVENCY......................................................... 51
6.21 STOCK PURCHASE AGREEMENT......................................... 51
SECTION 7. CONDITIONS PRECEDENT............................................. 51
7.1 CONDITIONS TO EFFECTIVENESS AND INITIAL EXTENSIONS OF CREDIT..... 51
7.2 CONDITIONS TO EACH EXTENSION OF CREDIT........................... 54
SECTION 8. AFFIRMATIVE COVENANTS............................................ 54
8.1 FINANCIAL STATEMENTS............................................. 54
8.2 CERTIFICATES; OTHER INFORMATION.................................. 55
8.3 PAYMENT OF OBLIGATIONS........................................... 55
8.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE................. 55
8.5 MAINTENANCE OF PROPERTY; INSURANCE............................... 56
8.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS........... 56
8.7 NOTICES.......................................................... 56
8.8 ENVIRONMENTAL LAWS............................................... 56
8.9 MAINTENANCE OF LIENS OF THE SECURITY DOCUMENTS................... 57
8.10 PLEDGE OF AFTER ACQUIRED PROPERTY; ADDITIONAL GUARANTORS........ 57
8.11 INTEREST RATE PROTECTION........................................ 58
8.12 PERMANENT RECEIVABLES REFINANCING............................... 58
SECTION 9. NEGATIVE COVENANTS............................................... 58
9.1 FINANCIAL CONDITION COVENANTS.................................... 58
9.2 LIMITATION ON INDEBTEDNESS....................................... 59
9.3 LIMITATION ON LIENS.............................................. 61
9.4 LIMITATION ON GUARANTEE OBLIGATIONS.............................. 63
9.5 LIMITATION ON FUNDAMENTAL CHANGES................................ 64
9.6 LIMITATION ON SALE OF ASSETS..................................... 64
-ii-
<PAGE>
Page
9.7 LIMITATION ON RESTRICTED PAYMENTS................................ 65
9.8 LIMITATION ON CAPITAL EXPENDITURES............................... 66
9.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES.................... 66
9.10 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
INSTRUMENTS AND OPTIONAL TERMINATION OF ANY PERMITTED
RECEIVABLES FINANCING............................................ 67
9.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES....................... 68
9.12 LIMITATION ON SALES AND LEASEBACKS............................... 68
9.13 LIMITATION ON CHANGES IN FISCAL YEAR............................. 68
9.14 LIMITATION ON CERTAIN CLAUSES.................................... 68
9.15 LIMITATION ON LINES OF BUSINESS.................................. 68
SECTION 9A.NEGATIVE COVENANTS OF HOLDINGS................................... 69
9A.1 LIMITATION ON HOLDINGS' ACTIVITIES............................... 69
9A.2 LIMITATION ON REDEMPTION OF HOLDINGS PREFERRED STOCK............. 69
9A.3 RESTRICTED PAYMENTS.............................................. 69
9A.4 NET PROCEEDS..................................................... 69
9A.5 DIVIDENDS........................................................ 69
SECTION 10. GUARANTEE....................................................... 69
10.1 GUARANTEE....................................................... 69
10.2 NO SUBROGATION, CONTRIBUTION, REIMBURSEMENT OR INDEMNITY........ 70
10.3 AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF
RIGHTS.......................................................... 70
10.4 GUARANTEE ABSOLUTE AND UNCONDITIONAL............................ 71
10.5 REINSTATEMENT................................................... 71
10.6 PAYMENTS........................................................ 71
SECTION 11. EVENTS OF DEFAULT............................................... 71
SECTION 12. THE AGENT....................................................... 74
12.1 APPOINTMENT..................................................... 74
12.2 DELEGATION OF DUTIES............................................ 75
12.3 EXCULPATORY PROVISIONS.......................................... 75
12.4 RELIANCE BY AGENT............................................... 75
12.5 NOTICE OF DEFAULT............................................... 75
12.6 NON-RELIANCE ON AGENT AND OTHER LENDERS......................... 75
12.7 INDEMNIFICATION.................................................. 76
12.8 AGENT IN ITS INDIVIDUAL CAPACITY................................ 76
12.9 SUCCESSOR AGENT................................................. 76
12.10 ISSUING BANKS; SWING LINE LENDER................................ 76
SECTION 13. MISCELLANEOUS................................................... 76
13.1 AMENDMENTS AND WAIVERS.......................................... 76
13.2 NOTICES......................................................... 77
13.3 NO WAIVER; CUMULATIVE REMEDIES.................................. 78
13.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................... 78
13.5 PAYMENT OF EXPENSES AND TAXES................................... 78
13.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.......... 79
13.7 ADJUSTMENTS; SET-OFF............................................ 81
13.8 COUNTERPARTS.................................................... 81
13.9 SEVERABILITY.................................................... 81
13.10 INTEGRATION..................................................... 81
13.11 GOVERNING LAW................................................... 81
13.12 SUBMISSION TO JURISDICTION; WAIVERS............................. 81
13.13 ACKNOWLEDGEMENTS................................................ 82
-iii-
<PAGE>
13.14 WAIVERS OF JURY TRIAL........................................... 82
13.15 CONFIDENTIALITY................................................. 82
13.16 RELEASE OF TIMBERLANDS.......................................... 83
ANNEXES:
Annex A Pricing Grid
SCHEDULES:
Schedule 1.1(a) Commitments, Addresses and Lending Offices
Schedule 4.2 LOC Letters of Credit Beneficiaries
Schedule 6.1(a) Undisclosed Liabilities
Schedule 6.6 Litigation
Schedule 6.8 Real Property
Schedule 6.10 Burdensome Restrictions
Schedule 6.13 ERISA Reportable Events and Accumulated Funding Deficiencies
Schedule 6.15 Subsidiaries of Holdings and the Borrower
Schedule 6.21 Exceptions
Schedule 8.11 Existing Interest Rate Protection Agreements
Schedule 9.2(d) Assumed Financings
Schedule 9.3(e) Easements, Licenses, Etc.
Schedule 9.3(h) Existing Liens
Schedule 9.3(r) Timber Cutting, Hauling and Sales Agreements
Schedule 9.4(a) Guarantee Obligations
Schedule 9.9(e) Securities Held by Borrower or any Subsidiary
Schedule 9.11(xii) Affiliate Transactions
-iv-
<PAGE>
EXHIBITS:
Exhibit A Form of Borrower Leasehold Mortgage
Exhibit B Form of Borrower Mortgage
Exhibit C-1 Form of Amended and Restated Borrower Security Agreement
Exhibit C-2 Form of Borrower Patent and Trademark Security Agreement
Exhibit D Form of Amended and Restated Borrower Stock Pledge Agreement
Exhibit E Form of Amended and Restated Holdings Stock Pledge Agreement
Exhibit F Form of Amended and Restated Subsidiaries Guarantee
Exhibit G Form of Subsidiary Leasehold Mortgage
Exhibit H Form of Subsidiary Mortgage
Exhibit I Form of Amended and Restated Subsidiary Security Agreement
Exhibit J Form of Amended and Restated Subsidiary Stock Pledge Agreement
Exhibit K Form of Swing Line Loan Participation Certificate
Exhibit L Form of Tranche A Term Note
Exhibit M Form of Tranche B Term Note
Exhibit N Form of Revolving Credit Note
Exhibit O Form of Swing Line Note
Exhibit P Form of Standby Letter of Credit
Exhibit Q Form of LOC Note
Exhibit R Form of Borrowing Certificate
Exhibit S-1 Form of Opinion of Cravath, Swaine & Moore
Exhibit S-2 Form of Opinion of General Counsel
Exhibit S-3 Form of Opinion of Simpson Thacher & Bartlett
Exhibit T Form of Assignment and Acceptance
Exhibit U Form of Confidentiality Letter
-v-
<PAGE>
1
AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT, dated as of
April 26, 1996, among SDW HOLDINGS CORPORATION, a Delaware corporation
("HOLDINGS"), S.D. WARREN COMPANY (as successor by merger to SDW Acquisition
Corporation), a Pennsylvania corporation (the "BORROWER"), the several banks,
financial institutions and other entities from time to time parties to this
Agreement (collectively, the "LENDERS"; individually, a "LENDER"), and CHEMICAL
BANK, a New York banking corporation, as agent for the Lenders hereunder.
W I T N E S S E T H :
WHEREAS, Holdings and the Borrower are parties to that certain Credit
and Guarantee Agreement, dated as of December 20, 1994 (the "EXISTING CREDIT
AGREEMENT"), among Holdings, the Borrower, the several banks, financial
institutions and other entities parties thereto (the "EXISTING LENDERS"), and
Chemical Bank, as agent for the Existing Lenders;
WHEREAS, Holdings and the Borrower have requested that the Existing
Credit Agreement be amended and restated in its entirety as provided for herein;
and
WHEREAS, the Lenders and the Agent are willing, upon the terms and
conditions hereof, to amend and restate the Existing Credit Agreement in its
entirety in the manner provided for herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree that on the Effective Date the
Existing Credit Agreement shall be amended and restated to read in its entirety
as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "PRIME RATE" shall
mean the rate of interest per annum publicly announced from time to
time by the Agent as its prime rate in effect at its principal office
in New York City (the Prime Rate not being intended to be the lowest
rate of interest charged by the Agent in connection with extensions of
credit to debtors); "BASE CD RATE" shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) a fraction,
the numerator of which is one and the denominator of which is one
minus the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board of Governors through the
public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on
such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the Agent
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; "C/D ASSESSMENT RATE" shall mean,
for any day, the annual assessment rate in effect on such day which is
payable by a member of the Bank Insurance Fund maintained by the FDIC
classified as well-capitalized and within supervisory subgroup "B" (or
a comparable successor assessment risk classification) within the
meaning of 12 C.F.R. Section 327.3(d) (or any successor provision) to
the FDIC for the FDIC's insuring time deposits at offices of such
institution in the United States; "C/D RESERVE PERCENTAGE" shall mean,
for any day, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board of Governors, for
determining the maximum reserve requirement for a Depositary
Institution (as defined
<PAGE>
2
in Regulation D of the Board of Governors) in respect of new
non-personal time deposits in Dollars having a maturity of 30 days
or more; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day,
the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent
from three federal funds brokers of recognized standing selected by it.
Any change in the ABR due to a change in the Prime Rate, the
Three-Month Secondary CD Rate, the C/D Assessment Rate, the C/D
Reserve Percentage or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate, the Three-Month Secondary CD Rate, the C/D
Assessment Rate, the C/D Reserve Percentage or the Federal Funds
Effective Rate, respectively.
"ABR LOANS": Loans the rate of interest applicable to which is
based upon the ABR.
"ACCEPTING TRANCHE B LENDERS": as defined in subsection 5.1(e).
"ACCOUNTS": as defined in the NYUCC.
"ACQUISITION DOCUMENTS": collectively, the Stock Purchase
Agreement and any other documents effectuating the Stock Purchase or
the Merger.
"ADJUSTMENT DATE": the first Business Day following receipt by
the Agent of both (i) the financial statements required to be
delivered pursuant to subsection 8.1(a) or 8.1(b), as the case may be,
for the most recently completed fiscal period and (ii) the certificate
required to be delivered pursuant to subsection 8.2(b) with respect to
such fiscal period.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"AFTER-ACQUIRED MORTGAGE PROPERTY": any parcel (or adjoining
parcels) of real property or Timberland Property (including any
leaseholds) acquired by any Loan Party after the Original Closing
Date.
"AGENT": Chemical Bank, together with its affiliates, as the
arranger of the Commitments and as the agent for the Lenders under
this Agreement and the other Loan Documents, and any successor thereto
pursuant to subsection 12.9.
"AGGREGATE REVOLVING CREDIT OUTSTANDINGS": as to any Revolving
Credit Lender at any time, an amount equal to the sum of (a) the
aggregate principal amount of all Revolving Credit Loans made by such
Revolving Credit Lender then outstanding PLUS (b) such Revolving
Credit Lender's Revolving Credit Commitment Percentage of the
Revolving Credit L/C Obligations then outstanding PLUS (c) such
Revolving Credit Lender's Revolving Credit Commitment Percentage of
all Swing Line Loans made by the Swing Line Lender then outstanding.
"AGREEMENT": this Amended and Restated Credit and Guarantee
Agreement, as amended, supplemented or otherwise modified from time to
time.
"APPLICABLE MARGIN": (a) for all Loans other than Tranche B Term
Loans, 0.75% if such Loans are ABR Loans and 1.75% if such Loans are
Eurodollar Loans and (b) for Tranche B Term Loans, 1.25% if such Loans
are ABR Loans and 2.25% if such Loans are Eurodollar Loans, PROVIDED
that, from and after September 30, 1996, (i) the Applicable Margin for
all Tranche A Term Loans and Revolving Credit Loans will be adjusted,
if required, on each Adjustment Date, to the Applicable Margin set
forth on ANNEX A hereto opposite the level for which the Consolidated
Leverage Ratio for the 12-month period ended on the
<PAGE>
3
date of the financial statements relating to such Adjustment Date as
determined based upon such financial statements satisfies the
corresponding criteria set forth under the heading "Consolidated
Leverage Ratio" and (ii) the Applicable Margin for all Tranche B
Term Loans will be adjusted, if required, on each Adjustment Date,
such that the Applicable Margin for all Tranche B Term Loans shall
equal (A) if such Loans are ABR Loans, the greater of (I) the
Applicable Margin then in effect for Tranche A Term Loans which are
ABR Loans plus 0.50% and (II) 1.25% and (B) if such Loans are
Eurodollar Loans, the greater of (I) the Applicable Margin then in
effect for Tranche A Term Loans which are Eurodollar Loans plus
0.50% and (II) 2.25%, and PROVIDED, FURTHER, that, in the event that
the financial statements required to be delivered pursuant to
subsection 8.1(a) or 8.1(b), as applicable, and the related
certificate required pursuant to subsection 8.2(b), are not
delivered when due, then if such financial statements are not
delivered prior to the date upon which the resultant Default shall
become an Event of Default, then, effective upon such Default becoming
an Event of Default, during the period from the date upon which such
financial statements were required to be delivered until one Business
Day following the date upon which they actually are delivered, the
Applicable Margin (1) for all Loans other than Tranche B Term Loans
shall be 1.50%, if such Loans are ABR Loans, and 2.50%, if such Loans
are Eurodollar Loans and (2) for Tranche B Term Loans shall be 2.00%,
if such Loans are ABR Loans, and 3.00%, if such Loans are Eurodollar
Loans.
"APPLICATION": an application, in such form as the Revolving
Credit Issuing Bank or the LOC Issuing Bank, as the case may be, may
specify from time to time, requesting the Revolving Credit Issuing
Bank or the LOC Issuing Bank, as the case may be, to open a Letter of
Credit.
"ASSET SALE": as to any Person, any sale or other disposition
(including any Sale/Leaseback Transaction and any mortgage or lease of
real property) subsequent to the Original Closing Date of any property
of such Person.
"ASSUMED FINANCINGS": as defined in subsection 9.2(d).
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Revolving
Credit Lender at any time, an amount equal to the excess, if any, of
(a) the amount of such Revolving Credit Lender's Revolving Credit
Commitment at such time over (b) such Revolving Credit Lender's
Aggregate Revolving Credit Outstandings at such time; collectively, as
to all the Revolving Credit Lenders, the "AVAILABLE REVOLVING CREDIT
COMMITMENTS".
"BASE YEAR": as defined in subsection 5.1(b).
"BOARD OF GOVERNORS": the Board of Governors of the Federal
Reserve System and any Governmental Authority which succeeds to the
powers and functions thereof.
"BOND FINANCINGS": all the Assumed Financings other than amounts
owed under the Power Sales Agreement and the Feedwater Equipment Lease
Agreement.
"BORROWER": as defined in the Preamble to this Agreement.
"BORROWER LEASEHOLD MORTGAGES": collectively, (a) each Existing
Borrower Leasehold Mortgage and (b) each Leasehold Mortgage executed
and delivered by the Borrower, substantially in the form of EXHIBIT A
or in such other form as the Agent shall reasonably require, with
respect to each lease of real property entered into by the Borrower
after the Effective Date for which a Leasehold Mortgage is granted
pursuant to subsection 8.10, as the same may be amended, supplemented
or otherwise modified from time to time.
"BORROWER MORTGAGES": collectively, (a) each Existing Borrower
Mortgage and (b) each Mortgage executed and delivered by the Borrower,
substantially in the form of EXHIBIT B or in such other form as the
Agent shall reasonably require, with respect to each parcel of
After-Acquired Mortgage Property for which a Mortgage is granted to
the Agent pursuant to subsection 8.10, as the same may be amended,
supplemented or otherwise modified from time to time.
<PAGE>
4
"BORROWER PATENT AND TRADEMARK SECURITY AGREEMENT": the Patent
and Trademark Security Agreement to be executed and delivered by the
Borrower, substantially in the form of EXHIBIT C-2, as the same may be
amended, supplemented or otherwise modified from time to time.
"BORROWER SECURITY AGREEMENT": the Amended and Restated Security
Agreement to be executed and delivered by the Borrower, substantially
in the form of EXHIBIT C-1, as the same may be amended, supplemented
or otherwise modified from time to time.
"BORROWER SECURITY DOCUMENTS": collectively, the Borrower
Leasehold Mortgages, the Borrower Mortgages, the Borrower Security
Agreement and the Borrower Stock Pledge Agreement.
"BORROWER STOCK PLEDGE AGREEMENT": the Amended and Restated
Stock Pledge Agreement to be executed and delivered by the Borrower,
substantially in the form of EXHIBIT D, as the same may be amended,
supplemented or otherwise modified from time to time.
"BORROWER'S PORTION OF EXCESS CASH FLOW": as defined in
subsection 5.1(a)(ii).
"BORROWING DATE": any Business Day specified in a notice
pursuant to subsection 2.2, 3.2 or 3.8 as a date on which the Borrower
requests the Lenders to make Loans hereunder.
"BUSINESS": as defined in subsection 6.17.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required
by law to close.
"CAPITAL EXPENDITURES": as to any Person for any period, the
aggregate amount paid or accrued by such Person and its Subsidiaries
for the rental, lease, purchase (including by way of the acquisition
of securities of a Person), construction or use of any property during
such period, the value or cost of which, in accordance with GAAP,
would appear on such Person's consolidated balance sheet in the
category of property, plant or equipment at the end of such period,
excluding (a) if any of the types of events described in Section 11(f)
shall have occurred with respect to Scott, any such expenditure in
respect of the purchase of the Westbrook Facility (as defined in the
Power Sales Agreement) following a termination of the Power Sales
Agreement or in respect of the purchase of the Equipment (as defined
in the Feedwater Equipment Lease Agreement) following a termination of
the Feedwater Equipment Lease Agreement, (b) any such expenditure in
respect of any Replacement Asset and (c) any such expenditure made to
restore, replace or rebuild property to the condition of such property
immediately prior to any damage, loss, destruction or condemnation of
such property, to the extent such expenditure is made with insurance
proceeds or condemnation awards relating to any such damage, loss,
destruction or condemnation.
"CAPITALIZATION RATIO": at any date of determination, the ratio
of (a) Consolidated Senior Debt on such date of determination to (b)
an amount equal to the sum of (i) Consolidated Senior Debt on such
date of determination, PLUS (ii) Consolidated Subordinated Debt on
such date of determination, PLUS (iii) Consolidated Net Worth on such
date of determination, all as determined on a consolidated basis in
accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency
or instrumentality thereof, having maturities of not more than one
year from the date of acquisition, (b) marketable general 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 thereof, having a credit rating of "A" or
better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.;
<PAGE>
5
(c) certificates of deposit, time deposits, eurodollar time
deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition
thereof of any Lender, or of any domestic commercial bank the
long-term debt of which is rated at the time of acquisition thereof
at least A or the equivalent thereof by Standard & Poor's
Ratings Group, or A or the equivalent thereof by Moody's Investors
Service, Inc., and having capital and surplus in excess of
$500,000,000, (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses
(a), (b) and (c) entered into with any bank meeting the qualifications
specified in clause (c) above, (e) commercial paper rated at the time
of acquisition thereof at least A-2 or the equivalent thereof by
Standard & Poor's Ratings Group or P-2 or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of investments, and in either case
maturing within 270 days after the date of acquisition thereof and
(f) other investment instruments approved in writing by the Required
Lenders and offered by any Lender or by any financial institution
which has a combined capital and surplus of not less than
$100,000,000.
"CASH FLOW PERCENTAGE": as defined in subsection 5.1(b).
"CHEMICAL": Chemical Bank, a New York banking corporation.
"CODE": the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL": all assets of the Loan Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"COMMERCIAL LETTER OF CREDIT": as defined in subsection
3.10(b)(i)(2).
"COMMITMENT": with respect to any Lender, the collective
reference to such Lender's Tranche A Commitment, Tranche B Commitment,
Revolving Credit Commitment and/or LOC Commitment; collectively, as to
all the Lenders, the "COMMITMENTS".
"COMMITMENT PERCENTAGE": as to any Lender at any time, the
percentage which (i) the sum of (a) such Lender's then Available
Revolving Credit Commitment and other unused Commitments (other than
Revolving Credit Commitments) PLUS (b) such Lender's Loans (other than
Swing Line Loans) then outstanding PLUS (c) the product of such
Lender's Revolving Credit Commitment Percentage times the sum of (I)
the Swing Line Loans then outstanding and (II) the Revolving Credit
L/C Obligations then outstanding PLUS (d) such Lender's LOC Commitment
Percentage of the LOC Obligations then outstanding then constitutes of
(ii) the sum of (w) the aggregate Available Revolving Credit
Commitments of the Revolving Credit Lenders and the other unused
Commitments of all the Lenders (other than Revolving Credit
Commitments) PLUS (x) the aggregate principal amount of Loans of all
the Lenders then outstanding PLUS (y) the aggregate Revolving Credit
L/C Obligations of all the Lenders then outstanding PLUS (z) the
aggregate LOC Obligations of all the Lenders then outstanding.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of
determining liability under Section 412 of the Code, which is treated
as a single employer under Section 414 (b), (c), (m) or (o) of the
Code.
"COMMON STOCK": the Common Stock of Holdings.
"CONSOLIDATED ADJUSTED EBITDA": for any period, Consolidated
EBITDA for such period MINUS Capital Expenditures of the Borrower
during such period.
"CONSOLIDATED CASH INTEREST EXPENSE": for any period,
Consolidated Interest Expense paid in cash during such period.
<PAGE>
6
"CONSOLIDATED CURRENT ASSETS": at any date of determination, all
assets (other than cash, Cash Equivalents and deferred tax assets)
which would, in accordance with GAAP, be classified on a consolidated
balance sheet of the Borrower and its Subsidiaries as current assets
at such date of determination.
"CONSOLIDATED CURRENT LIABILITIES": at any date of
determination, all liabilities (other than short term debt, current
maturities of long term debt and deferred taxes) which would, in
accordance with GAAP, be classified on a consolidated balance sheet of
the Borrower and its Subsidiaries as current liabilities at such date
of determination.
"CONSOLIDATED EBITDA": for any period, the Consolidated Net
Income for such period, PLUS, to the extent deducted in determining
such Consolidated Net Income, (i) Consolidated Interest Expense, (ii)
depreciation, (iii) depletion, (iv) amortization, (v) all Federal,
state, local and foreign income taxes and (vi) all other non-cash
expenses, MINUS, to the extent added in determining such Consolidated
Net Income, any non-cash income or non-cash gains, all as determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE": for any period, the sum of,
without duplication, (a) the net interest expense of the Borrower and
its Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP and (b) an amount equal to the interest (or
other fees or other amounts in the nature of interest or discount
accrued and paid or payable in cash for such period) in respect of the
Receivables Facility and any other Permitted Receivables Financing.
"CONSOLIDATED INTEREST EXPENSE RATIO": for any period, the ratio
of (a) Consolidated Adjusted EBITDA for such period to (b)
Consolidated Interest Expense for such period.
"CONSOLIDATED LEVERAGE RATIO": for any period, the ratio of (a)
Consolidated Total Net Debt at the last day of such period to (b)
Consolidated EBITDA for such period.
"CONSOLIDATED NET INCOME": for any period, the net income of the
Borrower and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, but excluding from the
determination of Consolidated Net Income (without duplication) (a) any
extraordinary or non-recurring gains or losses or gains or losses from
Asset Sales, (b) restructuring charges (but deducting from the
determination of Consolidated Net Income for any period, cash payments
(other than cash payments associated with severance of employees) made
during such period in respect of any restructuring charges recorded
after the Original Closing Date), (c) effects of discontinued
operations, (d) the income (or loss) of any Person in which any other
Person (other than the Borrower or any of the Subsidiaries) has a
joint interest, except to the extent of the amount of dividends or
other distributions actually paid in cash to the Borrower or any of
its Subsidiaries by such Person during such period and (e) the income
(or loss) of any Person accrued prior to the date it becomes a
Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries or the date such Person's assets
are acquired by the Borrower or any of its Subsidiaries.
"CONSOLIDATED NET WORTH": at any date of determination, all
items which would, in accordance with GAAP, be included under
shareholders' equity on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date of determination and, including,
without limitation, the Preferred Stock.
"CONSOLIDATED SENIOR DEBT": at any date of determination, the
sum of, without duplication, (a) all Indebtedness of the Borrower and
its Subsidiaries at such date of determination which is not
subordinated to any other Indebtedness of the Borrower or any of its
Subsidiaries as determined on a consolidated basis in accordance with
GAAP and (b) the Receivables Facility Outstandings at such date of
determination; PROVIDED that Consolidated Senior Debt shall under no
circumstances include (a) obligations in respect of Rate Protection
Agreements or (b) Reimbursement Obligations in respect of LOC Letters
of Credit except to the extent that a LOC Letter of Credit is drawn
and the proceeds are applied to repay indebtedness that prior to such
drawing and application appeared as indebtedness on a consolidated
balance sheet of the Borrower and its Subsidiaries in accordance with
GAAP.
<PAGE>
7
"CONSOLIDATED SUBORDINATED DEBT": at any date of determination,
all Indebtedness of the Borrower and its Subsidiaries at such date of
determination which is subordinated to any other Indebtedness of the
Borrower or any of its Subsidiaries as determined on a consolidated
basis in accordance with GAAP and, including, without limitation, any
Indebtedness outstanding pursuant to subsection 9.2(f).
"CONSOLIDATED TOTAL DEBT": at any date of determination, the sum
of, without duplication, (a) all Indebtedness of the Borrower and its
Subsidiaries at such date of determination as determined on a
consolidated basis in accordance with GAAP and (b) the Receivables
Facility Outstandings at such date of determination.
"CONSOLIDATED TOTAL NET DEBT": at any date of determination,
Consolidated Total Debt at such date of determination MINUS the
aggregate amount of Cash Equivalents of the Borrower and its
Subsidiaries on hand at such date of determination.
"CONSOLIDATED WORKING CAPITAL": at any date of determination,
Consolidated Current Assets at such date of determination MINUS
Consolidated Current Liabilities at such date of determination.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"CURRENCY RATE PROTECTION AGREEMENTS": as to any Person, all
foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements entered into in the ordinary course of
business by such Person designed to protect such Person against
fluctuations in currency values.
"DEFAULT": any of the events specified in Section 11, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"DLJMB": collectively, DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V. and DLJ
Merchant Banking Funding, Inc.
"DOLLARS" and "$": dollars in lawful currency of the United
States of America.
"EFFECTIVE DATE": the date on which the conditions precedent set
forth in subsection 7.1 shall be satisfied or waived (but in no event
later than April 30, 1996).
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time hereafter
be in effect.
"ENVIRONMENTAL PERMITS": all permits, licenses, registrations,
notifications, exemptions, and other authorizations required under
Environmental Laws.
"EQUITY INTEREST": Capital Stock and all warrants, options or
other rights to acquire Capital Stock, (but excluding any debt
security that is convertible into, or exchangeable for, Capital
Stock).
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
or other Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as
<PAGE>
8
"Eurocurrency Liabilities" in Regulation D of the Board of
Governors) maintained by a member bank of the Federal Reserve System.
"EURODOLLAR BASE RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate at which Chemical is offered Dollar deposits at or
about 10:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for delivery
on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"EURODOLLAR LOANS": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined
for such day in accordance with the following formula (rounded upward
to the nearest 1/1,000th of 1%):
EURODOLLAR BASE RATE
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT": any of the events specified in Section 11,
PROVIDED that all requirements for the giving of notice, the lapse of
time, or both, and any other conditions, have been satisfied.
"EXCESS CASH FLOW": for any fiscal year, Consolidated EBITDA for
such fiscal year, MINUS (a) to the extent deducted in determining
Consolidated Net Income for such fiscal year, Consolidated Interest
Expense for such fiscal year, (b) scheduled principal amortization in
respect of Consolidated Total Debt (including, without limitation, (i)
with respect to the fiscal year in which the Effective Date occurs,
the prepayment of the Existing Tranche B Term Loans on the Effective
Date and (ii) the aggregate amount of all repayments of Financing
Lease Obligations (other than any portion thereof allocable to
Consolidated Cash Interest Expense)) during such fiscal year (whether
or not such payments are made but after giving effect to reductions in
scheduled principal amortization as a result of optional prepayments
thereof) and payments (other than with the proceeds of Loans under
this Agreement pursuant to subsection 4.5(b) or 4.5(c)) made on
account of Reimbursement Obligations in respect of LOC Letter of
Credit drawings, (c) the aggregate amount of all prepayments of
Revolving Credit Loans to the extent the Revolving Credit Commitments
were concurrently reduced by a like amount during such fiscal year,
(d) Capital Expenditures of the Borrower and its Subsidiaries during
such fiscal year, (e) all current Federal, state, local and foreign
taxes of the Borrower and its Subsidiaries during such fiscal year,
(f) an amount equal to any increase in Consolidated Working Capital
during such fiscal year (other than increases attributable solely to
Asset Sales not involving casualty or condemnation), (g) costs paid in
cash during such period in connection with the establishment of Rate
Protection Agreements but not deducted in determining Consolidated Net
Income for such fiscal year and (h) to the extent added in determining
Consolidated Net Income for such fiscal year, all items which did not
result from a cash payment to the Borrower or any of its Subsidiaries
during such fiscal year, PLUS (x) an amount equal to any decrease in
Consolidated Working Capital during such fiscal year (other than
decreases in Consolidated Working Capital resulting from Indebtedness
permitted under subsection 9.2(g)) and (y) to the extent subtracted in
determining Consolidated Net Income for such fiscal year, all items
which did not result from a cash payment by the Borrower or any of its
Subsidiaries during such fiscal year.
"EXCHANGE DEBENTURES": exchange debentures, if and when issued,
issued pursuant to an exchange debenture indenture in exchange for the
Senior Preferred Stock having substantially the same terms as the
Senior Preferred Stock and in all respects in form and substance
reasonably satisfactory to the Agent.
"EXISTING BORROWER LEASEHOLD MORTGAGES": collectively, the
Leasehold Mortgages described on SCHEDULE 6.8 under the heading
"Borrower Leasehold Mortgages", as the same may be amended,
supplemented or otherwise modified from time to time.
<PAGE>
9
"EXISTING BORROWER MORTGAGES": collectively, the Mortgages
described on SCHEDULE 6.8 under the heading "Borrower Mortgages", as
the same may be amended, supplemented or otherwise modified from time
to time.
"EXISTING CREDIT AGREEMENT": as defined in the recitals to this
Agreement.
"EXISTING LEASEHOLD MORTGAGES": collectively, the Existing
Borrower Leasehold Mortgages and the Existing Subsidiary Leasehold
Mortgages.
"EXISTING LENDERS": as defined in the recitals to this
Agreement.
"EXISTING MORTGAGES": collectively, the Existing Borrower
Mortgages and the Existing Subsidiary Mortgages.
"EXISTING SUBSIDIARY LEASEHOLD MORTGAGES": collectively, the
Leasehold Mortgages described on SCHEDULE 6.8 under the heading
"Subsidiary Leasehold Mortgages", as the same may be amended,
supplemented or otherwise modified from time to time.
"EXISTING SUBSIDIARY MORTGAGES": collectively, the Mortgages
described on SCHEDULE 6.8 under the heading "Subsidiary Mortgages", as
the may be amended, supplemented or otherwise modified from time to
time.
"EXISTING TRANCHE B TERM LOAN": as defined in subsection 2.2.
"EXTENSION OF CREDIT": with respect to any Lender, (a) the
making of a Loan by such Lender, (b) if such Lender is a Revolving
Credit Lender, the issuance of a Revolving Credit Letter of Credit and
(c) if such Lender is a LOC Participant, the issuance of a LOC Letter
of Credit; with respect to all the Lenders, the "EXTENSIONS OF
CREDIT".
"FDIC": the Federal Deposit Insurance Corporation and any
Governmental Authority which succeeds to the powers and functions
thereof.
"FEDERAL FUNDS EFFECTIVE RATE": as defined in the definition of
ABR contained in this subsection 1.1.
"FEEDWATER EQUIPMENT LEASE AGREEMENT": the Lease Agreement dated
December 14, 1981 among the Connecticut Bank and Trust Company, as
Trustee, General Electric Credit Corporation, as Owner, and Scott, as
Lessee.
"FINAL OFFERING MEMORANDUM": the Offering Memorandum dated
December 13, 1994, with respect to the issuance of the Senior
Subordinated Notes, the Series A Preferred Stock and certain Warrants,
a copy of which has been furnished to each Lender, together with the
Preliminary Offering Memorandum.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
"FINANCING LEASE OBLIGATIONS": as to any Person, the obligations
of such Person to pay rent or other amounts under any Financing Lease;
the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with GAAP.
"FOREIGN SUBSIDIARY": any Subsidiary of the Borrower organized
under the laws of any jurisdiction outside the United States of
America.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time (subject to subsection
1.2(e)).
<PAGE>
10
"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE": the guarantee contained in Section 10 or the
Subsidiaries Guarantee.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the Guaranteeing Person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the Guaranteeing Person has
issued a reimbursement, counter indemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
lease, dividend or other obligation (the "PRIMARY OBLIGATIONS") of any
other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the Guaranteeing Person, whether or not contingent, (i) to purchase
any such Primary Obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of any such Primary Obligation or (2) to
maintain working capital or equity capital of the Primary Obligor or
otherwise to maintain the net worth or solvency of the Primary
Obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such Primary Obligation
of the ability of the Primary Obligor to make payment of such Primary
Obligation or (iv) otherwise to assure or hold harmless the owner of
any such Primary Obligation against loss in respect thereof; PROVIDED,
HOWEVER, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
Guaranteeing Person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the Primary Obligation
in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such Guaranteeing Person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such Primary Obligation and the maximum amount for
which such Guaranteeing Person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation
shall be such Guaranteeing Person's maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith.
"GUARANTORS": Holdings and each Subsidiary (other than Foreign
Subsidiaries) of the Borrower.
"HAZARDOUS MATERIALS": any petroleum (including crude oil or any
fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos and asbestos-containing
materials, pollutants, contaminants, and all other materials and
substances including but not limited to radioactive materials
regulated pursuant to any Environmental Laws or that could result in
liability under any Environmental Law.
"HOLDINGS": as defined in the Preamble to this Agreement.
"HOLDINGS PREFERRED STOCK": the 15% Senior Exchangeable
Preferred Stock issued by Holdings on the Original Closing Date.
"HOLDINGS STOCK PLEDGE AGREEMENT": the Amended and Restated
Stock Pledge Agreement to be executed and delivered by Holdings,
substantially in the form of EXHIBIT E, as the same may be amended,
supplemented or otherwise modified from time to time.
"INDEBTEDNESS": of any Person at any date, without duplication,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current
trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond,
debenture or similar instrument, (c) all obligations of such Person
under Financing Leases, (d) all obligations of such Person in respect
of acceptances issued or created for the account of such Person and
(e) all indebtedness of others of the types described in (a) through
(d) above secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for
the payment thereof (the amount
<PAGE>
11
of such indebtedness with respect to such Person being deemed to be
the lesser of the value of such property or the amount of
indebtedness of others so secured).
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": as defined in subsection 6.9.
"INTEREST PAYMENT DATE": (a) as to ABR Loans, the last day of
each March, June, September and December, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day
of such Interest Period and (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three
months, or a whole multiple thereof, after the first day of such
Interest Period and the last day of such Interest Period.
"INTEREST PERIOD": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing
or conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given with
respect thereto; and
(ii) thereafter, each period commencing on the last day
of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to
the Agent not less than three Business Days prior to the last day
of the then current Interest Period with respect thereto;
PROVIDED that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business
Day;
(2) no Interest Period that would otherwise extend beyond
the Termination Date or beyond the date final payment is due on
the Term Loans shall be selected by the Borrower;
(3) any Interest Period pertaining to a Eurodollar Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month; and
(4) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Eurodollar Loan.
"INTEREST RATE PROTECTION AGREEMENTS": as to any Person, all
interest rate swaps, caps or collar agreements or similar arrangements
entered into by such Person providing for protection against
fluctuations in interest rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"INVESTMENT": as defined in subsection 9.9.
"INVESTORS": collectively, Sappi, one or more Subsidiaries of
Sappi, DLJMB and UBSCC.
"ISSUING BANKS": collectively, the LOC Issuing Bank and the
Revolving Credit Issuing Bank.
<PAGE>
12
"L/C FEE PAYMENT DATE": the last day of each March, June,
September and December.
"L/C OBLIGATIONS": collectively, the Revolving Credit L/C
Obligations and the LOC Obligations.
"LEASEHOLD MORTGAGES": the collective reference to the Borrower
Leasehold Mortgages and the Subsidiary Leasehold Mortgages.
"LENDERS": as defined in the Preamble to this Agreement.
"LETTERS OF CREDIT": collectively, LOC Letters of Credit and
Revolving Credit Letters of Credit.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the
same economic effect as any of the foregoing).
"LOAN": any Tranche A Term Loan, Tranche B Term Loan, Revolving
Credit Loan, Swing Line Loan or LOC Loan.
"LOAN DOCUMENTS": this Agreement, any Notes, the Guarantees, the
Applications and the Security Documents.
"LOAN PARTICIPANT": as defined in subsection 13.6(b).
"LOAN PARTIES": the Borrower, Holdings and each Subsidiary of
the Borrower which is a party to (or the Capital Stock of which has
been pledged pursuant to) a Loan Document.
"LOC COMMITMENT": with respect to any Lender, its obligation to
participate in LOC Letters of Credit and to make LOC Loans pursuant to
subsection 4.4 in an amount not to exceed the amount set forth
opposite such Lender's name on SCHEDULE 1.1(a) under the heading "LOC
Commitment", as such amount may be reduced from time to time pursuant
to this Agreement or as such amount may be adjusted from time to time
pursuant to subsection 13.6; collectively, as to all such Lenders, the
"LOC COMMITMENTS".
"LOC COMMITMENT AMOUNT": $170,484,931.48, as such amount may be
reduced from time to time pursuant to this Agreement.
"LOC COMMITMENT PERCENTAGE": as to any LOC Participant at any
time, the percentage which (a) the sum of (i) the product of the
percentage of the LOC Commitments of all the LOC Participants then
constituted by such LOC Participant's LOC Commitment times the
aggregate LOC Obligations then outstanding PLUS (ii) such LOC
Participant's LOC Loans then outstanding then constitutes of (b) the
sum of (i) the aggregate LOC Obligations then outstanding and (ii) the
aggregate principal amount of the LOC Loans of all the LOC
Participants then outstanding.
"LOC COMMITMENT PERIOD": the period from and including the
Effective Date to but not including the Termination Date or such
earlier date on which the LOC Commitments shall terminate as provided
herein.
"LOC FEE PERCENTAGE": as defined in subsection 4.3(b).
"LOC ISSUING BANK": Chemical or any of its Affiliates, in its
capacity as issuer of any LOC Letter of Credit.
"LOC LETTERS OF CREDIT": as defined in paragraph 4.1(a).
"LOC LOAN": as defined in subsection 4.5(c).
<PAGE>
13
"LOC NOTE": as defined in subsection 4.6(e).
"LOC OBLIGATIONS": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then
outstanding LOC Letters of Credit and (b) the aggregate amount of
drawings under LOC Letters of Credit which have not then been
reimbursed pursuant to subsection 4.5.
"LOC PARTICIPANT": any Lender with a LOC Commitment hereunder.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Agent or the Lenders
hereunder or thereunder.
"MERGER": the merger of SDW Acquisition Corporation with and
into the Borrower following the Stock Purchase, with the Borrower as
the surviving corporation.
"MORTGAGED PROPERTY": the real properties acquired by the Loan
Parties on the Original Closing Date as specified on SCHEDULE 6.8
hereto.
"MORTGAGES": collectively, the Borrower Mortgages and the
Subsidiary Mortgages.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"MUSKEGON SOLID WASTE BONDS": Michigan Strategic Fund Adjustable
Tender Solid Waste Disposal Revenue Bonds (S.D. Warren Company
Project) due 2002.
"NET PROCEEDS": with respect to any Person, (a) with respect to
any Asset Sale by such Person, the cash proceeds (including any cash
payments received by way of deferred payment of principal pursuant to
a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset
Sale net of (i) attorneys' fees, accountants' fees, investment banking
fees, survey costs, title insurance premiums, and related search and
recording charges, transfer taxes, deed or mortgage recording taxes,
required debt payments (other than pursuant hereto), other customary
expenses, amounts required to be applied to the repayment of
Indebtedness secured by a Lien expressly permitted hereunder on any
asset which is the subject of such Asset Sale (other than any Lien in
favor of the Agent for the benefit of the Lenders) and brokerage,
consultant and other customary fees actually incurred in connection
therewith and (ii) taxes paid or payable as a result thereof and (b)
with respect to any issuance of equity securities or the incurrence of
any Indebtedness by such Person subsequent to the Original Closing
Date, the cash proceeds received from such issuance or incurrence net
of investment banking fees, legal fees, accountants fees, underwriting
discounts and commissions and other customary fees and expenses and
other reasonable costs and expenses actually incurred in connection
therewith.
"NEW LENDING OFFICE": as defined in subsection 5.10(c).
"NON-EXCLUDED TAXES": as defined in subsection 5.10.
"NOTES": collectively, the Swing Line Note, Revolving Credit
Notes, Term Notes and LOC Notes, if any.
"NYUCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"OBLIGATIONS": the unpaid principal of and interest on the Loans
and all other obligations and liabilities of the Borrower to the Agent
and the Lenders (including, without limitation, interest accruing at
the then applicable rate provided in this Agreement after the maturity
of the Loans and interest accruing at the then applicable rate
provided in this Agreement after the filing of any petition in
bankruptcy, or the
<PAGE>
14
commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the other Loan Documents,
any Rate Protection Agreement entered into by the Borrower with any
Lender or any Affiliate of any Lender permitted under subsection 8.11,
any cash management services agreement entered into by the Borrower
with any Lender or any Affiliate of any Lender or any other document
made, delivered or given in connection herewith or therewith, in each
case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel
to the Agent or to the Lenders that are required to be paid by the
Borrower pursuant to the terms of this Agreement, any other Loan
Document or any such Rate Protection Agreement or cash management
services agreement entered into by the Borrower with any Lender or any
Affiliate of any Lender), PROVIDED that the maximum amount of
obligations and liabilities of the Borrower in respect of cash
management services agreements entered into by the Borrower with the
Lenders or any Affiliates of any Lenders that shall constitute
"Obligations" shall not exceed $3,000,000 in the aggregate.
"OBSOLETE PROPERTY": any property of the Borrower or any of its
Subsidiaries which is obsolete, outdated or worn out or the useful
life of which has ended, in each case in the good faith determination
of the Borrower or any applicable Subsidiary.
"ORIGINAL CLOSING DATE": December 20, 1994.
"ORIGINAL LOC LETTERS OF CREDIT": as defined in subsection
4.1(a).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any Governmental
Authority which succeeds to the powers and functions thereof.
"PERMITTED RECEIVABLES FINANCING": (i) the Receivables Facility,
as may be amended, modified, changed or replaced from time to time
pursuant to subsection 9.10(e) or 9.10(f) and/or (ii) any transaction
providing for the sale or financing of Receivables and Related
Security by the Borrower to SDW Finance and/or by SDW Finance to any
Receivables Company or any other Person with customary limited
recourse based on the collectability of the Receivables sold;
PROVIDED, HOWEVER, that the terms, conditions and structure (including
the legal and organizational structure of SDW Finance and the
restrictions imposed on its activities) of and the documentation
relating to any such transactions entered into after the date hereof
must be reasonably acceptable to the Agent.
"PERSON": an individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"POWER SALES AGREEMENT": the Power Sales Agreement dated as of
January 1, 1982, between The Connecticut Bank and Trust Company, as
Owner Trustee, and Scott, as Purchaser, as amended pursuant to
Amendment No. 1 thereto, dated as of December 15, 1986.
"PREFERRED STOCK": collectively, the Series A Preferred Stock,
the Series B Preferred Stock and the Holdings Preferred Stock.
"PRELIMINARY OFFERING MEMORANDUM": the Offering Memorandum dated
November 16, 1994, with respect to the issuance of the Senior
Subordinated Notes, the Series A Preferred Stock and certain Warrants,
a copy of which has been furnished to each Lender.
<PAGE>
15
"PREPAYMENT ACCOUNT": as defined in subsection 5.1(d).
"PRIMARY OBLIGATION": as defined in the definition of "Guarantee
Obligation" contained in this subsection 1.1.
"PROCEEDS": as defined in the NYUCC.
"PROPERTIES": as defined in subsection 6.17.
"QUALIFIED ASSETS": as defined in subsection 5.1(c).
"RATE PROTECTION AGREEMENTS": collectively, any Currency Rate
Protection Agreements and Interest Rate Protection Agreements.
"RECEIVABLE": any indebtedness and other obligations owed to the
Borrower or SDW Finance or any right of SDW Finance or the Borrower to
payment from or on behalf of an obligor, whether constituting an
account, chattel paper, instrument or general intangible, arising in
connection with the sale or lease of goods or the rendering of
services by the Borrower or SDW Finance, including, without
limitation, the obligation to pay any finance charges, fees and other
charges with respect thereto.
"RECEIVABLES COMPANY": Pooled Accounts Receivable Capital
Corporation, a Delaware corporation, or any other entity formed for
the purpose of purchasing or financing Receivables of the Borrower
and/or SDW Finance in connection with any Permitted Receivables
Financing.
"RECEIVABLES FACILITY": as defined in subsection 7.1(b).
"RECEIVABLES FACILITY OUTSTANDINGS": at any date of
determination, (a) with respect to the Receivables Facility, the
aggregate outstanding Investment (as defined in the applicable
Receivables Sale Agreement as in effect on the date hereof) at such
date of determination and (b) with respect to any other Permitted
Receivables Financing, the amount corresponding or equivalent to the
aggregate outstanding Investment (as defined in the applicable
Receivables Sale Agreement as in effect on the date hereof) at such
date of determination.
"RECEIVABLES SALE AGREEMENT": the collective reference to (a)
the Purchase and Contribution Agreement between the Borrower and SDW
Finance (as in effect on the date hereof and as may be amended,
supplemented, restated, replaced or otherwise modified from time to
time pursuant to subsections 9.10(e) or 9.10(f) in connection with any
Permitted Receivables Financing) and (b) the Receivables Purchase
Agreement among SDW Finance, the Borrower and the Receivables Company
(as in effect on the date hereof and as may be amended, supplemented,
restated, replaced or otherwise modified from time to time pursuant to
subsections 9.10(e) or 9.10(f) in connection with any Permitted
Receivables Financing).
"REGISTER": as defined in subsection 13.6(d).
"REGULATION H": Regulation H of the Board of Governors as in
effect from time to time.
"REGULATION U": Regulation U of the Board of Governors as in
effect from time to time.
"REIMBURSEMENT OBLIGATION": the obligation of the Borrower to
reimburse (a) the Revolving Credit Issuing Bank pursuant to subsection
3.14(a) for amounts drawn under Revolving Credit Letters of Credit and
(b) the LOC Issuing Bank pursuant to subsection 4.5(a) for amounts
drawn under LOC Letters of Credit.
"RELATED SECURITY: with respect to any Receivable,
<PAGE>
16
(i) all of the Borrower's or SDW Finance's interest,
as the case may be, in any goods (including returned goods), and
documentation or title evidencing the shipment or storage of any
goods (including returned goods), relating to any sale giving
rise to such Receivable;
(ii) all other security interests or liens and property
subject thereto from time to time purporting to secure payment of
such Receivable together with all UCC financing statements or
similar filings signed by an obligor relating thereto; and
(iii) all guaranties, indemnities, insurance and other
agreements or arrangements of whatever character from time to
time supporting or securing payment of such Receivable or
otherwise relating to such Receivable.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"REPLACEMENT ASSET": any property acquired by the Borrower or
any of its Subsidiaries subsequent to the Original Closing Date which
replaces Obsolete Property of the same type and utility as the
property acquired.
"REPLACEMENT LOC LETTER OF CREDIT": as defined in subsection
4.1(a).
"REPORTABLE EVENT": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. Section 2615.
"REQUIRED LENDERS": at any time, Lenders the Commitment
Percentages of which aggregate more than 50%.
"REQUIRED LOC PARTICIPANTS": at any time, LOC Participants the
LOC Commitment Percentages of which aggregate more than 50%.
"REQUIRED REVOLVING CREDIT LENDERS": at any time, Revolving
Credit Lenders the Revolving Credit Commitment Percentages of which
aggregate more than 50%.
"REQUIRED TRANCHE A LENDERS": at any time, Tranche A Lenders the
Tranche A Commitment Percentages of which aggregate more than 50%.
"REQUIRED TRANCHE B LENDERS": at any time, Tranche B Lenders the
Tranche B Commitment Percentages of which aggregate more than 50%.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": as to any Person, the chief executive
officer and the president of such Person or, with respect to financial
matters, the chief financial officer of such Person or, in either
case, such other executive officers as may be designated from time to
time by such Person in writing to the Agent.
"RESTRICTED PAYMENTS": as defined in subsection 9.7.
"REVOLVING CREDIT COMMITMENT": with respect to any Lender, its
obligation to make Revolving Credit Loans and/or issue or participate
in Revolving Credit Letters of Credit issued on behalf of the Borrower
and/or make or participate in Swing Line Loans made to the Borrower in
an amount not to exceed the amount set forth opposite such Lender's
name on SCHEDULE 1.1(a) under the heading "Revolving Credit
<PAGE>
17
Commitment", as such amount may be reduced from time to time pursuant
to this Agreement or as such amount may be adjusted from time to time
pursuant to subsection 13.6; collectively, as to all such Lenders, the
"REVOLVING CREDIT COMMITMENTS".
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Revolving
Credit Lender at any time, the percentage which (i) the sum of (a)
such Revolving Credit Lender's then unused Revolving Credit Commitment
PLUS (b) such Revolving Credit Lender's Revolving Credit Loans then
outstanding PLUS (c) the product of the percentage of the Revolving
Credit Commitments of all the Revolving Credit Lenders then
constituted by such Revolving Credit Lender's Revolving Credit
Commitment times the sum of (I) the Swing Line Loans then outstanding
and (II) the Revolving Credit L/C Obligations then outstanding then
constitutes of (ii) the sum of (w) the aggregate outstanding then
unused Revolving Credit Commitments of all the Revolving Credit
Lenders PLUS (x) the aggregate principal amount of Revolving Credit
Loans of all the Revolving Credit Lenders then outstanding PLUS (y)
the aggregate Revolving Credit L/C Obligations then outstanding PLUS
(z) the Swing Line Loans then outstanding.
"REVOLVING CREDIT COMMITMENT PERIOD": the period from and
including the Effective Date to but not including the Termination Date
or such earlier date on which the Revolving Credit Commitments shall
terminate as provided herein.
"REVOLVING CREDIT FEE PERCENTAGE": as defined in subsection
3.12(b).
"REVOLVING CREDIT ISSUING BANK": Chemical or any of its
Affiliates, in its capacity as issuer of any Revolving Credit Letter
of Credit.
"REVOLVING CREDIT L/C COMMITMENT": $75,000,000.
"REVOLVING CREDIT L/C OBLIGATIONS": at any time, an amount equal
to the sum of (a) the aggregate then undrawn and unexpired amount of
the then outstanding Revolving Credit Letters of Credit and (b) the
aggregate amount of drawings under Revolving Credit Letters of Credit
which have not been reimbursed pursuant to subsection 3.14.
"REVOLVING CREDIT L/C PARTICIPANTS": collectively, all the
Revolving Credit Lenders other than the Revolving Credit Issuing Bank.
"REVOLVING CREDIT LENDER": any Lender with an unused Revolving
Credit Commitment hereunder and/or any Revolving Credit Loans
outstanding hereunder; collectively, the "REVOLVING CREDIT LENDERS".
"REVOLVING CREDIT LETTERS OF CREDIT": collectively, Commercial
Letters of Credit and Standby Letters of Credit.
"REVOLVING CREDIT LOANS": as defined in subsection 3.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 3.5(e).
"SALE/LEASEBACK TRANSACTION": as defined in subsection 9.12.
"SAPPI": Sappi Limited, a corporation organized under the laws
of the Republic of South Africa.
"SCOTT": Scott Paper Company, a Pennsylvania corporation.
"SDW FINANCE": S.D. Warren Finance Co., a Delaware corporation.
"SEC": the Securities and Exchange Commission or any
Governmental Authority which succeeds to the powers and functions
thereof.
<PAGE>
18
"SECURITY AGREEMENTS": collectively, the Borrower Security
Agreement and the Subsidiary Security Agreements.
"SECURITY DOCUMENTS": collectively, the Leasehold Mortgages, the
Mortgages, the Security Agreements, the Borrower Patent and Trademark
Security Agreement, the Stock Pledge Agreements, and all other
security documents hereafter delivered to the Agent granting a Lien on
any asset or assets of any Person to secure the Obligations or to
secure any guarantee of any such Obligations and, including, without
limitation, any such document delivered pursuant to subsection 8.10.
"SENIOR PREFERRED STOCK": the Series A Preferred Stock and the
Series B Preferred Stock.
"SENIOR SUBORDINATED NOTE INDENTURE": the Indenture, dated as of
December 20, 1994, between the Borrower and The Bank of New York, as
Trustee, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with subsection 9.10.
"SENIOR SUBORDINATED NOTES": the 12% Series A Senior
Subordinated Notes due 2004 issued pursuant to the Senior Subordinated
Note Indenture.
"SERIES A PREFERRED STOCK": the 14% Series A Senior Exchangeable
Preferred Stock due 2006 issued by the Borrower on the Original
Closing Date.
"SERIES B PREFERRED STOCK": the 14% Series B Senior Exchangeable
Preferred Stock due 2006 issuable by the Borrower in exchange for the
Series A Preferred Stock as set forth in the Final Offering
Memorandum.
"SHAREHOLDERS AGREEMENT": the Shareholders Agreement dated as of
December 20, 1994, among Holdings, the Borrower, Sappi, one or more
Subsidiaries of Sappi, DLJMB and UBSCC, as the same may be amended,
supplemented or otherwise modified.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SOLVENT": when used with respect to any Person, means that, as
of any date of determination, (a) the amount of the "present fair
saleable value" of the assets of such Person will, as of such date,
exceed the amount that will be required to pay all "liabilities of
such Person, contingent or otherwise", as of such date (as such quoted
terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors) as such
debts become absolute and matured, (b) such Person will not have, as
of such date, an unreasonably small amount of capital with which to
conduct its business, and (c) such Person will be able to pay its
debts as they mature, taking into account the timing of and amounts of
cash to be received by such Person and the timing of and amounts of
cash to be payable on or in respect of indebtedness of such Person; in
each case after giving effect to (A) as of the Effective Date the
making of the extensions of credit to be made on the Effective Date
and to the application of the proceeds of such extensions of credit
and (B) on any date after the Effective Date, the making of any
extension of credit to be made on such date, and to the application of
the proceeds of such extension of credit. For purposes of this
definition, (i) "debt" means liability on a "claim", and (ii) "claim"
means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal equitable, secured or unsecured
or (y) right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured
or unmatured, disputed, undisputed, secured or unsecured.
"STANDBY LETTER OF CREDIT": as defined in subsection
3.10(b)(i)(1).
"STOCK PLEDGE AGREEMENTS": collectively, the Borrower Stock
Pledge Agreement, the Holdings Stock Pledge Agreement and the
Subsidiary Stock Pledge Agreements.
<PAGE>
19
"STOCK PURCHASE": the purchase of all of the issued and
outstanding capital stock of the Borrower pursuant to the Stock
Purchase Agreement.
"STOCK PURCHASE AGREEMENT": Stock Purchase Agreement, dated as
of October 8, 1994, among Scott Paper Company, Sappi and SDW
Acquisition Corporation.
"SUBSIDIARIES GUARANTEE": the Amended and Restated Guarantee to
be executed and delivered by each Subsidiary, substantially in the
form of EXHIBIT F, as the same may be amended, supplemented or
otherwise modified from time to time.
"SUBSIDIARY": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"SUBSIDIARY LEASEHOLD MORTGAGE": (a) each Existing Subsidiary
Leasehold Mortgage and (b) each Leasehold Mortgage executed and
delivered by a Subsidiary, substantially in the form of EXHIBIT G or
in such other form as the Agent shall reasonably require, with respect
to each lease of real property entered into after the Effective Date
for which a Leasehold Mortgage is granted pursuant to subsection 8.10,
as the same may be amended, supplemented or otherwise modified from
time to time.
"SUBSIDIARY MORTGAGE": (a) each Existing Subsidiary Mortgage and
(b) each Mortgage executed and delivered by a Subsidiary,
substantially in the form of EXHIBIT H or in such other form as the
Agent shall reasonably require, with respect to each parcel of
After-Acquired Mortgage Property for which a mortgage is granted to
the Agent pursuant to subsection 8.10, as the same may be amended,
supplemented or otherwise modified from time to time.
"SUBSIDIARY SECURITY AGREEMENT": the Amended and Restated
Security Agreement to be executed and delivered by each Subsidiary in
favor of the Agent, substantially in the form of EXHIBIT I, as the
same may be amended, supplemented or otherwise modified from time to
time.
"SUBSIDIARY SECURITY DOCUMENTS": collectively, the Subsidiary
Leasehold Mortgages, the Subsidiary Mortgages, the Subsidiary Security
Agreements and the Subsidiary Stock Pledge Agreements.
"SUBSIDIARY STOCK PLEDGE AGREEMENT": the Amended and Restated
Stock Pledge Agreement to be executed and delivered by each
Subsidiary, substantially in the form of EXHIBIT J, as the same may be
amended, supplemented or otherwise modified from time to time.
"SUPPORTED OBLIGATIONS": at any time with respect to the Assumed
Financings, an amount equal to the sum of (a) all payments required to
be made by Scott at or after such time under the Power Sales Agreement
and the Feedwater Equipment Lease Agreement for which a release has
not been obtained from General Electric Capital Corporation, PLUS (b)
the sum of: (i) the then outstanding principal of the bonds issued
under the Bond Financings (other than the Muskegon Solid Waste Bonds),
PLUS (ii) the premium, if any, payable on such bonds upon optional
redemption thereof (or, if such bonds are not then subject to optional
redemption, on the first optional redemption date), PLUS (iii) one
year's interest on such bonds, PLUS (iv) if such bonds are not then
subject to optional redemption, an amount equal to interest in excess
of one year's interest that will accrue on such bonds until the first
date such bonds are subject to optional redemption; as to each Assumed
Financing, a "SUPPORTED OBLIGATION".
"SWING LINE COMMITMENT": the obligation of the Swing Line Lender
to make Swing Line Loans pursuant to subsection 3.6 in an aggregate
amount at any one time outstanding not to exceed $25,000,000.
<PAGE>
20
"SWING LINE LENDER": as defined in subsection 3.6.
"SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate
substantially in the form of EXHIBIT K.
"SWING LINE LOANS": as defined in subsection 3.6.
"SWING LINE NOTE": as defined in subsection 3.7(e).
"SWING LINE PARTICIPATION AMOUNT": as defined in subsection
3.9(b).
"TERMINATION DATE": the seventh anniversary of the Original
Closing Date.
"TERM LOAN": a Tranche A Term Loan or a Tranche B Term Loan, as
the context shall require; collectively, the "TERM LOANS".
"TERM LOAN COMMITMENT PERCENTAGE": as to any Term Loan Lender at
any time, the percentage of the Term Loan Commitments then constituted
by such Term Loan Lender's Term Loan Commitments (or, after the Term
Loans are made, the percentage of the aggregate Term Loans then
constituted by such Term Loan Lender's Term Loans).
"TERM LOAN COMMITMENTS": collectively, the Tranche A Commitments
and the Tranche B Commitments; individually, a "TERM LOAN COMMITMENT".
"TERM LOAN LENDER": any Lender with an unused Term Loan
Commitment hereunder and/or any Term Loans outstanding hereunder;
collectively, the "TERM LOAN LENDERS".
"TERM NOTE": a Tranche A Term Note or a Tranche B Term Note, as
the context shall require; collectively, the "TERM NOTES".
"TIMBER": at any time, all trees, timber, including, without
limitation, standing timber and crops located on or planted or growing
in the soil of any real property, or any part or parcel thereof, and
any and all severed timber from time to time located on such real
property.
"TIMBERLAND PROPERTY": any real property on which Timber is
located.
"TIMBERLANDS": at any time, all Timberland Property owned or
leased by the Borrower or any of its Subsidiaries in which a security
interest is purported or required to have been granted pursuant to the
Security Documents at such time.
"TRANCHE": collectively, Eurodollar Loans the then current
Interest Periods with respect to all of which begin on the same date
and end on the same later date (whether or not such Loans shall
originally have been made on the same day); Tranches may be identified
as "EURODOLLAR TRANCHES".
"TRANCHE A COMMITMENT": as to any Lender, its obligation to make
a Tranche A Term Loan to the Borrower in an amount equal to the amount
set forth opposite such Lender's name in SCHEDULE 1.1(a) under the
heading "Tranche A Commitment", as such amount may be reduced from
time to time pursuant to this Agreement or as such amount may be
adjusted from time to time pursuant to subsection 13.6; collectively,
as to all such Lenders, the "TRANCHE A COMMITMENTS".
"TRANCHE A COMMITMENT PERCENTAGE": as to any Tranche A Lender at
any time, the percentage of the Tranche A Commitments then constituted
by such Tranche A Lender's Tranche A Commitment (or, after the Tranche
A Term Loans are made, the percentage of the aggregate Tranche A Term
Loans then constituted by such Tranche A Lender's Tranche A Term
Loan).
<PAGE>
21
"TRANCHE A LENDER": any Lender with an unused Tranche A
Commitment hereunder and/or any Tranche A Term Loans outstanding
hereunder; collectively, the "TRANCHE A LENDERS".
"TRANCHE A TERM LOAN": as defined in subsection 2.1(a).
"TRANCHE A TERM NOTE": as defined in subsection 2.5(d)(i).
"TRANCHE B COMMITMENT": as to any Lender, its obligation to make
a Tranche B Term Loan to the Borrower in an amount equal to the amount
set forth opposite such Lender's name in SCHEDULE 1.1(A) under the
heading "Tranche B Commitment", as such amount may be reduced from
time to time pursuant to this Agreement or as such amount may be
adjusted from time to time pursuant to subsection 13.6; collectively,
as to all the such Lenders, the "TRANCHE B COMMITMENTS".
"TRANCHE B COMMITMENT PERCENTAGE": as to any Tranche B Lender at
any time, the percentage of the Tranche B Commitments then constituted
by such Tranche B Lender's Tranche B Commitment (or, after the Tranche
B Term Loans are made, the percentage of the aggregate Tranche B Term
Loans then constituted by such Tranche B Lender's Tranche B Term
Loan).
"TRANCHE B ESCROW ACCOUNT": as defined in subsection 5.1(e).
"TRANCHE B LENDER": any Lender with an unused Tranche B
Commitment hereunder and/or any Tranche B Term Loans outstanding
hereunder; collectively, the "TRANCHE B LENDERS".
"TRANCHE B MANDATORY PREPAYMENT DATE": as defined in subsection
5.1(e).
"TRANCHE B MATURITY DATE": the eighth anniversary of the
Original Closing Date.
"TRANCHE B PREPAYMENT AMOUNT": as defined in subsection 5.1(e).
"TRANCHE B PREPAYMENT OPTION NOTICE": as defined in subsection
5.1(e).
"TRANCHE B TERM LOAN": as defined in subsection 2.1(b).
"TRANCHE B TERM NOTE": as defined in subsection 2.5(d)(ii).
"TRANSFEREE": as defined in subsection 13.6(f).
"TYPE": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"UBSCC": UBS Capital Corporation, a New York corporation.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"WARRANTS": warrants to purchase shares of Common Stock.
1.2 OTHER DEFINITIONAL PROVISIONS; FINANCIAL CALCULATIONS. (a) Unless
otherwise specified therein, all terms defined in this Agreement shall have the
defined meanings when used in the other Loan Documents or any certificate or
other document made or delivered pursuant hereto or thereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
<PAGE>
22
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) Notwithstanding anything to the contrary herein, for purposes of
making all calculations in connection with the covenants contained in Section 9,
all accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP consistently
applied as in effect on the date of this Agreement. In the event of any
material difference at any time between GAAP in effect on the date of this
Agreement and GAAP from time to time in effect, the certificate of a Responsible
Officer required pursuant to subsection 8.2(b)(ii) shall include a
reconciliation of the calculations required thereby with the financial
statements being delivered with such certificate.
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
2.1 TERM LOANS. Subject to the terms and conditions hereof, (a) each
Tranche A Lender severally agrees (a) to make a term loan (a "TRANCHE A TERM
LOAN") to the Borrower on the Effective Date in an amount equal to the Tranche A
Commitment of such Tranche A Lender and (b) each Tranche B Lender severally
agrees to make a term loan (a "TRANCHE B TERM LOAN") to the Borrower on the
Effective Date in an amount equal to the Tranche B Commitment of such Tranche B
Lender. The Term Loans may from time to time be (a) Eurodollar Loans, (b) ABR
Loans or (c) a combination thereof, as determined by the Borrower and notified
to the Agent in accordance with subsections 2.2 and 5.2.
2.2 PROCEDURE FOR TERM LOAN BORROWING. The Borrower hereby requests a
Tranche A Term Loan borrowing on the Effective Date in an amount equal to the
aggregate amount of the Tranche A Commitments of the Tranche A Lenders and a
Tranche B Term Loan borrowing on the Effective Date in an amount equal to the
aggregate amount of the Tranche B Commitments of the Tranche B Lenders. The
Borrower shall give the Agent irrevocable notice (which notice must be received
by the Agent prior to 12:00 Noon, New York City time, three Business Days prior
to the Effective Date), if all or any part of the Term Loans are to be initially
Eurodollar Loans, specifying (a) the amount of Term Loans which are initially to
be Eurodollar Loans and (b) the respective amounts thereof and the lengths of
the initial Interest Periods therefor. To the extent that the Borrower does not
deliver a notice pursuant to the immediately preceding sentence, the Term Loans
shall initially be ABR Loans. Upon receipt of any such notice from the
Borrower, the Agent shall promptly notify each Term Loan Lender thereof. Each
Term Loan Lender will make the amount of its PRO RATA share of the Term Loans
available to the Agent for the account of the Borrower at the office of the
Agent specified in subsection 13.2 prior to 10:00 A.M., New York City time, on
the Effective Date in Dollars and in funds immediately available to the Agent,
PROVIDED that to the extent a Tranche B Lender has a Tranche B Term Loan
outstanding under the Existing Credit Agreement (an "EXISTING TRANCHE B TERM
LOAN"), such Tranche B Lender may, at its option, elect to have its Existing
Tranche B Term Loan be a Tranche B Term Loan under this Agreement to the extent
the principal amount of such Existing Tranche B Term Loan does not exceed the
Tranche B Commitment of such Tranche B Lender and such Tranche B Lender shall be
deemed to have made a Tranche B Term Loan on the Effective Date in an amount
equal to the principal amount of such Tranche B Term Loan. The Agent shall
credit the account of the Borrower by 11:00 A.M., New York City time, on the
Effective Date, on the books of such office of the Agent or such other account
as specified by the Borrower with the aggregate of the amounts made available to
the Agent by the Term Loan Lenders and in like funds as received by the Agent.
2.3 REPAYMENT OF TRANCHE A TERM LOANS. The Borrower hereby
unconditionally promises to pay to the Agent for the account of the Tranche A
Lenders the principal amount of the Tranche A Term Loans made by such Tranche A
Lenders in twelve consecutive semi-annual installments, payable on the last day
of June and December of each year commencing June 30, 1996, each of which
installments on any such date shall be in an amount equal to 50% of the amount
set forth below opposite the year in which such date occurs (or such earlier
date on which the Tranche A Term Loans become due and payable pursuant to
Section 11), PROVIDED that (a) as a result of payments made under the Existing
Credit Agreement, no installment shall be payable on June 30, 1996 and the
installment payable on December 31, 1996 shall be
<PAGE>
23
in an amount equal to 100% of the amount set forth below opposite the year in
which such date occurs and (b) the final installment of the Tranche A Term
Loans shall be payable on the Termination Date:
Year Amount
---- ------
1996 $16,357,776.71
1997 $46,736,504.88
1998 $51,410,155.36
1999 $51,410,155.36
2000 $51,410,155.36
2001 $51,410,155.36
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Tranche A Term Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 5.4.
2.4 REPAYMENT OF TRANCHE B TERM LOANS. The Borrower hereby
unconditionally promises to pay to the Agent for the account of the Tranche B
Lenders the principal amount of the Tranche B Term Loans made by such Tranche B
Lenders in fourteen consecutive semi-annual installments, payable on the last
day of June and December of each year commencing June 30, 1996, each of which
installments on any such date shall be in an amount equal to 50% of the amount
set forth below opposite the year in which such date occurs (or such earlier
date on which the Tranche B Term Loans become due and payable pursuant to
Section 11), PROVIDED that the final installment of the Tranche B Term Loans
shall be payable on the Tranche B Maturity Date:
Year Amount
---- ------
1996 $ 2,643,294.12
1997 $ 2,643,294.12
1998 $ 2,643,294.12
1999 $ 2,643,294.12
2000 $ 13,216,470.64
2001 $ 35,243,921.72
2002 $127,323,295.04
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Tranche B Term Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 5.4.
2.5 EVIDENCE OF TERM LOAN DEBT. (a) Each Term Loan Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to such Term Loan Lender resulting from the Tranche
A Term Loan and/or Tranche B Term Loan made by such Term Loan Lender from time
to time, including the amounts of principal and interest payable and paid to
such Term Loan Lender from time to time under this Agreement.
(b) The Agent shall record in the Register, with separate subaccounts
therein for each Term Loan Lender,(i) the amount of each Tranche A Term Loan and
Tranche B Term Loan made hereunder, the Type thereof and, in the case of
Eurodollar Loans, each Interest Period applicable thereto,(ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Term Loan Lender hereunder and (iii) both the amount of any sum
received by the Agent hereunder from the Borrower and each Term Loan Lender's
share thereof, if any.
(c) The entries made in the Register and the accounts of each Term
Loan Lender maintained pursuant to subsections 2.5(a) and 2.5(b) shall, to the
extent permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER,
that the failure of any Term Loan Lender or the Agent to maintain the Register
or any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Tranche A
Term Loan and/or Tranche B Term Loan made to the Borrower by such Term Loan
Lender in accordance with the terms of this Agreement.
<PAGE>
24
(d) The Borrower agrees that, upon the request to the Agent by any
Term Loan Lender, which request is communicated to the Borrower, the Borrower
will execute and deliver to such Term Loan Lender (i) if such Term Loan Lender
is a Tranche A Lender, a promissory note of the Borrower dated the Effective
Date evidencing the Tranche A Term Loans made by such Tranche A Lender,
substantially in the form of EXHIBIT L (a "TRANCHE A TERM NOTE"), payable to the
order of such Tranche A Lender and in a principal amount equal to, in the case
of Tranche A Term Notes issued on the Effective Date, the lesser of (A) the
initial Tranche A Commitment of such Tranche A Lender or (B) the unpaid
principal amount of the Tranche A Term Loan made by such Tranche A Lender, and,
in the case of Tranche A Term Notes issued after the Effective Date, the unpaid
principal amount of the Tranche A Term Loan made by such Tranche A Lender and/or
(ii) if such Term Loan Lender is a Tranche B Lender, a promissory note of the
Borrower dated the Effective Date evidencing the Tranche B Term Loan made by
such Tranche B Lender, substantially in the form of EXHIBIT M (a "TRANCHE B TERM
NOTE"), payable to the order of such Tranche B Lender and in a principal amount
equal to, in the case of Tranche B Term Notes issued on the Effective Date, the
lesser of (A) the initial Tranche B Commitment of such Tranche B Lender or (B)
the unpaid principal amount of the Tranche B Term Loan made by such Tranche B
Lender and, in the case of Tranche B Term Notes issued after the Effective Date,
the unpaid principal amount of the Tranche B Term Loan made by such Tranche B
Lender. Each Term Loan Lender is hereby authorized to record the date, Type and
amount of each Tranche A Term Loan or Tranche B Term Loan, as the case may be,
made by such Term Loan Lender, the date and amount of each payment or prepayment
of principal thereof, each continuation thereof, each conversion of all or a
portion thereof to another Type and, in the case of Eurodollar Loans, the length
of each Interest Period and Eurodollar Rate with respect thereto, on the
schedule (or any continuation of the schedule) annexed to and constituting a
part of its Tranche A Term Note or Tranche B Term Note, as the case may be, and
any such recordation shall, to the extent permitted by applicable law,
constitute prima facie evidence of the accuracy of the information so recorded,
PROVIDED that the failure to make any such recordation (or any error therein)
shall not affect the obligation of the Borrower to repay (with applicable
interest) the Tranche A Term Loans and/or Tranche B Term Loans made to the
Borrower in accordance with the terms of this Agreement.
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
3.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("REVOLVING CREDIT LOANS") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Revolving Credit
Lender's Revolving Credit Commitment Percentage of (i) the then outstanding
Swing Line Loans and (ii) the then outstanding Revolving Credit L/C Obligations,
does not exceed the amount of such Revolving Credit Lender's Revolving Credit
Commitment. During the Revolving Credit Commitment Period, the Borrower may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans,(ii) ABR Loans or (iii) a combination thereof, as determined by
the Borrower and notified to the Agent in accordance with subsections 3.2 and
5.2, PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan
after the day that is one month prior to the Termination Date.
3.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow
under the Revolving Credit Commitments during the Revolving Credit Commitment
Period on any Business Day, PROVIDED that the Borrower shall give the Agent
irrevocable notice (which notice must be received by the Agent prior to 12:00
Noon, New York City time,(a) three Business Days prior to the requested
Borrowing Date, if all or any part of the requested Revolving Credit Loans are
to be initially Eurodollar Loans, or (b) prior to 12:00 Noon, New York City
time, one Business Day prior to the requested Borrowing Date, otherwise),
specifying (i) the amount to be borrowed, (ii)the requested Borrowing Date,(iii)
whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination
thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar
Loans, the respective amounts of each such Type of Loan and the lengths of the
initial Interest Periods therefor. Each borrowing under the Revolving Credit
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$10,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then
Available Revolving Credit Commitments are less than $10,000,000, such lesser
amount) and (y) in the case of Eurodollar Loans, $10,000,000 or a whole multiple
of $1,000,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Agent shall promptly notify each Revolving Credit Lender thereof.
Each Revolving Credit Lender will make the
<PAGE>
25
amount of its pro rata share of each borrowing available to the Agent for the
account of the Borrower at the office of the Agent specified in subsection
13.2 prior to 12:00 Noon, New York City time, on the Borrowing Date requested
by the Borrower in funds immediately available to the Agent. Such borrowing
will then be made available to the Borrower by the Agent crediting the
account of the Borrower on the books of such office prior to 1:00 P.M., New
York City time, on such Borrowing Date with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
3.3 COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
account of each Revolving Credit Lender a commitment fee for the period from and
including the first day of the Revolving Credit Commitment Period to the
Termination Date, computed at the rate of 3/8 of 1% per annum on the average
daily amount of the unused Revolving Credit Commitment of such Revolving Credit
Lender during the period for which payment is made, payable quarterly in arrears
on the last day of each March, June, September and December and on the
Termination Date or such earlier date as the Revolving Credit Commitments shall
terminate as provided herein, commencing on the first of such dates to occur
after the date hereof, PROVIDED that, from and after September 30, 1996, the
commitment fee will be adjusted, if required, on each Adjustment Date, to the
rate set forth on ANNEX A hereto opposite the level for which the Consolidated
Leverage Ratio for the 12-month period ended on the date of the financial
statements relating to such Adjustment Date as determined based upon such
financial statements satisfies the corresponding criteria set forth under the
heading "Consolidated Leverage Ratio" and PROVIDED, FURTHER, that, in the event
that the financial statements required to be delivered pursuant to subsection
8.1(a) or 8.1(b), as applicable, and the related certificate required pursuant
to subsection 8.2(b), are not delivered when due, then if such financial
statements are not delivered prior to the date upon which the resultant Default
shall become an Event of Default, then, effective upon such Default becoming an
Event of Default, during the period from the date upon which such financial
statements were required to be delivered until one Business Day following the
date upon which they actually are delivered, the commitment fee shall be 1/2 of
1%.
3.4 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have
the right, upon not less than one Business Day's prior notice to the Agent, to
terminate the Revolving Credit Commitments or, from time to time, to reduce the
amount of the Revolving Credit Commitments, PROVIDED that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the aggregate principal amount of the Revolving Credit Loans then outstanding,
when added to the then outstanding Revolving Credit L/C Obligations and Swing
Line Loans, would exceed the Revolving Credit Commitments then in effect. Any
such reduction shall be in an amount equal to $3,000,000 or a whole multiple of
$1,000,000 in excess thereof and shall reduce permanently the Revolving Credit
Commitments then in effect.
3.5 REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT. (a) The
Borrower hereby unconditionally promises to pay to the Agent for the account of
each Revolving Credit Lender the then unpaid principal amount of each Revolving
Credit Loan of such Revolving Credit Lender on the Termination Date (or such
earlier date on which the Revolving Credit Loans become due and payable pursuant
to Section 11). The Borrower hereby further agrees to pay interest on the
unpaid principal amount of the Revolving Credit Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 5.4.
(b) Each Revolving Credit Lender shall maintain in accordance with
its usual practice an account or accounts evidencing indebtedness of the
Borrower to such Revolving Credit Lender resulting from each Revolving Credit
Loan of such Revolving Credit Lender from time to time, including the amounts of
principal and interest payable and paid to such Revolving Credit Lender from
time to time under this Agreement.
(c) The Agent shall record in the Register, with separate subaccounts
for each Revolving Credit Lender, (i)the amount and Borrowing Date of each
Revolving Credit Loan made hereunder, the Type thereof and each Interest Period
applicable thereto,(ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Revolving Credit Lender
hereunder and (iii) both the amount of any sum received by the Agent hereunder
from the Borrower and each Revolving Credit Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Revolving Credit Lender maintained pursuant to subsections 3.5(a) and 3.5(b)
shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the
existence and amounts of the obligations of the Borrower therein recorded;
PROVIDED, HOWEVER, that the failure of any Revolving Credit Lender or the Agent
to maintain the Register or any such account, or any error therein, shall not in
any manner
<PAGE>
26
affect the obligation of the Borrower to repay (with applicable interest) the
Revolving Credit Loans made to such Borrower by such Revolving Credit Lender
in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Agent by any
Revolving Credit Lender, which request is communicated to the Borrower, the
Borrower will execute and deliver to such Revolving Credit Lender a promissory
note of the Borrower dated the Effective Date evidencing the Revolving Credit
Loans of such Revolving Credit Lender, substantially in the form of EXHIBIT N
with appropriate insertions as to date and principal amount (a "REVOLVING CREDIT
NOTE"). Each Revolving Credit Lender is hereby authorized to record the date,
Type and amount of each Revolving Credit Loan made by such Revolving Credit
Lender, the date and amount of each payment or prepayment of principal thereof,
each continuation thereof, each conversion of all or a portion thereof to
another Type and, in the case of Eurodollar Loans, the length of each Interest
Period and Eurodollar Rate with respect thereto, on the schedule (or any
continuation of the schedule) annexed to and constituting a part of its
Revolving Credit Note, and any such recordation shall, to the extent permitted
by applicable law, constitute PRIMA FACIE evidence of the accuracy of the
information so recorded, PROVIDED that the failure to make any such recordation
(or any error therein) shall not affect the obligation of the Borrower to repay
(with applicable interest) the Revolving Credit Loans made to the Borrower in
accordance with the terms of this Agreement.
3.6 SWING LINE COMMITMENT. Subject to the terms and conditions
hereof, Chemical (in such capacity, the "SWING LINE LENDER") agrees to make a
portion of the Revolving Credit Commitments available to the Borrower during the
Revolving Credit Commitment Period by making swing line loans ("SWING LINE
LOANS") to the Borrower in an aggregate principal amount not to exceed at any
one time outstanding the Swing Line Commitment; PROVIDED that (a) the aggregate
principal amount of Swing Line Loans outstanding at any time shall not exceed
the Swing Line Commitment then in effect and (b) the Borrower shall not request,
and the Swing Line Lender shall not make, any Swing Line Loan if, after giving
effect to the making of such Swing Line Loan, the Aggregate Revolving Credit
Outstandings of all the Lenders would exceed the Revolving Credit Commitments at
such time. During the Revolving Credit Commitment Period, the Borrower may use
the Swing Line Commitment by borrowing, repaying and reborrowing, Swing Line
Loans all in accordance with the terms and conditions hereof. Swing Line Loans
may be ABR Loans only.
3.7 REPAYMENT OF SWING LINE LOANS; EVIDENCE OF DEBT. (a) The Borrower
hereby unconditionally promises to pay to the Agent for the account of the Swing
Line Lender the then unpaid principal amount of the Swing Line Loans on the
Termination Date (or such earlier date on which the Swing Line Loans become due
and payable pursuant to Section 11). The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Swing Line Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in subsection 5.4.
(b) The Swing Line Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of the Borrower to
the Swing Line Lender resulting from the Swing Line Loans made by the Swing Line
Lender from time to time, including the amounts of principal and interest
payable and paid to the Swing Line Lender from time to time under this
Agreement.
(c) The Agent shall record in the Register (i) the amount and
Borrowing Date of each Swing Line Loan made hereunder,(ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to the Swing Line Lender hereunder and (iii) the amount of any sum
received by the Agent hereunder in respect of Swing Line Loans.
(d) The entries made in the Register pursuant to subsection 3.7(c)
shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the
existence and amounts of the obligations of the Borrower therein recorded;
PROVIDED, HOWEVER, that the failure of the Swing Line Lender or the Agent to
maintain the Register, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Swing Line
Loans made to the Borrower by the Swing Line Lender in accordance with the terms
of this Agreement.
(e) The Borrower agrees that, upon the request to the Agent by the
Swing Line Lender, which request is communicated to the Borrower, the Borrower
will execute and deliver to the Swing Line Lender a promissory note of the
Borrower, dated the Effective Date, evidencing the Swing Line Loans of the Swing
Line Lender, substantially in the form of EXHIBIT O with appropriate insertions
as to date and principal amount (a "SWING LINE NOTE"). The Swing Line Lender is
hereby authorized to record the date and amount of each Swing Line Loan made by
the Swing Line Lender and the date
<PAGE>
27
and amount of each payment or prepayment of principal thereof on the schedule
annexed to and constituting a part of the Swing Line Note, and any such
recordation shall, to the extent permitted by applicable law, constitute
PRIMA FACIE evidence of the accuracy of the information so recorded, PROVIDED
that the failure to make any such recordation (or any error therein) shall
not affect the obligation of the Borrower to repay (with applicable interest)
the Swing Line Loans made to the Borrower by the Swing Line Lender in
accordance with the terms of this Agreement.
3.8 PROCEDURE FOR BORROWING SWING LINE LOANS. Whenever the Borrower
desires that the Swing Line Lender make Swing Line Loans under subsection 3.6,
it shall give the Swing Line Lender irrevocable telephonic notice confirmed
promptly in writing (which telephonic notice must be received by the Swing Line
Lender not later than 1:00 P.M., New York City time, on the proposed Borrowing
Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing
Date (which shall be a Business Day during the Revolving Credit Commitment
Period). Each borrowing under the Swing Line Commitment shall be in a minimum
amount of $500,000. Not later than 2:00 P.M., New York City time, on the
Borrowing Date specified in a notice in respect of Swing Line Loans, the Swing
Line Lender shall make available to the Agent for the account of the Borrower at
the office of the Agent specified in subsection 13.2 an amount in immediately
available funds equal to the amount of the Swing Line Loan to be made by the
Swing Line Lender. The Agent shall make the proceeds of such Swing Line Loan
available to the Borrower not later than 3:00 p.m., New York City time, on such
Borrowing Date by crediting the account of the Borrower, on the books of such
office, such proceeds in immediately available funds.
3.9 SWING LINE LOAN PARTICIPATIONS. (a) Notwithstanding anything
herein to the contrary, the Swing Line Lender shall not be obligated to make any
Swing Line Loans if a Default under Section 11(a) or an Event of Default shall
have occurred and be continuing. The Swing Line Lender shall notify the
Borrower of such election not to make any Swing Line Loans unless the Event of
Default is of the type specified in Section 11(f).
(b) If prior to the repayment of any Swing Line Loan, one of the
events described in Section 11(f) shall have occurred, each Revolving Credit
Lender shall purchase an undivided participating interest in an amount equal to
such Revolving Credit Lender's Revolving Credit Commitment Percentage of the
aggregate principal amount of Swing Line Loans then outstanding (the "SWING LINE
PARTICIPATION AMOUNT"). On the date of such purchase, each Revolving Credit
Lender shall transfer to the Swing Line Lender, in immediately available funds,
such Revolving Credit Lender's Swing Line Participation Amount and upon receipt
thereof the Swing Line Lender shall deliver to such Revolving Credit Lender a
Swing Line Loan Participation Certificate dated the date of the Swing Line
Lender's receipt of such funds and in an amount equal to such Revolving Credit
Lender's Swing Line Participation Amount.
(c) Whenever, at any time after the Swing Line Lender has received
from any Revolving Credit Lender such Revolving Credit Lender's Swing Line
Participation Amount, the Swing Line Lender receives any payment on account of
the Swing Line Loans, the Swing Line Lender will distribute to such Revolving
Credit Lender its PRO RATA share of such payment (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Revolving Credit Lender's participating interest was outstanding and funded);
PROVIDED, HOWEVER, that in the event that such payment received by the Swing
Line Lender is required to be returned, such Revolving Credit Lender will return
to the Swing Line Lender any portion thereof previously distributed to it by the
Swing Line Lender.
(d) Each Revolving Credit Lender's obligation to purchase
participating interests pursuant to subsection 3.9(b) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Revolving Credit Lender or the Borrower may have against the Swing
Line Lender, the Borrower or any other Person for any reason whatsoever; (ii)
the occurrence or continuance of a Default or an Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Borrower; (iv)
any breach of this Agreement or any other Loan Document by any of the Loan
Parties or any other Lender; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
3.10 L/C COMMITMENT. (a) Subject to the terms and conditions hereof,
the Revolving Credit Issuing Bank, in reliance on the agreements of the other
Revolving Credit Lenders set forth in subsection 3.13(a), agrees to issue
Revolving Credit Letters of Credit for the account of the Borrower on any
Business Day during the Revolving Credit Commitment Period in such form as may
be approved from time to time by the Revolving Credit Issuing Bank; PROVIDED
that the Revolving Credit Issuing Bank shall have no obligation to, and shall
not, issue any Revolving Credit Letter of Credit if, after giving effect to such
issuance,(i) the Revolving Credit L/C Obligations would exceed the Revolving
Credit
<PAGE>
28
L/C Commitment or (ii) the Available Revolving Credit Commitments would be
less than zero. Revolving Credit Letters of Credit issued under the Existing
Credit Agreement and outstanding as of the Effective Date shall be deemed to
be issued under this Agreement on the Effective Date by the Revolving Credit
Issuing Bank and shall be Revolving Credit Letters of Credit for all purposes
of this Agreement.
(b) Each Revolving Credit Letter of Credit shall:
(i) be denominated in Dollars and shall be either (1) a standby
letter of credit issued to support obligations of the Borrower,
contingent or otherwise, in connection with the working capital and
business needs (including the needs contemplated by subsections 9.3(c)
and (d)) of the Borrower in the ordinary course of business (a
"STANDBY LETTER OF CREDIT") or (2) a commercial letter of credit
issued in respect of the purchase of goods or services by the Borrower
and its Subsidiaries in the ordinary course of business (a "COMMERCIAL
LETTER OF CREDIT"); and
(ii) expire no later than the earlier of (A) five Business Days
prior to the Termination Date and (B) one year after the date of
issuance thereof, PROVIDED that, subject to clause (A) above, any such
Revolving Credit Letter of Credit may, at the request of the Borrower
as set forth in the applicable Application or prior to expiration
thereof, be automatically renewed on each anniversary of the issuance
thereof for an additional period of one year unless the Revolving
Credit Issuing Bank shall have given 60 days prior written notice to
the Borrower and the beneficiary of such Revolving Credit Letter of
Credit that such Revolving Credit Letter of Credit will not be
renewed.
(c) Each Revolving Credit Letter of Credit shall be subject to the
Uniform Customs and, to the extent not inconsistent therewith, the laws of the
State of New York.
(d) The Revolving Credit Issuing Bank shall not at any time be
obligated to issue any Revolving Credit Letter of Credit hereunder if such
issuance would conflict with, or cause the Revolving Credit Issuing Bank or any
Revolving Credit L/C Participant to exceed any limits imposed by, any applicable
Requirement of Law.
3.11 PROCEDURE FOR ISSUANCE OF REVOLVING CREDIT LETTERS OF CREDIT.
The Borrower may from time to time request that the Revolving Credit Issuing
Bank issue a Revolving Credit Letter of Credit by delivering to the Revolving
Credit Issuing Bank at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Revolving Credit Issuing Bank,
and such other certificates, documents and other papers and information as the
Revolving Credit Issuing Bank may request. The Revolving Credit Issuing Bank
shall notify the Revolving Credit Lenders promptly of the receipt of any request
pursuant to the immediately preceding sentence. Upon receipt of any
Application, the Revolving Credit Issuing Bank will process such Application and
the certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Revolving Credit Letter of Credit requested thereby (but in
no event shall the Revolving Credit Issuing Bank be required to issue any
Revolving Credit Letter of Credit earlier than three Business Days after its
receipt of the Application therefor and all such other certificates, documents
and other papers and information relating thereto) by issuing the original of
such Revolving Credit Letter of Credit to the beneficiary thereof or as
otherwise may be agreed by the Revolving Credit Issuing Bank and the Borrower.
The Revolving Credit Issuing Bank shall furnish a copy of such Revolving Credit
Letter of Credit to the Agent and the Borrower promptly following the issuance
thereof.
3.12 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrower shall pay
to the Agent, for the account of the Revolving Credit Issuing Bank, a fronting
fee with respect to each Revolving Credit Letter of Credit, computed for the
period from the date of issuance of such Revolving Credit Letter of Credit or
the immediately preceding L/C Fee Payment Date, as the case may be, to the next
L/C Fee Payment Date to occur thereafter at a rate per annum to be agreed upon
by the Borrower and the Revolving Credit Issuing Bank, calculated on the basis
of a 360-day year for actual days elapsed, of the aggregate amount available to
be drawn under such Revolving Credit Letter of Credit during the period for
which such fee is calculated. Such fronting fee shall be payable in arrears on
each L/C Fee Payment Date to occur after the issuance of such Revolving Credit
Letter of Credit and on the Termination Date and shall be nonrefundable.
(b) The Borrower shall pay to the Agent, for the account of the
Revolving Credit L/C Participants, a letter of credit commission with respect to
each Revolving Credit Letter of Credit, computed for the period from the date of
<PAGE>
29
issuance of such Revolving Credit Letter of Credit or the immediately preceding
L/C Fee Payment Date, as the case may be, to the next L/C Fee Payment Date to
occur thereafter at the rate of 1-3/4% per annum (the "REVOLVING CREDIT FEE
PERCENTAGE"), calculated on the basis of a 360-day year for actual days elapsed,
of the aggregate amount available to be drawn under such Revolving Credit Letter
of Credit during the period for which such fee is calculated, to be shared
ratably among the Revolving Credit L/C Participants in accordance with their
respective Revolving Credit Commitment Percentages, PROVIDED, that from and
after September 30. 1996, the Revolving Credit Fee Percentage shall be equal to
the Applicable Margin for Revolving Credit Loans that are Eurodollar Loans in
effect from time to time. Such commissions shall be payable in arrears on each
L/C Fee Payment Date to occur after the issuance of such Revolving Credit Letter
of Credit and shall be nonrefundable.
(c) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Revolving Credit Issuing Bank for such normal and
customary costs and expenses as are incurred or charged by the Revolving Credit
Issuing Bank in issuing, effecting payment under, amending or otherwise
administering any Revolving Credit Letter of Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the Revolving Credit Issuing Bank and the Revolving Credit L/C
Participants all fees and commissions received by the Agent for their respective
accounts pursuant to this subsection.
3.13 L/C PARTICIPATIONS. (a) The Revolving Credit Issuing Bank
irrevocably agrees to grant and hereby grants to each Revolving Credit L/C
Participant, and, to induce the Revolving Credit Issuing Bank to issue Revolving
Credit Letters of Credit hereunder, each Revolving Credit L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Revolving Credit Issuing Bank, on the terms and conditions hereinafter
stated, for such Revolving Credit L/C Participant's own account and risk an
undivided interest equal to such Revolving Credit L/C Participant's Revolving
Credit Commitment Percentage in the Revolving Credit Issuing Bank's obligations
and rights under each Revolving Credit Letter of Credit issued hereunder and the
amount of each draft paid by the Revolving Credit Issuing Bank thereunder. Each
Revolving Credit L/C Participant unconditionally and irrevocably agrees with the
Revolving Credit Issuing Bank that, if a draft is paid under any Revolving
Credit Letter of Credit for which the Revolving Credit Issuing Bank is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such Revolving Credit L/C Participant shall pay to the Revolving
Credit Issuing Bank upon demand at the Revolving Credit Issuing Bank's address
for notices specified herein an amount equal to such Revolving Credit L/C
Participant's Revolving Credit Commitment Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any Revolving Credit L/C
Participant to the Revolving Credit Issuing Bank pursuant to subsection 3.13(a)
in respect of any unreimbursed portion of any payment made by the Revolving
Credit Issuing Bank under any Revolving Credit Letter of Credit is paid to the
Revolving Credit Issuing Bank within three Business Days after the date such
payment is due, such Revolving Credit L/C Participant shall pay to the Revolving
Credit Issuing Bank on demand an amount equal to the product of (i) such amount,
times (ii) the daily average Federal Funds Effective Rate, during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Revolving Credit Issuing Bank, times
(iii) a fraction the numerator of which is the number of days that elapse during
such period and the denominator of which is 360. If any such amount required to
be paid by any Revolving Credit L/C Participant pursuant to subsection 3.13(a)
is not in fact made available to the Revolving Credit Issuing Bank by such
Revolving Credit L/C Participant within three Business Days after the date such
payment is due, the Revolving Credit Issuing Bank shall be entitled to recover
from such Revolving Credit L/C Participant, on demand, such amount with interest
thereon calculated from such due date at the rate per annum applicable to ABR
Loans hereunder. A certificate of the Revolving Credit Issuing Bank submitted
to any Revolving Credit L/C Participant with respect to any amounts owing under
this subsection shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Revolving Credit Issuing Bank has
made payment under any Revolving Credit Letter of Credit and has received from
any Revolving Credit L/C Participant its PRO RATA share of such payment in
accordance with subsection 3.13(a), the Revolving Credit Issuing Bank receives
any payment related to such Revolving Credit Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Revolving Credit Issuing Bank), or any payment of interest on account
thereof, the Revolving Credit Issuing Bank will distribute to such Revolving
Credit L/C Participant its PRO RATA share thereof; PROVIDED, HOWEVER, that in
the event that any such payment received by the Revolving Credit Issuing Bank
shall be required to be returned by the Revolving Credit
<PAGE>
30
Issuing Bank, such Revolving Credit L/C Participant shall return to the
Revolving Credit Issuing Bank the portion thereof previously distributed by
the Revolving Credit Issuing Bank to it.
3.14 REIMBURSEMENT OBLIGATION OF THE BORROWER. (a) The Revolving
Credit Issuing Bank shall notify the Borrower promptly of each drawing under a
Revolving Credit Letter of Credit. The Borrower agrees to reimburse the
Revolving Credit Issuing Bank on each date on which the Revolving Credit Issuing
Bank notifies the Borrower of the date and amount of a draft presented under any
Revolving Credit Letter of Credit and paid by the Revolving Credit Issuing Bank
for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or
other costs or expenses incurred by the Revolving Credit Issuing Bank in
connection with such payment. Each such payment shall be made to the Revolving
Credit Issuing Bank at its address for notices specified herein in lawful money
of the United States of America and in immediately available funds.
(b) Interest shall be payable on any and all amounts remaining unpaid
by the Borrower under this subsection 3.14 (i) from the date the draft presented
under the affected Letter of Credit is paid to the date on which the Borrower is
required to pay such amounts pursuant to paragraph (a) of this subsection at the
rate which would then be payable on any Revolving Credit Loans that are ABR
Loans and (ii) thereafter, until payment in full at the rate which would be
payable on any outstanding Revolving Credit Loans that are ABR Loans which were
then overdue.
(c) Each drawing under any Revolving Credit Letter of Credit shall
constitute a request by the Borrower to the Agent for a borrowing pursuant to
subsection 3.2 of ABR Loans in the amount of such drawing (but without any
requirement for compliance with the prior notice provisions of subsection 3.2 or
the conditions set forth in subsection 7.2). The Borrowing Date with respect to
such borrowing shall be the date of such drawing and each Revolving Credit
Lender shall make its Revolving Credit Commitment Percentage of such borrowing
available to the Agent on such date to be used to repay the Reimbursement
Obligation created by such drawing. The Revolving Credit Issuing Bank shall
notify the Revolving Credit Lenders promptly of each drawing under a Revolving
Credit Letter of Credit to be reimbursed pursuant to this subsection 3.4(c).
3.15 OBLIGATIONS ABSOLUTE. (a) The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any set-off, counterclaim or defense to payment which the
Borrower may have or have had against the Revolving Credit Issuing Bank, any
Lender or any beneficiary of a Revolving Credit Letter of Credit.
(b) The Borrower also agrees with the Revolving Credit Issuing Bank
and the Lenders that neither the Revolving Credit Issuing Bank nor any Lender
shall be responsible for, and the Borrower's Reimbursement Obligations under
subsection 3.14(a) shall not be affected by, among other things,(i) the validity
or genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any
dispute between or among the Borrower and any beneficiary of any Revolving
Credit Letter of Credit or any other party to which such Revolving Credit Letter
of Credit may be transferred or (iii) any claims whatsoever of the Borrower
against any beneficiary of such Revolving Credit Letter of Credit or any such
transferee.
(c) The Revolving Credit Issuing Bank shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Revolving
Credit Letter of Credit, except for errors, omissions, interruptions or delays
caused by the Revolving Credit Issuing Bank's gross negligence or willful
misconduct.
(d) The Borrower agrees that any action taken or omitted by the
Revolving Credit Issuing Bank under or in connection with any Revolving Credit
Letter of Credit or the related drafts or documents, if done in the absence of
gross negligence or willful misconduct and in accordance with the standards of
care specified in the Uniform Customs, and to the extent not inconsistent
therewith, the Uniform Commercial Code of the State of New York, shall be
binding on the Borrower and shall not result in any liability of the Revolving
Credit Issuing Bank to the Borrower.
3.16 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for
payment under any Revolving Credit Letter of Credit, the Revolving Credit
Issuing Bank shall, within a reasonable time after its receipt thereof, examine
all documents purporting to represent a demand for payment under such Revolving
Credit Letter of Credit to ascertain that the same appear on their face to be in
conformity with the terms and conditions of such Revolving Credit Letter of
Credit.
<PAGE>
31
The Revolving Credit Issuing Bank shall also promptly notify the Borrower of
the date and amount thereof. The responsibility of the Revolving Credit
Issuing Bank to the Borrower in connection with any draft presented for
payment under any Revolving Credit Letter of Credit shall, in addition to any
payment obligation expressly provided for in such Revolving Credit Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Revolving Credit Letter of Credit in connection with
such presentment are in conformity with such Revolving Credit Letter of
Credit.
3.17 APPLICATION. To the extent that any provision of any Application
related to any Revolving Credit Letter of Credit is inconsistent with the
provisions of this Section 3, the provisions of this Section 3 shall apply.
3.18 QUARTERLY REPORTS. The Revolving Credit Issuing Bank shall
furnish to each Revolving Credit Lender a quarterly report with respect to
Revolving Credit Letters of Credit issued or outstanding during such quarter and
any drawings thereunder.
SECTION 4. AMOUNT AND TERMS OF LOC LETTER OF CREDIT FACILITY
4.1 LOC LETTER OF CREDIT FACILITY. (a) LOC Letters of Credit issued
under the Existing Credit Agreement and outstanding as of the Effective Date
(collectively, "ORIGINAL LOC LETTERS OF CREDIT") shall be deemed to be issued
under this Agreement on the Effective Date by the LOC Issuing Bank and shall be
LOC Letters of Credit for all purposes of this Agreement. Subject to the terms
and conditions hereof, the LOC Issuing Bank, in reliance on the agreements of
the other Lenders set forth in subsection 4.4(a), agrees to issue letters of
credit for the account of the Borrower to the extent that such letter of credit
constitutes a replacement, extension or substitution (but not any increase) of
any other LOC Letter of Credit (a "REPLACEMENT LOC LETTER OF CREDIT"; together
with the Original LOC Letters of Credit, the "LOC LETTERS OF CREDIT"), on the
date of surrender, cancellation or expiration of any such other LOC Letter of
Credit; PROVIDED that the LOC Issuing Bank shall have no obligation to, and
shall not, issue any LOC Letter of Credit if, after giving effect to such
surrender, cancellation or expiration and to such issuance, the sum of the LOC
Obligations and the aggregate principal amount of LOC Loans then outstanding,
would exceed the LOC Commitment Amount.
(b) Each LOC Letter of Credit shall (i) be denominated in Dollars and
shall be either (1) a standby letter of credit substantially in the form of
EXHIBIT P issued to support obligations of the Borrower in respect of the
Assumed Financings (other than the Muskegon Solid Waste Bonds), or (2) a
Replacement LOC Letter of Credit issued to support obligations of the Borrower
in respect of Assumed Financings and (ii) expire on the first anniversary of the
issuance thereof, PROVIDED that such Letter of Credit shall be automatically
renewed on each anniversary of the issuance thereof for an additional period of
one year (but in no event shall any such LOC Letter of Credit expire later than
the Termination Date) unless the LOC Issuing Bank shall have given 90 days prior
written notice to the Borrower and 45 days prior written notice to the
Beneficiary and the beneficiary of the LOC Letter of Credit that such LOC Letter
of Credit will not be renewed, PROVIDED, FURTHER that the LOC Issuing Bank shall
not, so long as no Default or Event of Default shall have occurred and then be
continuing, issue any such notice without the consent of the Borrower.
(c) Each LOC Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(d) The LOC Issuing Bank shall not at any time be obligated to issue
any LOC Letter of Credit hereunder if such issuance would conflict with, or
cause the LOC Issuing Bank or any LOC Participant to exceed any limits imposed
by, any applicable Requirement of Law.
4.2 PROCEDURE FOR ISSUANCE OF LOC LETTERS OF CREDIT. The Borrower may
from time to time request that the LOC Issuing Bank issue a Replacement LOC
Letter of Credit by delivering to the LOC Issuing Bank at its address for
notices specified herein an Application therefor, completed to the satisfaction
of the LOC Issuing Bank, and such other certificates, documents and other papers
and information as the LOC Issuing Bank may request. Upon receipt of any
Application, the LOC Issuing Bank will process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Replacement LOC Letter of Credit requested thereby (but in no
event shall the LOC Issuing Bank be required to issue any Replacement LOC Letter
of Credit earlier than three Business Days after its receipt of the Application
therefor and
<PAGE>
32
all such other certificates, documents and other papers and information
relating thereto) by issuing the original of such Replacement LOC Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the LOC
Issuing Bank and the Borrower. The LOC Issuing Bank shall furnish a copy of
such Replacement LOC Letter of Credit to the Agent and the Borrower promptly
following the issuance thereof.
4.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrower agrees to
pay to the Agent for the account of the LOC Issuing Bank, a fronting fee with
respect to each LOC Letter of Credit, computed for the period from the date of
issuance of such LOC Letter of Credit or the immediately preceding L/C Fee
Payment Date, as the case may be, to the next L/C Fee Payment Date to occur
thereafter at a rate per annum to be agreed upon by the Borrower and the LOC
Issuing Bank, calculated on the basis of a 360-day year for actual days elapsed,
of the aggregate amount available to be drawn under such LOC Letter of Credit
during the period for which such fee is calculated. Such fronting fee shall be
payable in arrears on each L/C Fee Payment Date to occur after the issuance of
such LOC Letter of Credit and shall be nonrefundable.
(b) The Borrower shall pay to the Agent, for the account of the LOC
Participants, a letter of credit commission with respect to each LOC Letter of
Credit, computed for the period from the date of issuance or the immediately
preceding L/C Fee Payment Date, as the case may be, to the next succeeding L/C
Fee Payment Date at the rate of 1-3/4% per annum (the "LOC FEE PERCENTAGE"),
calculated on the basis of a 360 day year, of the aggregate amount available to
be drawn under such LOC Letter of Credit during the period for which such fee is
calculated to be shared ratably among the LOC Participants in accordance with
their respective LOC Commitment Percentages, PROVIDED that from and after
September 30, 1996, the LOC Fee Percentage shall be equal to the Applicable
Margin for Revolving Credit Loans that are Eurodollar Loans in effect from time
to time. Such commissions shall be payable in arrears on each L/C Fee Payment
Date to occur after the issuance of such LOC Letter of Credit and shall be
nonrefundable.
(c) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the LOC Issuing Bank for such normal and customary costs
and expenses as are incurred or charged by the LOC Issuing Bank in issuing,
effecting payment under, amending or otherwise administering any LOC Letter of
Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the LOC Issuing Bank and the LOC Participants all fees and
commissions received by the Agent for their respective accounts pursuant to this
subsection.
4.4 LOC PARTICIPATIONS. (a) The LOC Issuing Bank irrevocably agrees
to grant and hereby grants to each LOC Participant, and, to induce the LOC
Issuing Bank to issue Letters of Credit hereunder, each LOC Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the LOC Issuing Bank, on the terms and conditions hereinafter stated, for such
LOC Participant's own account and risk an undivided interest equal to such LOC
Participant's LOC Commitment Percentage of the LOC Issuing Bank's obligations
and rights under each LOC Letter of Credit issued hereunder and the amount of
each draft paid by the LOC Issuing Bank thereunder. Subject to subsection
4.5(c), each LOC Participant unconditionally and irrevocably agrees with the LOC
Issuing Bank that, if a draft is paid under any LOC Letter of Credit for which
the LOC Issuing Bank is not reimbursed in full by the Borrower in accordance
with the terms of this Agreement, such LOC Participant shall pay to the LOC
Issuing Bank upon demand at the LOC Issuing Bank's address for notices specified
in subsection 13.2 an amount equal to such LOC Participant's LOC Commitment
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed.
(b) If any amount required to be paid by any LOC Participant to the
LOC Issuing Bank pursuant to subsection 4.4(a) in respect of any unreimbursed
portion of any payment made by the LOC Issuing Bank under any LOC Letter of
Credit is paid to the LOC Issuing Bank within three Business Days after the date
such payment is due, such LOC Participant shall pay to the LOC Issuing Bank on
demand an amount equal to the product of (i) such amount, times (ii) the daily
average Federal Funds Effective Rate during the period from and including the
date such payment is required to the date on which such payment is immediately
available to the LOC Issuing Bank, times (iii) a fraction the numerator of which
is the number of days that elapse during such period and the denominator of
which is 360. If any such amount required to be paid by any LOC Participant
pursuant to paragraph 4.4(a) is not in fact made available to the LOC Issuing
Bank by such LOC Participant within three Business Days after the date such
payment is due, the LOC Issuing Bank shall be entitled to recover from such LOC
Participant, on demand, such amount with interest thereon calculated from such
due date at the rate per annum applicable to ABR Loans hereunder. A certificate
of the LOC Issuing Bank submitted to any
<PAGE>
33
LOC Participant with respect to any amounts owing under this subsection shall
be conclusive in the absence of manifest error.
(c) Whenever, at any time after the LOC Issuing Bank has made payment
under any LOC Letter of Credit and has received from any LOC Participant its PRO
RATA share of such payment in accordance with subsection 4.4(a), the LOC Issuing
Bank receives any payment related to such LOC Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the LOC Issuing Bank), or any payment of interest on account thereof, the LOC
Issuing Bank will distribute to such LOC Participant its PRO RATA share thereof;
PROVIDED, HOWEVER, that in the event that any such payment received by the LOC
Issuing Bank shall be required to be returned by the LOC Issuing Bank, such LOC
Participant shall return to the LOC Issuing Bank the portion thereof previously
distributed by the LOC Issuing Bank to it.
4.5 REIMBURSEMENT OBLIGATION OF THE BORROWER; LOC LOANS. (a) Upon
notice to the Borrower by the LOC Issuing Bank of the date and amount of a draft
presented under any LOC Letter of Credit and paid by the LOC Issuing Bank
stating the amount of (i) such draft so paid and (ii) any taxes, fees, charges
or other costs or expenses incurred by the LOC Issuing Bank in connection with
such payment, the Borrower agrees to reimburse the LOC Issuing Bank for the
amount of such draft and such other amounts, such reimbursement to be payable as
set forth in this subsection 4.5. The LOC Issuing Bank shall notify the
Borrower promptly of each request for a drawing under a LOC Letter of Credit and
each drawing under a LOC Letter of Credit.
(b) In the event that a draft presented and paid under a LOC Letter of
Credit became payable in respect of a Supported Obligation as a result of a
default by the Borrower with respect to such Supported Obligation, such drawing
under such LOC Letter of Credit shall constitute a request by the Borrower to
the Agent for a Revolving Credit Loan pursuant to subsection 3.2 of an ABR Loan
in the amount of the lesser of (A) such drawing and (B) an amount equal to the
Available Revolving Credit Commitment on the date of such drawing (but without
any requirement for compliance with the prior notice provisions of subsection
3.2). The Borrowing Date with respect to such Revolving Credit Loan shall be
the date of such drawing and each Revolving Credit Lender shall make its
Revolving Credit Commitment Percentage of such drawing available to the Agent on
such date to be used to repay the Reimbursement Obligation created by such
drawing. The LOC Issuing Bank shall notify the Revolving Credit Lenders of any
drawing under a LOC Letter of Credit to be so reimbursed. The Revolving Credit
Loans made pursuant to this subsection shall be applied to the payment of any
such drawing as of the date of such drawing. To the extent that the amount of
the draft drawn exceeds the Available Revolving Credit Commitments on the date
of such drawing, the Reimbursement Obligation in respect of the unpaid balance
of the drawing shall be immediately due and payable by the Borrower.
(c) In the event that (i) a Supported Obligation becomes due and
payable as a result of the occurrence of any of the types of events described in
Section 11(f) with respect to Scott, (ii) a draft is presented and paid under a
LOC Letter of Credit in respect of such Supported Obligation and, after payment
of such draft, the Borrower's and its Subsidiaries' liability with respect to
such Supported Obligation reduces by an amount at least equal to the amount of
such draft and (iii) so long as no Default or Event of Default has occurred and
is continuing or would occur as a result thereof, such drawing under such LOC
Letter of Credit shall constitute a request by the Borrower to the LOC
Participants to borrow on the date of such drawing from each LOC Participant an
amount equal to such LOC Participant's LOC Commitment Percentage of the amount
of such drawing (a "LOC LOAN"). In the event that LOC Loans are to be made
available to the Borrower in respect of any Supported Obligation, such LOC Loans
shall be made available by the LOC Issuing Bank, on behalf of the LOC
Participants, at the time the related draft is presented and paid. Each LOC
Participant unconditionally and irrevocably agrees with the LOC Issuing Bank
that, if a draft is paid under any LOC Letter of Credit pursuant to this
subsection 4.5(c), such LOC Participant shall pay to the LOC Issuing Bank at the
LOC Issuing Bank's address for notices specified in subsection 13.2 on the date
such draft is paid an amount equal to such LOC Participant's LOC Commitment
Percentage of the amount of such draft. The LOC Loans may from time to time be
(a) Eurodollar Loans, (b) ABR Loans or (c) a combination thereof, as determined
by the Borrower and notified to the Agent in accordance with subsection 5.2.
Each LOC Loan shall initially be an ABR Loan.
(d) Each payment to the LOC Issuing Bank pursuant to this subsection
shall be made to the LOC Issuing Bank at its address for notices specified in
subsection 13.2 in lawful money of the United States of America and in
immediately available funds.
<PAGE>
34
4.6 REPAYMENT OF LOC LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby
unconditionally promises to pay to the Agent for the account of the LOC
Participants the principal amount of the LOC Loans made by the LOC Participants
at the times and in the amounts that payments otherwise would be due in respect
of the Supported Obligations, in the absence of acceleration thereof, in respect
of which such LOC Loans are made, PROVIDED that the remaining unpaid amount of
such drawing shall be due and payable in full on the Termination Date (or such
earlier date on which the LOC Loans become due and payable pursuant to Section
11). The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the LOC Loans from time to time outstanding from the date hereof until
payment in full thereof at the rates per annum, and on the dates, set forth in
subsection 5.4.
(b) Each LOC Participant shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
LOC Participant resulting from each LOC Loan made by such LOC Participant from
time to time, including the amounts of principal and interest payable and paid
to such LOC Participant from time to time under this Agreement.
(c) The Agent shall record in the Register, with separate subaccounts
therein for each LOC Participant, (i)the amount of each LOC Loan made hereunder,
the Type thereof and, in the case of Eurodollar Loans, each Interest Period
applicable thereto,(ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each LOC Participant hereunder
and (iii) both the amount of any sum received by the Agent hereunder from the
Borrower and each LOC Participant's share thereof, if any.
(d) The entries made in the Register and the accounts of each LOC
Participant maintained pursuant to subsections 4.6(b) and 4.6(c) shall, to the
extent permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER,
that the failure of any LOC Participant or the Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) each LOC Loan
made to the Borrower by such LOC Participant in accordance with the terms of
this Agreement.
(e) The Borrower agrees that, upon the request to the Agent by any LOC
Participant, which request is communicated to the Borrower, the Borrower will
execute and deliver to such LOC Participant with respect to each LOC Loan made
by such LOC Participant a promissory note of the Borrower dated the date such
LOC Loan is made evidencing such LOC Loan, substantially in the form of EXHIBIT
Q (a "LOC NOTE"), payable to the order of such LOC Participant and in a
principal amount equal to the unpaid principal amount of such LOC Loan, which
shall be payable in accordance with the amortization schedule attached thereto.
Each LOC Participant is hereby authorized to record the date, Type and amount of
the LOC Loan evidenced by LOC Note, the date and amount of each payment or
prepayment of principal thereof, each continuation thereof, each conversion of
all or a portion thereof to another Type and, in the case of Eurodollar Loans,
the length of each Interest Period and Eurodollar Rate with respect thereto, on
the schedule (or any continuation of the schedule) annexed to and constituting a
part of such LOC Notes, and any such recordation shall, to the extent permitted
by applicable law, constitute prima facie evidence of the accuracy of the
information so recorded, PROVIDED that the failure to make any such recordation
(or any error therein) shall not affect the obligation of the Borrower to repay
(with applicable interest) the LOC Loans made to the Borrower in accordance with
the terms of this Agreement.
4.7 OBLIGATIONS ABSOLUTE. (a) The Borrower's obligations under this
Section 4 shall be absolute and unconditional under any and all circumstances
and irrespective of any set-off, counterclaim or defense to payment which the
Borrower may have or have had against the LOC Issuing Bank, any Lender or any
beneficiary of a LOC Letter of Credit.
(b) The Borrower also agrees with the LOC Issuing Bank and the Lenders
that neither the LOC Issuing Bank nor any Lender shall be responsible for, and
the Borrower's Reimbursement Obligations under subsection 4.5(a) shall not be
affected by, among other things,(i) the validity or genuineness of documents or
of any endorsements thereon, even though such documents shall in fact prove to
be invalid, fraudulent or forged,(ii) any dispute between or among the Borrower
and any beneficiary of any LOC Letter of Credit or any other party to which such
LOC Letter of Credit may be transferred or (iii) any claims whatsoever of the
Borrower against any beneficiary of such LOC Letter of Credit or any such
transferee.
<PAGE>
35
(c) The LOC Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any LOC Letter of Credit, except
for errors, omissions, interruptions or delays caused by the LOC Issuing Bank's
gross negligence or willful misconduct.
(d) The Borrower agrees that any action taken or omitted by the LOC
Issuing Bank under or in connection with any LOC Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Customs, and to the extent not inconsistent therewith, the Uniform Commercial
Code of the State of New York, shall be binding on the Borrower and shall not
result in any liability of the LOC Issuing Bank to the Borrower.
4.8 LOC LETTER OF CREDIT PAYMENTS. If any draft shall be presented
for payment under any LOC Letter of Credit, the LOC Issuing Bank shall, within a
reasonable time after its receipt thereof, examine all documents purporting to
represent a demand for payment under such LOC Letter of Credit to ascertain that
the same appear on their face to be in conformity with the terms and conditions
of such LOC Letter of Credit. The LOC Issuing Bank shall also promptly notify
the Borrower of the date and amount thereof. The responsibility of the LOC
Issuing Bank to the Borrower in connection with any draft presented for payment
under any LOC Letter of Credit shall, in addition to any payment obligation
expressly provided for in such LOC Letter of Credit, be limited to determining
that the documents (including each draft) delivered under such LOC Letter of
Credit in connection with such presentment are in conformity with such LOC
Letter of Credit.
4.9 APPLICATION. To the extent that any provision of any Application
related to any LOC Letter of Credit is inconsistent with the provisions of this
Section 4, the provisions of this Section 4 shall apply.
SECTION 5. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
5.1 OPTIONAL AND MANDATORY PREPAYMENTS. (a) (i) The Borrower may at
any time and from time to time prepay the Loans, in whole or in part, without
premium or penalty, upon irrevocable notice to the Agent prior to 11:00 a.m.,
New York City time, one Business Day prior to such prepayment, specifying the
date and amount of prepayment and whether the prepayment is of Eurodollar Loans,
ABR Loans or a combination thereof, and, if of a combination thereof, the amount
allocable to each. Upon receipt of any such notice the Agent shall notify each
affected Lender thereof on the date of receipt of such notice. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with any amounts payable pursuant to
subsection 5.11 and, in the case of prepayments of the Term Loans and LOC Loans
only, accrued interest to such date on the amount prepaid. Amounts prepaid on
account of the Term Loans may not be reborrowed. Partial prepayments shall be
in an aggregate principal amount of $3,000,000 or a whole multiple of $1,000,000
in excess thereof. Except as provided in paragraph (ii) below, all optional
prepayments of the Term Loans shall be made on a PRO RATA basis between the
Tranche A Term Loans and the Tranche B Term Loans and shall be applied to the
remaining installments of principal thereof PRO RATA.
(ii) Optional prepayments of Term Loans made by the Borrower during
any fiscal year pursuant to subsection 5.1(a)(i) out of the portion of Excess
Cash Flow for the previous fiscal year not required to be applied to prepay the
Term Loans and/or LOC Loans pursuant to subsection 5.1(b) (which portion shall
be equal to the product of the Excess Cash Flow for such fiscal year times the
percentage obtained by subtracting the Cash Flow Percentage in effect at such
time from 100%) (with respect to any fiscal year, "BORROWER'S PORTION OF EXCESS
CASH FLOW") shall, at the option of the Borrower by written notice to such
effect to the Agent, FIRST be allocated between the Tranche A Term Loans and the
Tranche B Term Loans in amounts to be determined by the Borrower, SECOND, be
applied against the scheduled installments of principal, if any, of the Tranche
A Term Loans due within six months of the date of such prepayment and/or against
the scheduled installments of principal, if any, of the Tranche B Term Loans due
within six months of the date of such prepayment, as the case may be, and,
THIRD, be applied to the remaining installments of the Tranche A Term Loans
and/or the Tranche B Term Loans, as the case may be, PRO RATA, PROVIDED that, to
the extent the Borrower pays any dividends pursuant to subsection 9.7(f), the
amount of the Borrower's Portion of Excess Cash Flow available to make
prepayments pursuant to this subsection 5.1(a)(ii) shall be reduced by the
amount of such dividend payments.
(b) Unless the Required Lenders otherwise agree, if with respect to
any fiscal year of the Borrower, commencing with its fiscal year ending
September 27, 1995, the Borrower shall have Excess Cash Flow for such fiscal
<PAGE>
36
year, (i) the Term Loans shall be prepaid in an aggregate amount equal to the
Cash Flow Percentage of such Excess Cash Flow and (ii) after the Term Loans
shall have been prepaid in full, any outstanding LOC Loans shall be prepaid in
an aggregate amount equal to the Cash Flow Percentage of such Excess Cash Flow.
For purposes of this subsection 5.1(b), the "CASH FLOW PERCENTAGE" shall be
equal to 75%, PROVIDED that, at any time after the aggregate principal amount of
Term Loans outstanding (before giving effect to any such prepayment) is less
than or equal to $250,000,000 and so long as the Consolidated Interest Expense
Ratio for the period of four consecutive fiscal quarters ended the last day of
the fiscal quarter immediately preceding the date of such prepayment exceeds
3.00 to 1.00, the Cash Flow Percentage with respect to Term Loans and LOC Loans
shall be 50%. Each such prepayment shall be made on or before the date which is
90 days after the end of such fiscal year. In the event that (x) the Borrower
makes any optional prepayment of Term Loans during any fiscal year (the "BASE
YEAR") or the portion of the next succeeding fiscal year preceding the date on
which any mandatory prepayment is required to be made in respect of the Base
Year pursuant to this subsection 5.1(b) and (y) such optional prepayment is
applied in accordance with subsection 5.1(a)(i), then the Borrower may credit
the amount of any such optional prepayment against (and thereby reduce) the
amount of any mandatory prepayment required pursuant to this subsection 5.1(b)
in respect of such Base Year by delivering a notice to such effect to the Agent
which specifies the dates and amounts of any such optional prepayments, PROVIDED
that no such optional prepayment may be credited against any such mandatory
prepayment to the extent that such optional prepayment (I) reduced any prior
mandatory prepayment pursuant to this subsection 5.1(b) or (II) reduced the
amount of any prepayment required to be made with Excess Cash Flow for the
relevant fiscal year pursuant to the first sentence of this subsection 5.1(b).
(c) Unless the Required Lenders otherwise agree, the Term Loans and,
after the Term Loans shall have been prepaid in full, any outstanding LOC Loans
shall be prepaid with (i) 100% of the Net Proceeds of (A) any Indebtedness in
respect of Sale/Leaseback Transactions permitted under subsection 9.2(e)
incurred by the Borrower or any of its Subsidiaries subsequent to the Original
Closing Date in respect of an asset owned by the Borrower or any Subsidiary for
a period of at least 180 days prior to the incurrence of such Indebtedness or
(B) any Indebtedness permitted under subsection 9.2(g) incurred by the Borrower
or any of its Subsidiaries subsequent to the Original Closing Date to the extent
the aggregate amount of Indebtedness outstanding under such subsection exceeds
$20,000,000 at such time, (ii) 50% of the Net Proceeds of the issuance of
Capital Stock by Holdings or any of its Subsidiaries subsequent to the Original
Closing Date (other than the issuance of additional shares of Capital Stock by
the Borrower or any of its Subsidiaries to Holdings or any of its Subsidiaries
(PROVIDED that such shares of Capital Stock are pledged to the Agent, for the
benefit of the Lenders, pursuant to the Pledge Agreements)) and (iii) 100% of
the Net Proceeds of any Asset Sale by the Borrower or any of its Subsidiaries
permitted under subsection 9.6(b), 9.6(c) (to the extent such Asset Sale
constitutes an Asset Sale of Timberland Property) or 9.6(i)(II), PROVIDED that,
(x) if the Net Proceeds realized from any such Asset Sale (or series of related
Asset Sales) are less than $500,000, such Net Proceeds shall not be applied to
the prepayment of the Term Loans pursuant to this subsection, (y) if the Net
Proceeds realized from any such Asset Sale exceed $500,000, such Net Proceeds
shall not be applied to the prepayment of the Term Loans pursuant to this
subsection until such time as the aggregate amount of such Net Proceeds in any
fiscal year exceeds $10,000,000 and then such Net Proceeds shall be applied to
prepay the Term Loans pursuant to this subsection to the extent such Net
Proceeds exceed $10,000,000 in any fiscal year, PROVIDED that, notwithstanding
anything to the contrary in this clause (y), such Net Proceeds shall be applied
to the prepayment of the Term Loans pursuant to this subsection to the extent
such Net Proceeds would otherwise result in "Excess Proceeds" (as defined in
Section 4.10 of the Senior Subordinated Note Indenture) exceeding $25,000,000 in
the aggregate, and (z) at the option of the Borrower and so long as no Event of
Default shall have occurred and be continuing or would be caused thereby, the
Borrower may use or cause the appropriate Subsidiary to use the Net Proceeds of
any Asset Sale permitted under subsection 9.6(b) to purchase assets of the same
general kind as those disposed of in such Asset Sale ("QUALIFIED ASSETS") within
one year after the consummation of such Asset Sale. In the event the Borrower
elects to exercise its right to purchase Qualified Assets with the Net Proceeds
of an Asset Sale pursuant to this subsection 5.1(c), the Borrower shall promptly
deliver a certificate of a Responsible Officer to the Agent setting forth the
amount of the Net Proceeds which the Borrower expects to use to purchase
Qualified Assets during the subsequent one year period. On the date which is
one year after the relevant Asset Sale, the Borrower shall (I) deliver a
certificate of a Responsible Officer to the Agent certifying as to the amount
and use of such Net Proceeds actually used to purchase Qualified Assets (which
amount of Net Proceeds so used, to the extent that it would otherwise be
included in any computation of Net Proceeds from Asset Sales pursuant to
clause (y) of the proviso to the first sentence of this subsection, shall be
excluded from such computation) and (II) deliver to the Agent, for application
in accordance with this subsection 5.1(c), an amount equal to the remaining
unused Net Proceeds. Except as otherwise provided in this subsection 5.1(c) or
in subsection 5.1(e), each prepayment pursuant to this subsection 5.1(c) shall
be made on the third Business Day following receipt of the Net Proceeds from (a)
the incurrence of Indebtedness, (b) issuance of Capital Stock or (c) after and
to the extent the Net
<PAGE>
37
Proceeds of an Asset Sale are required to be applied to prepay the Term Loans
and/or LOC Loans pursuant to subsection 5.1(c)(iii), such Asset Sale, as the
case may be.
(d) Subject to subsection 5.1(e), prepayments of the Term Loans
pursuant to subsection 5.1(b) and 5.1(c) shall be applied to the prepayment of
the Tranche A Term Loans and the Tranche B Term Loans PRO RATA and shall be
applied to the remaining installments thereof on a PRO RATA basis. Prepayments
of outstanding LOC Loans pursuant to subsection 5.1(b) and 5.1(c) shall be
applied to the prepayment of such LOC Loans PRO RATA. Amounts to be applied
pursuant to this subsection 5.1(d) to the prepayment of Term Loans and/or LOC
Loans shall be applied, as applicable, first to reduce outstanding Term Loans
and/or LOC Loans which are ABR Loans. Any amounts remaining after each such
application shall, at the option of the Borrower, be applied to prepay Term
Loans and/or LOC Loans which are Eurodollar Loans immediately and/or shall be
deposited in the Prepayment Account (as defined below). The Agent shall apply
any cash deposited in the Prepayment Account (i) allocable to Term Loans to
prepay Term Loans which are Eurodollar Loans and (ii) allocable to LOC Loans to
prepay LOC Loans which are Eurodollar Loans, in each case on the last day of the
respective Interest Periods therefor (or, at the direction of the Borrower, on
any earlier date) until all outstanding Term Loans and/or LOC Loans which are
Eurodollar Loans have been prepaid or until all cash on deposit in the
Prepayment Account with respect to such Loans has been exhausted. For purposes
of this Agreement, the term "PREPAYMENT ACCOUNT" shall mean an account
established by the Borrower with the Agent and over which the Agent shall have
exclusive dominion and control, including the right of withdrawal for
application in accordance with this subsection 5.1(d). The Agent will, at the
request of the Borrower, invest amounts on deposit in the Prepayment Account in
Cash Equivalents that mature prior to the last day of the applicable Interest
Periods of the Eurodollar Loans to be prepaid, PROVIDED that the Agent shall not
be required to make any investment that, in its sole judgment, would require or
cause the Agent to be in, or would result in any, violation of any Requirement
of Law and (ii) the Agent shall have no obligation to invest amounts on deposit
in the Prepayment Account if a Default or Event of Default shall have occurred
and be continuing. The Borrower shall indemnify the Agent for any losses
relating to the investments so that the amount available to prepay Eurodollar
Loans on the last day of the applicable Interest Periods therefor is not less
than the amount that would have been available had no investments been made.
Other than any interest earned on such investments, the Prepayment Account shall
not bear interest. Interest or profits, if any, on such investments shall be
deposited and reinvested and disbursed as described above. If the maturity of
the Loans has been accelerated pursuant to Section 11, the Agent shall first
apply all amounts on deposit in the Prepayment Account to prepay the outstanding
Tranche A Term Loans and the Tranche B Term Loans PRO RATA and, then, to prepay
any outstanding LOC Loans. The Borrower hereby grants to the Agent, for its
benefit and the benefit of the Lenders, a security interest in the Prepayment
Account to secure the Obligations.
(e) Notwithstanding the provisions of subsection 5.1(d), with respect
to the amount of any mandatory prepayment described therein that is allocated to
the then outstanding Tranche B Term Loans (such amount, the "TRANCHE B
PREPAYMENT AMOUNT"), the Borrower may in lieu of applying such amount to the
prepayment of Tranche B Term Loans as set forth in subsection 5.1(d), at least
one Business Day prior to the date specified therein for such prepayment, (i)
deposit in the Tranche B Escrow Account (as defined below) the Tranche B
Prepayment Amount and (ii) provide to each Tranche B Lender a notice (each a
"TRANCHE B PREPAYMENT OPTION NOTICE") as described below. Each Tranche B
Prepayment Option Notice shall be in writing, shall refer to this subsection
5.1(e) and shall (i) set forth the Tranche B Prepayment Amount and the portion
thereof that the applicable Tranche B Lender will be entitled to receive if it
accepts such mandatory prepayment in accordance with this subsection 5.1(e),
(ii) offer to prepay on a specified date (each a "TRANCHE B MANDATORY PREPAYMENT
DATE"), which shall be not less than 20 days or more than 25 days after the date
of the Tranche B Option Prepayment Notice, the Tranche B Term Loans of such
Tranche B Lender in an amount equal to the portion of the Tranche B Prepayment
Amount indicated in such Tranche B Lender's Tranche B Prepayment Option Notice
as being applicable to such Tranche B Lender, (iii) request such Tranche B
Lender to notify the Borrower and the Agent in writing, no later than the fifth
day prior to the Tranche B Mandatory Prepayment Date, of such Tranche B Lender's
acceptance or rejection of such offer of prepayment and (iv) inform such Tranche
B Lender that failure by such Tranche B Lender to accept such offer in writing
on or before the fifth day prior to the Tranche B Mandatory Prepayment Date
shall be deemed a rejection of such prepayment offer. Each Tranche B Prepayment
Option Notice shall be given by telecopy, confirmed by hand delivery, overnight
courier service or registered or certified mail, in each case addressed as
provided in subsection 13.2. On the Tranche B Mandatory Prepayment Date, the
Agent shall withdraw from the Tranche B Escrow Account the aggregate amount
necessary to prepay the portion of the Tranche B Prepayment Amount in respect of
which the Tranche B Lenders have accepted prepayment as described above (such
Tranche B Lenders, the "ACCEPTING TRANCHE B LENDERS"), and shall apply such
amount on behalf of the Borrower PRO RATA against the remaining
<PAGE>
38
installments of principal due in respect of the Tranche B Term Loans of the
Accepting Tranche B Lenders. The amount remaining in the Tranche B Escrow
Account after the payment of the amount described in the immediately
preceding sentence shall be allocated PRO RATA between (i) the then
outstanding Tranche A Term Loans and (ii) the then outstanding Tranche B Term
Loans of the Accepting Tranche B Lenders and applied to the remaining
installments thereof on a PRO RATA basis. For purposes of this Agreement,
the term "TRANCHE B ESCROW ACCOUNT" shall mean an account established by the
Borrower with the Agent and over which the Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal for
application in accordance with this subsection 5.1(e). The Agent will, at
the request of the Borrower, invest amounts on deposit in the Tranche B
Escrow Account in Cash Equivalents that mature prior to the Tranche B
Mandatory Prepayment Date, PROVIDED that the Agent shall not be required to
make any investment that, in its sole judgment, would require or cause the
Agent to be in, or would result in any, violation of any Requirement of Law
and (ii) the Agent shall have no obligation to invest amounts on deposit in
the Tranche B Escrow Account if a Default or Event of Default shall have
occurred and be continuing. The Borrower shall indemnify the Agent for any
losses relating to the investments so that the amount available to prepay the
Tranche B Term Loans of the Accepting Tranche B Lenders on the Tranche B
Mandatory Prepayment Date is not less than the amount that would have been
available had no investments been made. Other than any interest earned on
such investments, the Tranche B Escrow Account shall not bear interest.
Interest or profits, if any, on such investments shall be deposited and
reinvested and disbursed as described above. If the maturity of the Loans has
been accelerated pursuant to Section 11, the Agent shall apply all amounts on
deposit in the Tranche B Escrow Account to prepay outstanding Tranche B Term
Loans and, after repayment in full of the Tranche B Term Loans, to the other
Obligations in such order as the Agent may determine. The Borrower hereby
grants to the Agent, for its benefit and the benefit of the Lenders, a
security interest in the Tranche B Escrow Account to secure the Obligations.
(f) It is understood and agreed that, with respect to the Net
Proceeds from any Permitted Receivables Financing, the Borrower shall apply
$100,000,000 of such Net Proceeds received pursuant to the Receivables Facility
on the Effective Date to prepay Tranche B Term Loans under the Existing Credit
Agreement, and any other Net Proceeds in excess of the initial $100,000,000 of
Net Proceeds from any Permitted Receivables Financing shall not be required to
be applied to repayment of any Loans hereunder nor included in the computation
of Excess Cash Flow.
5.2 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the Agent
at least one Business Day's prior irrevocable notice of such election, PROVIDED
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto (or on any other day if on the date of
such conversion the Borrower pays to the Agent for the account of the applicable
Lenders accrued interest on such Eurodollar Loans to the date of such conversion
together with all amounts payable under Section 5.11). The Borrower may elect
from time to time to convert ABR Loans to Eurodollar Loans by giving the Agent
at least three Business Days' prior irrevocable notice of such election. Any
such notice of conversion to Eurodollar Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. Upon receipt of any such
notice the Agent shall promptly notify each affected Lender thereof. All or any
part of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, PROVIDED that (i) no Loan may be converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Agent has or the
Required Term Loan Lenders or the Required Revolving Credit Lenders, as the case
may be, have determined that such a conversion is not appropriate and (ii) no
Loan may be converted into a Eurodollar Loan after the date that is one month
prior to the Termination Date (in the case of conversions of Revolving Credit
Loans) or the date of the final installment of principal of the applicable Term
Loans (in the case of conversions of Term Loans).
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in subsection 1.1, of the length of the next
Interest Period to be applicable to such Loans, PROVIDED that no Eurodollar Loan
may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent has or the Required Term Loan Lenders or the Required
Revolving Credit Lenders, as the case may be, have determined that such a
continuation is not appropriate or (ii) after the date that is one month prior
to the Termination Date (in the case of continuations of Revolving Credit Loans)
or the date of the final installment of principal of the applicable Term Loans
(in the case of continuations of Term Loans) and PROVIDED, FURTHER, that if the
Borrower shall fail to give such notice or if such continuation is not permitted
such Loans shall be automatically converted to ABR Loans on the last day of such
then expiring Interest Period.
<PAGE>
39
5.3 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $10,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than nine Eurodollar Tranches outstanding at any time.
5.4 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any commitment fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise, but taking into account any applicable grace period
under Section 11(a)), such overdue amount shall bear interest at a rate per
annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of overdue interest, commitment fees or
other amounts due and payable hereunder, the rate described in subsection 5.4(b)
plus 2%, in each case from the date of such non-payment until such amount is
paid in full (after as well as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date
and, in the case of all Loans other than the Tranche B Term Loans, the
Termination Date, and, in the case of Tranche B Term Loans, the Tranche B
Maturity Date, PROVIDED that interest accruing pursuant to subsection 5.4(c)
shall be payable from time to time on demand.
5.5 COMPUTATION OF INTEREST AND FEES. (a) Commitment fees and interest
shall be calculated on the basis of a 360-day year for the actual days elapsed,
except that whenever interest is calculated on the basis of the Prime Rate,
interest shall be calculated on the basis of a 365- (or 366-, as the case may
be) day year for the actual days elapsed. The Agent shall as soon as
practicable, notify the Borrower and the affected Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from
a change in the ABR or the Eurocurrency Reserve Requirement shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall, as soon as practicable, notify the Borrower and the
affected Lenders of the effective date and the amount of each such change in
interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
subsection 5.4(a).
5.6 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Agent shall have received notice from the Required
Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost
to such Lenders (as conclusively certified by such Lenders) of making
or maintaining their affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the affected Lenders as soon as practicable thereafter. If such notice is given
(x) any Eurodollar Loans requested to be made on the first day of such Interest
Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Agent,
<PAGE>
40
no further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert ABR Loans to Eurodollar Loans.
5.7 PRO RATA TREATMENT AND PAYMENTS. (a) All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:30 P.M., New York City time, on the
due date thereof to the Agent, for the account of the Revolving Credit Lenders
or the Term Loan Lenders, as the case may be, at the Agent's office specified in
subsection 13.2, in Dollars and in immediately available funds. Payments
received by the Agent after such time shall be deemed to have been received on
the next Business Day. The Agent shall distribute such payments to the Lenders
entitled to receive the same promptly upon receipt in like funds as received.
If any payment hereunder (other than payments on the Eurodollar Loans) becomes
due and payable on a day other than a Business Day, such payment shall be
extended to the next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension. If any payment on a Eurodollar Loan becomes due and payable on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day (and, with respect to payments of principal,
interest shall be payable thereon at the then applicable rate during such
extension) unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. If, and to the extent that, on any Business
Day the Agent receives any payment hereunder or under the other Loan Documents
(including any such payment representing a realization upon the Collateral), and
such payment is not sufficient to pay in full all principal, interest and fees
then due and payable hereunder, the Agent shall apply such payment ratably to
all such amounts then due and payable.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount that would
constitute its portion of such borrowing available to the Agent, the Agent may
assume that such Lender is making such amount available to the Agent, and the
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Agent, on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Lender makes such
amount immediately available to the Agent. A certificate of the Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's portion of such
borrowing is not made available to the Agent by such Lender within three
Business Days of such Borrowing Date, the Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans hereunder, on demand, from the Borrower, without prejudice to any
right or claim the Borrower may have against such Lender.
(c) Each borrowing by the Borrower of Tranche A Term Loans, Tranche B
Term Loans, LOC Loans and Revolving Credit Loans shall be made ratably from the
Tranche A Lenders, Tranche B Lenders and Revolving Credit Lenders, respectively,
in accordance with their respective Tranche A Commitment Percentages, Tranche B
Commitment Percentages, LOC Commitment Percentages and Revolving Credit
Commitment Percentages. Any reduction of the Revolving Credit Commitments shall
be made ratably among the Revolving Credit Lenders, in accordance with their
respective Revolving Credit Commitment Percentages. Any reduction of the LOC
Commitments shall be made ratably among the LOC Participants, in accordance with
their respective LOC Commitment Percentages.
5.8 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement,(a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be suspended until such
time as it shall no longer be unlawful for such Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement and (b) such Lender's Loans
then outstanding as Eurodollar Loans, if any, shall be converted automatically
to ABR Loans on the respective last days of the then current Interest Periods
with respect to such Loans or within such earlier period as required by law. If
any such conversion of a Eurodollar Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, the Borrower shall
pay to such Lender such amounts, if any, as may be required pursuant to
subsection 5.11.
<PAGE>
41
5.9 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for
Non-Excluded Taxes as defined in subsection 5.10, changes in the rate
of tax on the overall net income of such Lender and taxes imposed as a
result of any future, present or former connection between the Lender
and the jurisdiction of the Governmental Authority imposing such tax
or any political subdivision or taxing authority thereof or therein
(other than any such connection arising solely from the Lender having
executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any Note));
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall, within 10 Business Days
after receipt by the Borrower of such Lender's written demand (with a copy to
the Agent), pay such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduced amount receivable. If any Lender
has demanded compensation under this subsection 5.9(a) with respect to any
Eurodollar Loan, the Borrower shall have the option to convert immediately such
Eurodollar Loan into an ABR Loan until the circumstances giving rise to such
demand for compensation no longer apply; PROVIDED, that (i) no such conversion
shall affect the Borrower's obligation to pay compensation as provided herein
which is due with respect to the period prior to such conversion and (ii) on the
date of such conversion the Borrower shall pay to the Agent for the benefit of
the relevant Lender accrued interest on such Eurodollar Loan to the date of
conversion, together with any amounts payable pursuant to subsection 5.11.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority, in each case made subsequent to the date hereof, shall have the
effect of reducing the rate of return on such Lender's or such corporation's
capital as a consequence of its obligations hereunder or under any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time,
within 10 Business Days after receipt by the Borrower of such Lender's written
demand (with a copy to the Agent), the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to subsection 5.9(a) or (b), it shall promptly notify the Borrower
(with a copy to the Agent) of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to the Borrower (with a copy to the Agent)
shall be conclusive in the absence of manifest error. The Borrower shall not be
obligated to compensate any Lender pursuant to this subsection 5.9 for amounts
accruing prior to the date which is 180 days before such Lender notifies the
Borrower of such event, PROVIDED that such notice need not include a computation
of amounts in respect thereof. The agreements in this subsection shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
5.10 TAXES. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other
<PAGE>
42
taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or any Lender (or Transferee)
as a result of any future, present or former connection between the Agent or
such Lender (or Transferee) and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from the Agent or such
Lender (or Transferee) having executed, delivered or performed its obligations
or received a payment under, or enforced, this Agreement or any Note or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to
be withheld from any amounts payable to the Agent or any Lender (or Transferee)
hereunder or under any Note, the amounts so payable to the Agent or such Lender
(or Transferee) shall be increased ("INCREASED AMOUNTS") to the extent necessary
to yield to the Agent or such Lender (or Transferee) (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement. Whenever any Non-Excluded
Taxes are payable by the Borrower, the Borrower shall promptly send to the Agent
for its own account or for the account of such Lender (or Transferee), as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof or other evidence of remittance of Non-Excluded
Taxes reasonably acceptable to the Agent. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Agent the required receipts or other reasonably acceptable
evidence, the Borrower shall indemnify the Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by the Agent or
any Lender as a result of any such failure. The Borrower will indemnify each
Lender (or Transferee) and the Agent for the amount of Non-Excluded Taxes paid
by such Lender (or Transferee) or the Agent, as the case may be, and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. The agreements in this subsection 5.10 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender (and each Transferee) that is not incorporated or
organized under the laws of the United States of America or a state thereof
shall:
(i) in the case of a Lender or a Transferee that is a "bank"
under Section 881(c)(3)(A) of the Code;
(A) on or before the date it becomes a party to this
Agreement (or, in the case of a Loan Participant, on or before
the date such Loan Participant becomes a Loan Participant
hereunder) and on or before the date, if any, such Lender (or
Transferee) changes its applicable lending office by designating
a different lending office (a "NEW LENDING OFFICE") deliver to
the Borrower and the Agent (y) two properly completed and duly
executed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case may
be, and (z) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be;
(B) deliver to the Borrower and the Agent two further
properly completed and duly executed copies of any such form or
certification on or before the date that any such form or
certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower or upon the
request of the Borrower or the Agent; and
(C) obtain such extensions of time for filing and
completing such forms or certifications as may reasonably be
requested by the Borrower;
(ii) in the case of a Lender or a Transferee that is not a "bank"
under Section 881(c)(3)(A) of the Code:
(A) on or before the date it becomes a party to this
Agreement (or, in the case of a Loan Participant, on or the date
such Loan Participant becomes a Loan Participant hereunder)
deliver to the Borrower and the Agent (I) a statement under
penalties of perjury that such Lender (x) is not a "bank" under
Section 881(c)(3)(A) of the Code, is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, and has
not been treated as a bank for purposes of any tax, securities
law or other filing or submission made to any Governmental
Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other
legal requirements, (y) is not a 10-percent shareholder within
the meaning of Section 881(c)(3)(B) of the Code and (z) is not a
<PAGE>
43
controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(C) of the Code and
(II) a properly completed and duly executed Internal Revenue
Service Form W-8 or applicable successor form;
(B) deliver to the Borrower and the Agent two further
properly completed and duly executed copies of said Form W-8, or
any successor applicable form on or before the date that any such
Form W-8 expires or becomes obsolete or after the occurrence of
any event requiring a change in the most recent form previously
delivered by it to the Borrower or upon the request of the
Borrower; and
(C) obtain such extensions of time for filing and
completing such forms or certifications as may be reasonably
requested by the Borrower or the Agent;
unless in any such case any change in law or regulation has occurred subsequent
to the date such Lender (or Transferee) became a party to this Agreement (or in
the case of a Loan Participant, the date such Loan Participant became a Loan
Participant hereunder) which renders all such forms inapplicable or which would
prevent such Lender from properly completing and executing any such form with
respect to it and such Lender so advises the Borrower and the Agent in writing
no later than 15 calendar days before any payment hereunder or under any Note is
due. Each such Lender (and each Transferee) shall certify (i) in the case of a
Form 1001 or 4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
(ii) in the case of a Form W-8 or W-9 delivered pursuant to subsection
5.10(b)(i), that it is entitled to an exemption from United States backup
withholding tax.
(c) The Borrower shall not be required to indemnify any Lender (or
Transferee), or to pay any increased amounts to any Lender (or Transferee) in
respect of any Non-Excluded Tax, pursuant to this subsection 5.10 to the extent
that (i) any obligation to withhold or deduct amounts with respect to tax
existed on the date such Lender (or Transferee) became a party to this Agreement
(or, in the case of a Transferee that is a Loan Participant, on the date such
Loan Participant became a Loan Participant hereunder) or, with respect to
payments to a New Lending Office, the date such Lender (or Transferee)
designated such New Lending Office with respect to a Loan; PROVIDED, HOWEVER,
that this clause (i) shall not apply to any Transferee or New Lending Office
that becomes a Transferee or New Lending Office as a result of an assignment,
participation, transfer or designation made at the written request of the
Borrower, or (ii) any Lender (or Transferee) fails to comply in full with the
provisions of subsection 5.10(b) hereof.
(d) If a Lender (or Transferee) or the Agent shall become aware that
it is entitled to claim a refund from a Governmental Authority in respect of
Non-Excluded Taxes as to which it has been indemnified by the Borrower, or with
respect to which the Borrower has paid increased amounts, pursuant to this
subsection 5.10, it shall promptly notify the Borrower of the availability of
such refund claim and shall make the appropriate claim to such Governmental
Authority for such refund. If a Lender (or Transferee) or the Agent receives a
refund (including pursuant to a claim for refund made pursuant to the preceding
sentence) in respect of any Non-Excluded Tax as to which it has been indemnified
by the Borrower, or with respect to which the Borrower has paid increased
amounts, pursuant to this subsection 5.10, it shall within 30 days from the date
of such receipt pay over such refund to the Borrower, net of all out-of-pocket
third-party expenses of such Lender (or Transferee) or the Agent.
5.11 INDEMNITY. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense (other than the loss of any
payments in respect of the Applicable Margin) which such Lender may sustain or
incur as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement,(b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans or converting
any Eurodollar Loans to ABR Loans on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as
reasonably determined by such Lender) which would have accrued to
<PAGE>
44
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank eurodollar market. This covenant
shall survive the termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder.
5.12 CHANGE OF LENDING OFFICE; FILING OF CERTIFICATES OR DOCUMENTS.
Each Lender agrees that if it makes any demand for payment, or becomes entitled
to any increased amounts, under subsection 5.8, 5.10 or 5.11(a) or if any
adoption or change of the type described in subsection 5.9 shall occur with
respect to it, it will use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, as determined in its sole discretion) to designate
a different lending office or file any certificate or document reasonably
requested in writing by the Borrower if such action would reduce or obviate the
need for the Borrower to make payments under subsection 5.8, 5.10 or 5.11(a) or
would eliminate or reduce the effect of any adoption or change described in
subsection 5.9.
5.13 REPLACEMENT LENDERS. In the event that the Borrower becomes
obligated to pay additional amounts or increased amounts to, or receives notice
from, any Lender pursuant to subsection 5.8, 5.9 or 5.10 then, unless such
Lender has theretofore removed or cured the conditions which result in the
obligation to pay such additional amounts or increased amounts, the Borrower
may, on ten Business Days' prior written notice to the Agent and such Lender,
cause such Lender to (and such Lender shall) assign pursuant to
subsection 13.6(c) all of its rights and obligations under this Agreement to
another bank or financial institution which is willing to become a Lender and is
acceptable (which acceptance shall not be unreasonably withheld) to the Agent,
for a purchase price equal to the outstanding principal amount of the Loans
payable to such Lender plus any accrued but unpaid interest on such Loans, any
accrued but unpaid commitment fees in respect of such Lender's Commitment and
any other amounts payable to such Lender under this Agreement (including,
without limitation, amounts payable under subsection 5.11).
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans and issue or participate in the Letters of Credit, Holdings
and the Borrower hereby represent and warrant to the Agent and each Lender that:
6.1 FINANCIAL CONDITION. (a) The combined balance sheet of the
Continuing Business (as defined in the Stock Purchase Agreement) as at December
26, 1992 and as at December 25, 1993 and the related combined statements of
income and of cash flows for the fiscal years ended on such dates, reported on
by Coopers & Lybrand, copies of which have heretofore been furnished to each
Lender, present fairly in all material respects the combined financial condition
of the Continuing Business (as defined in the Stock Purchase Agreement) as at
such dates, and the combined results of their operations and their combined cash
flows for the fiscal years then ended. The combined balance sheet of the
Continuing Business (as defined in the Stock Purchase Agreement) as at
September 24, 1994 and the related combined statements of income and of cash
flows for the nine-month period ended on such date, reported on by Coopers &
Lybrand, copies of which have heretofore been furnished to each Lender, present
fairly in all material respects the combined financial condition of the
Continuing Business (as defined in the Stock Purchase Agreement) as at such
date, and the combined results of their operations and their combined cash flows
for the nine-month period then ended. All such financial statements have been
prepared in accordance with GAAP consistently applied throughout the periods
presented. To the knowledge of the Borrower, neither the Borrower nor any of
its consolidated or combined Subsidiaries had, at the date of the most recent
balance sheet referred to above, any material liability or material obligation
which would be required to be included in the financial statements referred to
in this subsection in accordance with GAAP which was not so included and was not
disclosed in the Final Offering Memorandum. Except as reflected in the
financial statements referred to in this subsection 6.1 or as set forth on
SCHEDULE 6.1(A) or as disclosed in the Final Offering Memorandum, during the
period from September 24, 1994 to and including the Original Closing Date, no
sale, transfer or other disposition was made by any Loan Party of any material
part of its business or property, no material liabilities were incurred by any
Loan Party and no purchase or other acquisition of any business or property
(including any capital stock of any other Person) was made by any Loan Party
which was material in relation to the combined financial condition of the
Continuing Business (as defined in the Stock Purchase Agreement) at September
24, 1994.
<PAGE>
45
(b) The consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at September 27, 1995 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by Deloitte & Touche, copies of which have heretofore been furnished
to each Lender, are complete and correct and present fairly the consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended. The unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at January 3, 1996
and the related unaudited consolidated statements of income and of cash flows
for the three-month period ended on such date, certified by a Responsible
Officer, copies of which have heretofore been furnished to each Lender, are
complete and correct and present fairly the consolidated financial condition of
the Borrower and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the three-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related schedules
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). Neither the
Borrower nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto. During the period from
September 27, 1995 to and including the date hereof there has been no sale,
transfer or other disposition by the Borrower or any of its consolidated
Subsidiaries of any material part of its or their business or property and no
purchase or other acquisition of any business or property (including any capital
stock of any other Person) material in relation to the consolidated financial
condition of the Borrower and its consolidated Subsidiaries at September 27,
1995.
6.2 NO CHANGE. (a) Since September 27, 1995, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from the Original Closing
Date to and including the date of this Agreement no dividends or other
distributions have been declared, paid or made upon the Capital Stock of
Holdings or the Borrower nor has any of the Capital Stock of Holdings or the
Borrower been redeemed, retired, purchased or otherwise acquired for value by
the Borrower or any of its Subsidiaries except as disclosed in the financial
statements referred to in subsection 6.1 or as set forth on SCHEDULE 6.1(a).
6.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization,(b) has the corporate power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged,(c) is duly qualified or
licensed to do business as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification except where the failure
to be so qualified and/or in good standing, in the aggregate could not
reasonably be expected to have a Material Adverse Effect and (d) is in
compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the Extensions of Credit on the terms and
conditions of this Agreement and any Notes and to authorize the execution,
delivery and performance by it of the Loan Documents to which it is a party. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required to be
obtained or made by any Loan Party in connection with the Extensions of Credit
hereunder or with the execution, delivery or performance by each applicable Loan
Party or the validity or enforceability with respect to or against any Loan
Party of the Loan Documents to which it is a party other than consents,
authorizations and (i) the filing of Uniform Commercial Code financing
statements and filings with the United States Patent and Trademark Office and
the United States Copyright Office to perfect the security interest that can be
perfected by such filings, (ii) recordation of the Mortgages and the Leasehold
Mortgages, (iii) filings in connection with enforcement of Loan Documents and
(iv) filings as contemplated by subsection 7.1. This Agreement has been, and
each other Loan Document will be, duly executed and delivered on behalf of each
Loan Party that is a party thereto. This Agreement constitutes, and each other
Loan Document when executed and delivered will constitute, a legal, valid and
binding obligation of each Loan Party that is a party thereto enforceable
against such Loan Party in accordance with its terms, except as enforceability
may be limited by applicable
<PAGE>
46
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
6.5 NO LEGAL BAR. The execution, delivery and performance of the Loan
Documents, the Extensions of Credit hereunder and the use of the proceeds
thereof by each applicable Loan Party will not violate any Requirement of Law or
Contractual Obligation of any Loan Party which could reasonably be expected to
have a Material Adverse Effect and will not result in, or require, the creation
or imposition of any Lien on any of its or their respective properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation other
than as contemplated in or permitted by the Loan Documents.
6.6 NO MATERIAL LITIGATION. Except as set forth in SCHEDULE 6.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against any Loan Party or against any of their respective
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby or (b) which has a reasonable
possibility of an adverse determination, and if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
6.7 NO DEFAULT. No Loan Party is in default under or with respect to
any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
6.8 OWNERSHIP OF PROPERTY; LIENS. Each Loan Party has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
real property except for such matters as do not materially adversely affect the
use of the property in the conduct of the business as currently conducted, and
good title to, or a valid leasehold interest in, all its other material
property, and none of such property is subject to any Lien except as permitted
by subsection 9.3. SCHEDULE 6.8 sets forth a true and complete list of all real
property owned or leased by the Loan Parties as of the Original Closing Date and
all Mortgages and Leasehold Mortgages granted by any Loan Party in respect of
any real property owned or leased by it as of the date hereof. The Borrower
shall deliver to the Agent within 45 days after the Effective Date a true and
complete list of all real property owned or leased by the Loan Parties as of
such date and all Mortgages and Leasehold Mortgages granted by any Loan Party in
respect of any real property owned or leased by it as of such date.
6.9 INTELLECTUAL PROPERTY. (a) Each Loan Party owns, or is licensed
to use, all material patents, trademarks (registered or unregistered), trade
names, service marks, assumed names and copyrights (such items, together with
all applications therefor and all other material intellectual property and
proprietary rights, whether or not subject to statutory registration or
protection, of the Borrower or any of its Subsidiaries that are used in or
necessary for the conduct of the business of the Borrower and its Subsidiaries
being collectively referred to herein as the "INTELLECTUAL PROPERTY") necessary
for the conduct of its business except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect and (b)
no claim of which Holdings or the Borrower has been given notice has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does Holdings or the Borrower know of any valid basis
for any such claim, except for such claims that, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
6.10 NO BURDENSOME RESTRICTIONS. Except as set forth on SCHEDULE
6.10, no Requirement of Law or Contractual Obligation applicable to any Loan
Party could reasonably be expected to have a Material Adverse Effect.
6.11 TAXES. Holdings and the Borrower and its Subsidiaries have filed
or caused to be filed all tax returns which, to the knowledge of Holdings or the
Borrower and its Subsidiaries, are required to be filed in respect of periods
subsequent to the Original Closing Date and have paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
property in respect of such periods and all other material taxes imposed on it
or any of its property by any Governmental Authority (other than any taxes the
amount or validity of which are being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the applicable Loan Party and other than any taxes
which in the aggregate would not have a Material Adverse Effect as the case may
be) in respect of such periods.
6.12 FEDERAL REGULATIONS. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of
<PAGE>
47
the Board of Governors as now and from time to time hereafter in effect. If
requested by any Lender or the Agent, the Borrower will furnish to the Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or
Regulation U, as the case may be.
6.13 ERISA. Except as set forth in SCHEDULE 6.13, neither a
Reportable Event nor an "accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code, except where, in
connection with any such event, the liability which would be likely to result
could not be reasonably expected to have a Material Adverse Effect. No
termination of a Single Employer Plan has occurred except where, in connection
with any such termination, the liability which would be likely to result could
not be reasonably expected to have a Material Adverse Effect, and no Lien which
remains unsatisfied in favor of the PBGC or a Plan has arisen, during such
five-year period. The present value of all accrued benefits under each Single
Employer Plan (based on those assumptions used to fund such Plans) did not, as
of the last annual valuation date prior to the date on which this representation
is made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits by an amount in excess of $30,000,000. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan; neither the Borrower nor any Commonly
Controlled Entity would become subject to any liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made; and no such Multiemployer
Plan is in Reorganization or Insolvent, except where, in any such case, the
liability which would be likely to result could not be reasonably expected to
have a Material Adverse Effect.
6.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. The Borrower is not subject to regulation under any Federal or
State statute or regulation (other than Regulation X of the Board of Governors)
which limits its ability to incur Indebtedness as contemplated herein.
6.15 SUBSIDIARIES. The Subsidiaries of Holdings and the Borrower, as
set forth in SCHEDULE 6.15, constitute all the Subsidiaries of Holdings and the
Borrower as of the Effective Date.
6.16 PURPOSE OF LOANS. The proceeds of the Term Loans shall be used
by the Borrower to replace the Term Loans under the Existing Credit Agreement.
The proceeds of the Revolving Credit Loans and/or Swing Line Loans shall be used
for working capital purposes in the ordinary course of business.
6.17 ENVIRONMENTAL MATTERS. Except to the extent that the inaccuracy
of any of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(a) The facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries (the "PROPERTIES") do not
contain any Hazardous Materials in amounts or concentrations which (i)
constitute a violation of, or (ii) could give rise to any liability
under, any Environmental Law or could interfere with the continued
operation of the Properties or could reasonably be expected to impair
the fair saleable value thereof.
(b) The Borrower and its Subsidiaries and the Properties are in
compliance, and to the knowledge of the Borrower and its Subsidiaries
have in the last three years been in compliance with all applicable
Environmental Laws and applicable Environmental Permits, and the
Borrower and its Subsidiaries reasonably believe that they will be
able to comply with all applicable Environmental Laws in the future
and renew or obtain all Environmental Permits necessary for their
operations in the future.
(c) Neither the Borrower nor any of its Subsidiaries has received
any written notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
Properties or the business of the Borrower and its Subsidiaries (the
"BUSINESS"), nor to the knowledge of the Borrower or any of its
Subsidiaries is such notice being threatened.
<PAGE>
48
(d) Hazardous Materials have not been transported, disposed of,
emitted, discharged, or otherwise released or threatened to be
released, nor has their disposal been arranged for, (i) by the
Borrower or any of its Subsidiaries in violation of, or (ii) in a
manner or to a location which could reasonably be expected to give
rise to liability under, any applicable Environmental Law; nor have
any Hazardous Materials been generated, treated, stored, emitted,
discharged or otherwise released or threatened to be released or
disposed of at, on or under any of the Properties in violation of, or
in a manner that could reasonably be expected to give rise to
liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower or any of its
Subsidiaries, threatened, under any Environmental Law to which the
Borrower or any Subsidiary is or to the knowledge of the Borrower or
any of its Subsidiaries will be named as a party, nor are there any
consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
the Borrower or any of its Subsidiaries, or the Properties or the
Business.
6.18 REGULATION H. To the extent available, the Borrower has obtained
for all Mortgaged Properties which are located in a "flood hazard area", as
designated in any Flood Insurance Rate Map published by the Federal Emergency
Management Agency, flood insurance in such total amount as the Agent has from
time to time reasonably required.
6.19 ACCURACY OF INFORMATION. The factual statements and information
contained in the Confidential Information Memorandum dated March 1996 relating
to Holdings and its Subsidiaries (as the same may be supplemented in writing
through the Effective Date, the "INFORMATION MEMORANDUM"), when taken as a
whole, were, as of the date of such Information Memorandum or the dates
otherwise specified therein or written supplements thereto, accurate in all
material respects and did not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading, PROVIDED that (a) with respect to trade data which relates to a
Person which is not a Loan Party or an Affiliate thereof, the Borrower
represents and warrants only that such information is believed by it in good
faith to be accurate in all material respects, (b) the statements therein
describing documents and agreements are summary only and as such are qualified
in their entirety by reference to such documents and agreements, (c) to the
extent any such information therein was based upon or constitutes a forecast or
projection or pro forma financial information, Holdings and the Borrower
represent only that such forecasts or projections or pro forma financial
information were based upon good faith estimates and assumptions believed by
management of the Borrower to be reasonable at the time made and (d) as to the
information which is specified as having been supplied by third parties,
Holdings and the Borrower represent only that they are not aware of any material
misstatement or omission therein.
6.20 SOLVENCY. As of the Effective Date, after giving effect to the
transactions contemplated to occur on the Effective Date, each Loan Party is
Solvent.
6.21 STOCK PURCHASE AGREEMENT. The Agent has received a complete copy
of each of the Stock Purchase Agreement (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto) and all
amendments and waivers relating thereto and other side letters or agreements
affecting the terms thereof. As of the Effective Date, none of such documents
and agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, in any material respect, except pursuant to a written
agreement or instrument which has heretofore been consented to by the Agent. As
of the Effective Date, to the knowledge of Holdings and the Borrower, the
representations and warranties contained in the Stock Purchase Agreement are
true and correct in all material respects on the Effective Date as if made on
and as of the Effective Date (except as contemplated by the Stock Purchase
Agreement or other Acquisition Documents or as set forth on SCHEDULE 6.21) and
each Lender shall be entitled to rely on such representations and warranties
with the same force and effect as if they were incorporated in this Agreement
and made to each Lender directly by Holdings and the Borrower.
SECTION 7. CONDITIONS PRECEDENT
7.1 CONDITIONS TO EFFECTIVENESS AND INITIAL EXTENSIONS OF CREDIT. The
effectiveness of this Agreement and the agreement of each Lender to make the
initial Extension of Credit requested to be made by it is subject to the
<PAGE>
49
satisfaction, immediately prior to or concurrently with the making of such
Extension of Credit on the Effective Date, of the following conditions
precedent:
(a) LOAN DOCUMENTS. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of
Holdings and the Borrower with a counterpart for each Lender, (ii)for
the account of each Revolving Credit Lender which requests a Revolving
Credit Note on the Effective Date, a Revolving Credit Note conforming
to the requirements hereof and executed by a duly authorized officer
of the Borrower,(iii) for the account of each Tranche A Lender which
requests a Tranche A Term Note on the Effective Date, a Tranche A Term
Note conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower,(iv) for the account of each
Tranche B Lender which requests a Tranche B Term Note on the Effective
Date, a Tranche B Term Note conforming to the requirements hereof and
executed by a duly authorized officer of the Borrower,(v) if requested
by the Swing Line Lender on the Effective Date, for the account of the
Swing Line Lender, a Swing Line Note conforming to the requirements
hereof and executed by a duly authorized officer of the Borrower,(vi)
each of the Stock Pledge Agreements (other than the Subsidiary Stock
Pledge Agreements), each executed and delivered by a duly authorized
officer of each Loan Party party thereto, with a counterpart for the
Agent and a counterpart or a conformed copy for each Lender,(vii) the
Subsidiaries Guarantee, executed and delivered by a duly authorized
officer of each Loan Party party thereto, with a counterpart for the
Agent and a counterpart or a conformed copy for each Lender and
(viii)each of the Security Agreements, each executed and delivered by
a duly authorized officer of each Loan Party party thereto, with a
counterpart for the Agent and a counterpart or a conformed copy for
each Lender.
(b) ESTABLISHMENT OF RECEIVABLES FACILITY. The Agent and the
Lenders shall have received evidence reasonably satisfactory to them
that the Borrower shall have established a receivables purchase
facility (as the same may be amended, modified or changed from time to
time pursuant to subsection 9.10(e), the "RECEIVABLES FACILITY") on
terms and conditions satisfactory to the Agent and the Lenders, at
least $85,000,000 (but not more than $100,000,000) of the Net Proceeds
of which are applied to prepay Existing Tranche B Term Loans. The
Borrower shall also have prepaid Existing Tranche B Term Loans in an
amount equal to the difference, if any, between (i) $100 million and
(ii) the amount of Existing Tranche B Term Loans prepaid with the Net
Proceeds of the Receivables Facility in accordance with the previous
sentence.
(c) RELATED AGREEMENTS AND DOCUMENTS. The Agent shall have
received, with a copy for each Lender, true and correct copies,
certified as to authenticity by the Borrower of the Receivables Sale
Agreement delivered in connection with the establishment of the
Receivables Facility, which shall be satisfactory to the Agent and the
Lenders.
(d) BORROWING CERTIFICATE. The Agent shall have received, with a
counterpart for each Lender, a certificate of the Borrower, dated the
Effective Date, substantially in the form of EXHIBIT R, with
appropriate insertions and attachments, satisfactory in form and
substance to the Agent, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of the
Borrower.
(e) CORPORATE PROCEEDINGS OF THE BORROWER. The Agent shall have
received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Agent, of the
Board of Directors of the Borrower authorizing (i) the execution,
delivery and performance of this Agreement and the other Loan
Documents to which it is a party, (ii) the Extensions of Credit
contemplated hereunder and (iii) the granting by it of the Liens
created pursuant to the Borrower Security Documents, certified by the
Secretary or an Assistant Secretary of the Borrower as of the
Effective Date, which certificate shall be in form and substance
reasonably satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(f) BORROWER INCUMBENCY CERTIFICATE. The Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Effective Date, as to the incumbency and signature
of the officers of the Borrower executing any Loan Document reasonably
satisfactory in form and substance to
<PAGE>
50
the Agent, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Borrower.
(g) CORPORATE PROCEEDINGS OF HOLDINGS. The Agent shall have
received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably satisfactory to the
Agent, of the Board of Directors of Holdings authorizing (i) the
execution, delivery and performance of the Loan Documents to which
Holdings is a party and (ii) the granting by it of the Liens created
pursuant to the Security Documents to which it is a party, certified
by the Secretary or an Assistant Secretary of Holdings as of the
Effective Date, which certificate shall be in form and substance
reasonably satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(h) HOLDINGS INCUMBENCY CERTIFICATE. The Agent shall have
received, with a counterpart for each Lender, a certificate of
Holdings, dated the Effective Date, as to the incumbency and signature
of the officers of Holdings executing any Loan Document reasonably
satisfactory in form and substance to the Agent, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of Holdings.
(i) CORPORATE PROCEEDINGS OF SUBSIDIARIES. The Agent shall have
received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably satisfactory to the
Agent, of the Board of Directors of each Subsidiary of the Borrower
which is a party to a Loan Document authorizing (i) the execution,
delivery and performance of the Loan Documents to which it is a party
and (ii) the granting by it of the Liens created pursuant to the
Subsidiaries Security Documents to which it is a party, certified by
the Secretary or an Assistant Secretary of each such Subsidiary as of
the Effective Date, which certificate shall be in form and substance
reasonably satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(j) SUBSIDIARY INCUMBENCY CERTIFICATES. The Agent shall have
received, with a counterpart for each Lender, a certificate of each
Subsidiary of the Borrower which is a Loan Party, dated the Effective
Date, as to the incumbency and signature of the officers of such
Subsidiaries executing any Loan Document, reasonably satisfactory in
form and substance to the Agent, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of each such
Subsidiary.
(k) CORPORATE DOCUMENTS. The Agent shall have received, with a
counterpart for each Lender, true and complete copies of the
certificate of incorporation and by-laws of each Loan Party, certified
as of the Effective Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of such Loan Party.
(l) CONSENTS, LICENSES AND APPROVALS. The Agent shall have
received, with a counterpart for each Lender, a certificate of a
Responsible Officer of the Borrower (i) attaching copies of such
consents, authorizations and filings referred to in subsection 6.4
(other than those contemplated by subsection 7.1(o)) as are reasonably
requested by the Agent, and (ii) stating that such consents, licenses
and filings are in full force and effect, and each such consent,
authorization and filing shall be in form and substance reasonably
satisfactory to the Agent.
(m) FEES. The Agent shall have received the fees to be received
on the Effective Date referred to in the Fee Letter dated March 15,
1996, from Chemical and Chemical Securities Inc. to the Borrower.
(n) LEGAL OPINIONS. The Agent shall have received, with a
counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Cravath, Swaine &
Moore, special counsel to Holdings and the Borrower,
substantially in the form of EXHIBIT S-1;
(ii) the executed legal opinion of Jennifer Miller,
General Counsel to the Borrower, substantially in the form of
EXHIBIT S-2; and
<PAGE>
51
(iii) the executed legal opinion of Simpson Thacher &
Bartlett substantially in the form of EXHIBIT S-3.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may
reasonably require.
(o) PLEDGED STOCK; STOCK POWERS; ACKNOWLEDGMENT AND CONSENTS.
The Agent shall have received (i) the certificates representing the
shares pledged pursuant to each of the Stock Pledge Agreements
(including, without limitation, the shares of Capital Stock of the
special purpose Subsidiary formed in connection with the Receivables
Facility), together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the
pledgor and (ii) Acknowledgment and Consents in the form attached to
each Pledge Agreement executed by a duly authorized officer of each
Loan Party whose Capital Stock is pledged pursuant to such Pledge
Agreement.
(p) INSURANCE. The Agent shall have received evidence in form
and substance satisfactory to it that all of the requirements of
subsection 8.5 and those Sections of the Security Documents requiring
the maintenance of insurance shall have been satisfied.
(q) EXISTING CREDIT AGREEMENT. The Agent shall have received
evidence in form and substance satisfactory to it that the Borrower
shall (i) have paid in full all accrued interest, fees and other
amounts (other than principal) owing to the Existing Lenders under the
Existing Credit Agreement as of the Effective Date and (ii) shall have
satisfied all its obligations (other than under this Credit Agreement)
in respect of all Loans outstanding under the Existing Credit
Agreement as of the Effective Date.
7.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each
Lender to make any Extension of Credit requested to be made by it on any date
(including, without limitation, its initial Extension of Credit), and the
agreement of the Issuing Banks to issue any Letter of Credit for which an
Application is presented, is subject to the satisfaction of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties made by the Borrower and the other Loan Parties in or
pursuant to the Loan Documents shall be true and correct in all
material respects on and as of such date (and, in the case of the
representations and warranties made on the Original Closing Date,
after giving effect to the Stock Purchase and the Merger) as if made
on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date.
(b) NO DEFAULT. No Default under Section 11(a) or Event of
Default (and, except in the case of a Swing Line Loan, no other
Default) shall have occurred and be continuing on such date or after
giving effect to the Extension of Credit requested to be made on such
date.
(c) BORROWING REQUESTS AND APPLICATIONS. The Agent shall have
received a request or Application for such Loan or Letter of Credit if
and as required by subsection 3.2, 3.8, 3.11, 3.14, 4.2 or 4.5, as
applicable.
Each borrowing by and Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date thereof that the conditions contained in clauses (a) and (b) of this
subsection have been satisfied.
SECTION 8. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document or any Letter of Credit remains outstanding, it shall and
(except in the case of delivery of financial information, reports and notices
and subsection 8.11 and 8.12 which shall be performed by the Borrower) shall
cause each of its Subsidiaries to, unless the Required Lenders shall otherwise
consent in writing:
<PAGE>
52
8.1 FINANCIAL STATEMENTS. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Borrower, a copy of the audited
consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related
audited consolidated and consolidating statements of income and
retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or
exception, or a qualification arising out of the scope of the audit,
by Deloitte & Touche or other independent certified public accountants
of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated and
consolidating balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated and consolidating statements of income and retained
earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer of the Borrower as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or Responsible Officer, as the
case may be, and disclosed therein).
8.2 CERTIFICATES; OTHER INFORMATION. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 8.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified
in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 8.1(a) and (b), a certificate of a
Responsible Officer (i) stating that, to the best of such Responsible
Officer's knowledge, the Borrower during such period has observed or
performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it during such
period, and that such Officer has obtained no knowledge of any Default
or Event of Default except as specified in such certificate and (ii)
setting forth in reasonable detail the calculations required to
determine compliance with subsections 9.1 and 9.8;
(c) not later than fifteen days after the beginning of each
fiscal year of the Borrower, a copy of the projections by the Borrower
of the operating budget and cash flow budget of the Borrower and its
Subsidiaries for such fiscal year, such projections to be accompanied
by a certificate of a Responsible Officer of the Borrower to the
effect that such projections have been prepared using assumptions
believed in good faith by management of the Borrower to be reasonable
at the time made and that such Responsible Officer has no reason to
believe that such projections are incorrect or misleading in any
material respect;
(d) within five Business Days after the same are sent, copies of
all financial statements and reports which Holdings or the Borrower
sends to the holders of the Senior Subordinated Notes, the Senior
Preferred Stock or any securities of the Loan Parties registered with
the SEC, and within five Business Days after the same are filed,
copies of all financial statements and reports which Holdings or the
Borrower may make to, or file with, the SEC or any successor or
analogous Governmental Authority;
(e) within fifteen Business Days after the end of each fiscal
quarter, a certificate of a Responsible Officer of the Borrower
setting forth in reasonable detail the aggregate amount of Supported
Obligations as at the end of such fiscal quarter; and
<PAGE>
53
(f) promptly, such additional financial and other information
within the possession of the Borrower or any of its Subsidiaries as
any Lender may from time to time reasonably request through the Agent.
8.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except as contemplated by this
Agreement or where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided on the books of the Borrower or any of
its Subsidiaries, as the case may be.
8.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by Warren and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business except as otherwise
permitted pursuant to subsection 9.5; comply in all material respects with all
Contractual Obligations and Requirements of Law (excluding, for purposes of this
subsection 8.4, Requirements of Law and Contractual Obligations specifically
addressed elsewhere in this Section 8) except where (a) any such Contractual
Obligation is being contested in good faith, a bona fide dispute exists with
respect to any such Contractual Obligation or failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect
and (b) any such Requirement of Law is being contested in good faith and the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
8.5 MAINTENANCE OF PROPERTY; INSURANCE. Keep all property material to
the conduct of its business in good working order and condition; maintain
insurance with financially sound and reputable insurance companies (or, to the
extent consistent with prudent business practice, a program of self-insurance)
on such of its property and in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to each Lender, upon
written request, full information as to the insurance carried.
8.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper financial records in conformity with GAAP and all Requirements of Law;
and permit (a) representatives of the Agent (and, after the occurrence and
during the continuance of an Event of Default, any Lender) to visit and inspect
any of its properties and examine and make abstracts from any of its books and
records at any reasonable time, upon reasonable notice, and as often as may
reasonably be desired, and (b) upon reasonable notice during normal business
hours, representatives of the Agent or any Lender to discuss the business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.
8.7 NOTICES. Promptly give notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured, or resolved or if
adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of
its Subsidiaries in which the amount involved is not covered by
insurance or in which injunctive or similar relief is sought which, if
adversely determined, could reasonably be expected to have a Material
Adverse Effect;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of,
any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal
<PAGE>
54
from, or the termination, Reorganization or Insolvency of,
any Plan, in each of cases (i) and (ii), where such event could
reasonably be expected to have a Material Adverse Effect; and
(e) any development or event which could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
8.8 ENVIRONMENTAL LAWS. (a) Comply with, and use reasonable efforts
to ensure compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply with and maintain, and use reasonable
efforts to ensure that all tenants and subtenants obtain and comply with and
maintain, any and all Environmental Permits required by applicable Environmental
Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws, except to the extent
that the same are being contested in good faith by appropriate proceedings and
the pendency of such proceedings could not be reasonably expected to have a
Material Adverse Effect.
8.9 MAINTENANCE OF LIENS OF THE SECURITY DOCUMENTS. Promptly, upon
the reasonable request of the Agent, at the Borrower's expense, execute,
acknowledge and deliver, or cause the execution, acknowledgement and delivery
of, and thereafter register, file or record, or cause to be registered, filed or
recorded, in an appropriate governmental office, any document or instrument
supplemental to or confirmatory of the Security Documents or otherwise
reasonably deemed by the Agent necessary or desirable for the continued
validity, perfection and priority of the Liens on the Collateral covered
thereby.
8.10 PLEDGE OF AFTER ACQUIRED PROPERTY; ADDITIONAL GUARANTORS. (a) If
at any time following the Original Closing Date the Borrower or any of its
Subsidiaries shall acquire property of any nature whatsoever having a value in
excess of $1,000,000 which is intended by the terms of the applicable Security
Document to be, but is not, subject to the Liens created by the Security
Documents, the Borrower shall, or shall cause the relevant Subsidiaries to, as
soon as possible and in no event later than 30 days after the relevant
acquisition date and, to the extent permitted by applicable law, grant to the
Agent for the ratable benefit of the Lenders a first priority (subject to Liens
permitted under subsection 9.3) Lien (to the extent the applicable Loan Party is
then permitted to grant such a Lien) on such property as collateral security for
the Obligations pursuant to documentation reasonably satisfactory in form and
substance to the Agent. The Borrower, at its own expense, shall execute,
acknowledge and deliver, or cause the execution, acknowledgement and delivery
of, and thereafter register, file or record in an appropriate governmental
office, any document or instrument (including legal opinions, title insurance,
consents and corporate documents) and take all such actions reasonably deemed by
the Agent to be necessary or desirable to ensure the creation, priority and
perfection of such Lien.
(b) Notwithstanding the provisions of subsection 8.10(a), (i) no
After-Acquired Mortgage Property with a fair market value (as determined by the
Agent in its reasonable judgment, it being understood that the purchase price
shall be indicative thereof) (the "FAIR MARKET VALUE") of less than $1,000,000
shall be subject to the provisions of subsection 8.10(a), (ii) each item of
After-Acquired Mortgage Property with a fair market value of at least $1,000,000
but less than $20,000,000 shall not be subject to the provisions of subsection
8.10(a) unless and until the aggregate Fair Market Value of all items of
After-Acquired Mortgage Property described in this clause (ii) and not pledged
to the Agent pursuant to the next sentence equals or exceeds $20,000,000 and
(iii) if, at any time, the aggregate amount of outstanding Term Loans is less
than or equal to $250,000,000 and the Consolidated Interest Expense Ratio of the
Borrower for the period of four consecutive fiscal quarters ended on the last
day of the most recently ended fiscal quarter is at least 3.00 to 1.00, no
Timberland Property from and after such time shall be subject to the provisions
of subsection 8.10(a). On each occasion that the Fair Market Value of all items
of After-Acquired Mortgage Property described in clause (ii) of the immediately
preceding sentence shall equal or exceed $20,000,000, all such property (and not
merely the portion of the property in excess of $20,000,000) shall be pledged to
the Agent for the benefit of the Lenders pursuant to paragraph (a) above and,
after such pledge, the provisions of such clause (ii) shall apply to
subsequently acquired After-Acquired Mortgage Property described in such clause.
<PAGE>
55
(c) The Borrower shall cause each new Subsidiary (other than a Foreign
Subsidiary) of the Borrower created or acquired after the date hereof, promptly
upon such creation or acquisition, to execute a Subsidiary Security Agreement
and an instrument in form and substance reasonably satisfactory to the Agent (it
being acknowledged and agreed that an instrument in the form attached to the
Subsidiaries Guarantee as EXHIBIT A shall satisfy this requirement) pursuant to
which such new Subsidiary shall become a party to the Subsidiaries' Guarantee as
a guarantor thereunder, and the Borrower shall execute and deliver a Supplement
to the Borrower Stock Pledge Agreement in form and substance reasonably
satisfactory to the Agent, or shall cause the Subsidiary of the Borrower which
holds the Capital Stock of such new Subsidiary to execute and deliver a
Subsidiary Stock Pledge Agreement or a Supplement to the Subsidiary Stock Pledge
Agreement to which it is a party, providing for the pledge of 100% of the issued
and outstanding common stock of such new Subsidiary (PROVIDED, that in no event
shall Capital Stock representing more than 65% of the voting power of the
Capital Stock of any such new Subsidiary which is a Foreign Subsidiary be so
pledged) to the Agent for the benefit of the Lenders, and the Borrower shall
deliver to the Agent the stock certificates evidencing such Capital Stock
together with undated stock powers for each such certificate, duly executed in
blank.
8.11 INTEREST RATE PROTECTION. Without the prior written consent of
the Agent, not terminate any of the Interest Rate Protection Agreements entered
into in connection with the Existing Credit Agreement described on SCHEDULE 8.11
unless the Borrower shall have entered into Interest Rate Protection Agreements
which, considered together with the terms of the Borrower's outstanding
Indebtedness bearing a fixed rate of interest and any other Interest Rate
Protection Agreements then in effect, provide to the Borrower fixed interest
rates with respect to not less than one-half of the aggregate outstanding
principal amount of the Borrower's outstanding Indebtedness as of the Original
Closing Date (other than Revolving Credit Loans repaid within 10 Business Days
of the Original Closing Date and Indebtedness in respect of Letters of Credit
issued on the Original Closing Date) for a period of at least three years after
the Original Closing Date, and the Borrower agrees and confirms that the
Borrower Security Agreement grants to the Agent, for the benefit of the Lenders,
a first priority (subject to any Liens permitted pursuant to subsection 9.3)
perfected security interest in its rights under any such Interest Rate
Protection Agreements. The Borrower covenants and agrees that it will not (and
it will not permit its Subsidiaries to) enter into Rate Protection Agreements
for the purpose of (i) reducing the amount of Indebtedness bearing a fixed rate
of interest or swapped or capped into a fixed rate of interest as required by
this subsection 8.11 or (ii) speculating on interest rates or currency
movements. It is understood and agreed that the foregoing prohibition is not
intended to restrict the use of Rate Protection Agreements in the ordinary
course of business to match assets and liabilities of the Borrower and its
Subsidiaries.
8.12 PERMANENT RECEIVABLES REFINANCING. To the extent the Receivables
Facility has a term which expires prior to the fifth anniversary of the
Effective Date, the Borrower shall use its reasonable best efforts until
October 26, 1996 to cause the Receivables Facility to be refinanced with a
Permitted Receivables Facility with a term of five years, which Permitted
Receivables Facility results in Net Proceeds to the Borrower equal to the amount
of Net Proceeds received in connection with the Receivables Facility and applied
to prepay the Existing Tranche B Term Loans in accordance with subsection
7.1(b).
SECTION 9. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document or any Letter of Credit remains outstanding, the Borrower
shall not, nor (except with respect to subsection 9.1) shall the Borrower permit
any of its Subsidiaries to, directly or indirectly, unless the Required Lenders
shall otherwise agree in writing:
9.1 FINANCIAL CONDITION COVENANTS.
(a) MAINTENANCE OF NET WORTH. Permit Consolidated Net Worth at
the end of any fiscal quarter ending after the Original Closing Date
to be less than an amount equal to the sum of (i) $350,000,000 and
(ii) 50% of aggregate Consolidated Net Income for each fiscal year,
for which Consolidated Net Income was positive, elapsed during the
period commencing January 1, 1995 and ending at the end of the most
recently completed fiscal year.
<PAGE>
56
(b) CAPITALIZATION RATIO. Permit the Capitalization Ratio at the
end of any fiscal quarter ending during any "Test Period" set forth
below to be greater than the amount set forth opposite such period
below:
Test Period Capitalization Ratio
----------- --------------------
12/29/94 - 01/01/97 0.65 to 1.00
01/02/97 - 12/31/97 0.60 to 1.00
01/01/98 - 12/30/98 0.55 to 1.00
12/31/98 and thereafter 0.50 to 1.00
(c) INTEREST COVERAGE. Permit for any period of four consecutive
fiscal quarters ending during any "Test Period" set forth below the
ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated
Cash Interest Expense for such period to be less than the ratio set
forth opposite such period below:
Test Period Interest coverage Ratio
----------- -----------------------
06/28/95 - 12/27/95 1.50 to 1
12/28/95 - 01/01/97 1.75 to 1
01/02/97 - 12/31/97 2.25 to 1
01/01/98 - 12/30/98 2.75 to 1
12/31/98 and thereafter 3.00 to 1
PROVIDED, that, for the periods ended June 28, 1995 and September 27, 1995, the
ratio of Consolidated EBITDA to Consolidated Cash Interest Expense shall be
calculated with respect to the six-month and nine-month periods ended on such
dates, respectively.
9.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness in respect of the Loans, any Notes, the
Guarantees, the Letters of Credit and the other obligations of the
Loan Parties under this Agreement and the other Loan Documents;
(b) subject to subsection 9.9(d), Indebtedness of the Borrower to
any Subsidiary and of any Subsidiary to the Borrower or any other
Subsidiary;
(c) Indebtedness of the Borrower and any of its Subsidiaries
incurred to finance the acquisition, construction or improvement of
fixed or capital assets (whether pursuant to a loan, a Financing Lease
or otherwise) in an aggregate principal amount, together with
outstanding Indebtedness permitted under subsection 9.2(e) and any
Indebtedness guaranteed pursuant to and not excluded from such
computation under subsection 9.4(h), not exceeding as to the Borrower
and its Subsidiaries $100,000,000 at any time outstanding;
(d) Indebtedness in respect of the financings described on
SCHEDULE 9.2(d) (the "ASSUMED FINANCINGS") and, so long as (i) no LOC
Letter of Credit is outstanding with respect to any such Assumed
Financing and (ii) the Borrower may not request a Letter of Credit to
be issued with respect to such Assumed Financing, any renewals,
extensions, refundings or refinancings of such Indebtedness, PROVIDED
the amount thereof is not increased (except that the amount of such
Indebtedness may be increased by an aggregate amount not to exceed
$15,000,000 in connection with all such renewals, extensions,
refundings or refinancings, PROVIDED that the proceeds of such
increase of Indebtedness are used only to pay fees and expenses
incurred in connection with such renewals, extensions, refundings or
refinancings), the maturity of principal thereof is not shortened
(unless to a maturity after the Obligations shall have been paid in
full, the Commitments shall have been terminated and no Letter of
Credit is outstanding) and any subordination provisions thereof are
not amended or modified except on terms and conditions satisfactory to
the Required Lenders, in each case after giving effect to such
renewal, extension, refunding or refinancing;
<PAGE>
57
(e) Indebtedness in respect of Sale/Leaseback Transactions
permitted under subsection 9.12 in an aggregate principal amount
incurred subsequent to the Original Closing Date, together with
outstanding Indebtedness permitted under subsection 9.2(c) and any
Indebtedness guaranteed pursuant to and not excluded from such
computation under subsection 9.4(h), not to exceed $100,000,000 at any
time outstanding;
(f) Indebtedness of the Borrower in an aggregate principal amount
not exceeding $375,000,000 in respect of the Senior Subordinated Notes
and any senior subordinated notes of the Borrower issued in exchange
therefor and having substantially identical terms as contemplated by
the Senior Subordinated Note Indenture;
(g) Indebtedness not exceeding, together with any Guarantee
Obligations outstanding and not excluded from such computation under
subsection 9.4(b), $100,000,000 in aggregate principal and/or
guaranteed amount at any one time outstanding, PROVIDED that such
Indebtedness is not secured by a Lien on any assets of the Loan
Parties;
(h) Indebtedness consisting of Guarantee Obligations expressly
permitted pursuant to subsection 9.4;
(i) Indebtedness of the Borrower or any of its Subsidiaries
which represents the assumption of Indebtedness of a wholly owned
Subsidiary of the Borrower in connection with the merger of such
wholly owned Subsidiary with or into the assuming Person or the
purchase of all or substantially all the assets of such wholly owned
Subsidiary, in each case pursuant to a transaction permitted under
subsection 9.5(a) or 9.5(b), as the case may be;
(j) Indebtedness in respect of performance bonds, bid bonds,
appeal bonds, bankers acceptances, letters of credit, surety bonds or
other similar obligations arising in the ordinary course of business,
and any refinancings thereof, PROVIDED that no such bond, bankers
acceptance, letter of credit or similar obligation is provided to
secure the repayment of other Indebtedness;
(k) 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 that such Indebtedness is extinguished within five Business
Days of notice to the Borrower of its incurrence;
(l) Indebtedness which is (i) secured by Liens expressly
permitted by subsection 9.3(m) and (ii) assumed in connection with the
acquisition of the assets subject to such Liens;
(m) Indebtedness of a Person which becomes a Subsidiary after
the date hereof, PROVIDED that (i) such Indebtedness existed at the
time such Person became a Subsidiary and was not created in
anticipation of the acquisition and (ii) immediately after giving
effect to the acquisition of such Person by the Borrower (solely for
the purpose of computing compliance with the covenants contained in
subsection 9.1) no Default or Event of Default shall have occurred and
be continuing;
(n) Indebtedness of the Borrower or any of its Subsidiaries to
Holdings, PROVIDED that (i) such Indebtedness is subordinated to the
Obligations on terms and conditions satisfactory to the Agent and (ii)
such Indebtedness is funded by Holdings with proceeds of Indebtedness
of Holdings to any of the Investors or any of their respective
Affiliates or the cash proceeds from the sale of Capital Stock by
Holdings to, or capital contributions received from, any of the
Investors or any of their respective Affiliates;
(o) Indebtedness in respect of Rate Protection Agreements
permitted under subsection 8.11;
(p) Indebtedness of the Borrower or SDW Finance (i) under the
Receivables Sale Agreement in connection with the Receivables Facility
or (ii) arising out of any other Permitted Receivables Financing; and
<PAGE>
58
(q) any renewals, extensions, refundings or refinancings of such
Indebtedness (other than the Indebtedness described in subsections
9.2(a) and 9.2(f) above) subject, in the case of the Indebtedness
described in subsection 9.2(d), to the specific limitations, renewals,
extensions, refundings and refinancings described therein, PROVIDED
that the principal amount of such Indebtedness is not increased
pursuant to any such renewal, extension, refunding or refinancing,
other than, subject to the approval of the Agent, in connection with
any Permitted Receivables Financing.
9.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings, PROVIDED that adequate reserves
with respect thereto are maintained on the books of the Borrower or
its Subsidiaries, as the case may be, in conformity with GAAP;
(b) statutory landlords' liens and carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in
the ordinary course of business for sums which are not overdue for a
period of more than 60 days or which are being contested in good faith
by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids, trade 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;
(e) all easements, zoning restrictions, flowage rights,
rights-of-way, covenants, conditions, restrictions, reservations,
licenses, agreements and other similar matters, including the
unrecorded easements and similar agreements set forth in
SCHEDULE 9.3(e), which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from the use of
the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or such Subsidiary and, in the
case of the Timberlands, which do not materially interfere with access
to, or ability to remove material amounts of Timber;
(f) Liens securing Indebtedness of the Borrower and its
Subsidiaries permitted by subsection 9.2(c) incurred to finance the
acquisition, construction or improvement of fixed or capital assets,
PROVIDED that (i) such Liens shall be created within 180 days after
the acquisition, construction or improvement of such fixed or capital
assets,(ii) such Liens do not at any time encumber any property other
than the property acquired, constructed or improved with the proceeds
of such Indebtedness,(iii) the amount of Indebtedness secured thereby
shall not subsequently be increased and (iv) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 100% of
the original purchase price of such asset or the amount expended to
construct or improve such asset, as the case may be;
(g) Liens in existence on the date hereof securing Indebtedness
permitted by subsection 9.2(d), PROVIDED that (i) no such Lien is
spread to cover any additional property after the Original Closing
Date, except that such Lien may cover any replacement property
acquired with such Indebtedness in connection with any renewal,
extension, refunding or refinancing of such Indebtedness permitted
under subsection 9.2(d) and (ii) the amount of Indebtedness secured
thereby shall not subsequently be increased (except to the extent
expressly required by any agreement governing the terms of any Assumed
Financing as such agreement is in effect on the Original Closing Date
or as permitted under subsection 9.2(d). It is understood and agreed
that (i) the Liens securing the Muskegon Solid Waste Bonds were
permitted under subsection 9.3(g) of the Existing Credit Agreement,
(ii) the Muskegon Solid Waste Bonds were amended on August 21, 1995
and (iii) the Liens securing the Indebtedness under the Muskegon Solid
Waste Bonds (as amended), to the extent they are perfected in the
property permitted to be subject to such Liens under this subsection
9.3(g), shall be prior to any Liens in such property securing
Indebtedness and other amounts owing under this Agreement and the
other Loan Documents;
<PAGE>
59
(h) Liens in existence on the date hereof listed on SCHEDULE
9.3(h), PROVIDED that no such Lien is spread to cover any additional
property after the Original Closing Date and that the amount of
Indebtedness secured thereby shall not subsequently be increased;
(i) all building codes and zoning ordinances and other laws,
ordinances, regulations, rules, orders or determinations of any
federal, state, county, municipal or other governmental authority now
or hereafter enacted;
(j) all immaterial encroachments, overlaps, boundary line
disputes, shortages in area, cemeteries and burial grounds and other
similar matters not of record which would be disclosed by an accurate
survey or inspection of the real property of the Borrower and its
Subsidiaries;
(k) all existing public and private roads and streets (whether
dedicated or undedicated);
(l) Liens created pursuant to the Security Documents;
(m) any Lien on any asset securing Indebtedness permitted to be
incurred under subsection 9.2(e) in connection with Sale/Leaseback
Transactions expressly permitted by subsection 9.12; PROVIDED that
(i) the proceeds of such Indebtedness shall be at least equal to 80%
of the fair market value (as determined in good faith by the Board of
Directors, or any duly authorized committee thereof, of the Borrower)
of such asset and (ii) at the time of incurrence of such Indebtedness,
no Event of Default shall have occurred and be continuing or would
result as a result thereof;
(n) any Lien on any asset acquired directly or indirectly by the
Borrower or any of its Subsidiaries after the Original Closing Date
which is not incurred in contemplation of such acquisition;
(o) judgment Liens created by or resulting from any litigation or
legal proceeding if released or bonded within 30 days of the date of
creation thereof, unless such litigation or legal proceeding could
reasonably be expected to have a Material Adverse Effect;
(p) Liens on the property or assets of a Person which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by
subsection 9.2(m), PROVIDED that (i) such Liens existed at the time
such Person became a Subsidiary and were not created in anticipation
of the acquisition, (ii) any such Lien does not by its terms cover any
property or assets after the time such Person becomes a Subsidiary
which were not covered immediately prior thereto and (iii) any such
Lien does not by its terms secure any Indebtedness other than
Indebtedness existing immediately prior to the time such Person
becomes a Subsidiary;
(q) all rights with respect to the mining, extraction and removal
of all minerals of whatever kind and character, including, without
limitation, all metals, precious and base, metallic and non-metallic
minerals, all coal, iron ore, oil, gas, sulfur, methane gas in coal
seams, limestone and other minerals, metals and ores located on, in or
under each of the Mortgaged Properties which have heretofore been
granted or leased to, or accepted or reserved by persons or entities
all in accordance with the terms set forth in such grant, lease,
exception or reservation;
(r) with respect to Timberland Properties: (i) all existing
leases, licenses and other agreements, if any, for roads, bridges,
boat ramps, woodyards, forestry practice and research activities,
hunting and fishing (including cabins and camps relating thereto) and
other residential and recreational purposes, whether or not of record;
(ii) timber cutting and hauling contracts and timber sales agreements
and similar agreements which have been entered into by the Borrower in
the ordinary course of business as set forth in SCHEDULE 9.3(r)
hereof; (iii) any immaterial loss or claim that may arise by reason of
or in connection with any indefiniteness or uncertainty in the legal
descriptions of Timberland Properties; (iv) any immaterial loss or
claim due to lack of access to any portion of the Timberland
Properties; and (v) rights, if any, of persons in possession, with or
without the consent of the applicable owner, of the Timberland
Properties;
<PAGE>
60
(s) Liens on Receivables and Related Security created to secure
the Receivables Facility under the applicable Receivables Sale
Agreement and any Liens on Receivables and Related Security created to
secure any other Permitted Receivables Financing; and
(t) Liens to secure any Indebtedness permitted under subsection
9.2(q), PROVIDED that (i) such Lien shall be limited to all or part of
the same property, if any, that secured the Indebtedness renewed,
extended, refunded or refinanced with such Indebtedness or any other
property acquired in connection with such renewal, extension,
refunding or refinancing to replace such property and (ii) the
principal amount of the Indebtedness secured by such Lien is not
increased.
9.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and
listed on SCHEDULE 9.4(a);
(b) Guarantee Obligations incurred after the date hereof in an
aggregate amount not to exceed, together with any Indebtedness
outstanding under subsection 9.2(g), $100,000,000 at any one time
outstanding, PROVIDED that such Guarantee Obligations are not secured
by a Lien on any assets of the Loan Parties, and PROVIDED FURTHER,
that no Guarantee Obligation shall be included in any computation with
respect to the $100,000,000 limit contained in this subsection and
subsection 9.2(g) if such Guarantee Obligation relates to a Primary
Obligation included in any computation of such limit;
(c) the Guarantees and Letters of Credit;
(d) guarantees made in the ordinary course of its business by the
Borrower of obligations of any Subsidiary, which obligations are
otherwise permitted under this Agreement;
(e) reimbursement obligations of the Borrower pursuant to
Indebtedness expressly permitted by subsection 9.2(j);
(f) guarantees by any Subsidiary (i) in respect of Indebtedness
permitted under subsection 9.2(f)(i) on the terms, or on terms
substantially identical to (including with respect to the
subordination of such guarantees to the Obligations) the terms, of the
Senior Subordinated Note Indenture and (ii) in respect of Indebtedness
permitted under subsection 9.2(f)(ii) on the terms of, or on terms
substantially identical to (including with respect to the
subordination of such guarantees to the Obligations) the terms of, the
Subordinated Bridge Notes, the Subordinated Rollover Notes or such
other subordinated notes or debentures incurred to refinance the
Subordinated Bridge Notes or the Subordinated Rollover Notes, as the
case may be, permitted under subsection 9.2(f)(ii);
(g) guarantees in respect of the Indebtedness permitted under
subsection 9.2(d);
(h) Guarantee Obligations in respect of Indebtedness of a Person
or Persons other than a Loan Party consisting of tax-exempt industrial
development or pollution control revenue bonds (either through
Financing Lease Obligations or installment purchase obligations in
respect of facilities to be acquired by a Loan Party and to be
financed by such bonds, and including a direct guarantee of such
bonds) giving rise to Indebtedness of the nature described in
subsection 9.2(c) or 9.2(e) not exceeding, together with any
outstanding Indebtedness under subsection 9.2(c) and 9.2(e),
$100,000,000 at any time outstanding, PROVIDED, that no Guarantee
Obligation shall be included in any computation with respect to the
$100,000,000 limit contained in this subsection or subsection 9.2(c)
or 9.2(e) if such Guarantee Obligation relates to a Primary Obligation
included in any computation of such limit; and
(i) Guarantee Obligations in existence on the date hereof not
exceeding $5,000,000 in the aggregate at any time.
<PAGE>
61
9.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger (other
than the Merger), consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of, all or substantially all of its
property, business or assets, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower (PROVIDED that the Borrower shall be the
continuing or surviving corporation) or with or into any one or more
wholly owned Subsidiaries of the Borrower (PROVIDED that the wholly
owned Subsidiary or Subsidiaries shall be the continuing or surviving
corporation);
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or any other wholly owned
Subsidiary of the Borrower; and
(c) pursuant to any sale of assets expressly permitted by
subsection 9.6.
9.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Subsidiary, except:
(a) the conveyance, sale, lease, assignment, transfer or other
disposition of Obsolete Property or surplus property in the ordinary
course of business;
(b) Asset Sales (other than Asset Sales of inventory (including
Timber) or of Timberland Property and other than any other Asset Sale
permitted under this subsection 9.6) in the ordinary course of
business, PROVIDED that (i) the Net Proceeds of any such Asset Sale
are applied to prepay Term Loans and/or LOC Loans to the extent
required by subsection 5.1(c) and (ii) the aggregate amount of Net
Proceeds of Asset Sales subsequent to the Original Closing Date shall
not exceed $100,000,000;
(c) any Asset Sale pursuant to any Sale/Leaseback Transaction
permitted pursuant to subsection 9.12, PROVIDED that the Net Proceeds
of any such Asset Sale are applied to prepay Term Loans and/or LOC
Loans to the extent required by subsection 5.1(c);
(d) the sale of inventory (including Timber) in the ordinary
course of business;
(e) the sale or discount for fair value without recourse of
accounts receivable arising in the ordinary course of business in
connection with the compromise or collection thereof;
(f) as permitted by subsection 9.5(b);
(g) the license of Intellectual Property in the ordinary course
of business;
(h) leases or subleases not materially interfering with the
ordinary course of conduct of the business of the Borrower and its
Subsidiaries;
(i) (I) Asset Sales of Timberland Property in the ordinary course
of business consistent with past practice and (II) other Asset Sales
of Timberland Property (other than pursuant to a Sale/Leaseback
Transaction), PROVIDED that the Net Proceeds of any such Asset Sale
pursuant to this clause (II) are applied to prepay Term Loans and/or
LOC Loans to the extent required by subsection 5.1(c);
(j) sales of electric power generated by the Plant (as defined in
the Power Sales Agreement as in effect on the date hereof); and
<PAGE>
62
(k) (i) sales of Receivables and rights to all Related Security
by the Borrower to SDW Finance and by SDW Finance to the Receivables
Company, in each case, in connection with the Receivables Facility and
(ii) sales of Receivables and rights to all Related Security in
connection with any other Permitted Receivables Financing which shall
be in addition to and not limited by subsection 9.6(b).
9.7 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend
(other than dividends payable solely in common stock or Senior Preferred Stock
of the Borrower) on, or make any payment on account of, or set apart assets for
a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Borrower or any warrants or options to purchase any such Stock, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary (such declarations, payments, setting apart,
purchases, redemptions, defeasances, retirements, acquisitions and distributions
being herein called "RESTRICTED PAYMENTS"), except that,
(a) the Borrower may pay cash dividends to Holdings to pay any
taxes or expenses required to be paid by Holdings in the ordinary
course of business and to maintain a cash balance of $25,000 for the
payment of such taxes and expenses, PROVIDED that any such taxes or
expenses are paid no later than fifteen Business Days after the date
on which the relevant dividend is made;
(b) the Borrower may pay cash dividends to Holdings to the extent
necessary to enable Holdings to pay fees, expenses and other
obligations incurred or required in connection with the Stock Purchase
or the Merger or in connection with the matters described in
subsection 9A.1(iii)(D) or subsection 9A.1(vi), PROVIDED that Holdings
shall pay each obligation in respect of which such dividend is made no
later than fifteen Business Days after the date on which the relevant
dividend is made;
(c) the Borrower may repurchase, redeem or otherwise acquire or
retire for value (or pay cash dividends to Holdings which are used by
Holdings to repurchase, redeem or otherwise acquire or retire for
value) any Common Stock or other Equity Interests of Holdings held by
employees of Holdings, the Borrower or any of its Subsidiaries
pursuant to any employee equity subscription agreement, stock option
agreement or stock ownership arrangement; PROVIDED that (i) the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Common Stock or other Equity Interests shall not exceed
$5,000,000 in any twelve-month period plus the aggregate cash proceeds
received by the Borrower during such twelve-month period from any
reissuance of Common Stock or other Equity Interests of Holdings to
employees of Holdings, the Borrower or its Subsidiaries; and (ii) no
Event of Default shall have then occurred and be continuing or would
result therefrom, PROVIDED, that this clause (ii) shall not prohibit
any transaction under this subsection 9.7(c) within 60 days of the
date of declaration or the making of any binding commitment in respect
of any such transaction if at said date of declaration or commitment
no Event of Default shall have then occurred and be continuing or
would result therefrom;
(d) upon exercise of Warrants, the Borrower may make cash
dividends to Holdings to the extent necessary to enable Holdings to
pay any cash payments made in lieu of the issuance of fractional
shares of Common Stock in respect of the Warrants, PROVIDED that any
such payments are made no later than fifteen Business Days after the
date on which the relevant dividend is made;
(e) the Borrower may pay all or part of the administrative fee
referred to in clause (vi) of the proviso contained in subsection 9.11
in the form of a dividend; and
(f) if the aggregate outstanding principal amount of the Term
Loans is less than or equal to $250,000,000 and so long as the
Consolidated Interest Expense Ratio of the Borrower for the period of
four consecutive quarters ended on the last day of the immediately
preceding fiscal quarter is at least 3.00 to 1.00, the Borrower may
pay cash dividends during any fiscal year on the Senior Preferred
Stock out of the Borrower's Portion of Excess Cash Flow for the
previous fiscal year, PROVIDED that (i) the amount of the Borrower's
Portion of Excess Cash Flow which shall be available to make dividend
payments pursuant to this subsection 9.7(f) shall be reduced by the
amount of any optional prepayments applied in accordance
<PAGE>
63
with the first sentence of subsection 5.1(a)(ii) and (ii) no Default
or Event of Default has then occurred and is continuing or would
result therefrom.
9.8 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make
Capital Expenditures in the aggregate for the Borrower and its Subsidiaries
during any of the fiscal years of the Borrower set forth below, in excess of the
amount set forth opposite such fiscal year below:
Fiscal Year Amount
----------- ------
1995 $100,000,000
1996 150,000,000
1997 160,000,000
1998 165,000,000
1999 125,000,000
2000 135,000,000
2001 145,000,000
2002 150,000,000
PROVIDED, that (i) Capital Expenditures with respect to the 1995 fiscal year
shall be calculated with respect to the period beginning on September 29, 1994
and ending on September 27, 1995,(ii) Capital Expenditures permitted to be made
during any fiscal year (and not carried over from a prior fiscal year) and not
made during such fiscal year may be carried over and expended during the next
succeeding fiscal year and (iii) Capital Expenditures made during any fiscal
year shall be first deemed made in respect of amounts carried over from the
prior fiscal year and then deemed made in respects of amounts permitted for such
fiscal year.
9.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of, or any assets constituting a
business unit of, or make any other investment in, any Person (an "INVESTMENT"),
except:
(a) extensions of trade credit and endorsements of negotiable
instruments and other negotiable documents in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees and directors of Holdings,
the Borrower or any of its Subsidiaries for travel, entertainment and
relocation expenses in the ordinary course of business in an aggregate
amount for Holdings, the Borrower and its Subsidiaries not to exceed
$5,000,000 at any time outstanding;
(d) Investments by the Borrower in its Subsidiaries and
Investments by such Subsidiaries in the Borrower and in other
Subsidiaries, PROVIDED that the aggregate amount of all such
Investments (including Investments in the nature of sales and
transfers of assets (including, pursuant to a transaction permitted
under subsection 9.5(b)) for less than fair market value) after the
Original Closing Date in Foreign Subsidiaries shall not exceed
$25,000,000, PROVIDED, FURTHER, that the Borrower may contribute the
assets owned by the Borrower and located in Belgium as of the Original
Closing Date to a Foreign Subsidiary and such contribution shall not
be deemed to constitute an Investment for purposes of the Dollar
limitation contained in the immediately preceding proviso;
(e) securities held by the Borrower or any of its Subsidiaries
prior to the Original Closing Date and listed on SCHEDULE 9.9(e);
(f) advances by the Borrower to Holdings, in lieu of the payment
of cash dividends, to enable Holdings to make the payments
contemplated by subsection 9.7 (other than subsection 9.7(e)),
PROVIDED that, if such advances are made with respect to the payments
contemplated by subsection 9.7(a), 9.7(b) or 9.7(d), such advances are
used to make such payments within fifteen Business Days after such
advances are made;
<PAGE>
64
(g) loans or advances made by the Borrower or any Subsidiary to
any Subsidiary or made by any Subsidiary to the Borrower or any
Subsidiary;
(h) any Investments consisting of (i) any contract pursuant to
which a Loan Party obtains the right to cut, harvest or otherwise
acquire timber on property owned by any other Person, whether or not
such Loan Party's obligations under such contract are evidenced by a
note or other instrument or (ii) loans or advances to customers of a
Loan Party, including leases of personal property of such Loan Party
to such customers, not exceeding $10,000,000 in the aggregate at any
time outstanding; PROVIDED that the contracts, loans and advances
pursuant to this subsection 9.9(h) are made in the ordinary course of
business;
(i) guarantees of a Person or Persons other than a Loan Party
consisting of tax-exempt industrial development or pollution control
revenue bonds (either through Financing Lease Obligations or
installment purchase obligations in respect of facilities to be
acquired by a Loan Party and to be financed by such bonds, and
including a direct guarantee of such bonds) giving rise to
Indebtedness incurred to finance the acquisition, construction or
improvement of fixed or capital assets pursuant to subsection 9.2(c);
(j) promissory notes issued to the Borrower or any of its
Subsidiaries by the purchasers of assets sold in accordance with
subsection 9.6(a), 9.6(b) or 9.6(c), PROVIDED that (i) the principal
amount of all such promissory notes in connection with any sale of
assets shall not exceed 15% of the total sales price for such assets
and (ii) the aggregate principal amount of all such promissory notes
at any time outstanding shall not exceed $3,000,000;
(k) acquisitions of Timberland Properties in the ordinary course
of business consistent with past practice; and
(l) other Investments not to exceed $15,000,000 at any time
outstanding, PROVIDED that the Loan Parties comply with the
requirements of subsection 8.10 with respect to any property or
Capital Stock acquired in any such acquisition.
9.10 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
INSTRUMENTS AND OPTIONAL TERMINATION OF ANY PERMITTED RECEIVABLES FINANCING. (a)
Make any optional payment or prepayment on or redemption, defeasance or purchase
of any Senior Subordinated Notes, Subordinated Bridge Notes, Subordinated
Rollover Notes or other Indebtedness permitted under subsection 9.2(f), except
that the Borrower shall, if Subordinated Bridge Notes are outstanding, take such
action as may be required of it to convert such Subordinated Bridge Notes to
Subordinated Rollover Notes in accordance with the terms thereof,(b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the terms of the Senior Subordinated Note Indenture or any other
agreement or indenture governing the terms and conditions of any other
Indebtedness permitted under subsection 9.2(f) (other than by any amendment,
modification change, supplement or waiver which (i) would extend the maturity or
reduce the amount of any payment of principal thereof or would reduce the rate
or extend the date for payment of interest thereon or (ii) does not in any way
adversely affect the interests of the Agent or the Lenders hereunder or under
the other Loan Documents or (iii) is of a technical or clarifying nature),(c)
amend, modify or change any of the terms of the Series A Preferred Stock or the
Series B Preferred Stock (other than by any amendment, modification or change
which (i) would extend the maturity or reduce the dividends payable in respect
thereof or would reduce the rate or extend the date for payment of dividend
thereon or (ii) does not in any way adversely affect the interests of the Agent
or the Lenders hereunder or under the Loan Documents or (iii) is of a technical
or clarifying nature), (d) exchange any shares of Senior Preferred Stock for
Exchange Debentures, (e) amend, modify or change any of the terms of the
Receivables Facility or any other Permitted Receivables Financing (other than by
any amendment, modification, change, supplement or waiver which (i) would extend
the maturity thereof or (ii) does not in any way adversely affect the interests
of the Agent or the Lenders hereunder or under the Loan Documents or (iii) is of
a technical or clarifying nature) or (f) optionally terminate the Receivables
Facility or any other Permitted Receivables Financing (other than in connection
with the establishment of a Permitted Receivables Financing).
9.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement,(b) in the
ordinary course of the Borrower's or such Subsidiary's business
<PAGE>
65
and (c) upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate, PROVIDED,
that the foregoing restriction shall not prohibit (i) payment of reasonable
fees to directors of Holdings, the Borrower and its Subsidiaries, (ii) the
transactions contemplated by the Acquisition Documents, (iii) any payment or
other transaction pursuant to any tax sharing agreement, (iv) payments
permitted under subsection 9.7 or subsection 9.9, (v) underwriting or similar
agreements with DLJMB, UBSCC or any of their respective Affiliates on
customary terms, (vi) the payment of an administrative fee to Holdings in an
amount not to exceed $1,000,000 in any calendar year to pay costs and
expenses incurred by it in the ordinary course of business, (vii) the payment
of an advisory fee to Sappi and/or its Affiliates in an amount not to exceed
$1,000,000 in any calendar year, (viii) the Indebtedness permitted pursuant
to subsection 9.2(b) or 9.2(n), (ix) any employment agreement entered into by
the Borrower or any of its Subsidiaries in the ordinary course of business,
(x) any issuance of securities in connection with employment arrangements,
stock options and stock ownership plans of the Borrower entered into in the
ordinary course of business, (xi) transactions between the Borrower and its
Subsidiaries and (xii) the transactions contemplated by the agreements listed
on SCHEDULE 9.11(xii).
9.12 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary (a "SALE/LEASEBACK
TRANSACTION"), except for Sale/Leaseback Transactions (a) with respect to
Timberland Property and (b) subsequent to the Original Closing Date the
aggregate sales price of which, together with the aggregate principal amount of
Indebtedness incurred under subsection 9.2(c), does not exceed $100,000,000 at
any time outstanding.
9.13 LIMITATION ON CHANGES IN FISCAL YEAR. Other than a change to
permit the Borrower to align its fiscal year with that of Sappi, change the
fiscal year of the Borrower.
9.14 LIMITATION ON CERTAIN CLAUSES. Enter into with any Person any
agreement, other than (a) this Agreement, (b) any industrial revenue or
development financings, purchase money mortgages or Financing Leases permitted
by this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby or securing any such financing,
mortgage or Lease) or other Liens permitted by subsection 9.3 (in which case any
prohibition or limitations may only be effective against the assets subject to
such Liens) or (c) the Senior Subordinated Note Indenture, which prohibits or
limits the ability of the Borrower or any of its Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired or which prohibits or limits loans or
dividends by Subsidiaries to the Borrower.
9.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement or which
are reasonably related thereto.
SECTION 9A. NEGATIVE COVENANTS OF HOLDINGS
Holdings agrees that, so long as the Commitments remain in effect or
any amount is owing to any Lender or the Agent hereunder or under any other Loan
Document or any Letter of Credit remains outstanding, Holdings shall not, unless
the Required Lenders shall otherwise agree in writing:
9A.1 LIMITATION ON HOLDINGS' ACTIVITIES. Incur any Indebtedness
(other than as contemplated by subsection 9.9(f)) or create any Guarantee
Obligations, or make any investments, loans or advances to any Person, or
purchase any material assets, or conduct, transact or otherwise engage, or
commit to transact, conduct or otherwise engage, in any business or operations
other than (i) transactions contemplated in connection with the consummation of
the Stock Purchase and the Merger, (ii) the ownership of the Capital Stock of
the Borrower, and the exercise of rights and performance of obligations in
connection therewith, (iii) the entry into, and exercise of rights and
performance of obligations in respect of, (A) this Agreement and the Holdings
Stock Pledge Agreement, (B) contracts and agreements with or for the benefit of
officers, directors and employees of Holdings or any Subsidiary thereof relating
to their employment or directorships, (C) insurance policies and related
contracts and agreements and (D) equity subscription agreements, registration
rights agreements, warrant agreements, voting and other stockholder agreements,
engagement letters, underwriting agreements
<PAGE>
66
and other agreements in respect of its equity securities or any offering,
issuance or sale thereof, (iv) the offering, issuance and sale of its equity
securities to the extent such offering, issuance or sale does not constitute
a Default or Event of Default under Section 11(k), (v) the offering, issuance
and sale of the Holdings Preferred Stock and the Warrants, (vi) the filing of
registration statements, and compliance with applicable reporting and other
obligations, under and compliance with its federal, state or other securities
laws, (vii) the performance of obligations under and compliance with its
certificate of incorporation and by-laws, or any applicable law, ordinance,
regulation, rule, order, judgment, decree or permit, including, without
limitation, as a result of or in connection with the activities of its
Subsidiaries, (viii) the performance of contractual obligations in existence
on the date hereof or otherwise permitted hereunder, (ix) the incurrence and
payment of its business expenses and any taxes for which it may be liable and
(x) other activities reasonably incidental or related to the foregoing.
9A.2 LIMITATION ON REDEMPTION OF HOLDINGS PREFERRED STOCK. Redeem
with more than 30% of the Net Proceeds of an initial or subsequent public
offering of Common Stock by Holdings the Holdings Preferred Stock (together with
any accreted liquidation value payable in respect thereof).
9A.3 RESTRICTED PAYMENTS. Use any amount received by it pursuant to
subsection 9.7 from the Borrower or any of its Subsidiaries for any purpose
other than as set forth in such subsection.
9A.4 NET PROCEEDS. Fail to contribute the Net Proceeds of any
issuance of Capital Stock securities by Holdings subsequent to the Original
Closing Date to the Borrower within five Business Days of the receipt of such
Net Proceeds, PROVIDED that Holdings may retain an amount equal to 30% of such
Net Proceeds to redeem, within one hundred twenty days after receipt of such Net
Proceeds, Holdings Preferred Stock (together with any accreted liquidation value
payable in respect thereof).
9A.5 DIVIDENDS. Except as contemplated by subsection 9.7(c) or
9.7(d), declare or pay any dividend (other than dividends payable solely in
Common Stock, Holdings Preferred Stock or other Capital Stock of Holdings) on,
or, except as set forth in subsection 9A.4, make any payment on account of, or
set apart assets for a sinking or other analogous fund for the purchase,
redemption, defeasance, retirement or other acquisition of Capital Stock of
Holdings, or any warrants or options to purchase any such Stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of
Holdings or any of its Subsidiaries.
SECTION 10. GUARANTEE
10.1 GUARANTEE. (a) To induce the Agent and the Lenders to execute
and deliver this Agreement and to make the Extensions of Credit provided for
herein to the Borrower, Holdings hereby unconditionally and irrevocably
guarantees to the Agent and the Lenders and their respective successors,
permitted transferees and permitted assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations. Holdings further agrees to pay
any and all reasonable expenses (including, without limitation, all reasonable
fees and disbursements of counsel) which may be paid or incurred by the Agent or
any Lender in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations and/or
enforcing any rights with respect to, or collecting against, Holdings under this
Section 10. This Guarantee shall remain in full force and effect until the
Obligations are paid in full and the Commitments are terminated, notwithstanding
that from time to time prior thereto the Borrower may be free from any
Obligations.
(b) No payment or payments made by the Borrower or any other Person or
received or collected by the Agent or any Lender from the Borrower or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of Holdings under this Section 10 which shall, notwithstanding any
such payment or payments, remain in full force and effect until the Obligations
are paid in full and the Commitments are terminated. Holdings agrees that
whenever, at any time, or from time to time, it shall make any payment to the
Agent or any Lender on account of its liability under this Section 10, it will
notify the Agent and such Lender in writing that such payment is made under this
Section 10 for such purpose.
<PAGE>
67
10.2 NO SUBROGATION, CONTRIBUTION, REIMBURSEMENT OR INDEMNITY.
Notwithstanding anything to the contrary in this Section 10, Holdings shall not
be entitled to be subrogated to any of the rights of the Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by any Lender for the payment of the
Obligations, nor shall Holdings seek or be entitled to seek any contribution or
reimbursement from the Borrower or any other Guarantor in respect of payments
made by Holdings hereunder, until all amounts owing to the Agent and the Lenders
by the Borrower on account of the Obligations are paid in full, the Commitments
are terminated and no Letter of Credit remains outstanding. If any amount shall
be paid to Holdings on account of such subrogation rights at any time when all
of the Obligations shall not have been paid in full, the Commitments shall not
have been terminated or a Letter of Credit remains outstanding, such amount
shall be held by Holdings in trust for the Agent and the Lenders, segregated
from other funds of Holdings, and shall, forthwith upon receipt by Holdings, be
turned over to the Agent in the exact form received by Holdings (duly indorsed
by Holdings to the Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Agent may determine. The
provisions of this paragraph shall survive the termination of the guarantee
contained in this Section 10 and the payment in full of the Obligations, the
termination of the Commitments and the cancellation, revocation or termination
of all outstanding Letters of Credit.
10.3 AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF
RIGHTS. Holdings shall remain obligated hereunder notwithstanding that, without
any reservation of rights against Holdings, and without notice to or further
assent by Holdings, any demand for payment of any of the Obligations made by the
Agent or any Lender may be rescinded by the Agent or such Lender, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Agent or any Lender, and this Agreement, the
other Loan Documents, any Interest Rate Protection Agreement entered into by the
Borrower with any Lender or any Affiliate of any Lender and any other documents
executed and delivered in connection herewith or therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Agent (or the
Required Lenders, as the case may be) or such Lender or Affiliate may deem
advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the Agent or any Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. Neither
the Agent nor any Lender or its Affiliates shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Obligations or for the guarantee contained in this Section 10 or any property
subject thereto. When making any demand hereunder against Holdings, the Agent
or any Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or any other guarantor, and any failure by the Agent or any Lender
to make any such demand or to collect any payments from the Borrower or any such
other guarantor or any release of the Borrower or such other guarantor shall not
relieve Holdings of its obligations or liabilities under this Section 10, and
shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Agent or any Lender against Holdings. For the purposes
hereof "demand" shall include the commencement and continuance of any legal
proceedings.
10.4 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Holdings waives, to the
fullest extent permitted by applicable law, any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by the Agent or any Lender upon the guarantee contained in this
Section 10 or acceptance of the guarantee contained in this Section 10; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 10; and all dealings between the
Borrower or Holdings, on the one hand, and the Agent and the Lenders, on the
other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon the guarantee contained in this Section 10. Holdings waives,
to the fullest extent permitted by applicable law, diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or Holdings with respect to the Obligations. This Guarantee shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity, regularity or enforceability of this
Agreement, any Note, any other Loan Document or any Interest Rate Protection
Agreement entered into by the Borrower with any Lender or any Affiliate of any
Lender, any of the Obligations or any other collateral security therefor or
guarantee or right of offset with respect thereto at any time or from time to
time held by the Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower against the Agent or any Lender or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or Holdings) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Obligations,
or of Holdings under the guarantee contained in this Section 10, in bankruptcy
or in any other instance. When pursuing its
<PAGE>
68
rights and remedies hereunder against Holdings, the Agent and any Lender may,
but shall be under no obligation to, pursue such rights and remedies as it
may have against the Borrower or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Agent or any Lender to pursue such other
rights or remedies or to collect any payments from the Borrower or any such
other Person or to realize upon any such collateral security or guarantee or
to exercise any such right of offset, or any release of the Borrower or any
such other Person or of any such collateral security, guarantee or right of
offset, shall not relieve Holdings of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Agent or any Lender against Holdings.
The guarantee contained in this Section 10 shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon
Holdings and its successors, and shall inure to the benefit of the Agent and
the Lenders, and their respective successors, permitted transferees and
permitted assigns, until all the Obligations and the obligations of Holdings
under this Guarantee shall have been satisfied by payment in full and the
Commitments shall be terminated, notwithstanding that from time to time
during the term of this Agreement the Borrower may be free from any
Obligations.
10.5 REINSTATEMENT. The guarantee contained in this Section 10 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be restored or returned by the Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Borrower or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
10.6 PAYMENTS. Holdings hereby agrees that the Obligations will be
paid to the Agent without set-off or counterclaim in Dollars at the office of
the Agent located at 270 Park Avenue, New York, New York 10017.
SECTION 11. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on any Loan, or any
other amount payable hereunder, within five Business Days after any such
interest or other amount becomes due in accordance with the terms thereof
or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in subsection 8.12,
Section 9 or Section 9A (other than subsection 9A.3), Section 6 of each of
the Mortgages, Section 36(a) or 36(d) of each of the Leasehold Mortgages,
Section 5(b) of each of the Stock Pledge Agreements or Section 5(l) of each
of the Security Agreements; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied for a period of 30 days after the earlier of (i) the date on
which a Responsible Officer of the Borrower first learns of such default or
(ii) the date on which written notice thereof shall have been given to the
Borrower by the Agent or any Lender; or
(e) The Borrower or any other Loan Party shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation in respect of
Indebtedness or in any payments required under any Rate Protection
Agreement, beyond the period of grace (not to exceed 60 days), if any,
provided in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created or under such Rate Protection Agreement,
as the case may be, if the aggregate amount
<PAGE>
69
of the Indebtedness and/or Guarantee Obligations and/or payments under
Rate Protection Agreements in respect of which such default or defaults
shall have occurred is at least $10,000,000; or (ii) default in the
observance or performance of any other agreement or condition to be
observed or performed by such Loan Party relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or
the full amount of such Guarantee Obligation to become payable, PROVIDED,
HOWEVER, that (A) a default, event or condition described in this Section
11(e)(ii) shall not constitute an Event of Default under this Section 11(e)
unless, at the time of such default, event or condition, defaults, events
or conditions of the type described in this Section 11(e)(ii) shall have
occurred and are continuing with respect to Indebtedness and Guarantee
Obligations in respect to Indebtedness the aggregate amount of which
exceeds $10,000,000 and (B) if any Assumed Financing shall become due and
payable prior to its stated maturity as a result of the occurrence of any
of the events described in Section 11(f) with respect to Scott, such event
shall not constitute an Event of Default under this Section 11(e), PROVIDED
that (x) the amount then due and payable in respect of such Assumed
Financing is paid within fifteen Business Days of such event and (y) after
giving effect to such payment, the Borrower's and its Subsidiaries'
liability with respect to such Supported Obligation reduces by an amount at
least equal to the amount of such payment; or
(f)(i) The Borrower or any other Loan Party shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower or any other Loan Party shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any other Loan Party any case, proceeding
or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against the Borrower
or any other Loan Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv)the Borrower or any other Loan Party shall take
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) the Borrower or any other Loan Party shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g)(i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan,(ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity,(iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA,(iv) any Single Employer Plan shall terminate
for purposes of Title IV of ERISA,(v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan, or (vi)
any other similar event or condition shall occur or exist with respect to a
Plan that could result in a liability (other than in the ordinary course),
and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
<PAGE>
70
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving individually a liability of
$10,000,000 (not paid or fully covered by insurance or indemnity of Scott
under the Stock Purchase Agreement) or in the aggregate a liability (not
paid or fully covered by insurance or indemnity of Scott under the Stock
Purchase Agreement) of $15,000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
(i)(i) Any of the Security Documents shall cease, for any reason, to
be in full force and effect, or the Borrower or any other Loan Party which
is a party to any of the Security Documents shall so assert in writing or
(ii) any Lien created by any of the Security Documents shall, by reason of
any breach by any Loan Party thereto of any of its covenants or other
obligations contained in such Security Documents, cease to be enforceable
and of the same effect and priority, subject to Section 11(d), purported to
be created thereby (other than Liens with respect to property not
constituting a material portion of the Collateral); or
(j) Any Guarantee shall cease, for any reason, to be in full force and
effect or any Guarantor shall so assert; or
(k) (i) Sappi and its wholly owned Subsidiaries shall cease to
beneficially own at least 51% (or 40% after an initial public offering or
subsequent public offering of Common Stock) of the Capital Stock of
Holdings or to have the right to appoint a majority of the Board of
Directors of Holdings, (ii) Holdings shall cease to own all the Capital
Stock of the Borrower (other than the Senior Preferred Stock) or (iii) a
Change of Control (as defined in the Subordinated Note Indenture) shall
occur under the Senior Subordinated Note Indenture;
(l) The subordination provisions contained in Article 10 of the Senior
Subordinated Note Indenture cease to be enforceable in accordance with
their terms; or
(m) Any "Termination Event" under the applicable Receivables Sales
Agreement or any similar such event or occurrence as defined in the
documentation relating to any Permitted Receivables Financing, or any event
or circumstance entitling the Persons purchasing, or financing the purchase
of, Receivables under the Receivables Facility or any other Permitted
Receivables Financing to stop so purchasing or financing, other than by
reason of the occurrence of the stated expiry date of the Receivables
Facility or such Permitted Receivables Financing; PROVIDED that any notices
or cure periods that are conditions to the rights of such Persons to stop
purchasing, or financing the purchase of, such Receivables have been given
or have expired, as the case may be.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i), (ii) or (iii) of paragraph (f) of this Section with respect to
the Borrower, automatically the Commitments (including the Swing Line
Commitment) shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall immediately become due and payable, and (B)
if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the Agent
may, or upon the request of the Required Lenders, the Agent shall, by notice to
the Borrower declare the Commitments (including the Swing Line Commitment) to be
terminated forthwith, whereupon the Commitments shall immediately terminate; and
(ii) with the consent of the Required Lenders, the Agent may, or upon the
request of the Required Lenders, the Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts (including, without limitation, all amounts of L/C Obligations, whether
or not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) owing under this Agreement to be
due and payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Agent an amount equal to the aggregate
then undrawn and unexpired amount of such Letters of Credit. The Borrower
hereby grants to the Agent, for the benefit of the Issuing Banks and the L/C
Participants, a security interest in such cash collateral to secure all
obligations of the Borrower under this Agreement and the other Loan
<PAGE>
71
Documents. Amounts held in such cash collateral account shall be applied by
the Agent to the payment of drafts drawn under such Letters of Credit, and
the unused portion thereof after all such Letters of Credit shall have
expired or been fully drawn upon, if any, shall be applied to repay other
Obligations. After all such Letters of Credit shall have expired or been
fully drawn upon, all Reimbursement Obligations shall have been satisfied and
all other Obligations shall have been paid in full, the balance, if any, in
such cash collateral account shall be returned to the Borrower. The Borrower
shall execute and deliver to the Agent, for the account of the Issuing Banks
and the L/C Participants, such further documents and instruments as the Agent
may request to evidence the creation and perfection of the security interest
in such cash collateral account.
SECTION 12. THE AGENT
12.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
12.2 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
12.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
12.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Loans.
12.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower or
<PAGE>
72
Holdings referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Agent receives such a notice, the Agent shall give notice thereof to
the Lenders. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
PROVIDED that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
12.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
12.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which indemnification
is sought (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with their Commitment Percentages immediately prior to
such date), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Loans) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. The
agreements in this subsection shall survive the payment of the Loans and all
other amounts payable hereunder.
12.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower as though the Agent were not the Agent hereunder and
under the other Loan Documents. With respect to the Loans made by it and with
respect to any Letter of Credit issued or participated in by it, the Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
12.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 10 days'
notice to the Lenders and the Borrower. If the Agent shall resign as Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be subject to the approval of the Borrower (which approval
shall not be unreasonably withheld), whereupon such successor agent shall
succeed to the rights, powers and duties of the Agent, and the term "Agent"
shall mean such successor agent effective upon such appointment and approval,
and the former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any holders of the Loans. After any
retiring Agent's resignation as Agent, the provisions of this Section 12 shall
inure to its
<PAGE>
73
benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.
12.10 ISSUING BANKS; SWING LINE LENDER. The provisions of this
Section 12 (other than subsection 12.9) shall apply to the Issuing Banks and the
Swing Line Lender MUTATIS MUTANDIS to the same extent as such provisions apply
to the Agent. At any time after the occurrence and during the continuance of a
Default or Event of Default, the LOC Issuing Bank will not issue any notice of
non-renewal without the consent of the Required LOC Participants.
SECTION 13. MISCELLANEOUS
13.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Agent may, from time to time,(a) enter into with the Borrower and each Loan
Party which is a party to the relevant Loan Documents written amendments,
supplements or modifications hereto and to the other Loan Documents for the
purpose of adding any provisions to this Agreement or the other Loan Documents
or changing in any manner the rights of the Lenders or of the Borrower hereunder
or thereunder,(b) release collateral (except that no consent of any Lender or
the Required Lenders is required to permit the release of a Lien in connection
with any Asset Sale permitted under Section 9 of this Agreement or any other
transaction permitted under such Section) or (c) waive, on such terms and
conditions as the Required Lenders or the Agent, as the case may be, may specify
in such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; PROVIDED,
HOWEVER, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of maturity of any Loan
made by any Lender or of any installment thereof, or reduce the stated rate of
any interest thereon or reduce the fee payable hereunder to any Lender or extend
the scheduled date of any payment thereof or increase the aggregate amount or
extend the expiration date of any Lender's Commitments, in each case without the
consent of such Lender directly affected thereby,(ii) amend, modify or waive any
provision of this subsection or reduce the percentage specified in the
definition of Required Lenders or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents or release all or substantially all of the Collateral, in each
case without the written consent of all the Lenders,(iii) amend, modify or waive
subsection 5.1(d) without the written consent of the Required Tranche A Lenders
or reduce the percentage in the definition of Required Tranche A Lenders without
the consent of all the Tranche A Lenders,(iv) amend, modify or waive subsection
5.1(d) or 5.1(e) without the written consent of the Required Tranche B Lenders
or reduce the percentage in the definition of Required Tranche B Lenders without
the consent of all the Tranche B Lenders,(v) amend, modify or waive any
provision of Section 3 without the prior written consent of the Required
Revolving Credit Lenders and the Revolving Credit Issuing Bank or reduce the
percentage in the definition of Required Revolving Credit Lenders or amend,
modify or waive the penultimate sentence of subsection 5.7(c) without the
consent of all the Revolving Credit Lenders and the Revolving Credit Issuing
Bank,(vi) amend, modify or waive any provision of Section 4 without the prior
written consent of the Required LOC Participants and the LOC Issuing Bank or
reduce the percentage in the definition of Required LOC Participants or amend,
modify or waive the last sentence of subsection 5.7(c) without the consent of
all the LOC Participants and the LOC Issuing Bank, or (vii) amend, modify or
waive any provision of Section 12 without the written consent of the then Agent.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Borrower, the
Lenders, the Agent and all future holders of the Loans. In the case of any
waiver, the Borrower, the Lenders and the Agent shall be restored to their
former positions and rights hereunder and under the other Loan Documents, and
any Default or Event of Default waived shall be deemed to be cured and not
continuing; no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereon. Notwithstanding
anything to the contrary in this subsection 13.1, no consent of any Lender or of
the Required Lenders shall be required to permit the release of a Lien in
connection with any Asset Sale or other transaction permitted by Section 9 of
this Agreement; the Agent shall execute such release and termination as may be
required by this Agreement.
13.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered, or three days after
being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed as follows in the case of the Borrower and the
Agent, and as set forth
<PAGE>
74
in SCHEDULE 1.1(a) in the case of the other parties hereto, or to such other
address as may be hereafter notified by the respective parties hereto:
Holdings: SDW Holdings Corporation
2700 Westchester Avenue
Purchase, New York 10577
Attention: Chief Financial Officer
Telecopy: (914) 696-5533
The Borrower: S.D. Warren Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Chief Financial Officer
Telecopy: (617) 423-5494
with copies to:
Sappi Limited
48 Ameshoff Street
2001 Braamfontein
Republic of South Africa
Attention: William E. Hewitt
Telecopy: 011-27-11-339-8297
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: William H. Widen, Esq.
Telecopy: (212) 474-3700
The Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Bruce Borden
Telecopy: (212) 552-5189
with a copy to: Chemical Bank Agent Bank Services
140 East 45th Street, 29th Floor
New York, New York 10017
Attention: M. Margaret Swales
Telecopy: (212) 622-0122
PROVIDED that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsection 2.2, 3.2, 3.4, 3.7, 3.11, 4.2, 5.1, 5.2 or 5.7 shall not
be effective until received.
13.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
<PAGE>
75
13.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
13.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or
reimburse the Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent,(b) to pay or reimburse each Lender and
the Agent for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Loan
Documents and any such other documents prepared in connection herewith or
therewith, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel in lieu of the
fees and expenses of outside counsel) to each Lender and of counsel to the
Agent,(c) to pay, indemnify, and hold each Lender and the Agent harmless from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other similar
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold each Lender and
the Agent harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
other Loan Documents, the Stock Purchase Agreement, the Stock Purchase, the
Merger or the use of the proceeds of the Loans in connection with the Stock
Purchase, and any such other documents, including, without limitation, any of
the foregoing relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Borrower, any
of its Subsidiaries or any of the Properties (all the foregoing in this clause
(d), collectively, the "indemnified liabilities"), PROVIDED, that the Borrower
shall have no obligation hereunder to the Agent or any Lender with respect to
indemnified liabilities arising from (i) the gross negligence or willful
misconduct of the Agent or any such Lender or (ii) legal proceedings commenced
against the Agent or any such Lender by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such. The agreements in this subsection
shall survive repayment of the Loans and all other amounts payable hereunder.
13.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower,
Holdings, the Lenders, the Agent and their respective successors and assigns,
except that neither the Borrower nor Holdings may assign or transfer any of its
rights or obligations under this Agreement without the prior written consent of
each Lender and any assignment or transfer by any Lender of its rights or
obligations under this Agreement or any Loan Document must be made in compliance
with this subsection 13.6 (and any purported assignment in violation of this
subsection shall be null and void).
(b) Any Lender may, in the ordinary course of its lending or
investment business and in accordance with applicable law, at any time sell to
one or more financial institutions or other entities ("LOAN PARTICIPANTS")
participating interests in any Loan owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the other Loan
Documents. In the event of any such sale by a Lender of a participating
interest to a Loan Participant, (i) such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible for the performance thereof, (iii)
such Lender shall remain the holder of any such Loan for all purposes under this
Agreement and the other Loan Documents, (iv) the Borrower and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents, and (v) no Loan Participant under any participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by any Loan Party therefrom, except with respect
to the matters described in clauses (i) and (ii) of the proviso to the second
sentence of subsection 13.1. The Borrower agrees that, while an Event of
Default shall have occurred and be continuing if amounts outstanding under this
Agreement are due or unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Loan
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender
<PAGE>
76
under this Agreement, PROVIDED that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in subsection 13.7(a) as fully as if
it were a Lender hereunder. The Borrower also agrees that each Loan
Participant shall be entitled to the benefits of subsections 5.9, 5.10 and
5.11 with respect to its participation in the Commitments and the Loans
outstanding from time to time as if it was a Lender; PROVIDED that, in the
case of subsection 5.10 such Loan Participant shall have complied with the
requirements of said subsection and PROVIDED, FURTHER, that no Loan
Participant shall be entitled to receive any greater amount pursuant to any
such subsection than the transferor Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor Lender to such Loan Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its lending or
investment business and in accordance with applicable law, at any time and from
time to time assign, with the consent of the Borrower and the Agent (which in
each case shall not be unreasonably withheld), to any other Lender or any
affiliate thereof or to an additional bank or financial institution (an
"ASSIGNEE") all or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of EXHIBIT T, executed by such Assignee and such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Borrower and the Agent) and delivered to the Agent
for its acceptance and recording in the Register, PROVIDED that, (i) in the case
of any such assignment to an Assignee that is an affiliate of the assigning
Lender, the consent of the Borrower shall only be required if, at the time of
such assignment, such Assignee would be entitled to require the Borrower to pay,
or the Borrower would be required to pay, greater amounts under subsection 5.9
or 5.10 than if no such assignment had occurred and (ii) in the case of any such
assignment to an additional bank or financial institution, if such assignment is
of less than all of the rights and obligations of the assigning Lender, the sum
of the aggregate principal amount of the Loans, the aggregate amount of the L/C
Obligations and the aggregate amount of the unused Commitments remaining with
the assigning Lender are not less than $5,000,000 (or such lesser amount as may
be agreed to by the Borrower and the Agent). Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs when any of the events described in Section 11(f) shall have occurred and
be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the
address of the Agent referred to in subsection 13.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amounts of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Lenders shall treat each Person whose name
is recorded in the Register as the owner of a Loan or other obligation hereunder
as the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice to the contrary. Any assignment of any
Loan or other obligation hereunder (whether or not evidenced by a Note) shall be
effective only upon appropriate entries with respect thereto being made in the
Register. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent) together
with, except in the case of an assignment pursuant to subsection 5.13, payment
to the Agent of a registration and processing fee of $3,500, the Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders and
the Borrower.
(f) The Borrower authorizes each Lender to disclose to any Loan
Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee,
subject to the provisions of subsection 13.15, any and all financial information
in such Lender's possession concerning the Borrower and its Affiliates which has
been delivered to such
<PAGE>
77
Lender by or on behalf of the Borrower pursuant to this Agreement or which
has been delivered to such Lender by or on behalf of the Borrower in
connection with such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement, PROVIDED, that unless
the Agent and the Borrower shall otherwise agree, prior to any such
disclosure such Transferee shall have executed a Confidentiality Letter in
the form of EXHIBIT U.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law, PROVIDED that no such assignment, whether to
a Federal Reserve Bank or other entity, shall release a Lender from any of its
obligations hereunder or substitute any such Federal Reserve Bank or other
entity for such Lender as a party hereto or permit an absolute assignment to
occur other than in accordance with such provisions of this subsection.
13.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER")
shall at any time receive any payment of all or part of its Loans or the
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 11(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to it, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan or the Reimbursement
Obligations owing to it, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Agent after any such set-off and application made by such
Lender, PROVIDED that the failure to give such notice shall not affect the
validity of such set-off and application.
13.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Agent.
13.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
<PAGE>
78
13.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower and Holdings
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any
judgement in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower or Holdings at its address set forth in
subsection 13.2 or at such other address of which the Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
13.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
13.14 WAIVERS OF JURY TRIAL. THE BORROWER, HOLDINGS, THE AGENT AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
13.15 CONFIDENTIALITY. Each Lender agrees to keep confidential (and
to cause its employees, officers, directors, agents, attorneys, accountants and
other professional advisors to keep confidential) all non-public information (a)
provided to it by the Borrower or any Loan Party pursuant to or in connection
with this Agreement or any other Loan Documents or (b) obtained by such Lender
based on a review of books and records of the Borrower or any other Loan Party;
PROVIDED that nothing herein shall prevent any Lender from disclosing any such
information (i)to the Agent or any other Lender,(ii) to any Transferee or
prospective Transferee which agrees to comply with the provisions of this
subsection,(iii) on a need-to-know basis to its employees, directors, agents,
attorneys, accountants and other professional advisors (each of which shall be
instructed to hold the same in confidence),(iv) upon the request or demand of
any Governmental Authority (including, without limitation, the National
Association of Insurance Commissioners) having jurisdiction over such Lender,(v)
in response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law,(vi) which has been
publicly disclosed other than in breach
<PAGE>
79
of this Agreement or (vii) in connection with the exercise of any remedy
hereunder or under any of the other Loan Documents.
13.16 RELEASE OF TIMBERLANDS. If the aggregate outstanding principal
amount of the Term Loans is less than or equal to $250,000,000 and so long as
the Consolidated Interest Expense Ratio of the Borrower for the period of four
consecutive quarters ended on the last day of the immediately preceding fiscal
quarter is at least 3.00 to 1.00, the Agent shall, at the request of the
Borrower, release the security interest in the Timberlands granted pursuant to
the Security Documents, PROVIDED that no Default or Event of Default has then
occurred and is continuing or would result therefrom.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
SDW HOLDINGS CORPORATION
By: /s/ WILLIAM E. HEWITT
---------------------------------
Title: Vice President
S.D. WARREN COMPANY
By: /s/ TREVOR LARKAN
---------------------------------
Title: Vice President and CFO
CHEMICAL BANK, as Agent and as a Lender
By: /s/ WILLIAM J. CAGGIANO
---------------------------------
Title: Managing Director
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ ANNE TROXELL
---------------------------------
Title: Duly Authorized Signatory
BANK OF MONTREAL
By: /s/ WILLIAM R. GRIEVE
---------------------------------
Title: Director
<PAGE>
BARCLAYS BANK PLC
By: /s/ KEITH F. ARNSDORFF
---------------------------------
Title: Associate Director
BHF-BANK Aktiengesellschaft
By: /s/ LINDA PACE
---------------------------------
Title: Assistant Vice President
CITICORP U.S.A. INC.
By: /s/ ALLEN FISHER
---------------------------------
Title: Attorney in Fact
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By: /s/ RAMESH RAMAN
---------------------------------
Title: Assistant Vice President
By: /s/ ANDREW P. NESI
------------------------------
Title: Vice President
MIDLAND BANK PLC, NEW YORK BRANCH
By: /s/ MARTIN BROWN
---------------------------------
Title: Director
SOCIETE GENERALE
By: /s/ JOHN M. STACK
---------------------------------
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By: /s/ DAVID C. JUDGE
---------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ T. M. PITCHER
---------------------------------
Title: Authorized Signatory
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ JOHN J. LEE
---------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ RICHARD D. HILL, JR.
---------------------------------
Title: Director
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ JUNRI ODA
---------------------------------
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ JAY SHANKAR
---------------------------------
Title: Vice President
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ PATRICIA LORET DE MOLA
---------------------------------
Title: Senior Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By: /s/ R. DOUGLAS HENDERSON
---------------------------------
Title: Authorized Signatory
SENIOR HIGH INCOME PORTFOLIO, INC.
By: /s/ R. DOUGLAS HENDERSON
---------------------------------
Title: Authorized Signatory
SENIOR HIGH INCOME PORTFOLIO, INC.,
as successor in interest to
SENIOR HIGH INCOME PORTFOLIO II, INC.
By: /s/ R. DOUGLAS HENDERSON
---------------------------------
Title: Authorized Signatory
SENIOR HIGH INCOME PORTFOLIO, INC.,
as successor in interest to
SENIOR STRATEGIC INCOME FUND, INC.
By: /s/ R. DOUGLAS HENDERSON
---------------------------------
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: /s/ R. DOUGLAS HENDERSON
---------------------------------
Title: Authorized Signatory
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /s/ JEFFREY W. MAILLET
---------------------------------
Title: Sr. Vice Pres. - Portfolio Mgr.
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: /s/ JEFFREY S. GARNER
---------------------------------
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By: /s/ JOHN E. SCHLIFSKE
---------------------------------
Title: Vice President
ORIX USA CORPORATION
By: /s/ MASAAKI TASHIRO
---------------------------------
Title: Deputy President & COO
<PAGE>
ARAB BANKING CORPORATION
By: /s/ LOUISE BILBRO
---------------------------------
Title: Vice President
BANK OF SCOTLAND
By: /s/ CATHERINE M. ONIFFREY
---------------------------------
Title: Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ HENRY R. BIEDRZYCKI
---------------------------------
Title: Vice President
THE NIPPON CREDIT BANK, LTD.
By: /s/ Y. WATANABE
---------------------------------
Title: Vice President & Manager
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ ELIZABETH COLT
---------------------------------
Title: Vice President
CHRISTIANA BANK OG KREDITKASSE
By: /s/ CARL-PETTER SVENDSEN
---------------------------------
Title: First Vice President
By: /s/ PETER M. DODGE
---------------------------------
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ MATTHEW T. PANENESE
---------------------------------
Title: Vice President
<PAGE>
D G BANK DEUTSCHE GENOSSENSCHAFTSBANK
By: /s/ KAREN BRINKMAN
---------------------------------
Title: Vice President
By: /s/ NORAH MCCANN
---------------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ PETER S. SWAIN
---------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By: /s/ AMY M. TSOKANIS
---------------------------------
Title: Vice President
KREDIETBANK N.V.
By: /s/ ROBERT M. SURDAM, JR.
----------------------------------
Title: Vice President
By: /s/ ROBERT SNAUFFER
---------------------------------
Title: Vice President
THE YASUDA TRUST AND BANKING COMPANY
LIMITED
By: /s/ R.M. LAUDENSCHLOGER
---------------------------------
Title: Senior Vice President
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ CHRIS J. KARLIN
---------------------------------
Title: Vice President
<PAGE>
MEESPIERSON N.V.
By: /s/ CATHERINE HIJMANS VAN DEN BERGH
---------------------------------
Title: Vice President
By: /s/ JOHN O'CONNOR
---------------------------------
Title: Senior Vice President
NORDDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /s/ STEPHANIE HOEVERMANN
---------------------------------
Title: Vice President
By: /s/ RAIMUND FERLEY
---------------------------------
Title: Vice President
COBANK, ACB
By: /s/ ANTONY BAHR
---------------------------------
Title: Vice President
RESTRUCTURED OBLIGATIONS BACKED BY SENIOR
ASSETS B.V.
By its Portfolio Adviser, as
attorney-in-fact,
CHANCELLOR SENIOR SECURED MANAGEMENT,INC.
By:
---------------------------------
Title:
BANK AUSTRIA AKTIENGESELLSCHAFT
By: /s/ R. TENHAVE
---------------------------------
Title: Senior Vice President
<PAGE>
BANK OF TOKYO-MISTUBISHI TRUST COMPANY
By: /s/ RANDY SZUCH
---------------------------------
Title: Vice President
IMPERIAL BANK, CALIFORNIA BANKING
CORPORATION
By: /s/ RAY VADALMA
---------------------------------
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ R. HURST
---------------------------------
Title: Vice President
MELLON BANK, N.A.
By: /s/ RITA C. LONG
---------------------------------
Title: Vice President
NATIONSBANK, N.A.
By: /s/ MARY ELLEN HENESSY-JONES
---------------------------------
Title: Senior Vice President
THE SANWA BANK, LIMITED
By: /s/ Y. HIGASHINO
---------------------------------
Title: Senior Vice President
NEW YORK LIFE INSURANCE COMPANY
By: /s/ ADAM G. CLEMENS
---------------------------------
Title: Investment Vice President
<PAGE>
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By: /s/ ADAM G. CLEMENS
---------------------------------
Title: Investment Vice President
CHL HIGH YIELD LOAN PORTFOLIO (a unit
of Chemical Bank)
By: /s/ JOYCE C. DELUCCA
---------------------------------
Title: Vice President
MERITA BANK LTD.
By: /s/ F. MAFFEI
---------------------------------
Title: AVP
By: /s/ C. POER
---------------------------------
Title: VP
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By: /s/ CYNTHIA M. NIESEN
---------------------------------
Title: Managing Director
By: /s/ KAREN E. HOPLOCK
---------------------------------
Title: Vice President
FALCON 94, LIMITED
By: /s/ JOHN ELLISON
---------------------------------
Title: Director
<PAGE>
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ TIMOTHY DELEIDER
---------------------------------
Title: Assistant Vice President
By: /s/ WILLIAM C. MAIER
---------------------------------
Title: Vice President - Group Manager
AERIES FINANCE LTD.
By: /s/ IAN D. MOORE
---------------------------------
Title: Director
CERES FINANCE LTD.
By: /s/ ELIZABETH KEARNS
---------------------------------
Title: Director
STRATA FUNDING LTD.
By: /s/ ELIZABETH KEARNS
---------------------------------
Title: Director
<PAGE>
EXHIBIT A TO
CREDIT AND GUARANTEE AGREEMENT
MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
from
S.D. Warren Company, Mortgagor
(as successor by merger to SDW Acquisition Corporation)
to
CHEMICAL BANK,
as Agent, Mortgagee
DATED AS OF DECEMBER __, 1994
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Pascale I. Bissainthe, Esq.
<PAGE>
EXHIBIT A TO
CREDIT AND GUARANTEE AGREEMENT
[FORM OF BORROWER LEASEHOLD MORTGAGE]
[NOTE: THIS FORM IS NOT STATE-LAW SPECIFIC. SPECIFIC PROVISIONS,
SATISFACTORY TO AGENT'S COUNSEL, THAT ARE NECESSARY OR DESIRABLE UNDER THE LAW
OR REAL ESTATE PRACTICE OF ANY PARTICULAR STATE IN WHICH THIS FORM IS USED WILL
BE ADDED.]
THIS MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
(collectively, the "Mortgage"), dated as of __________ is made by S.D. Warren
Company (as successor by merger to SDW Acquisition Corporation), a Pennsylvania
corporation ("MORTGAGOR"), whose mailing address is _________________ to
CHEMICAL BANK, whose mailing address is 270 Park Avenue, New York, New York
10017 as agent (the "AGENT"; in such capacity, together with its successors and
assigns, "MORTGAGEE") for the several banks and other financial institutions
(the "LENDERS") from time to time parties to that certain Credit and Guarantee
Agreement dated as of December ____, 1994 (as the same may have been and may be
further amended, supplemented, restated, replaced or otherwise modified from
time to time, the "CREDIT AGREEMENT") among SDW Holdings Corporation, a Delaware
corporation, the Mortgagee, the Mortgagor and the Lenders. References to this
"MORTGAGE" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders
and replacements of this instrument.
BACKGROUND
A. Mortgagor has, on the date hereof, become the owner of (i) the
parcel(s) of real property described on Exhibit A attached hereto (the "Fee
Property") and (ii) the leasehold estate in the parcels of real property
described on Exhibit B attached hereto (the "LEASEHOLD PARCELS") created
pursuant to those certain leases described on Exhibit C attached hereto (the
"MORTGAGED LEASES") (the Fee Property and the Leasehold Parcels, together with
all of the buildings, improvements, structures and fixtures now or subsequently
located thereon (the "IMPROVEMENTS"), being collectively referred to as the
"REAL ESTATE").
B. Pursuant to the Credit Agreement, following the consummation of
the Stock Purchase, SDW Acquisition Corporation, a Pennsylvania corporation
("ACQUISITION CORP.") has, on the date hereof, been merged with and into
Mortgagor, with Mortgagor being the surviving corporation of such Merger and
assuming the obligations of Acquisition Corp. under the Credit Agreement.
C. Pursuant to the Credit Agreement, the Lenders have severally
agreed (i) to make certain Term Loans to the Borrower,
<PAGE>
2
portions of which, in the aggregate principal amount of $630,000,000, are
more particularly described in the Credit Agreement as the Tranche A Term
Loans and the Tranche B Term Loans, (ii) to make certain Revolving Credit
Loans and Swing Line Loans, in the aggregate principal amount of
$250,000,000 to the Borrower and (iii) to issue LOC Letters of Credit, in the
aggregate principal amount of $220,000,000, all upon the terms and subject to
the conditions set forth therein. The Tranche A Term Loans and the Tranche B
Term Loans are respectively evidenced by (i) the Credit Agreement, and may,
as provided therein, be evidenced by those certain Tranche A Term Loan Notes
dated as of even date herewith in the aggregate principal amount of
$305,000,000 (as each of the same may be further assigned, amended,
supplemented, modified, extended, restated or replaced from time to time, the
"TRANCHE A TERM NOTES") and (ii) the Credit Agreement, and may, as provided
therein, be evidenced by those certain Tranche B Term Loan Notes dated as of
even date herewith in the aggregate principal amount of $325,000,000 (as
each of the same may be further assigned, amended, supplemented, modified,
extended, restated or replaced from time to time, the "TRANCHE B TERM NOTES";
the Tranche A Term Notes and the Tranche B Term Notes are collectively
referred to as the "TERM NOTES"). The Revolving Credit Loans are evidenced by
the Credit Agreement, and may, as provided therein, be evidenced by those
certain Revolving Credit Notes dated as of even date herewith (as the same
may be further assigned, amended, supplemented, modified, extended, restated
or replaced from time to time, the "REVOLVING CREDIT NOTES"). The Swing Line
Loans are evidenced by the Credit Agreement, and may, as provided therein, be
evidenced by those certain Swing Line Notes dated as of even date herewith
(as the same may be further assigned, amended, supplemented, modified,
extended, restated or replaced from time to time, the "SWING LINE NOTES").
The reimbursement obligations with respect to drawings under LOC Letters of
Credit are evidenced by the Credit Agreement and may, as provided therein, be
evidenced by those certain LOC Notes dated as of even date herewith (as the
same may be further assigned, amended, supplemented, modified, extended,
restated or replaced from time to time, the "LOC NOTES").
D. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Credit Agreement. References in this Mortgage
to the "DEFAULT RATE" shall mean a rate per annum equal to the ABR plus 2%.
GRANTING CLAUSES
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the Credit
Agreement and as may be evidenced by the Term Notes, the Revolving Credit Notes,
the Swing Line Notes and the LOC Notes and (ii) all interest and fees payable
thereon
<PAGE>
3
(the items set forth in clauses (i) and (ii) being referred to collectively
as the "INDEBTEDNESS"); and
(b) the performance of all covenants, agreements, obligations and
liabilities of Mortgagor (the "OBLIGATIONS") under or pursuant to the
provisions of the Term Notes, the Revolving Credit Notes, the Swing Line
Notes, the LOC Notes, this Mortgage, the Credit Agreement and any other
document securing payment of the Indebtedness (the "SECURITY DOCUMENTS")
and any amendments, supplements, extensions, renewals, restatements,
replacements or modifications of any of the foregoing (the Term Notes, the
Revolving Credit Notes, the Swing Line Notes, the LOC Notes, the Credit
Agreement, the Security Documents and all other documents and instruments
from time to time evidencing, securing or guaranteeing the payment of the
Indebtedness or the performance of the Obligations, as any of the same may
be amended, supplemented, extended, renewed, restated, replaced or modified
from time to time, are collectively referred to as the "LOAN DOCUMENTS");
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN, AND
HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE WITH
MORTGAGE COVENANTS:
(A) the Real Estate;
(B) the leasehold estate created under and by virtue of the Mortgaged
Leases, any interest in any fee, greater or lesser title to the Real Estate
that Mortgagor may own or hereafter acquire (whether acquired pursuant to a
right or option contained in one or more of the Mortgaged Leases or
otherwise) and all credits, deposits, options, privileges and rights of
Mortgagor under the Mortgaged Leases (including all rights of use,
occupancy and enjoyment) and under any amendments, supplements, extensions,
renewals, restatements, replacements and modifications thereof (including,
without limitation, (i) the right to give consents, (ii) the right to
receive moneys payable to Mortgagor, (iii) the right, if any, to renew or
extend one or more of the Mortgaged Leases for a succeeding term or terms,
(iv) the right, if any, to purchase the Real Estate and (v) the right to
terminate or modify one or more of the Mortgaged Leases); all of
Mortgagor's claims and rights to the payment of damages arising under the
Bankruptcy Code (as determined below) from any rejection of one or more of
the Mortgaged Leases by the lessor thereunder or any other party;
(C) to the extent not included in (A) or (B), all right, title and
interest Mortgagor now has or may hereafter acquire in and to the
Improvements or any part thereof (whether owned in fee by Mortgagor or held
pursuant to one or more of the Mortgaged Leases or otherwise) and all the
<PAGE>
4
estate, right, title, claim or demand whatsoever of Mortgagor, in
possession or expectancy, in and to the Real Estate or any part thereof;
(D) all right, title and interest of Mortgagor in, to and under all
easements, rights of way, gores of land, streets, ways, alleys, passages,
sewer rights, waters, water courses, timber, timber rights, water and
riparian rights, development rights, air rights, mineral rights and all
estates, rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to the
Real Estate, and any reversions, remainders, rents, issues, profits and
revenue thereof and all land lying in the bed of any street, road or
avenue, in front of or adjoining the Real Estate to the center line
thereof;
(E) subject to Section 18(d) hereof, all of the fixtures, chattels,
business machines, machinery, apparatus, equipment, furnishings, fittings
and articles of personal property of every kind and nature whatsoever, and
all appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts and
accessories) currently owned or subsequently acquired by Mortgagor and, in
each case, now or subsequently attached to, or contained in or used or
usable in any way in connection with any operation or letting of the Real
Estate (all of the foregoing in this paragraph (D) being referred to as the
"EQUIPMENT");
(F) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in and to all substitutes and replacements of, and all additions
and improvements to, the Real Estate and the Equipment, subsequently
acquired by or released to Mortgagor or constructed, assembled or placed by
Mortgagor on the Real Estate, immediately upon such acquisition, release,
construction, assembling or placement, including, without limitation, any
and all building materials whether stored at the Real Estate or offsite,
and, in each such case, without any further mortgage, conveyance,
assignment or other act by Mortgagor;
(G) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in, to and under all leases, subleases, underlettings, concession
agreements, management agreements, licenses and other agreements relating
to the use or occupancy of the Real Estate or the Equipment or any part
thereof, now existing or subsequently entered into by Mortgagor and whether
written or oral and all guarantees of any of the foregoing (collectively,
as any of the foregoing may be amended, restated, extended, renewed or
modified from time to time, the "LEASES"), and all rights of Mortgagor in
respect of cash and securities deposited thereunder and the right to
receive and collect the revenues, income, rents,
<PAGE>
5
issues and profits thereof, together with all other rents, royalties,
issues, profits, revenue, income and other benefits arising from the use
and enjoyment of the Mortgaged Property (as defined below) (collectively,
the "RENTS");
(H) subject to Section 18(d) hereof, all insurance policies now or
subsequently obtained by Mortgagor relating to the Real Estate or Equipment
and Mortgagor's interest in and to all unearned premiums thereunder and all
proceeds of any such insurance policies (including title insurance
policies) including the right to collect and receive such proceeds, subject
to the provisions relating to insurance generally set forth below; and all
awards and other compensation, including the interest payable thereon and
the right to collect and receive the same, made to the present or any
subsequent owner of the Real Estate or Equipment for the taking by eminent
domain, condemnation or otherwise, of all or any part of the Real Estate or
any easement or other right therein;
(I) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in and to (i) all contracts from time to time executed by
Mortgagor or any manager or agent on its behalf relating to the ownership,
construction, maintenance, repair, operation, occupancy, sale or financing
of the Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or,
subject to Section 8.10 of the Credit Agreement, any property which is
adjacent or peripheral to the Real Estate, together with the right to
exercise such options and all leases of Equipment (collectively, the
"CONTRACTS"), (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof (collectively, the "PERMITS") and (iii) all drawings, plans,
specifications and similar or related items relating to the Real Estate
(collectively, the "PLANS");
(J) subject to Section 18(d) hereof, all of Mortgagor's right, title
and interest in any and all monies now or subsequently on deposit for the
payment of real estate taxes or special assessments against the Real Estate
or for the payment of premiums on insurance policies covering the foregoing
property or otherwise on deposit with or held by Mortgagee as provided in
this Mortgage; all capital, operating, reserve or similar accounts held by
or on behalf of Mortgagor and related to the operation of the Mortgaged
Property, whether now existing or hereafter arising and all monies held in
any of the foregoing accounts and any certificates or instruments related
to or evidencing such accounts;
<PAGE>
6
(K) subject to Section 18(d) hereof, all accounts resulting from the
sale of timber; and
(L) subject to Section 18(d) hereof, all proceeds, both cash and
noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned or
held or subsequently acquired by Mortgagor and described in the foregoing
clauses (A) through (F) are collectively referred to as the "PREMISES", and
those described in the foregoing clauses (A) through (L) are collectively
referred to as the "MORTGAGED PROPERTY").
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for the
uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
TERMS AND CONDITIONS
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. WARRANTY OF TITLE. (a) Mortgagor warrants that Mortgagor has good
title to the Fee Property in fee simple and good title to the rest of the
Mortgaged Property related to the Fee Property, subject only to the matters
referred to in subsection 9.3 of the Credit Agreement (collectively, the
"PERMITTED ENCUMBRANCES"), and Mortgagor shall warrant, defend and preserve such
title and the lien of the Mortgage thereon against all claims of all persons and
entities. Mortgagor further warrants that it has the right to mortgage the
Mortgaged Property.
(b) Mortgagor warrants (i) that Mortgagor has good title to the
leasehold estate in the Leasehold Parcels pursuant to the Mortgaged Leases and
has a right to mortgage the same, subject only to the matters referred to in
subsection 9.3 of the Credit Agreement (collectively, the "PERMITTED
ENCUMBRANCES"), (ii) that the Real Estate is subject to no leases or liens other
than the Mortgaged Leases and this Mortgage nor to any encumbrances, defects or
other matters, subject only to the matters referred to in subsection 9.3 of the
Credit Agreement (collectively, the "PERMITTED ENCUMBRANCES"), (iii) that
Mortgagor shall warrant and defend the lien thereon granted or intended to be
granted by this Mortgage against all persons and entities, (iv) that the
Mortgaged Leases are in full force and effect and Mortgagor is the holder of the
lessee's or tenant's interest thereunder, (v) that the Mortgaged Leases have not
been amended, supplemented or otherwise modified, except as may be specifically
described in Exhibit C attached to this Mortgage, (vi) that Mortgagor is not in
default under the Mortgaged Leases, has received no notice of default from any
of the lessors
<PAGE>
7
thereunder and knows of no material default by any of the lessors thereunder,
and (vii) that the granting of this Mortgage does not violate the terms of the
Mortgaged Leases nor is any consent of any of the lessors under the Mortgaged
Leases required to be obtained in connection with the granting of this Mortgage
unless such consent has been obtained.
2. PAYMENT OF INDEBTEDNESS. Mortgagor shall pay the Indebtedness at
the times and places and in the manner specified in the Credit Agreement and
shall perform all the Obligations.
3. REQUIREMENTS. (a) To the extent required in the Credit
Agreement, Mortgagor shall promptly comply with, or cause to be complied with,
and conform to all present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements, and irrespective of the
nature of the work to be done, of each of the United States of America, any
State and any municipality, local government or other political subdivision
thereof and any agency, department, bureau, board, commission or other
instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the
Mortgaged Property and all covenants, restrictions and conditions now or later
of record which may be applicable to any of the Mortgaged Property, or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property. All present and
future laws, statutes, codes, ordinances, orders, judgments, decrees, rules,
regulations and requirements of every Governmental Authority applicable to
Mortgagor or to any of the Mortgaged Property and all covenants, restrictions,
and conditions which now or later may be applicable to any of the Mortgaged
Property are collectively referred to as the "Legal Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall not by
act or omission permit any building or other improvement on any premises not
subject to the lien of this Mortgage to rely on the Premises or any part thereof
or any interest therein to fulfill any Legal Requirement, and Mortgagor hereby
assigns to Mortgagee any and all rights to give consent for all or any portion
of the Premises or any interest therein to be so used.
4. PAYMENT OF TAXES AND OTHER IMPOSITIONS. (a) To the extent
required in the Credit Agreement, promptly prior to the time when same become
delinquent and before any interest or penalties accrue thereon or attach
thereto, Mortgagor shall pay and discharge all taxes of every kind and nature
(including, without limitation, all real and personal property, income,
franchise, withholding, transfer, gains, profits and gross receipts taxes
imposed upon or assessed against the Mortgaged Property), all charges for any
easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments, levies, permits, inspection and
license
<PAGE>
8
fees, all water and sewer rents and charges and all other public charges even if
unforeseen or extraordinary, imposed upon or assessed against or which may
become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing are collectively referred to as the
"Impositions"). Upon request by Mortgagee, Mortgagor shall deliver to Mortgagee
(i) original or copies of receipted bills and cancelled checks or other
reasonably satisfactory evidence evidencing payment of such Imposition if it is
a real estate tax or other public charge and (ii) evidence acceptable to
Mortgagee showing the payment of any other such Imposition. If by law any
Imposition, at Mortgagor's option, may be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Mortgagor may
elect to pay such Imposition in such installments and shall be responsible for
the payment of such installments with interest, if any.
(b) Mortgagor shall not claim, demand or be entitled to receive any
credit or credits toward the satisfaction of this Mortgage or on any interest
payable thereon for any taxes assessed against the Mortgaged Property or any
part thereof, and shall not claim any deduction from the taxable value of the
Mortgaged Property by reason of this Mortgage.
5. INSURANCE. (a) Mortgagor shall not use or permit the use of the
Mortgaged Property in any manner which would permit any insurer to cancel any
insurance policy, unless replaced prior to or simultaneously with such
cancellation (such that there is no gap in coverage) by another policy
satisfactory to Mortgagee or void coverage required to be maintained by the
Credit Agreement.
(b) In the event of foreclosure of this Mortgage or other transfer of
title to the Mortgaged Property in extinguishment of the Indebtedness, all
right, title and interest of Mortgagor in and to any insurance policies then in
force shall pass to the purchaser or grantee and Mortgagor hereby appoints
Mortgagee its attorney-in-fact, in Mortgagor's name, to assign and transfer all
such policies and proceeds to such purchaser or grantee.
(c) Until an Event of Default shall have occurred and be continuing,
all insurance and eminent domain proceeds shall be payable to Mortgagor, free
and clear of the lien of this Mortgage. All parties having dealings with
Mortgagor in connection with insurance and eminent domain matters shall be
entitled to rely on an affidavit of Mortgagor to the effect that no Event of
Default has occurred and is continuing, absent receipt of written notice from
Mortgagee to the contrary.
6. RESTRICTIONS. Mortgagor shall not (i) except for the lien of this
Mortgage and the Permitted Encumbrances, further mortgage, nor otherwise
encumber the Mortgaged Property nor
<PAGE>
9
create or suffer to exist any lien, charge or encumbrance on the Mortgaged
Property, or any part thereof, whether superior or subordinate to the lien of
this Mortgage and whether recourse or non-recourse, nor (ii) sell, transfer,
convey or assign nor permit to be sold transferred, conveyed or assigned all or
any portion of, or any interest in, the Mortgaged Property, except, in each
case, as may be otherwise expressly permitted under the Credit Agreement. In
the event of any such permitted sale, transfer, conveyance, assignment or other
disposition of any part of the Mortgaged Property, this Mortgage will remain in
effect with respect to all of the remaining Mortgaged Property.
7. MAINTENANCE; UTILITIES. (a) Mortgagor shall maintain or cause to
be maintained all the Improvements in good working order and condition and shall
not commit or suffer any material waste of the Improvements.
(b) Mortgagor shall pay or cause to be paid when due all utility
charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.
8. RIGHTS OF TENANTS. This Mortgage is subject to the rights of any
and all tenants of the Mortgaged Property now or hereafter existing and, for so
long as said tenants are not in default under the terms of their respective
leases and shall agree to attorn to Mortgagee (or Mortgagee's designee) upon its
acquisition of title to the Mortgaged Property, Mortgagee shall not disturb the
use or possession by said tenants to all or a portion of the Mortgaged Property,
as described in such tenant's lease. If an Event of Default shall have occurred
and be continuing and Mortgagee elects to foreclose this Mortgage in pursuant to
the Section of this Mortgage entitled "Remedies", so long as said tenants are
not in default under the terms of their respective leases, Mortgagee shall take
no action or fail to take any action, as the case may be, the effect of which
would be to terminate the rights of said tenants under their respective leases;
PROVIDED that if, in order validly to foreclose the lien of this Mortgage such
lease must be terminated, Mortgagee may nevertheless proceed with such
foreclosure but following the completion of such foreclosure shall enter into a
new lease of the Mortgaged Property with such tenant on the same terms and
conditions as those set forth in the then terminated lease. Mortgagor may, in
the ordinary course of business and without the consent of Mortgagee, enter into
any new leases or modify, surrender, terminate, extend or renew any lease now
existing or hereafter created upon the Mortgaged Property, or any portion
thereof, without the consent of Mortgagee. Mortgagee agrees to execute such
other and further instruments as may be necessary to effectuate the terms of
this Section.
<PAGE>
10
9. FURTHER ASSURANCES. To further assure Mortgagee's rights under
this Mortgage, Mortgagor agrees upon demand of Mortgagee to do any act or
execute any additional documents (including, but not limited to, security
agreements on any personalty included or to be included in the Mortgaged
Property and a separate assignment of each Lease in recordable form) as may be
reasonably required by Mortgagee to confirm the lien of this Mortgage and all
other rights or benefits conferred on Mortgagee.
10. MORTGAGEE'S RIGHT TO PERFORM. If Mortgagor fails to perform any
of the covenants or agreements of Mortgagor after an Event of Default shall have
occurred and be continuing, Mortgagee, without waiving or releasing Mortgagor
from any obligation or default under this Mortgage, with reasonable efforts to
provide simultaneous written notice to Mortgagor, may, at any time (but shall be
under no obligation to) pay or perform the same, and the amount or cost thereof,
with interest at the Default Rate, shall immediately be due from Mortgagor to
Mortgagee and the same shall be secured by this Mortgage and shall be a lien on
the Mortgaged Property prior to any right, title to, interest in or claim upon
the Mortgaged Property attaching subsequent to the lien of this Mortgage. No
payment or advance of money by Mortgagee under this Section shall be deemed or
construed to cure Mortgagor's default or waive any right or remedy of Mortgagee.
11. MORTGAGOR'S EXISTENCE, ETC. Upon recordation of this Mortgage
in the appropriate office or offices, payment of all mortgage recording fees and
taxes in respect thereof and compliance with the formal requirements of state
law applicable to the recording of real estate mortgages generally, this
Mortgage shall constitute a fully perfected mortgage lien on and security
interest in the Mortgaged Property, subject only to such encumbrances, defects
and exceptions as are expressly permitted under the Credit Agreement.
12. ASBESTOS AND HAZARDOUS WASTE. Mortgagor shall comply with
Environmental Laws to the extent provided in the Credit Agreement. If Mortgagor
shall fail to so comply to the extent required in the Credit Agreement,
Mortgagee may declare an Event of Default and may (but shall not be obligated
to) do whatever is necessary to comply with the applicable Environmental Laws,
and the costs thereof, with interest at the Default Rate, shall be immediately
due from Mortgagor to Mortgagee and the same shall be added to the Indebtedness
and be secured by this Mortgage. If an Event of Default exists, Mortgagor shall
give Mortgagee and its agents and employees access to the Premises to cause such
compliance.
13. EVENT OF DEFAULT. (a) The occurrence of an Event of Default
under the Credit Agreement shall constitute an Event of Default hereunder; and
<PAGE>
11
(b) to the extent it would have a Material Adverse Effect (as defined
in the Credit Agreement), a failure of Mortgagor to duly perform and observe, or
a violation or breach of, any other terms, covenants, provisions or conditions
of this Mortgage and the continuation thereof for a 30-day period after notice
shall have been given to Mortgagor by Mortgagee specifying such default and
requiring such default be remedied, shall constitute an Event of Default
hereunder; which period may be extended to the extent required (but no longer
than 180 days) if such default is not susceptible of cure within 30 days so long
as Mortgagor has commenced to cure such default within such 30-day period and is
thereafter diligently prosecuting such cure to completion and so long as such
delay is not likely to have a Material Adverse Effect on either the Mortgaged
Property or Mortgagee's rights under this Mortgage; provided, however, any such
default that can be cured by the payment of money shall be promptly cured after
notice by Mortgagee.
14. REMEDIES.
(a) Upon the occurrence of any Event of Default, in addition to any
other rights and remedies Mortgagee may have pursuant to the Loan Documents, or
as provided by law, and without limitation, (x) if such event is an Event of
Default specified in clause (i) or (ii) of Section 11(f) of the Credit Agreement
with respect to Mortgagor, automatically the Indebtedness immediately shall
become due and payable, and (y) if such event is any other Event of Default
under Section 11 of the Credit Agreement, in addition to any other rights and
remedies Mortgagee may have pursuant to the Credit Agreement, Mortgagee may
immediately take such action, without notice or demand, as it deems advisable to
protect and enforce its rights against Mortgagor and in and to the Mortgaged
Property, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such manner as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law, (A)
institute and maintain an action of mortgage foreclosure against all or any
part of the Mortgaged Property, (B) institute and maintain an action on the
Credit Agreement, the Term Notes, if any, the Revolving Credit Notes, if
any, the Swing Line Notes, if any, and the LOC Notes, if any, (C) sell all
or part of the Mortgaged Property (Mortgagor expressly granting to
Mortgagee the power of sale), or (D) take such other action at law or in
equity for the enforcement of this Mortgage or any of the Loan Documents as
the law may allow. Mortgagee may proceed in any such action to final
judgment and execution thereon for all sums due hereunder, together with
interest thereon at the Default Rate and all costs of suit, including,
without limitation, reasonable attorneys' fees and
<PAGE>
12
disbursements. Interest at the Default Rate shall be due on any judgment
obtained by Mortgagee from the date of judgment until actual payment is
made of the full amount of the judgment;
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the Mortgaged
Property or any other collateral as security for the Indebtedness and
Obligations enter into and upon the Mortgaged Property and each and every
part thereof and exclude Mortgagor and its agents and employees therefrom
without liability for trespass, damage or otherwise (Mortgagor hereby
agreeing to surrender possession of the Mortgaged Property to Mortgagee
upon demand at any such time) and use, operate, manage, maintain and
control the Mortgaged Property and every part thereof. Following such
entry and taking of possession, Mortgagee shall be entitled, without
limitation, (x) to lease all or any part or parts of the Mortgaged Property
for such periods of time and upon such conditions as Mortgagee may, in its
discretion, deem proper, (y) to enforce, cancel or modify any Lease and (z)
generally to execute, do and perform any other act, deed, matter or thing
concerning the Mortgaged Property as Mortgagee shall deem appropriate as
fully as Mortgagor might do.
(b) To the extent permitted under applicable law, the holder of this
Mortgage, in any action to foreclose it, shall be entitled to the appointment of
a receiver. In case of a foreclosure sale, the Real Estate may be sold, at
Mortgagee's election, in one parcel or in more than one parcel and Mortgagee is
specifically empowered, (without being required to do so, and in its sole and
absolute discretion) to cause successive sales of portions of the Mortgaged
Property to be held.
(c) In the event of any breach of any of the covenants, agreements,
terms or conditions contained in this Mortgage, and notwithstanding any
exculpatory or non-recourse language which may be contained herein to the
contrary, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Mortgage.
15. RIGHT OF MORTGAGEE TO CREDIT SALE. Upon the occurrence of any
sale made under this Mortgage, whether made under the power of sale or by virtue
of judicial proceedings or of a judgment or decree of foreclosure and sale,
Mortgagee may bid for and acquire the Mortgaged Property or any part thereof.
In lieu of paying cash therefor, Mortgagee may make settlement for the purchase
price by crediting upon the Indebtedness or other sums secured by this Mortgage
the net sales price after deducting therefrom the expenses of sale and the cost
of the
<PAGE>
13
action and any other sums which Mortgagee is authorized to deduct under this
Mortgage. In such event, this Mortgage, the Credit Agreement, the Term Notes,
if any, the Revolving Credit Notes, if any, the Swing Line Notes, if any, the
LOC Notes, if any, and documents evidencing expenditures secured hereby may be
presented to the person or persons conducting the sale in order that the amount
so used or applied may be credited upon the Indebtedness as having been paid.
16. APPOINTMENT OF RECEIVER. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice to
Mortgagor, unless otherwise required by applicable law, and without regard to
the adequacy or inadequacy of the Mortgaged Property or any other collateral as
security for the Indebtedness and Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.
17. EXTENSION, RELEASE, ETC. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged Property not then or
theretofore released as security for the full amount of the Indebtedness,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of the
terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Mortgage shall secure
less than all of the principal amount of the Indebtedness, it is expressly
agreed that any repayments of the principal amount of the Indebtedness shall not
reduce the amount of the lien of this Mortgage until the lien amount shall equal
the principal amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of
<PAGE>
14
Mortgagee hereunder, and such liens, rights, powers and remedies shall continue
unimpaired.
(c) If Mortgagee shall have the right to foreclose this Mortgage,
Mortgagor authorizes Mortgagee at its option to foreclose the lien of this
Mortgage subject to the rights of any tenants of the Mortgaged Property. The
failure to make any such tenants parties defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Indebtedness or
to foreclose the lien of this Mortgage.
(d) Unless expressly provided otherwise, in the event that ownership
of this Mortgage and title to the Mortgaged Property or any estate therein shall
become vested in the same person or entity, this Mortgage shall not merge in
such title but shall continue as a valid lien on the Mortgaged Property for the
amount secured hereby.
18. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. (a) It is the
intention of the parties hereto that this Mortgage shall constitute a Security
Agreement within the meaning of the Uniform Commercial Code (the "CODE") of the
State in which the Mortgaged Property is located. If an Event of Default shall
occur and be continuing under this Mortgage, then in addition to having any
other right or remedy available at law or in equity, Mortgagee shall have the
option of either (i) proceeding under the Code and exercising such rights and
remedies as may be provided to a secured party by the Code with respect to all
or any portion of the Mortgaged Property which is personal property (including,
without limitation, taking possession of and selling such property) or (ii)
treating such property as real property and proceeding with respect to both the
real and personal property constituting the Mortgaged Property in accordance
with Mortgagee's rights, powers and remedies with respect to the real property
(in which event the default provisions of the Code shall not apply). If
Mortgagee shall elect to proceed under the Code, then ten days' notice of sale
of the personal property shall be deemed reasonable notice and the reasonable
expenses of retaking, holding, preparing for sale, selling and the like incurred
by Mortgagee shall include, but not be limited to, attorneys' fees and legal
expenses. At Mortgagee's request, Mortgagor shall assemble the personal
property and make it available to Mortgagee at a place designated by Mortgagee
which is reasonably convenient to both parties.
(b) Mortgagor and Mortgagee agree, to the extent permitted by law,
that: (i) some of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) as to those
fixtures, this Mortgage upon recording or registration in the real estate
records of the proper office shall constitute a financing statement filed as a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code;
(iii) except as otherwise
<PAGE>
15
provided, Mortgagor is the record owner of the Real Estate and the leasehold
estate in the Leasehold Parcels; and (iv) the mailing addresses of Mortgagor and
Mortgagee are as set forth on the first page of this Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or more separate security
agreements, in form reasonably satisfactory to Mortgagee, covering all or any
part of the Mortgaged Property and will further execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, any financing
statement, affidavit, continuation statement or certificate or other document as
Mortgagee may request in order to perfect, preserve, maintain, continue or
extend the security interest under and the priority of this Mortgage and such
security instrument. Mortgagor shall from time to time, on request of
Mortgagee, deliver to Mortgagee an inventory in reasonable detail of any of the
Mortgaged Property which constitutes personal property. If Mortgagor shall fail
to furnish any financing or continuation statement within 10 days after request
by Mortgagee, then pursuant to the provisions of the Code, Mortgagor hereby
authorizes Mortgagee, without the signature of Mortgagor, to execute and file
any such financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or chattels
shall not be construed as in any way impairing the right of Mortgagee to proceed
against any personal property encumbered by this Mortgage as real property, as
set forth above. A photocopy of this Mortgage may be filed as a Financing
Statement.
(d) All rights, remedies and obligations granted, created or
otherwise arising hereunder and all representations, warranties and other
provisions hereof shall be construed, and all actions hereunder shall be
performed, in a manner consistent with, and subject to the terms and provisions
of, the Security Agreement. To the extent that the rights granted hereunder in
any item of the Mortgaged Property (other than the Real Estate and other
interests which are exclusively real property interests) conflict with any
rights granted in the same item of Mortgaged Property under the Security
Agreement, the Security Agreement shall prevail.
19. ASSIGNMENT OF RENTS. Mortgagor hereby assigns to Mortgagee the
Rents as further security for the payment of the Indebtedness and performance of
the Obligations, and Mortgagor grants to Mortgagee the right to enter the
Mortgaged Property for the purpose of collecting the same and to let the
Mortgaged Property or any part thereof, and to apply the Rents on account of the
Indebtedness. The foregoing assignment and grant is present and absolute and
shall continue in effect until the Indebtedness is paid in full, but Mortgagee
hereby waives the right to enter the Mortgaged Property for the purpose of
collecting the Rents and Mortgagor shall be entitled to collect,
<PAGE>
16
receive, use and retain the Rents until the occurrence of an Event of Default
under this Mortgage; such right of Mortgagor to collect, receive, use and retain
the Rents may be revoked by Mortgagee upon the occurrence of any Event of
Default under this Mortgage by giving not less than fifteen days' written notice
of such revocation to Mortgagor; in the event such notice is given, so long as
an Event of Default shall have occurred and be continuing, Mortgagor shall pay
over to Mortgagee, or to any receiver appointed to collect the Rents, any lease
security deposits, and shall pay monthly in advance to Mortgagee, or to any such
receiver, the fair and reasonable rental value as determined by Mortgagee for
the use and occupancy of the Mortgaged Property or of such part thereof as may
be in the possession of Mortgagor or any affiliate of Mortgagor, and upon
default in any such payment Mortgagor and any such affiliate will vacate and
surrender the possession of the Mortgaged Property to Mortgagee or to such
receiver, and in default thereof may be evicted by summary proceedings or
otherwise. Mortgagor shall not accept prepayments of installments of Rent to
become due for a period of more than one month in advance (except for security
deposits and estimated payments of percentage rent, if any).
20. ADDITIONAL RIGHTS. Upon the occurrence of any Event of Default,
Mortgagee may, in its sole discretion and without regard to the adequacy of its
security under this Mortgage, apply all or any part of any amounts on deposit
with Mortgagee under this Mortgage against all or any part of the Indebtedness,
in accordance with the provisions of the Credit Agreement and the other Loan
Documents (as defined therein). Any such application shall not be construed to
cure or waive any Event of Default or invalidate any act taken by Mortgagee on
account of such Event of Default.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be given in the manner and to the addresses determined under
Section 13.2 of the Credit Agreement.
22. NO ORAL MODIFICATION. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this Mortgage shall be superior to the rights of
the holder of any intervening or subordinate lien or encumbrance.
23. PARTIAL INVALIDITY. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but each shall be
construed as if such invalid, illegal or unenforceable provision had never been
included. Notwithstanding to the contrary anything contained in this Mortgage
or in any provisions of the Indebtedness or Loan Documents, the obligations of
Mortgagor and of any other obligor under the Indebtedness or Loan Documents
shall be subject to the limitation that neither Mortgagee nor any Lender shall
charge,
<PAGE>
17
take or receive, nor shall Mortgagor or any other obligor be obligated to pay to
Mortgagee or any Lender, any amounts constituting interest in excess of the
maximum rate permitted by law to be charged by Mortgagee or any Lender, as the
case may be.
24. MORTGAGOR'S WAIVER OF RIGHTS. To the fullest extent permitted by
law, Mortgagor waives the benefit of all laws now existing or that may
subsequently be enacted providing for (i) any appraisement before sale of any
portion of the Mortgaged Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Mortgaged Property from attachment, levy or sale under
execution or exemption from civil process. To the full extent Mortgagor may do
so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, exemption, extension or
redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created.
25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to enforce
payment of the Indebtedness and performance of the Obligations and to exercise
all rights and powers under this Mortgage or under any of the other Loan
Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Indebtedness and Obligations may now or
hereafter be otherwise secured, whether by mortgage, security agreement, pledge,
lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its
enforcement, shall prejudice or in any manner affect Mortgagee's right to
realize upon or enforce any other security now or hereafter held by Mortgagee,
it being agreed that Mortgagee shall be entitled to enforce this Mortgage and
any other security now or hereafter held by Mortgagee in such order and manner
as Mortgagee may determine in its absolute discretion. No remedy herein
conferred upon or reserved to Mortgagee is intended to be exclusive of any other
remedy herein or by law provided or permitted, but each shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. Every power or remedy given by any
of the Loan Documents to Mortgagee or to which it may otherwise be entitled, may
be exercised, concurrently or independently, from time to time and as often as
may be deemed expedient by Mortgagee. In no event shall Mortgagee, in the
exercise of the remedies provided in this Mortgage (including, without
limitation, in connection
<PAGE>
18
with the assignment of Rents to Mortgagee, or the appointment of a receiver and
the entry of such receiver on to all or any part of the Mortgaged Property), be
deemed a "mortgagee in possession," and Mortgagee shall not in any way be made
liable for any act, either of commission or omission, in connection with the
exercise of such remedies.
26. MULTIPLE SECURITY. If (a) the Premises shall consist of one or
more parcels, whether or not contiguous and whether or not located in the same
county, or (b) in addition to this Mortgage, Mortgagee shall now or hereafter
hold one or more additional mortgages, liens, deeds of trust or other security
(directly or indirectly) for the Indebtedness upon other property in the State
in which the Premises are located (whether or not such property is owned by
Mortgagor or by others) or (c) both the circumstances described in clauses (a)
and (b) shall be true, then to the fullest extent permitted by law, Mortgagee
may, at its election, commence or consolidate in a single foreclosure action all
foreclosure proceedings against all such collateral securing the Indebtedness
(including the Mortgaged Property), which action may be brought or consolidated
in the courts of any county in which any of such collateral is located.
Mortgagor acknowledges that the right to maintain a consolidated foreclosure
action is a specific inducement to some or all of the Lenders to make certain
loans to and to enter into certain agreements with Mortgagor, and for Mortgagee
to enter into the Credit Agreement, and Mortgagor expressly and irrevocably
waives any objections to the commencement or consolidation of the foreclosure
proceedings in a single action and any objections to the laying of venue or
based on the grounds of FORUM NON CONVENIENS which it may now or hereafter have.
Mortgagor further agrees that if Mortgagee shall be prosecuting one or more
foreclosure or other proceedings against a portion of the Mortgaged Property or
against any collateral other than the Mortgaged Property, which collateral
directly or indirectly secures the Indebtedness, or if Mortgagee shall have
obtained a judgment of foreclosure and sale or similar judgment against such
collateral, then, whether or not such proceedings are being maintained or
judgments were obtained in or outside the State in which the Premises are
located, Mortgagee may commence or continue foreclosure proceedings and exercise
its other remedies granted in this Mortgage against all or any part of the
Mortgaged Property and Mortgagor waives any objections to the commencement or
continuation of a foreclosure of this Mortgage or exercise of any other remedies
hereunder based on such other proceedings or judgments, and waives any right to
seek to dismiss, stay, remove, transfer or consolidate either any action under
this Mortgage or such other proceedings on such basis. Neither the commencement
nor continuation of proceedings to foreclose this Mortgage nor the exercise of
any other rights hereunder nor the recovery of any judgment by Mortgagee in any
such proceedings shall prejudice, limit or preclude Mortgagee's right to
commence or continue one or more foreclosure or other proceedings or obtain a
judgment against any other collateral (either in or outside the
<PAGE>
19
State in which the Premises are located) which directly or indirectly secures
the Indebtedness, and Mortgagor expressly waives any objections to the
commencement of, continuation of, or entry of a judgment in such other
proceedings or exercise of any remedies in such proceedings based upon any
action or judgment connected to this Mortgage, and Mortgagor also waives any
right to seek to dismiss, stay, remove, transfer or consolidate either such
other proceedings or any action under this Mortgage on such basis. It is
expressly understood and agreed that to the fullest extent permitted by law,
Mortgagee may, at its election, cause the sale of all collateral which is the
subject of a single foreclosure action at either a single sale or at multiple
sales conducted simultaneously and take such other measures as are appropriate
in order to effect the agreement of the parties to dispose of and administer all
collateral securing the Indebtedness (directly or indirectly) in the most
economical and least time-consuming manner.
27. EXPENSES; INDEMNIFICATION. Mortgagor agrees (a) to pay or
reimburse Mortgagee for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, the Credit Agreement and the other
Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to Mortgagee, (b) to pay or reimburse each
Lender and the Agent for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under the Credit Agreement, the
other Loan Documents and any such other documents prepared in connection
herewith or therewith, including, without limitation, the fees and disbursements
of counsel (including the allocated fees and expenses of in-house counsel in
lieu of the fees and expenses of outside counsel) to each Lender and of counsel
to the Agent, (c) to pay, indemnify, and hold each Lender and the Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
similar taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, the Credit Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
each Lender and the Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of the
Credit Agreement, the other Loan Documents, the Stock Purchase Agreement, the
Stock Purchase, the Merger or the use of the proceeds of the Loans in connection
with the Stock Purchase, and any such other documents, including, without
limitation, any of
<PAGE>
20
the foregoing relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Mortgagor, any
of its Subsidiaries or any of the Properties (all the foregoing in this clause
(d), collectively, the "indemnified liabilities"), PROVIDED, that the Mortgagor
shall have no obligation hereunder to the Agent or any Lender with respect to
indemnified liabilities arising from (1) the gross negligence or willful
misconduct of the Agent or any such Lender or (2) legal proceedings commenced
against the Agent or any such Lender by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such. The agreements in this subsection
shall survive repayment of the Loans and all other amounts payable under the
Credit Agreement.
28. SUCCESSORS AND ASSIGNS. Except to the extent prohibited in the
Credit Agreement, all covenants of Mortgagor contained in this Mortgage are
imposed solely and exclusively for the benefit of Mortgagee and the Lenders and
their respective successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Mortgagee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Mortgagor
shall run with the land and bind Mortgagor, the successors and assigns of
Mortgagor (and each of them) and all subsequent owners, encumbrancers and
tenants of the Mortgaged Property, and shall inure to the benefit of Mortgagee
and the Lenders and their respective successors and assigns. The word
"Mortgagor" shall be construed as if it read "Mortgagors" whenever the sense of
this Mortgage so requires and if there shall be more than one Mortgagor, the
obligations of the Mortgagors shall be joint and several.
29. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon the
strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Mortgagee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Mortgagor of any and all of
the terms and provisions of this Mortgage to be performed by Mortgagor.
Mortgagee may release, regardless of consideration and without the necessity for
any notice to or consent by the holder of any subordinate lien on the Mortgaged
Property, any part of the security held for the obligations secured by this
Mortgage without, as to the remainder of the security, in anywise impairing or
affecting the lien of this Mortgage or the priority of such lien over any
subordinate lien.
30. GOVERNING LAW, ETC. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor
<PAGE>
21
expressly acknowledges that by their terms the Term Notes, if any, the Revolving
Credit Notes, if any, the Swing Line Notes, if any, and the LOC Notes, if any,
shall be governed and construed in accordance with the laws of the State of New
York, without regard to principles of conflict of law, and for purposes of
consistency, Mortgagor agrees that in any IN PERSONAM proceeding related to this
Mortgage the rights of the parties to this Mortgage shall also be governed by
and construed in accordance with the laws of the State of New York governing
contracts made and to be performed in that State, without regard to principles
of conflict of law.
31. WAIVER OF TRIAL BY JURY. Mortgagor and Mortgagee each hereby
irrevocably and unconditionally waive trial by jury in any action, claim, suit
or proceeding relating to this Mortgage and for any counterclaim (other than
compulsory counterclaims) brought therein. Mortgagor hereby waives all rights
to interpose any counterclaim (other than compulsory counterclaims) in any suit
brought by Mortgagee hereunder and all rights to have any such suit consolidated
with any separate suit, action or proceeding.
32. CERTAIN DEFINITIONS. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "MORTGAGOR" shall mean "each Mortgagor or any subsequent owner or owners of
the Mortgaged Property or any part thereof or interest therein," the word
"MORTGAGEE" shall mean "Mortgagee or any successor agent under the Credit
Agreement," the words "TERM NOTES, REVOLVING CREDIT NOTES, SWING LINE NOTES, LOC
NOTES" shall mean respectively "the Term Notes, the Revolving Credit Notes, the
Swing Line Notes, the LOC Notes or any other evidence of indebtedness secured by
this Mortgage," the word "PERSON" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "MORTGAGED PROPERTY" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience or reference only and in no way limit or amplify the provisions
hereof.
33. RELEASE. (a) Any Mortgaged Property that is permitted to be sold
or otherwise transferred free of the lien of the Security Documents as provided
in the Credit Agreement shall be sold or otherwise transferred, as the case may
be, free and clear of this Mortgage. In connection with any such sale or
transfer, the Mortgagee shall execute and deliver to Mortgagor, or to such
person or persons as Mortgagor shall reasonably designate, a satisfaction of
mortgage and such other documents as Mortgagor may reasonably request to
evidence the release of this
<PAGE>
22
Mortgage with respect to such Mortgaged Property, as well as a release of any
collateral assignments or other Security Documents in favor of Mortgagee that
burden such Mortgaged Property.
(b) In addition, and not in limitation of the foregoing, any
Mortgaged Property (other than the Real Estate) that also constitutes collateral
under any other Security Document shall automatically be released from this
Mortgage in the event that such Mortgaged Property is released from the security
interest created by such other Security Document in accordance with the terms
thereof and of the Credit Agreement.
34. MORTGAGED LEASE PROVISIONS. (a) To the extent failure to do so
would have a Material Adverse Effect (as defined in the Credit Agreement),
Mortgagor will pay or cause to be paid all rent and other charges required under
the Mortgaged Leases as and when the same are due and will promptly and
faithfully observe, abide by, discharge and perform, or cause to be kept,
observed, discharged and performed, all other material terms, obligations,
covenants, conditions, agreements, indemnities, representations, warranties or
liabilities of the Mortgaged Leases on the part of the lessee thereunder to be
kept, observed, discharged and performed, and will not without the express
written consent of Mortgagee (i) in any manner, cancel, terminate or surrender,
or permit the cancellation, termination or surrender of any of the Mortgaged
Leases, in whole or in part, (ii) either orally or in writing, modify, amend or
permit any modification or amendment of any of the terms thereof in any material
respect or (iii) permit the subordination thereof to any mortgage; and any
attempt on the part of Mortgagor to do any of the foregoing without such written
consent of Mortgagee shall be null and void and of no effect and shall
constitute an Event of Default hereunder.
(b) To the extent failure to do so would have a Material Adverse
Effect (as defined in the Credit Agreement), Mortgagor will do, or cause to be
done, all things necessary to preserve and keep unimpaired all material rights
of Mortgagor as lessee under the Mortgaged Leases, and to prevent any default
under the Mortgaged Leases, or any termination, surrender, cancellation,
forfeiture, subordination or impairment thereof. In the event of the failure of
Mortgagor to make any payment required to be made by the lessee pursuant to the
provisions of the Mortgaged Leases or to observe, abide by, discharge or
perform, or cause to be observed, kept, discharged or performed, any of the
material terms, obligations, covenants, conditions, agreements, indemnities,
representations, warranties or liabilities of the Mortgaged Leases on the part
of lessee thereunder to be observed, kept, discharged and performed, Mortgagor
does hereby authorize and irrevocably appoint and constitute Mortgagee as its
true and lawful attorney-in-fact, which appointment is coupled with an interest,
in its name, place and stead, to take any and all actions deemed necessary or
desirable by Mortgagee to perform and comply with all the
<PAGE>
23
obligations of Mortgagor under the Mortgaged Leases, to do and take, but without
any obligation so to do, any action which Mortgagee deems necessary or desirable
to prevent or cure any default by Mortgagor under the Mortgaged Leases, to enter
into and upon the Premises or any part thereof to such extent and as often as
Mortgagee, in its sole discretion, deems necessary or desirable in order to
prevent or cure any default of Mortgagor pursuant thereto, to the end that the
rights of Mortgagor in and to the leasehold estate created by the Mortgaged
Leases shall be kept unimpaired and free from default, and all sums so expended
by Mortgagee, with interest thereon at the Default Rate from the date of each
such expenditure, shall be paid by Mortgagor to Mortgagee promptly upon demand
by Mortgagee. Mortgagor shall, within five (5) business days after written
request by Mortgagee, execute and deliver to Mortgagee, or to any person
designated by Mortgagee, such further instruments, agreements, powers,
assignments, conveyances or the like as may be necessary to complete or perfect
the interest, rights or powers of Mortgagee pursuant to this paragraph (b).
(c) If any action or proceeding shall be instituted to evict
Mortgagor or to recover possession of any Leasehold Parcel or any part thereof
or interest therein or any action or proceeding otherwise affecting any of the
Mortgaged Leases or this Mortgage shall be instituted, then Mortgagor will,
immediately upon service thereof on or to Mortgagor, deliver to Mortgagee a true
and complete copy of each petition, summons, complaint, notice of motion, order
to show cause and of all other provisions, pleadings, and papers, however
designated, served in any such action or proceeding.
(d) Mortgagor covenants and agrees that unless Mortgagee shall
otherwise expressly consent in writing, the fee title to the property demised by
the Mortgaged Leases and the leasehold estate and/or any subleasehold estate
shall not merge but shall always remain separate and distinct, notwithstanding
the union of said estates either in Mortgagor or a third party by purchase or
otherwise; and in case Mortgagor acquires the fee title or any other estate,
title or interest in and to any Leasehold Parcel, the lien of this Mortgage
shall, without further conveyance, simultaneously with such acquisition, be
spread to cover and attach to such acquired estate and as so spread and attached
shall be prior to the lien of any mortgage placed on the acquired estate
subsequent to the date of this Mortgage.
(e) No release or forbearance of any of Mortgagor's obligations under
the Mortgaged Leases, pursuant to the Mortgaged Leases, or otherwise, shall
release Mortgagor from any of its obligations under this Mortgage, including its
obligation with respect to the payment of rent as provided for in the Mortgaged
Leases and the performance of all of the terms, provisions, covenants,
conditions and agreements contained in the Mortgaged
<PAGE>
1
Leases, to be kept, performed and completed by the lessee therein.
This Mortgage has been duly executed by Mortgagor on the date first
above written.
WITNESS: S.D. WARREN COMPANY
By:
- ------------------------- ---------------------------
Name:
Title:
[CORPORATE SEAL]
<PAGE>
STATE OF NEW YORK ) December ___, 1994
: ss.:
COUNTY OF NEW YORK )
Then personally appeared the above-named
in his/her capacity as of S.D. Warren, and
acknowledged the foregoing instrument to be his/her free act and deed in his/her
said capacity and the free act and deed of said corporation.
Before me,
-------------------------
-------------------------
(Print Name)
Notary Public State of
-----------
My commission expires:
-----------
<PAGE>
EXHIBIT A
Description of the Premises
[Attach Legal Description of all parcels]
<PAGE>
EXHIBIT B TO
CREDIT AND GUARANTEE AGREEMENT
MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
from
S.D. Warren Company, Mortgagor
(as successor by merger to SDW Acquisition Corporation)
to
CHEMICAL BANK,
as Agent, Mortgagee
DATED AS OF DECEMBER __, 1994
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Pascale I. Bissainthe, Esq.
<PAGE>
EXHIBIT D TO
CREDIT AND GUARANTEE AGREEMENT
[FORM OF BORROWER FEE MORTGAGE]
[NOTE: THIS FORM IS NOT STATE-LAW SPECIFIC. SPECIFIC PROVISIONS,
SATISFACTORY TO AGENT'S COUNSEL, THAT ARE NECESSARY OR DESIRABLE UNDER THE
LAW OR REAL ESTATE PRACTICE OF ANY PARTICULAR STATE IN WHICH THIS FORM IS USED
WILL BE ADDED.]
THIS MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
(collectively, the "Mortgage"), dated as of __________ is made by S.D. Warren
Company (as successor by merger to SDW Acquisition Corporation), a
Pennsylvania corporation ("MORTGAGOR"), whose mailing address is
_________________ to CHEMICAL BANK, whose mailing address is 270 Park Avenue,
New York, New York 10017 as agent (the "AGENT"; in such capacity, together
with its successors and assigns, "MORTGAGEE") for the several banks and other
financial institutions (the "LENDERS") from time to time parties to that
certain Credit and Guarantee Agreement dated as of December ____, 1994 (as
the same may have been and may be further amended, supplemented, restated,
replaced or otherwise modified from time to time, the "CREDIT AGREEMENT")
among SDW Holdings Corporation, a Delaware corporation, the Mortgagee, the
Mortgagor and the Lenders. References to this "MORTGAGE" shall mean this
instrument and any and all renewals, modifications, amendments, supplements,
extensions, consolidations, substitutions, spreaders and replacements of
this instrument.
BACKGROUND
A. Mortgagor has, as of the date hereof, become the owner of
the parcel(s) of real property described on Exhibit A attached (such real
property, together with all of the buildings, improvements, structures and
fixtures now or subsequently located thereon (the "IMPROVEMENTS"), being
collectively referred to as the "REAL ESTATE").
B. Pursuant to the Credit Agreement, following the
consummation of the Stock Purchase, SDW Acquisition Corporation, a
Pennsylvania corporation ("ACQUISITION CORP.") has, on the date hereof, been
merged with and into Mortgagor, with Mortgagor being the surviving
corporation of such Merger and assuming the obligations of Acquisition Corp.
under the Credit Agreement.
C. Pursuant to the Credit Agreement, the Lenders have
severally agreed (i) to make certain Term Loans to the Borrower, portions of
which, in the aggregate principal amount of $ 630,000,000, are more
particularly described in the Credit Agreement as the Tranche A Term Loans
and the Tranche B Term Loans, (ii) to make certain Revolving Credit Loans and
Swing Line
<PAGE>
2
Loans to the Borrower, in the aggregate principal amount of $ 250,000,000 and
(iii) to issue LOC Letters of Credit, in the aggregate principal amount of $
220,000,000, all upon the terms and subject to the conditions set forth
therein. The Tranche A Term Loans and the Tranche B Term Loans are
respectively evidenced by (i) the Credit Agreement, and may, as provided
therein, be evidenced by those certain Tranche A Term Loan Notes dated as of
even date herewith in the aggregate principal amount of $ 305,000,000 (as
each of the same may be further assigned, amended, supplemented, modified,
extended, restated or replaced from time to time, the "TRANCHE A TERM NOTES")
and (ii) the Credit Agreement, and may, as provided therein, be evidenced by
those certain Tranche B Term Loan Notes dated as of even date herewith in the
aggregate principal amount of $ 325,000,000 (as each of the same may be
further assigned, amended, supplemented, modified, extended, restated or
replaced from time to time, the "TRANCHE B TERM NOTES"; the Tranche A Term
Notes and the Tranche B Term Notes are collectively referred to as the "TERM
NOTES"). The Revolving Credit Loans are evidenced by the Credit Agreement,
and may, as provided therein, be evidenced by those certain Revolving Credit
Notes dated as of even date herewith (as the same may be further assigned,
amended, supplemented, modified, extended, restated or replaced from time to
time, the "REVOLVING CREDIT NOTES"). The Swing Line Loans are evidenced by
the Credit Agreement, and may, as provided therein, be evidenced by those
certain Swing Line Notes dated as of even date herewith (as the same may be
further assigned, amended, supplemented, modified, extended, restated or
replaced from time to time, the "SWING LINE NOTES"). The reimbursement
obligations with respect to drawings under LOC Letters of Credit are
evidenced by the Credit Agreement and may, as provided therein, be evidenced
by those certain LOC Notes dated as of even date herewith (as the same may be
further assigned, amended, supplemented, modified, extended, restated or
replaced from time to time, the "LOC NOTES").
D. Capitalized terms not otherwise defined herein shall have
the meanings ascribed thereto in the Credit Agreement. References in this
Mortgage to the "DEFAULT RATE" shall mean a rate per annum equal to the ABR
plus 2%.
GRANTING CLAUSES
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the
Cedit Agreement and as may be evidenced by the Term Notes, the
Revolving Credit Notes, the Swing Line Notes and the LOC Notes and (ii)
all interest and fees payable thereon (the items set forth in clauses
(i) and (ii) being referred collectively as the "INDEBTEDNESS"); and
<PAGE>
3
(b) the performance of all covenants, agreements, obligations and
liabilities of Mortgagor (the "OBLIGATIONS") under or pursuant to the
provisions of the Term Notes, the Revolving Credit Notes, the Swing Line
Notes, the LOC Notes, this Mortgage, the Credit Agreement and any other
document securing payment of the Indebtedness (the "SECURITY DOCUMENTS")
and any amendments, supplements, extensions, renewals, restatements,
replacements or modifications of any of the foregoing (the Term Notes, the
Revolving Credit Notes, the Swing Line Notes, the LOC Notes, the Credit
Agreement, the Security Documents and all other documents and instruments
from time to time evidencing, securing or guaranteeing the payment of the
Indebtedness or the performance of the Obligations, as any of the same may
be amended, supplemented, extended, renewed, restated, replaced or
modified from time to time, are collectively referred to as the "LOAN
DOCUMENTS");
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN, AND
HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE WITH
MORTGAGE COVENANTS:
(A) the Real Estate;
(B) to the extent not included in (a), all the estate, right,
title, claim or demand whatsoever of Mortgagor, in possession or
expectancy, in and to the Real Estate or any part thereof;
(C) all right, title and interest of Mortgagor in, to and under all
easements, rights of way, gores of land, streets, ways, alleys, passages,
sewer rights, waters, water courses, timber, timber rights, water and
riparian rights, development rights, air rights, mineral rights and all
estates, rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to the
Real Estate, and any reversions, remainders, rents, issues, profits and
revenue thereof and all land lying in the bed of any street, road or
avenue, in front of or adjoining the Real Estate to the center line
thereof;
(D) subject to Section 18(d) hereof, all of the fixtures, chattels,
business machines, machinery, apparatus, equipment, furnishings, fittings
and articles of personal property of every kind and nature whatsoever, and
all appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts and
accessories) currently owned or subsequently acquired by Mortgagor and, in
each case, now or subsequently attached to, or contained in or used or
usable in any way in connection with any operation or letting of the Real
Estate (all of the foregoing in this paragraph (d) being referred to as
the "EQUIPMENT");
<PAGE>
4
(E) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in and to all substitutes and replacements of, and all
additions and improvements to, the Real Estate and the Equipment,
subsequently acquired by or released to Mortgagor or constructed,
assembled or placed by Mortgagor on the Real Estate, immediately upon such
acquisition, release, construction, assembling or placement, including,
without limitation, any and all building materials whether stored at the
Real Estate or offsite, and, in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor;
(F) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in, to and under all leases, subleases, underlettings,
concession agreements, management agreements, licenses and other
agreements relating to the use or occupancy of the Real Estate or the
Equipment or any part thereof, now existing or subsequently entered into
by Mortgagor and whether written or oral and all guarantees of any of the
foregoing (collectively, as any of the foregoing may be amended, restated,
extended, renewed or modified from time to time, the "LEASES"), and all
rights of Mortgagor in respect of cash and securities deposited thereunder
and the right to receive and collect the revenues, income, rents, issues
and profits thereof, together with all other rents, royalties, issues,
profits, revenue, income and other benefits arising from the use and
enjoyment of the Mortgaged Property (as defined below) (collectively, the
"RENTS");
(G) subject to Section 18(d) hereof, all insurance policies now or
subsequently obtained by Mortgagor relating to the Real Estate or
Equipment and Mortgagor's interest in and to all unearned premiums
thereunder and all proceeds of any such insurance policies (including
title insurance policies) including the right to collect and receive such
proceeds, subject to the provisions relating to insurance generally set
forth below; and all awards and other compensation, including the interest
payable thereon and the right to collect and receive the same, made to the
present or any subsequent owner of the Real Estate or Equipment for the
taking by eminent domain, condemnation or otherwise, of all or any part of
the Real Estate or any easement or other right therein;
(H) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in and to (i) all contracts from time to time executed by
Mortgagor or any manager or agent on its behalf relating to the ownership,
construction, maintenance, repair, operation, occupancy, sale or financing
of the Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or,
subject to Section 8.10 of the Credit Agreement, any property which is
adjacent or peripheral to the Real Estate, together with the right to
exercise such
<PAGE>
5
options and all leases of Equipment (collectively, the "CONTRACTS"),
(ii) all consents, licenses, building permits, certificates of occupancy
and other governmental approvals relating to construction, completion,
occupancy, use or operation of the Real Estate or any part thereof
(collectively, the "PERMITS") and (iii) all drawings, plans,
specifications and similar or related items relating to the Real Estate
(collectively, the "PLANS");
(I) subject to Section 18(d) hereof, all of Mortgagor's right,
title and interest in any and all monies now or subsequently on deposit
for the payment of real estate taxes or special assessments against the
Real Estate or for the payment of premiums on insurance policies covering
the foregoing property or otherwise on deposit with or held by Mortgagee
as provided in this Mortgage; all capital, operating, reserve or similar
accounts held by or on behalf of Mortgagor and related to the operation of
the Mortgaged Property, whether now existing or hereafter arising and all
monies held in any of the foregoing accounts and any certificates or
instruments related to or evidencing such accounts;
(J) subject to section 18(d) hereof, all accounts resulting from
the sale of timber; and
(K) subject to Section 18(d) hereof, all proceeds, both cash and
noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned
or held or subsequently acquired by Mortgagor and described in the foregoing
clauses (a) through (e) are collectively referred to as the "PREMISES", and
those described in the foregoing clauses (a) through (k) are collectively
referred to as the "MORTGAGED PROPERTY").
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for
the uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
TERMS AND CONDITIONS
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has
good title to the Real Estate in fee simple and good title to the rest of the
Mortgaged Property, subject only to the matters referred to in subsection 9.3
of the Credit Agreement (collectively, the "PERMITTED ENCUMBRANCES"), and
Mortgagor shall warrant, defend and preserve such title and the lien of the
<PAGE>
6
Mortgage thereon against all claims of all persons and entities. Mortgagor
further warrants that it has the right to mortgage the Mortgaged Property.
2. PAYMENT OF INDEBTEDNESS. Mortgagor shall pay the
Indebtedness at the times and places and in the manner specified in the
Credit Agreement and shall perform all the Obligations.
3. REQUIREMENTS. (a) To the extent required in the Credit
Agreement, Mortgagor shall promptly comply with, or cause to be complied
with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements,
and irrespective of the nature of the work to be done, of each of the United
States of America, any State and any municipality, local government or other
political subdivision thereof and any agency, department, bureau, board,
commission or other instrumentality of any of them, now existing or
subsequently created (collectively, "Governmental Authority") which has
jurisdiction over the Mortgaged Property and all covenants, restrictions and
conditions now or later of record which may be applicable to any of the
Mortgaged Property, or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction of any of the
Mortgaged Property. All present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements
of every Governmental Authority applicable to Mortgagor or to any of the
Mortgaged Property and all covenants, restrictions, and conditions which now
or later may be applicable to any of the Mortgaged Property are collectively
referred to as the "Legal Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall
not by act or omission permit any building or other improvement on any
premises not subject to the lien of this Mortgage to rely on the Premises or
any part thereof or any interest therein to fulfill any Legal Requirement,
and Mortgagor hereby assigns to Mortgagee any and all rights to give consent
for all or any portion of the Premises or any interest therein to be so used.
4. PAYMENT OF TAXES AND OTHER IMPOSITIONS. (a) To the extent
required in the Credit Agreement, promptly prior to the time when same become
delinquent and before any interest or penalties accrue thereon or attach
thereto, Mortgagor shall pay and discharge all taxes of every kind and nature
(including, without limitation, all real and personal property, income,
franchise, withholding, transfer, gains, profits and gross receipts taxes
imposed upon or assessed against the Mortgaged Property), all charges for any
easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments, levies, permits, inspection
and license fees, all water and sewer rents and charges and all other public
charges even if unforeseen or extraordinary, imposed upon or assessed against
or which may become a lien on any of the
<PAGE>
7
Mortgaged Property, or arising in respect of the occupancy, use or possession
thereof, together with any penalties or interest on any of the foregoing (all
of the foregoing are collectively referred to as the "Impositions"). Upon
request by Mortgagee, Mortgagor shall deliver to Mortgagee (i) original or
copies of receipted bills and cancelled checks or other reasonably
satisfactory evidence evidencing payment of such Imposition if it is a real
estate tax or other public charge and (ii) evidence acceptable to Mortgagee
showing the payment of any other such Imposition. If by law any Imposition,
at Mortgagor's option, may be paid in installments (whether or not interest
shall accrue on the unpaid balance of such Imposition), Mortgagor may elect
to pay such Imposition in such installments and shall be responsible for the
payment of such installments with interest, if any.
(b) Mortgagor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Mortgage or on any
interest payable thereon for any taxes assessed against the Mortgaged
Property or any part thereof, and shall not claim any deduction from the
taxable value of the Mortgaged Property by reason of this Mortgage.
5. INSURANCE. (a) Mortgagor shall not use or permit the use of
the Mortgaged Property in any manner which would permit any insurer to cancel
any insurance policy, unless replaced prior to or simultaneously with such
cancellation (such that there is no gap in coverage) by another policy
satisfactory to Mortgagee or void coverage required to be maintained by the
Credit Agreement.
(b) In the event of foreclosure of this Mortgage or other
transfer of title to the Mortgaged Property in extinguishment of the
Indebtedness, all right, title and interest of Mortgagor in and to any
insurance policies then in force shall pass to the purchaser or grantee and
Mortgagor hereby appoints Mortgagee its attorney-in-fact, in Mortgagor's
name, to assign and transfer all such policies and proceeds to such purchaser
or grantee.
(c) Until an Event of Default shall have occurred and be
continuing, all insurance and eminent domain proceeds shall be payable to
Mortgagor, free and clear of the lien of this Mortgage. All parties having
dealings with Mortgagor in connection with insurance and eminent domain
matters shall be entitled to rely on an affidavit of Mortgagor to the effect
that no Event of Default has occurred and is continuing, absent receipt of
written notice from Mortgagee to the contrary.
6. RESTRICTIONS. Mortgagor shall not (i) except for the lien of
this Mortgage and the Permitted Encumbrances, further mortgage, nor otherwise
encumber the Mortgaged Property nor create or suffer to exist any lien,
charge or encumbrance on the Mortgaged Property, or any part thereof, whether
superior or subordinate to the lien of this Mortgage and whether recourse or
<PAGE>
8
non-recourse, nor (ii) sell, transfer, convey or assign nor permit to be sold
transferred, conveyed or assigned all or any portion of, or any interest in,
the Mortgaged Property, except, in each case, as may be otherwise expressly
permitted under the Credit Agreement. In the event of any such permitted
sale, transfer, conveyance, assignment or other disposition of any part of
the Mortgaged Property, this Mortgage will remain in effect with respect to
all of the remaining Mortgaged Property.
7. MAINTENANCE; UTILITIES. (a) Mortgagor shall maintain or
cause to be maintained all the Improvements in good working order and
condition and shall not commit or suffer any material waste of the
Improvements.
(b) Mortgagor shall pay or cause to be paid when due all utility
charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.
8. RIGHTS OF TENANTS. This Mortgage is subject to the rights of
any and all tenants of the Mortgaged Property now or hereafter existing and,
for so long as said tenants are not in default under the terms of their
respective leases and shall agree to attorn to Mortgagee (or Mortgagee's
designee) upon its acquisition of title to the Mortgaged Property, Mortgagee
shall not disturb the use or possession by said tenants to all or a portion
of the Mortgaged Property, as described in such tenant's lease. If an Event
of Default shall have occurred and be continuing and Mortgagee elects to
foreclose this Mortgage in pursuant to the Section of this Mortgage entitled
"Remedies", so long as said tenants are not in default under the terms of
their respective leases, Mortgagee shall take no action or fail to take any
action, as the case may be, the effect of which would be to terminate the
rights of said tenants under their respective leases; PROVIDED that if, in
order validly to foreclose the lien of this Mortgage such lease must be
terminated, Mortgagee may nevertheless proceed with such foreclosure but
following the completion of such foreclosure shall enter into a new lease of
the Mortgaged Property with such tenant on the same terms and conditions as
those set forth in the then terminated lease. Mortgagor may, in the ordinary
course of business and without the consent of Mortgagee, enter into any new
leases or modify, surrender, terminate, extend or renew any lease now
existing or hereafter created upon the Mortgaged Property, or any portion
thereof, without the consent of Mortgagee. Mortgagee agrees to execute such
other and further instruments as may be necessary to effectuate the terms of
this Section.
9. FURTHER ASSURANCES. To further assure Mortgagee's rights
under this Mortgage, Mortgagor agrees upon demand of Mortgagee to do any act
or execute any additional documents (including, but not limited to, security
agreements on any
<PAGE>
9
personalty included or to be included in the Mortgaged Property and a
separate assignment of each Lease in recordable form) as may be reasonably
required by Mortgagee to confirm the lien of this Mortgage and all other
rights or benefits conferred on Mortgagee.
10. MORTGAGEE'S RIGHT TO PERFORM. If Mortgagor fails to perform
any of the covenants or agreements of Mortgagor after an Event of Default
shall have occurred and be continuing, Mortgagee, without waiving or
releasing Mortgagor from any obligation or default under this Mortgage, with
reasonable efforts to provide simultaneous written notice to Mortgagor, may,
at any time (but shall be under no obligation to) pay or perform the same,
and the amount or cost thereof, with interest at the Default Rate, shall
immediately be due from Mortgagor to Mortgagee and the same shall be secured
by this Mortgage and shall be a lien on the Mortgaged Property prior to any
right, title to, interest in or claim upon the Mortgaged Property attaching
subsequent to the lien of this Mortgage. No payment or advance of money by
Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.
11. MORTGAGOR'S EXISTENCE, ETC. Upon recordation of this
Mortgage in the appropriate office or offices, payment of all mortgage
recording fees and taxes in respect thereof and compliance with the formal
requirements of state law applicable to the recording of real estate
mortgages generally, this Mortgage shall constitute a fully perfected
mortgage lien on and security interest in the Mortgaged Property, subject
only to such encumbrances, defects and exceptions as are expressly permitted
under the Credit Agreement.
12. ASBESTOS AND HAZARDOUS WASTE. Mortgagor shall comply with
Environmental Laws to the extent provided in the Credit Agreement. If
Mortgagor shall fail to so comply to the extent required in the Credit
Agreement, Mortgagee may declare an Event of Default and may (but shall not
be obligated to) do whatever is necessary to comply with the applicable
Environmental Laws, and the costs thereof, with interest at the Default Rate,
shall be immediately due from Mortgagor to Mortgagee and the same shall be
added to the Indebtedness and be secured by this Mortgage. If an Event of
Default exists, Mortgagor shall give Mortgagee and its agents and employees
access to the Premises to cause such compliance.
13. EVENT OF DEFAULT. (a) The occurrence of an Event of Default
under the Credit Agreement shall constitute an Event of Default hereunder; and
(b) to the extent it would have a Material Adverse Effect (as
defined in the Credit Agreement), a failure of Mortgagor to duly perform and
observe, or a violation or breach of, any other terms, covenants, provisions
or conditions of this
<PAGE>
10
Mortgage and the continuation thereof for a 30-day period after notice shall
have been given to Mortgagor by Mortgagee specifying such default and
requiring such default be remedied, shall constitute an Event of Default
hereunder; which period may be extended to the extent required (but no longer
than 180 days) if such default is not susceptible of cure within 30 days so
long as Mortgagor has commenced to cure such default within such 30-day
period and is thereafter diligently prosecuting such cure to completion and
so long as such delay is not likely to have a Material Adverse Effect on
either the Mortgaged Property or Mortgagee's rights under this Mortgage;
provided, however, any such default that can be cured by the payment of money
shall be promptly cured after notice by Mortgagee.
14. REMEDIES.
(a) Upon the occurrence of any Event of Default, in addition to
any other rights and remedies Mortgagee may have pursuant to the Loan
Documents, or as provided by law, and without limitation, (x) if such event
is an Event of Default specified in clause (i) or (ii) of Section 11(f) of
the Credit Agreement with respect to Mortgagor, automatically the
Indebtedness immediately shall become due and payable, and (y) if such event
is any other Event of Default under Section 11 of the Credit Agreement, in
addition to any other rights and remedies Mortgagee may have pursuant to the
Credit Agreement, Mortgagee may immediately take such action, without notice
or demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such manner as Mortgagee may determine, in its
sole discretion, without impairing or otherwise affecting the other rights
and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law, (A)
institute and maintain an action of mortgage foreclosure against all or
any part of the Mortgaged Property, (B) institute and maintain an action
on the Credit Agreement, the Term Notes, if any, the Revolving Credit
Notes, if any, the Swing Line Notes, if any, and the LOC Notes, if any,
(C) sell all or part of the Mortgaged Property (Mortgagor expressly
granting to Mortgagee the power of sale), or (D) take such other action at
law or in equity for the enforcement of this Mortgage or any of the Loan
Documents as the law may allow. Mortgagee may proceed in any such action
to final judgment and execution thereon for all sums due hereunder,
together with interest thereon at the Default Rate and all costs of suit,
including, without limitation, reasonable attorneys' fees and
disbursements. Interest at the Default Rate shall be due on any judgment
obtained by Mortgagee from the date of judgment until actual payment is
made of the full amount of the judgment;
<PAGE>
11
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Mortgaged Property or any other collateral as security for the
Indebtedness and Obligations enter into and upon the Mortgaged Property
and each and every part thereof and exclude Mortgagor and its agents and
employees therefrom without liability for trespass, damage or otherwise
(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee shall
be entitled, without limitation, (x) to lease all or any part or parts of
the Mortgaged Property for such periods of time and upon such conditions
as Mortgagee may, in its discretion, deem proper, (y) to enforce, cancel
or modify any Lease and (z) generally to execute, do and perform any other
act, deed, matter or thing concerning the Mortgaged Property as Mortgagee
shall deem appropriate as fully as Mortgagor might do.
(b) To the extent permitted under applicable law, the holder of
this Mortgage, in any action to foreclose it, shall be entitled to the
appointment of a receiver. In case of a foreclosure sale, the Real Estate
may be sold, at Mortgagee's election, in one parcel or in more than one
parcel and Mortgagee is specifically empowered, (without being required to do
so, and in its sole and absolute discretion) to cause successive sales of
portions of the Mortgaged Property to be held.
(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Mortgage, and
notwithstanding any exculpatory or non-recourse language which may be
contained herein to the contrary, Mortgagee shall be entitled to enjoin such
breach and obtain specific performance of any covenant, agreement, term or
condition and Mortgagee shall have the right to invoke any equitable right or
remedy as though other remedies were not provided for in this Mortgage.
15. RIGHT OF MORTGAGEE TO CREDIT SALE. Upon the occurrence of
any sale made under this Mortgage, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for
the purchase price by crediting upon the Indebtedness or other sums secured
by this Mortgage the net sales price after deducting therefrom the expenses
of sale and the cost of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage. In such event, this Mortgage, the
Credit Agreement, the Term Notes, if any, the Revolving Credit Notes, if any,
the Swing Line Notes, if any, the LOC Notes, if any and documents evidencing
expenditures secured hereby may be presented
<PAGE>
12
to the person or persons conducting the sale in order that the amount so used
or applied may be credited upon the Indebtedness as having been paid.
16. APPOINTMENT OF RECEIVER. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice
to Mortgagor, unless otherwise required by applicable law, and without regard
to the adequacy or inadequacy of the Mortgaged Property or any other
collateral as security for the Indebtedness and Obligations or the interest
of Mortgagor therein, shall have the right to apply to any court having
jurisdiction to appoint a receiver or receivers or other manager of the
Mortgaged Property, and Mortgagor hereby irrevocably consents to such
appointment and waives notice of any application therefor (except as may be
required by law). Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers
and duties of Mortgagee in case of entry as provided in this Mortgage,
including, without limitation and to the extent permitted by law, the right
to enter into leases of all or any part of the Mortgaged Property, and shall
continue as such and exercise all such powers until the date of confirmation
of sale of the Mortgaged Property unless such receivership is sooner
terminated.
17. EXTENSION, RELEASE, ETC. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged Property not then
or theretofore released as security for the full amount of the Indebtedness,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of
the terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed
at any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Mortgage shall secure
less than all of the principal amount of the Indebtedness, it is expressly
agreed that any repayments of the principal amount of the Indebtedness shall
not reduce the amount of the lien of this Mortgage until the lien amount
shall equal the principal amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.
(c) If Mortgagee shall have the right to foreclose this
Mortgage, Mortgagor authorizes Mortgagee at its option to foreclose the lien
of this Mortgage subject to the rights of any
<PAGE>
13
tenants of the Mortgaged Property. The failure to make any such tenants
parties defendant to any such foreclosure proceeding and to foreclose their
rights will not be asserted by Mortgagor as a defense to any proceeding
instituted by Mortgagee to collect the Indebtedness or to foreclose the lien
of this Mortgage.
(d) Unless expressly provided otherwise, in the event that
ownership of this Mortgage and title to the Mortgaged Property or any estate
therein shall become vested in the same person or entity, this Mortgage shall
not merge in such title but shall continue as a valid lien on the Mortgaged
Property for the amount secured hereby.
18. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. (a) It is
the intention of the parties hereto that this Mortgage shall constitute a
Security Agreement within the meaning of the Uniform Commercial Code (the
"CODE") of the State in which the Mortgaged Property is located. If an Event
of Default shall occur and be continuing under this Mortgage, then in
addition to having any other right or remedy available at law or in equity,
Mortgagee shall have the option of either (i) proceeding under the Code and
exercising such rights and remedies as may be provided to a secured party by
the Code with respect to all or any portion of the Mortgaged Property which
is personal property (including, without limitation, taking possession of and
selling such property) or (ii) treating such property as real property and
proceeding with respect to both the real and personal property constituting
the Mortgaged Property in accordance with Mortgagee's rights, powers and
remedies with respect to the real property (in which event the default
provisions of the Code shall not apply). If Mortgagee shall elect to proceed
under the Code, then ten days' notice of sale of the personal property shall
be deemed reasonable notice and the reasonable expenses of retaking, holding,
preparing for sale, selling and the like incurred by Mortgagee shall include,
but not be limited to, attorneys' fees and legal expenses. At Mortgagee's
request, Mortgagor shall assemble the personal property and make it available
to Mortgagee at a place designated by Mortgagee which is reasonably
convenient to both parties.
(b) Mortgagor and Mortgagee agree, to the extent permitted by
law, that: (i) some of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) as to
those fixtures, this Mortgage upon recording or registration in the real
estate records of the proper office shall constitute a financing statement
filed as a "fixture filing" within the meaning of Sections 9-313 and 9-402 of
the Code; (iii) except as otherwise provided, Mortgagor is the record owner
of the Real Estate; and (iv) the mailing addresses of Mortgagor and Mortgagee
are as set forth on the first page of this Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or
<PAGE>
14
more separate security agreements, in form reasonably satisfactory to
Mortgagee, covering all or any part of the Mortgaged Property and will
further execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any financing statement, affidavit, continuation
statement or certificate or other document as Mortgagee may request in order
to perfect, preserve, maintain, continue or extend the security interest
under and the priority of this Mortgage and such security instrument.
Mortgagor shall from time to time, on request of Mortgagee, deliver to
Mortgagee an inventory in reasonable detail of any of the Mortgaged Property
which constitutes personal property. If Mortgagor shall fail to furnish any
financing or continuation statement within 10 days after request by
Mortgagee, then pursuant to the provisions of the Code, Mortgagor hereby
authorizes Mortgagee, without the signature of Mortgagor, to execute and file
any such financing and continuation statements. The filing of any financing
or continuation statements in the records relating to personal property or
chattels shall not be construed as in any way impairing the right of
Mortgagee to proceed against any personal property encumbered by this
Mortgage as real property, as set forth above. A photocopy of this Mortgage
may be filed as a Financing Statement.
(d) All rights, remedies and obligations granted, created or
otherwise arising hereunder and all representations, warranties and other
provisions hereof shall be construed, and all actions hereunder shall be
performed, in a manner consistent with, and subject to the terms and
provisions of, the Security Agreement. To the extent that the rights granted
hereunder in any item of the Mortgaged Property (other than the Real Estate
and other interests which are exclusively real property interests) conflict
with any rights granted in the same item of Mortgaged Property under the
Security Agreement, the Security Agreement shall prevail.
19. ASSIGNMENT OF RENTS. Mortgagor hereby assigns to Mortgagee
the Rents as further security for the payment of the Indebtedness and
performance of the Obligations, and Mortgagor grants to Mortgagee the right
to enter the Mortgaged Property for the purpose of collecting the same and to
let the Mortgaged Property or any part thereof, and to apply the Rents on
account of the Indebtedness. The foregoing assignment and grant is present
and absolute and shall continue in effect until the Indebtedness is paid in
full, but Mortgagee hereby waives the right to enter the Mortgaged Property
for the purpose of collecting the Rents and Mortgagor shall be entitled to
collect, receive, use and retain the Rents until the occurrence of an Event
of Default under this Mortgage; such right of Mortgagor to collect, receive,
use and retain the Rents may be revoked by Mortgagee upon the occurrence of
any Event of Default under this Mortgage by giving not less than fifteen
days' written notice of such revocation to Mortgagor; in the event such
notice is given, so long as an Event of Default shall have occurred and be
<PAGE>
15
continuing, Mortgagor shall pay over to Mortgagee, or to any receiver
appointed to collect the Rents, any lease security deposits, and shall pay
monthly in advance to Mortgagee, or to any such receiver, the fair and
reasonable rental value as determined by Mortgagee for the use and occupancy
of the Mortgaged Property or of such part thereof as may be in the possession
of Mortgagor or any affiliate of Mortgagor, and upon default in any such
payment Mortgagor and any such affiliate will vacate and surrender the
possession of the Mortgaged Property to Mortgagee or to such receiver, and in
default thereof may be evicted by summary proceedings or otherwise.
Mortgagor shall not accept prepayments of installments of Rent to become due
for a period of more than one month in advance (except for security deposits
and estimated payments of percentage rent, if any).
20. ADDITIONAL RIGHTS. Upon the occurrence of any Event of
Default, Mortgagee may, in its sole discretion and without regard to the
adequacy of its security under this Mortgage, apply all or any part of any
amounts on deposit with Mortgagee under this Mortgage against all or any part
of the Indebtedness, in accordance with the provisions of the Credit
Agreement and the other Loan Documents (as defined therein). Any such
application shall not be construed to cure or waive any Event of Default or
invalidate any act taken by Mortgagee on account of such Event of Default.
21. NOTICES. All notices, requests, demands and other
communications hereunder shall be given in the manner and to the addresses
determined under Section 13.2 of the Credit Agreement.
22. NO ORAL MODIFICATION. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the
date of this Mortgage relating to this Mortgage shall be superior to the
rights of the holder of any intervening or subordinate lien or encumbrance.
23. PARTIAL INVALIDITY. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision hereof, but each
shall be construed as if such invalid, illegal or unenforceable provision had
never been included. Notwithstanding to the contrary anything contained in
this Mortgage or in any provisions of the Indebtedness or Loan Documents, the
obligations of Mortgagor and of any other obligor under the Indebtedness or
Loan Documents shall be subject to the limitation that neither Mortgagee nor
any Lender shall charge, take or receive, nor shall Mortgagor or any other
obligor be obligated to pay to Mortgagee or any Lender, any amounts
constituting interest in excess of the maximum rate permitted by law to be
charged by Mortgagee or any Lender, as the case may be.
24. MORTGAGOR'S WAIVER OF RIGHTS. To the fullest extent
permitted by law, Mortgagor waives the benefit of all laws
<PAGE>
16
now existing or that may subsequently be enacted providing for (i) any
appraisement before sale of any portion of the Mortgaged Property, (ii) any
extension of the time for the enforcement of the collection of the
Indebtedness or the creation or extension of a period of redemption from any
sale made in collecting such debt and (iii) exemption of the Mortgaged
Property from attachment, levy or sale under execution or exemption from
civil process. To the full extent Mortgagor may do so, Mortgagor agrees that
Mortgagor will not at any time insist upon, plead, claim or take the benefit
or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, exemption, extension or redemption, or
requiring foreclosure of this Mortgage before exercising any other remedy
granted hereunder and Mortgagor, for Mortgagor and its successors and
assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and
releases all rights of redemption, valuation, appraisement, stay of
execution, notice of election to mature or declare due the whole of the
secured indebtedness and marshalling in the event of foreclosure of the liens
hereby created.
25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to
enforce payment of the Indebtedness and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Loan Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Indebtedness and Obligations may now or
hereafter be otherwise secured, whether by mortgage, security agreement,
pledge, lien, assignment or otherwise. Neither the acceptance of this
Mortgage nor its enforcement, shall prejudice or in any manner affect
Mortgagee's right to realize upon or enforce any other security now or
hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled
to enforce this Mortgage and any other security now or hereafter held by
Mortgagee in such order and manner as Mortgagee may determine in its absolute
discretion. No remedy herein conferred upon or reserved to Mortgagee is
intended to be exclusive of any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity
or by statute. Every power or remedy given by any of the Loan Documents to
Mortgagee or to which it may otherwise be entitled, may be exercised,
concurrently or independently, from time to time and as often as may be
deemed expedient by Mortgagee. In no event shall Mortgagee, in the exercise
of the remedies provided in this Mortgage (including, without limitation, in
connection with the assignment of Rents to Mortgagee, or the appointment of a
receiver and the entry of such receiver on to all or any part of the
Mortgaged Property), be deemed a "mortgagee in possession", and Mortgagee
shall not in any way be made liable for any act, either of commission or
omission, in connection with the exercise of such remedies.
<PAGE>
17
26. MULTIPLE SECURITY. If (a) the Premises shall consist of one
or more parcels, whether or not contiguous and whether or not located in the
same county, or (b) in addition to this Mortgage, Mortgagee shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or
other security (directly or indirectly) for the Indebtedness upon other
property in the State in which the Premises are located (whether or not such
property is owned by Mortgagor or by others) or (c) both the circumstances
described in clauses (a) and (b) shall be true, then to the fullest extent
permitted by law, Mortgagee may, at its election, commence or consolidate in
a single foreclosure action all foreclosure proceedings against all such
collateral securing the Indebtedness (including the Mortgaged Property),
which action may be brought or consolidated in the courts of any county in
which any of such collateral is located. Mortgagor acknowledges that the
right to maintain a consolidated foreclosure action is a specific inducement
to some or all of the Lenders to make certain loans to and to enter into
certain agreements with Mortgagor, and for Mortgagee to enter into the Credit
Agreement, and Mortgagor expressly and irrevocably waives any objections to
the commencement or consolidation of the foreclosure proceedings in a single
action and any objections to the laying of venue or based on the grounds of
FORUM NON CONVENIENS which it may now or hereafter have. Mortgagor further
agrees that if Mortgagee shall be prosecuting one or more foreclosure or
other proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly secures the Indebtedness, or if Mortgagee shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being maintained or judgments were
obtained in or outside the State in which the Premises are located, Mortgagee
may commence or continue foreclosure proceedings and exercise its other
remedies granted in this Mortgage against all or any part of the Mortgaged
Property and Mortgagor waives any objections to the commencement or
continuation of a foreclosure of this Mortgage or exercise of any other
remedies hereunder based on such other proceedings or judgments, and waives
any right to seek to dismiss, stay, remove, transfer or consolidate either
any action under this Mortgage or such other proceedings on such basis.
Neither the commencement nor continuation of proceedings to foreclose this
Mortgage nor the exercise of any other rights hereunder nor the recovery of
any judgment by Mortgagee in any such proceedings shall prejudice, limit or
preclude Mortgagee's right to commence or continue one or more foreclosure or
other proceedings or obtain a judgment against any other collateral, (either
in or outside the State in which the Premises are located) which directly or
indirectly secures the Indebtedness, and Mortgagor expressly waives any
objections to the commencement of, continuation of, or entry of a judgment in
such other proceedings or exercise of any remedies in such proceedings based
upon any action or judgment connected to this Mortgage, and Mortgagor also
waives any right to seek to dismiss, stay, remove, transfer or consolidate
either
<PAGE>
18
such other proceedings or any action under this Mortgage on such basis. It
is expressly understood and agreed that to the fullest extent permitted by
law, Mortgagee may, at its election, cause the sale of all collateral which
is the subject of a single foreclosure action at either a single sale or at
multiple sales conducted simultaneously and take such other measures as are
appropriate in order to effect the agreement of the parties to dispose of and
administer all collateral securing the Indebtedness (directly or indirectly)
in the most economical and least time-consuming manner.
27. EXPENSES; INDEMNIFICATION. Mortgagor agrees (a) to pay or
reimburse Mortgagee for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of,
and any amendment, supplement or modification to, the Credit Agreement and
the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation,
the reasonable fees and disbursements of counsel to Mortgagee, (b) to pay or
reimburse each Lender and the Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under the
Credit Agreement, the other Loan Documents and any such other documents
prepared in connection herewith or therewith, including, without limitation,
the fees and disbursements of counsel (including the allocated fees and
expenses of in-house counsel in lieu of the fees and expenses of outside
counsel) to each Lender and of counsel to the Agent, (c) to pay, indemnify,
and hold each Lender and the Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise and other similar taxes, if any, which may
be payable or determined to be payable in connection with the execution and
delivery of, or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under
or in respect of, the Credit Agreement, the other Loan Documents and any such
other documents, and (d) to pay, indemnify, and hold each Lender and the
Agent harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of the Credit
Agreement, the other Loan Documents, the Stock Purchase Agreement, the Stock
Purchase, the Merger or the use of the proceeds of the Loans in connection
with the Stock Purchase, and any such other documents, including, without
limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations
of the Mortgagor, any of its Subsidiaries or any of the Properties (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
PROVIDED, that the Mortgagor shall have no obligation hereunder to the Agent
or any Lender with respect to indemnified liabilities arising from (1)
<PAGE>
19
the gross negligence or willful misconduct of the Agent or any such Lender or
(2) legal proceedings commenced against the Agent or any such Lender by any
security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such.
The agreements in this subsection shall survive repayment of the Loans and
all other amounts payable under the Credit Agreement.
28. SUCCESSORS AND ASSIGNS. Except to the extent prohibited in
the Credit Agreement, all covenants of Mortgagor contained in this Mortgage
are imposed solely and exclusively for the benefit of Mortgagee and the
Lenders and their respective successors and assigns, and no other person or
entity shall have standing to require compliance with such covenants or be
deemed, under any circumstances, to be a beneficiary of such covenants, any
or all of which may be freely waived in whole or in part by Mortgagee at any
time if in its sole discretion it deems such waiver advisable. All such
covenants of Mortgagor shall run with the land and bind Mortgagor, the
successors and assigns of Mortgagor (and each of them) and all subsequent
owners, encumbrancers and tenants of the Mortgaged Property, and shall inure
to the benefit of Mortgagee and the Lenders and their respective successors
and assigns. The word "Mortgagor" shall be construed as if it read
"Mortgagors" whenever the sense of this Mortgage so requires and if there
shall be more than one Mortgagor, the obligations of the Mortgagors shall be
joint and several.
29. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon
the strict performance by Mortgagor of any of the terms and provisions of
this Mortgage shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Mortgagee, notwithstanding any such failure, shall
have the right thereafter to insist upon the strict performance by Mortgagor
of any and all of the terms and provisions of this Mortgage to be performed
by Mortgagor. Mortgagee may release, regardless of consideration and without
the necessity for any notice to or consent by the holder of any subordinate
lien on the Mortgaged Property, any part of the security held for the
obligations secured by this Mortgage without, as to the remainder of the
security, in anywise impairing or affecting the lien of this Mortgage or the
priority of such lien over any subordinate lien.
30. GOVERNING LAW, ETC. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor expressly acknowledges that by their terms the
Term Notes, if any, the Revolving Credit Notes, if any, the Swing Line Notes,
if any, and the LOC Notes, if any, shall be governed and construed in
accordance with the laws of the State of New York, without regard to
principles of conflict of law, and for purposes of consistency, Mortgagor
agrees that in any IN PERSONAM proceeding related to this Mortgage the rights
of the parties to this Mortgage shall also be governed by and construed in
accordance
<PAGE>
20
with the laws of the State of New York governing contracts made and to be
performed in that State, without regard to principles of conflict of law.
31. WAIVER OF TRIAL BY JURY. Mortgagor and Mortgagee each
hereby irrevocably and unconditionally waive trial by jury in any action,
claim, suit or proceeding relating to this Mortgage and for any counterclaim
(other than compulsory counterclaims) brought therein. Mortgagor hereby
waives all rights to interpose any counterclaim (other than compulsory
counterclaims) in any suit brought by Mortgagee hereunder and all rights to
have any such suit consolidated with any separate suit, action or proceeding.
32. CERTAIN DEFINITIONS. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used
in this Mortgage shall be used interchangeably in singular or plural form and
the word "MORTGAGOR" shall mean "each Mortgagor or any subsequent owner or
owners of the Mortgaged Property or any part thereof or interest therein,"
the word "MORTGAGEE" shall mean "Mortgagee or any successor agent under the
Credit Agreement," the words "TERM NOTES, REVOLVING CREDIT NOTES, SWING LINE
NOTES, LOC NOTES" shall mean respectively, "the Term Notes, the Revolving
Credit Notes, the Swing Line Notes, the LOC Notes or any other evidence of
indebtedness secured by this Mortgage," the word "PERSON" shall include any
individual, corporation, partnership, trust, unincorporated association,
government, governmental authority, or other entity, and the words "MORTGAGED
PROPERTY" shall include any portion of the Mortgaged Property or interest
therein. Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns and pronouns shall include the plural and vice versa.
The captions in this Mortgage are for convenience or reference only and in no
way limit or amplify the provisions hereof.
33. RELEASE. (a) Any Mortgaged Property that is permitted to be
sold or otherwise transferred free of the lien of the Security Documents as
provided in the Credit Agreement shall be sold or otherwise transferred, as
the case may be, free and clear of this Mortgage. In connection with any
such sale or transfer, the Mortgagee shall execute and deliver to Mortgagor,
or to such person or persons as Mortgagor shall reasonably designate, a
satisfaction of mortgage and such other documents as Mortgagor may reasonably
request to evidence the release of this Mortgage with respect to such
Mortgaged Property, as well as a release of any collateral assignments or
other Security Documents in favor of Mortgagee that burden such Mortgaged
Property.
(b) In addition, and not in limitation of the foregoing, any
Mortgaged Property (other than the Real Estate) that also constitutes
collateral under any other Security Document shall automatically be released
from this Mortgage in
<PAGE>
1
the event that such Mortgaged Property is released from the security interest
created by such other Security Document in accordance with the terms thereof
and of the Credit Agreement.
This Mortgage has been duly executed by Mortgagor on the date
first above written.
WITNESS: S.D. WARREN COMPANY
- ------------------- By: ---------------------------
Name:
Title:
[CORPORATE SEAL]
<PAGE>
STATE OF NEW YORK ) December ___, 1994
: ss.:
COUNTY OF NEW YORK )
Then personally appeared the above-named ____________________ in
his/her capacity as _______________________________ of S.D. Warren Company,
and acknowledged the foregoing instrument to be his/her free act and deed in
his/her said capacity and the free act and deed of said corporation.
Before me,
------------------------------
------------------------------
(Print Name)
Notary Public State of
------------------
My commission expires:
------------------
<PAGE>
EXHIBIT C-1 TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF AMENDED AND RESTATED BORROWER SECURITY AGREEMENT]
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of April
__, 1996, made by S.D. WARREN COMPANY, a Pennsylvania corporation (the
"BORROWER"), in favor of CHEMICAL BANK, as agent (in such capacity, the "AGENT")
for the several banks, financial institutions and other entities (the "LENDERS")
from time to time parties to the Amended and Restated Credit and Guarantee
Agreement, dated as of April __, 1996 (as the same may be amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT"), among SDW
Holdings Corporation, a Delaware corporation, the Borrower, the Lenders and the
Agent.
W I T N E S S E T H :
WHEREAS, in connection with the Existing Credit Agreement
(as defined in the Credit Agreement), the Borrower entered into that certain
Security Agreement, dated as of December 20, 1994 (the "EXISTING BORROWER
SECURITY AGREEMENT"), pursuant to which it granted a security interest in
certain of its assets as collateral security for the Obligations (as defined in
the Credit Agreement);
WHEREAS, the Borrower has requested that the Agent and the
Lenders amend and restate the Existing Credit Agreement in the manner provided
in the Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of
the Credit Agreement and to the obligations of the Lenders to make the
Extensions of Credit (as defined in the Credit Agreement) provided for therein
that the Borrower shall have amended and restated the Existing Borrower Security
Agreement in the manner provided for herein;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Lenders to amend and restate the Existing Credit
Agreement as provided in the Credit Agreement and to make Extensions of Credit
under the Credit Agreement, the Borrower hereby agrees with the Agent, for the
benefit of the Lenders, to amend and restate and hereby amends and restates the
Existing Borrower Security Agreement to read in its entirety as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms
which are defined in the Credit Agreement and used herein are so used as so
defined; the following terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined: Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory and Proceeds; and the following terms shall
have the following meanings:
"ACCOUNTS": as defined in the Code as in effect
on the date hereof, PROVIDED that "Accounts" shall not
include any Receivables sold, or any Receivables upon which
a Lien is granted, pursuant to the Receivables Facility or
any Permitted Receivables Financing.
"CODE": the Uniform Commercial Code as from time
to time in effect in the State of New York.
"COLLATERAL": as defined in Section 2; PROVIDED,
that Collateral shall not include any property which is
subject to a Lien permitted under subsection 9.3 of the
Credit Agreement securing indebtedness permitted under
subsection 9.2 of the Credit Agreement to the extent that
the grant of a security interest hereunder would be
prohibited by such Lien or by the terms of such indebtedness
or, as to property acquired after the date hereof, which is
subject to a prohibition on Liens contained in any agreement
entered into after the Closing Date which is not prohibited
by subsection 9.14 of the Credit
<PAGE>
2
Agreement, which agreement evidences, governs or is otherwise related
to the financing of such property; PROVIDED, FURTHER, that Collateral
shall not include any property which is subject to a Lien permitted
under subsection 9.3(s) of the Credit Agreement or sold pursuant to
subsection 9.6 (k) of the Credit Agreement, including such Liens and
sales with respect to any such property acquired after the date
hereof.
"COLLATERAL ACCOUNT": any account established to hold money
proceeds, maintained under the sole dominion and control of the Agent,
subject to withdrawal by the Agent for the account of the Lenders as
provided in Section 8.
"CONTRACTS": the Stock Purchase Agreement, the
Merger Agreement, the Receivables Sale Agreement, and all
Rate Protection Agreements entered into by the Borrower, as
each of the foregoing may be amended, supplemented or
otherwise modified from time to time including, in each
case, without limitation, (a) all rights of the Borrower to
receive moneys due and to become due to it thereunder or in
connection therewith, (b) all rights of the Borrower to
damages arising out of, or for, breach or default in respect
thereof and (c) all rights of the Borrower to perform and to
exercise all remedies thereunder.
"COPYRIGHT LICENSE": any agreement, written or oral,
providing for the grant by or to the Borrower of any right under any
Copyright.
"COPYRIGHTS": all of the following to the extent that the
Borrower now or hereafter has any right, title or interest in any
country in the world: (i) all copyrights in all works, whether
published or unpublished, now existing or hereafter created or
acquired, all registrations and recordings thereof, and all
applications in the United States Copyright Office, and (ii) all
renewals thereof.
"MERGER AGREEMENT": the Merger Agreement, dated as of
December 20, 1994 between SDW Acquisition Corporation and the
Borrower.
"PATENT LICENSE": all agreements, whether written
or oral, providing for the grant by the Borrower of any
right to manufacture, use or sell any invention covered by a
Patent, including, without limitation, any thereof listed on
SCHEDULE 1 hereto.
"PATENTS": (a) all letters patent of the United
States and all reissues and extensions thereof, including,
without limitation, any thereof referred to in SCHEDULE 1
hereto, and (b) all applications for letters patent of the
United States or any other Country and all divisions,
continuations and continuations-in-part thereof, including,
without limitation, any thereof listed on SCHEDULE 1 hereto.
"SECURITY AGREEMENT": this Amended and Restated
Security Agreement, as amended, supplemented or otherwise
modified from time to time.
"TRADEMARK LICENSE": any agreement, written or oral,
providing for the grant by or to the Borrower of any right to use any
Trademark, including, without limitation, any thereof listed on
SCHEDULE 2 hereto.
"TRADEMARKS": (a) all trademarks, trade names,
corporate names, company names, business names, fictitious
business names, trade dress, trade styles, service marks,
designs, logos and other source or business identifiers, and
the goodwill of the business associated therewith, including
customer lists, license rights, advertising materials and
all other business assets which uniquely reflect the
goodwill of the business, now existing or hereafter adopted
or acquired, all registrations and recordings thereof, and
all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar
office or agency of the United States, or any State thereof,
or any other Country, including, without limitation, any
thereof listed on SCHEDULE 2 hereto, and (b) all renewals
thereof.
"UCC FILING COLLATERAL": as defined in Section 4(b).
<PAGE>
3
2. GRANT OF SECURITY INTEREST. As collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, the Borrower hereby
grants to the Agent for the ratable benefit of the Lenders a security interest
in all of the following property now owned or at any time hereafter acquired by
the Borrower or in which the Borrower now has or at any time in the future may
acquire any right, title or interest (collectively, the "COLLATERAL"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all Patents;
(x) all Patent Licenses;
(xi) all Timber;
(xii) all Trademarks;
(xiii) all Trademark Licenses; and
(xiv) to the extent not otherwise included, all
Proceeds and products of any and all of the
foregoing;
PROVIDED, HOWEVER, that notwithstanding any of the other provisions set forth in
this Section 2, this Security Agreement shall not constitute an assignment or
pledge of, or a grant of a security interest in or lien on, (a) any Collateral
if such assignment, pledge or grant of a security interest or lien with respect
to such Collateral is prohibited by any applicable Requirement of Law of any
Governmental Authority, (b) any Collateral of the types described in clauses
(iii), (x) and (xii) if such assignment, pledge or grant of a security interest
or lien with respect to such Collateral is prohibited by the terms of the
applicable Contract, Patent License or Trademark License or (c) any Receivables
or Related Security sold, or any Receivables or Related Security upon which a
Lien is granted, pursuant to the Receivables Facility or any Permitted
Receivables Financing.
3. RIGHTS OF AGENT AND LENDERS; LIMITATIONS ON AGENT'S AND
LENDERS' OBLIGATIONS. (A) BORROWER REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS.
Anything herein to the contrary notwithstanding, the Borrower shall remain
liable under each of the Accounts and Contracts to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise to each such Account and
in accordance with and pursuant to the terms and provisions of each such
Contract. Neither the Agent nor any Lender shall have any obligation or
liability under any Account (or any agreement giving rise thereto) or under any
Contract by reason of or arising out of this Security Agreement or the receipt
by the Agent or any such Lender of any payment relating to such Account or
Contract pursuant hereto, nor shall the Agent or any Lender be obligated in any
manner to perform any of the obligations of the Borrower under or pursuant to
any Account (or any agreement giving rise thereto) or under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account
<PAGE>
4
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
(b) NOTICE TO CONTRACTING PARTIES. At any time after the
occurrence and during the continuance of an Event of Default, the Agent may in
its own name or in the name of others communicate with account debtors with
respect to Accounts parties to the Contracts to verify with them to its
satisfaction the existence, amount and terms of any Accounts or Contracts.
(c) ANALYSIS OF ACCOUNTS. The Agent shall have the right to
make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Borrower shall furnish all such
assistance and information as the Agent may require in connection with such test
verifications. Upon the Agent's request and at the expense of the Borrower, the
Borrower shall cause independent public accountants or others satisfactory to
the Agent to furnish to the Agent reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts. The Agent in its
own name or in the name of others may at any time after the occurrence and
during the continuance of an Event of Default communicate with the obligors on
the Accounts to verify with them to the Agent's satisfaction the existence,
amount and terms of any Accounts.
(d) COLLECTIONS ON ACCOUNTS. The Agent hereby authorizes
the Borrower to collect the Accounts, so long as no Event of Default has
occurred or is continuing. If required by the Agent at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Accounts, when collected by the Borrower, (1) shall be forthwith (and, in any
event, within two Business Days) deposited by the Borrower in the exact form
received, duly indorsed by the Borrower to the Agent if required, in a
Collateral Account maintained under the sole dominion and control of the Agent,
subject to withdrawal by the Agent for the account of the Lenders only as
provided in Section 8(c), and (2) until so turned over, shall be held by the
Borrower in trust for the Agent and the Lenders, segregated from other funds of
the Borrower. Each such deposit of Proceeds of Accounts shall be accompanied by
a report identifying in reasonable detail the nature and source of the payments
included in the deposit.
At any time when an Event of Default has occurred and is
continuing, the Borrower shall, at the request of the Agent, deliver to the
Agent all original and other documents evidencing, and relating to, the
agreements and transactions which gave rise to the Accounts, including, without
limitation, all original orders, invoices and shipping receipts.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants that:
(a) TITLE; NO OTHER LIENS. Except for the Lien granted to
the Agent for the ratable benefit of the Lenders pursuant to this Security
Agreement and the other Liens permitted to exist on the Collateral pursuant to
the Credit Agreement, the Borrower owns each item of the Collateral free and
clear of any and all Liens or claims of others. No security agreement,
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as may
have been filed in favor of the Agent, for the ratable benefit of the Lenders,
pursuant to this Security Agreement or as may be permitted pursuant to the
Credit Agreement.
(b) PERFECTED FIRST PRIORITY LIENS. Assuming that the
financing statements described on SCHEDULE 3 hereto have been filed, the Liens
granted by the Borrower pursuant to this Security Agreement, constitute
perfected Liens on the Collateral in which a security interest may be perfected
pursuant to Article 9 of the Uniform Commercial Code as in effect in each
relevant jurisdiction (the "UCC FILING COLLATERAL") in favor of the Agent, for
the ratable benefit of the Lenders, which are prior to all other Liens on such
Collateral created by the Borrower and in existence on the date hereof (except
such other Liens as are not prohibited under the Credit Agreement) and which are
enforceable as such against all creditors of and purchasers from the Borrower
(except purchasers of inventory or Timber in the ordinary course of business to
the extent provided in Section 9-307 of the Uniform Commercial Code as in effect
in each relevant jurisdiction), except in each case as enforceability is
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether involved in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing. Upon
completion of the other actions described in Section 20 to perfect a security
interest in the Collateral (other than the UCC Filing Collateral), the Liens
granted pursuant to this Security Agreement with respect to the Collateral
(other than
<PAGE>
5
the UCC Filing Collateral) which is the subject of any such applicable actions
will constitute perfected Liens on such Collateral in which a security interest
may be perfected pursuant to applicable law as in effect in each relevant
jurisdiction (to the extent such Liens may be perfected by such applicable
actions under such laws) in favor of the Agent, for the ratable benefit of the
Lenders, which are prior to all other Liens on the Collateral created by the
Borrower and in existence on the date hereof (except such other Liens as are
not prohibited under the Credit Agreement) and which are enforceable as such
against all creditors of and purchasers from the Borrower, as the case may be,
except in each case as enforceability is affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether involved in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(c) ACCOUNTS; GENERAL INTANGIBLES. Subject to Section 5(n),
no amount payable to the Borrower under or in connection with any Account is
evidenced by any Instrument or Chattel Paper which has not been delivered to the
Agent. The places where the Borrower currently keeps its records concerning the
Accounts are listed on SCHEDULE 4 or such other locations as may be specified by
the Borrower to the Agent pursuant to Section 5(l).
(d) INVENTORY AND EQUIPMENT. The Inventory and the
Equipment of the Borrower are kept at the locations listed on SCHEDULE 5 hereto
or such other locations as may be specified by the Borrower to the Agent
pursuant to Section 5(l).
(e) CHIEF EXECUTIVE OFFICE. The Borrower's chief executive
office and chief place of business is located at 225 Franklin Street, Boston,
Massachusetts 02110 or such other locations as may be specified by the Borrower
to the Agent pursuant to Section 5(l).
(f) FARM PRODUCTS. None of the Collateral constitutes, or
is the Proceeds of, Farm Products.
(g) COPYRIGHTS, PATENTS AND TRADEMARKS. The Borrower does
not own any material registered U.S. Copyrights or U.S. Copyright Licenses in
its own name as of the date hereof. SCHEDULE 1 hereto includes all U.S. Patents
and U.S. Patent Licenses owned by the Borrower in its own name as of the date
hereof. SCHEDULE 2 hereto includes all U.S. Trademarks and U.S. Trademark
Licenses owned by the Borrower in its own name as of the date hereof. To the
best of the Borrower's knowledge, each U.S. Patent and U.S. Trademark is valid,
subsisting, unexpired, enforceable and has not been abandoned. Except as set
forth in either such Schedule, none of such U.S. Patents or U.S. Trademarks is
the subject of any licensing or franchise agreement. No holding, decision or
judgment has been rendered by any Governmental Authority which would limit,
cancel or question the validity of any U.S. Patent or U.S. Trademark. No action
or proceeding is pending (i) seeking to limit, cancel or question the validity
of any U.S. Patent or U.S. Trademark, or (ii) which, if adversely determined,
would have a material adverse effect on the value of any U.S. Patent or U.S.
Trademark.
5. COVENANTS. The Borrower covenants and agrees with the
Agent and the Lenders that, from and after the date of this Security Agreement
until this Security Agreement is terminated and the security interests created
hereby are released:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL
PAPER. At any time and from time to time, upon the written request of the
Agent, and at the sole expense of the Borrower, the Borrower will promptly and
duly execute and deliver such further instruments and documents and take such
further action as the Agent may reasonably request for the purpose of obtaining
or preserving the full benefits of this Security Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrower also
hereby authorizes the Agent to file any such financing or continuation statement
without the signature of the Borrower to the extent permitted by applicable law.
A carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral shall be sufficient as a financing
statement for filing in any jurisdiction. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or, to the extent required under
Section 5(n), Chattel Paper shall be immediately delivered to the Agent, duly
endorsed in a manner satisfactory to the Agent, to be held as Collateral
pursuant to this Security Agreement.
<PAGE>
6
(b) INDEMNIFICATION. The Borrower agrees to pay, and to
save the Agent and the Lenders harmless from, any and all liabilities, costs and
expenses (including, without limitation, reasonable legal fees and expenses) (i)
with respect to, or resulting from, any delay in paying, any and all excise,
sales or other taxes which may be payable or determined to be payable with
respect to any of the Collateral, (ii) with respect to, or resulting from, any
delay in complying with any Requirement of Law applicable to any of the
Collateral or (iii) in connection with any of the transactions contemplated by
this Security Agreement. In any suit, proceeding or action brought by the Agent
or any Lender under any Account or Contract for any sum owing thereunder, or to
enforce any provisions of any Account or Contract, the Borrower will save,
indemnify and keep the Agent and such Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by the Borrower of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such account debtor or obligor or its successors from
the Borrower.
(c) MAINTENANCE OF RECORDS. The Borrower will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Accounts. The Borrower will mark its
books and records pertaining to the Collateral to evidence this Security
Agreement and the security interests granted hereby.
(d) RIGHT OF INSPECTION. The Agent shall at all times have
full and free access during normal business hours and upon reasonable notice to
all the books, correspondence and records of the Borrower, and the Agent and its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Borrower agrees to render to the Agent, at the
Borrower's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Upon reasonable notice to Borrower,
the Agent and, at any time after the occurrence and during the continuation of
an Event of Default, the Lenders and their respective representatives shall also
have the right, during normal business hours to enter into and upon any premises
where any of the Inventory or Equipment is located for the purpose of inspecting
the same, observing its use or otherwise protecting its interests therein.
(e) PAYMENT OF TAXES AND OTHER AMOUNTS. The Borrower will
pay promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom, as
well as all claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral which have a
reasonable likelihood of adverse determination, except that no such charge need
be paid if (i) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any material portion of the Collateral
or any interest therein and (iii) such charge is adequately reserved against on
the Borrower's books in accordance with GAAP.
(f) LIENS ON COLLATERAL. The Borrower will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien or claim on or to the Collateral, other than the Liens created hereby
and other than as permitted pursuant to the Credit Agreement, and will defend
the right, title and interest of the Agent and the Lenders in and to any of the
Collateral against the claims and demands of all Persons whomsoever.
(g) CERTAIN NOTICES. The Borrower will not fail to deliver
to the Agent a copy of each material demand, notice or document received by it
relating in any way to any Contract or any agreement giving rise to an Account.
(h) LIMITATIONS ON DISCOUNTS AND COMPROMISES OF ACCOUNTS.
Other than in the ordinary course of business as generally conducted by the
Borrower over a period of time, the Borrower will not compromise, compound or
settle the Accounts for less than the full amount thereof, or release, wholly or
partially, any Person liable for the payment thereof, except in each case as
permitted under the Credit Agreement.
(i) MAINTENANCE OF INSURANCE. The Borrower will maintain,
with financially sound and reputable insurance companies (or, to the extent
consistent with prudent business practice, a program of self-insurance),
insurance in at least such amounts as are usually insured against in the same
general area by companies engaged in the same or a similar business (i) insuring
the Inventory and Equipment against loss by fire, explosion, theft and such
other casualties as may be reasonably satisfactory to the Agent and (ii)
insuring the Borrower, the Agent and the Lenders against liability for personal
injury and property damage relating to such Inventory and Equipment. Such
policies shall provide that losses
<PAGE>
7
are payable to the Borrower, the Agent and the Lenders as their respective
interests may appear. Any such insurance policies shall (A) contain a breach of
warranty clause in favor of the Agent and the Lenders, (B) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the Agent of
written notice thereof, (C) name the Agent and the Lenders as insured parties
and (D) be reasonably satisfactory in all other respects to the Agent. The
Borrower shall deliver to the Agent a report of a reputable insurance broker
with respect to any such insurance policies during the month of June in each
calendar year and such supplemental reports with respect thereto as the Agent
may from time to time reasonably request.
(j) FURTHER IDENTIFICATION OF COLLATERAL. The Borrower will
furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail.
(k) NOTICES. The Borrower will advise the Agent promptly,
in reasonable detail, at its address set forth for notices pursuant to
subsection 13.2 of the Credit Agreement, (i) of any Lien (other than Liens
created hereby or permitted under the Credit Agreement) on, or claim asserted
against, any of the Collateral and (ii) of the occurrence of any other event
which could reasonably be expected to have a material adverse effect on the
aggregate value of the Collateral or, with respect to any material portion of
the Collateral, on the Liens created hereunder.
(l) CHANGES IN LOCATIONS, NAME, ETC. The Borrower will not
(i) change the location of its chief executive office/chief place of business
from that specified in Section 4(e) or remove its books and records from the
locations referred to in Section 4(c), (ii) permit any of the Inventory or
Equipment to be kept at a location other than those listed on SCHEDULE 5 hereto
or (iii) change its name, identity or corporate structure to such an extent that
any financing statement filed in favor of the Agent in connection with this
Security Agreement would become seriously misleading, unless in each case it
shall have given the Agent and the Lenders at least 30 days prior written notice
thereof and all filings and other actions to maintain the perfection of the
security interests granted hereby shall have been made.
(m) PATENTS AND TRADEMARKS.
(i) The Borrower (either itself or through licensees)
will, except with respect to any Trademark that the Borrower shall
reasonably determine is of negligible economic value to it, (A) employ such
Trademark with the appropriate notice of registration and (B) not (and not
permit any licensee or sublicensee thereof to) do any act or knowingly omit
to do any act whereby any Trademark may become invalidated.
(ii) The Borrower will not, except with respect to any
Patent that the Borrower shall reasonably determine is of negligible
economic value to it, do any act, or omit to do any act, whereby any Patent
may become abandoned or dedicated.
(iii) The Borrower will notify the Agent and the Lenders
promptly if it knows, or has reason to know, of any adverse final
determination with respect to any Patent or Trademark (including, without
limitation, any such final determination in any proceeding in the United
States Patent and Trademark Office or any court or tribunal in any country)
regarding the Borrower's ownership of any Patent or Trademark or its right
to register the same or to keep and maintain the same.
(iv) Whenever the Borrower, either by itself or through
any agent, employee, licensee or designee, shall file an application for
the registration of any Patent or Trademark with the United States Patent
and Trademark Office or any similar office or agency in any other country
or any political subdivision thereof, the Borrower shall report such filing
to the Agent and the Lenders within fifteen Business Days after the last
day of the fiscal quarter in which such filing occurs. Upon request of the
Agent, the Borrower shall execute and deliver any and all agreements,
instruments, documents, and papers as the Agent may request to evidence the
Agent's and the Lenders' security interest in any Patent or Trademark and
the goodwill and general intangibles of the Borrower relating thereto or
represented thereby, and the Borrower hereby constitutes the Agent as its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable until the
Obligations are paid in full, the Commitments are terminated and no Letter
of Credit remains outstanding.
<PAGE>
8
(v) The Borrower will, except with respect to any
Trademark or Patent that the Borrower shall reasonably determine is of
negligible economic value to it, take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States
Patent and Trademark Office, or any similar office or agency in any other
country or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of the Patents and Trademarks, including, without limitation,
filing of applications for renewal, affidavits or declarations of use and
affidavits or declarations of incontestability.
(vi) In the event that any Patent or Trademark included
in the Collateral is infringed, misappropriated or diluted by a third
party, the Borrower shall promptly notify the Agent and the Lenders after
it learns thereof and shall, unless the Borrower shall reasonably determine
that such Patent or Trademark is of negligible economic value to the
Borrower which determination the Borrower shall promptly report to the
Agent and the Lenders, promptly sue for infringement, misappropriation or
dilution, to seek injunctive relief where appropriate and to recover any
and all damages for such infringement, misappropriation or dilution, or
take such other actions as the Borrower shall reasonably deem appropriate
under the circumstances to protect such Patent or Trademark.
(n) CHATTEL PAPER. Unless an Event of Default shall have
occurred and be continuing, the Borrower shall be entitled to retain possession
of all Collateral consisting of Chattel Paper, and shall hold all such Chattel
Paper in trust for the Agent, for the ratable benefit of the Lenders. If an
Event of Default shall have occurred and be continuing, upon the request of the
Agent, such Chattel Paper shall be immediately delivered to the Agent, to be
held as Collateral pursuant to this Agreement. The Borrower shall not permit
any other Person (other than Holdings or a Subsidiary) to possess any such
Collateral at any time.
(o) GOVERNMENT CONTRACTS. The Borrower shall, to the extent
practicable, provide reasonable advance notice to the Agent (i) prior to or, if
such advance notice is not practicable, shall provide notice to the Agent
promptly after, entering into a contract with a Governmental Authority and (ii)
prior to or, if such advance notice is not practicable, shall provide notice to
the Agent promptly after, the sale of goods to a Governmental Authority
resulting in the creation of an Account if such contract or Account, in the
aggregate together with all such contracts then in effect (including any such
contract entered into prior to the Closing Date) and/or Accounts then
outstanding (including any such Accounts arising prior to the Closing Date), but
without duplication, exceed 5% of net sales of the Borrower and its Subsidiaries
for the most recently completed fiscal year, and shall, at the request of the
Agent, provide any notices and make any filings required under the Assignment of
Claims Act in order to grant, maintain and/or perfect the security interest all
such contracts and Accounts granted pursuant to this Security Agreement.
6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Subject to Section 8(f), the Borrower hereby
irrevocably constitutes and appoints the Agent and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Borrower and
in the name of the Borrower or in its own name, from time to time in the Agent's
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement, and, without limiting the generality of the
foregoing, the Borrower hereby gives the Agent the power and right, on behalf of
the Borrower, without notice to or assent by the Borrower (except as set forth
below), to do the following:
(i) in the case of any Collateral, at any time when
any Event of Default shall have occurred and is continuing, in the
name of the Borrower or its own name, or otherwise, to take possession
of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Account,
Instrument, General Intangible or Contract or with respect to any
other Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Agent for the purpose of collecting any and all
such moneys due under any Account, Instrument, General Intangible or
Contract or with respect to any other Collateral whenever payable;
<PAGE>
9
(ii) in each case, to the extent not paid, performed,
discharged or effected by the Borrower as required by this Agreement
or the Credit Agreement, to pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Security Agreement
and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) at any time when an Event of Default shall have
occurred and be continuing, (A) to direct any party liable for any
payment under any of the Collateral to make payment of any and all
moneys due or to become due thereunder directly to the Agent or as the
Agent shall direct; (B) to ask or demand for, collect, receive payment
of and receipt for, any and all moneys, claims and other amounts due
or to become due at any time in respect of or arising out of any
Collateral; (C) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof
and to enforce any other right in respect of any Collateral; (E) to
defend any suit, action or proceeding brought against the Borrower
with respect to any Collateral; (F) to settle, compromise or adjust
any suit, action or proceeding described in clause (E) above and, in
connection therewith, to give such discharges or releases as the Agent
may deem appropriate; (G) to assign, or grant licenses with respect
to, any Copyright, Patent or Trademark (along with all the goodwill of
the business to which any such Trademark pertains), throughout the
world for such term or terms, on such conditions, and in such manner,
as the Agent shall in its sole discretion determine; (H) in the
exercise of its rights under this Section 6, to use any and all
Trademarks and Trademark Licenses, if practicable and only to the
extent permitted by agreements relating thereto and applicable laws,
to the extent of the rights of the Borrower therein, and the Borrower
hereby grants a license to the Agent for such purpose and (I)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Agent were the absolute owner thereof for all
purposes, and to do, at the Agent's option and the Borrower's expense,
at any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve or realize upon the Collateral
and the Agent's and the Lenders' Liens thereon and to effect the
intent of this Security Agreement, all as fully and effectively as the
Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) OTHER POWERS. The Borrower also authorizes the Agent
and the Lenders, at any time and from time to time, to execute, in connection
with the sale provided for in Section 8 hereof, any indorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
(c) NO DUTY ON AGENT OR LENDERS' PART. The powers conferred
on the Agent and the Lenders hereunder are solely to protect the Agent's and the
Lenders' interests in the Collateral and shall not impose any duty upon the
Agent or any Lender to exercise any such powers. The Agent and the Lenders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to the Borrower for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
7. PERFORMANCE BY AGENT OF BORROWER OBLIGATIONS. If the
Borrower fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with any
agreement, the expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at the rate per annum
set forth in subsection 5.4(c) of the Credit Agreement, shall be payable by the
Borrower to the Agent on demand and shall constitute Obligations secured hereby.
8. REMEDIES. (a) NOTICE TO ACCOUNT DEBTORS AND CONTRACT
PARTIES. Upon the request of the Agent at any time after the occurrence and
during the continuance of an Event of Default, the Borrower shall notify account
debtors on the Accounts and parties to the Contracts that the Accounts and the
Contracts have been assigned to the Agent for the ratable benefit of the Lenders
and that payments in respect thereof shall be made directly to the Agent.
<PAGE>
10
(b) PROCEEDS TO BE TURNED OVER TO AGENT. In addition to the
rights of the Agent and the Lenders specified in Section with respect to
payments of Accounts, if an Event of Default shall occur and be continuing, the
Agent may require, by notice to the Borrower that all Proceeds received by the
Borrower consisting of cash, checks and other near-cash items be held by the
Borrower in trust for the Agent and the Lenders, segregated from other funds of
the Borrower, and forthwith upon receipt by the Borrower, be turned over to the
Agent in the exact form received by the Borrower (duly indorsed by the Borrower
to the Agent, if required) and held by the Agent in a Collateral Account
maintained under the sole dominion and control of the Agent. All Proceeds while
held by the Agent in a Collateral Account (or by the Borrower in trust for the
Agent and the Lenders) shall continue to be held as collateral security for all
the Obligations and shall not constitute payment thereof until applied as
provided in Section 8(c).
(c) APPLICATION OF PROCEEDS. At such intervals as may be
agreed upon by the Borrower and the Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Agent's election, the Agent may
apply all or any part of Proceeds held in any Collateral Account in payment of
the Obligations in such order as the Agent may elect and any part of such funds
which the Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the Agent
to the Borrower or to whomsoever may be lawfully entitled to receive the same.
Any balance of such Proceeds remaining after the Obligations shall have been
paid in full, the Commitments shall have been terminated and no Letter of Credit
remains outstanding shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive the same.
(d) CODE REMEDIES. If an Event of Default shall occur and
be continuing, the Agent, on behalf of the Lenders may exercise, in addition to
all other rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Borrower or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived to the fullest extent permitted by applicable law), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Agent or any Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Agent or any Lender shall have the right upon any such public sale or sales,
and, to the fullest extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Borrower, which right or equity of
redemption is hereby waived or released to the extent permitted by applicable
law. The Borrower further agrees, at the Agent's request, to assemble the
Collateral and make it available to the Agent at places which the Agent shall
reasonably select, whether at the Borrower's premises or elsewhere. The Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Agent may elect, and only after such
application and after the payment by the Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Agent account for the surplus, if any, to the Borrower. To the
extent permitted by applicable law, the Borrower waives all claims, damages and
demands it may acquire against the Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.
(e) DEFICIENCY. The Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the reasonable fees and
disbursements of any attorneys employed by the Agent or any Lender to collect
such deficiency.
(f) Anything herein to the contrary notwithstanding, the
exercise of remedies or any power of attorney granted hereunder with respect to
Collateral is subject to any applicable Requirement of Law of any Governmental
Authority. No action will be taken by the Agent or any Lender hereunder if such
action will result in a violation of any applicable Requirement of Law of any
Government Authority by any Loan Party.
<PAGE>
11
9. LIMITATION ON DUTIES REGARDING PRESERVATION OF
COLLATERAL. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Agent deals with similar property for its own account. Neither the Agent, any
Lender, nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of the Borrower
or otherwise.
10. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest until this Agreement is terminated and the
security interests created hereby are released.
11. SEVERABILITY. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. SECTION HEADINGS. The section headings used in this
Security Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
13. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
14. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of
the terms or provisions of this Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Borrower and the Agent, PROVIDED that any provision of this Security
Agreement may be waived by facsimile transmission by the Agent. This Security
Agreement shall be binding upon and inure to the benefit of the permitted
successors and permitted assigns of the Borrower, the Agent and the Lenders,
PROVIDED that the Borrower may not assign its rights or obligations under this
Security Agreement without the prior written consent of the Agent and any
purported assignment without such consent shall be null and void.
15. NOTICES. All notices, requests and demands given
hereunder shall be given in accordance with subsection 13.2 of the Credit
Agreement.
16. AUTHORITY OF AGENT. The Borrower acknowledges that the
rights and responsibilities of the Agent under this Security Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
Agent of any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Security Agreement shall, as
between the Agent and the Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Agent and the Borrower, the Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and the Borrower shall not be under
any obligation, or entitlement, to make any inquiry respecting such authority.
17. INTEGRATION. This Security Agreement represents the
agreement of the Borrower and the Agent with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Agent or any Lender relative to subject matter hereof not expressly set
forth or referred to herein or in the other Loan Documents.
18. GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
<PAGE>
12
19. TERMINATION. (a) This Agreement and the Liens created
hereby shall terminate when all the Obligations shall have been fully paid, when
no Letters of Credit shall remain outstanding and when the Commitments shall
have terminated under the Credit Agreement, at which time the Agent shall
execute and deliver to the Borrower, or to such person or persons as the
Borrower shall reasonably designate, all Uniform Commercial Code termination
statements and similar documents prepared by the Borrower at its expense which
the Borrower shall reasonably request to evidence such termination.
(b) Without limiting the foregoing, all Collateral permitted
to be sold, transferred or otherwise disposed of in accordance with the terms
and provisions of the Credit Agreement shall be sold, transferred or otherwise
disposed of free and clear of the Liens created hereby. In connection with the
foregoing, the Agent shall execute and deliver to the Borrower, or to such
Person or Persons as the Borrower shall reasonably designate, all Uniform
Commercial Code termination statements and similar documents prepared by the
Borrower at its expense which the Borrower shall reasonably request to evidence
the release of the Liens created hereby with respect to any such Collateral.
(c) Any execution and delivery of statements or documents
pursuant to this Section 19 shall be without recourse to or representation or
warranty by the Agent.
20. PERFECTION OF LIENS. The Borrower and the Agent
acknowledge that the Liens created by this Security Agreement are initially
intended to be perfected only by the filing of (a) Uniform Commercial Code
financing statements described on SCHEDULE 3, (b) the filing of the Borrower
Patent and Trademark Security Agreement in the United States Patent and
Trademark Office and (c) the delivery of all Instruments of the Borrower. It is
not intended that any filing will be made in any country other than the United
States of America with respect to the security interest granted in Patents,
Patent Licenses, Trademarks or Trademarks Licenses pursuant to this Security
Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Security
Agreement to be duly executed and delivered as of the date first above written.
S.D. WARREN COMPANY
By:
-------------------------------------
Title:
SCHEDULES:
Schedule 1 - Patents and Patent Licenses
Schedule 2 - Trademarks and Trademark Licenses
Schedule 3 - Filing Jurisdictions
Schedule 4 - Location of Records
Schedule 5 - Locations of Inventory and Equipment
<PAGE>
EXHIBIT D TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF AMENDED AND RESTATED BORROWER PLEDGE AGREEMENT]
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April , 1996,
made by S.D. WARREN COMPANY, a Pennsylvania corporation (the "BORROWER") in
favor of CHEMICAL BANK, as agent (in such capacity, the "AGENT") for the several
banks, financial institutions and other entities (the "LENDERS") from time to
time parties to the Amended and Restated Credit and Guarantee Agreement, dated
as of April , 1996 (as amended, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware
Corporation ("HOLDINGS"), the Borrower, the Lenders and the Agent.
W I T N E S S E T H:
WHEREAS, in connection with the Existing Credit Agreement (as defined
in the Credit Agreement), the Borrower entered into that certain Pledge
Agreement, dated as of December 20, 1994 (the "EXISTING PLEDGE AGREEMENT"),
pursuant to which it granted a security interest in certain of its assets as
collateral security for the Obligations (as defined in the Credit Agreement);
WHEREAS, the Borrower has requested that the Agent and the Lenders
amend and restate the Existing Credit Agreement in the manner provided in the
Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement and to the obligations of the Lenders to make the Extensions of
Credit (as defined in the Credit Agreement) provided for therein that the
Borrower shall have amended and restated the Existing Pledge Agreement in the
manner provided for herein;
NOW, THEREFORE, in consideration of the premises contained herein and
to induce the Lenders to amend and restate the Existing Credit Agreement as
provided in the Credit Agreement and to make Extensions of Credit under the
Credit Agreement, the Borrower hereby agrees with the Agent, for the benefit of
the Lenders, to amend and restate and hereby amends and restates the Existing
Pledge Agreement to read in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Amended and Restated Pledge Agreement, as the same
may be amended, modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in
the State of New York.
"COLLATERAL": the Pledged Stock issued by the Issuers and all
Proceeds thereof.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders as provided in
Section 8.
"DOMESTIC ISSUER": any Issuer that is not a Foreign Issuer.
"FOREIGN ISSUER": any Issuer organized under the laws of any
jurisdiction outside the United States of America.
<PAGE>
2
"ISSUERS": the collective reference to the companies identified on
SCHEDULE 1 attached hereto as the issuers of the Pledged Stock;
individually, each an "ISSUER."
"NON-CONSENSUAL LIENS: as defined in Section 4(c).
"PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by any Issuer to the
Borrower while this Agreement is in effect and while such Capital Stock
continues to be subject to the security interest granted pursuant to this
Agreement.
"PROCEEDS": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof of the Pledged Stock and, in any event, shall include,
without limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
(c) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Borrower hereby delivers
to the Agent, for the ratable benefit of the Lenders, all the Pledged Stock
issued by the Issuers and hereby grants to Agent, for the ratable benefit of the
Lenders, a first security interest in the Collateral (except for Non-Consensual
Liens), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Agent of each
certificate representing one or more shares of Pledged Stock to the Agent, the
Borrower shall deliver an undated stock power covering such certificate, duly
executed in blank by the Borrower with, if the Agent so requests, signature
guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the Capital Stock of each Domestic Issuer
and sixty-five percent of the common stock and one hundred percent of the
preferred stock of each Foreign Issuer held by the Borrower.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Borrower is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock, free of any and all Liens or options
in favor of, or claims of, any other Person, except the security interests
created by this Agreement and non-consensual Liens arising involuntarily by
operation of law to the extent not prohibited by the Credit Agreement
("NON-CONSENSUAL LIENS").
(d) Upon delivery to the Agent of the stock certificates evidencing
the Pledged Stock, the security interest created by this Agreement will
constitute a valid, perfected first priority security interest (subject to
Non-Consensual Liens not prohibited by the Credit Agreement) in the Collateral,
enforceable as such against all creditors of the Borrower and any Persons
purporting to purchase any Collateral from the Borrower, except as affected by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
<PAGE>
3
5. COVENANTS. The Borrower covenants and agrees with the Agent and
the Lenders that, from and after the date of this Agreement until this Agreement
is terminated and the security interests created hereby are released:
(a) If the Borrower shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
the Borrower shall accept the same as the agent of the Agent and the Lenders,
hold the same in trust for the Agent and the Lenders and deliver the same
forthwith to the Agent in the exact form received, duly indorsed by the Borrower
to the Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Borrower and with, if the Agent so
requests, signature guaranteed, to be held by the Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Other than
pursuant to a distribution or transfer of any assets of an Issuer to the
Borrower in a transaction permitted under the Credit Agreement, (i) any sums
paid upon or in respect of the Pledged Stock upon the liquidation or dissolution
of any Issuer shall be paid over to the Agent to be held by it hereunder as
additional collateral security for the Obligations, and (ii) in case any
distribution of capital shall be made on or in respect of the Pledged Stock or
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of any
Issuer or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Agent to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Pledged Stock shall be received by the
Borrower, the Borrower shall, until such money or property is paid or delivered
to the Agent, hold such money or property in trust for the Lenders, segregated
from other funds of the Borrower, as additional collateral security for the
Obligations.
(b) Without the prior written consent of the Agent, the Borrower will
not (i) vote to enable, or take any other action to permit, any Issuer to issue
(other than to existing stockholders on a proportionate basis) any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer,(ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral other than pursuant to a transaction permitted under the Credit
Agreement,(iii) create, incur or permit to exist any Lien on any of the
Collateral, or any interest therein, except for the security interests created
by this Agreement and Liens permitted by the Credit Agreement (except for
Non-Consensual Liens not prohibited by the Credit Agreement) or (iv) enter into
any agreement or undertaking (other than this Agreement and the other Loan
Documents or, in the case of Collateral other than Pledged Stock, as permitted
by subsection 9.14 of the Credit Agreement) restricting the right or ability of
the Borrower or the Agent to sell, assign or transfer any of the Collateral.
(c) The Borrower shall maintain the security interest created by this
Agreement as a first perfected security interest (subject to Non-Consensual
Liens not prohibited by the Credit Agreement) and shall defend such security
interest against claims and demands of all Persons whomsoever. At any time and
from time to time, upon the written request of the Agent, and at the sole
expense of the Borrower, the Borrower will promptly and duly execute and deliver
such further instruments and documents and take such further actions as the
Agent may reasonably request for the purposes of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted. If
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper shall be immediately delivered to the Agent,
duly endorsed in a manner satisfactory to the Agent, to be held as Collateral
pursuant to this Agreement.
(d) The Borrower shall pay, and hold the Agent and the Lenders
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall
have occurred and be continuing and the Agent shall have given notice to the
Borrower of the Agent's intent to exercise its corresponding rights pursuant to
Section 7 below, the Borrower shall be permitted to receive all cash dividends
paid to the extent not prohibited by the Credit Agreement, in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate
right exercised or other action taken which, in
<PAGE>
4
the Agent's reasonable judgment, would impair the Collateral or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
7. RIGHTS OF THE LENDERS AND THE AGENT. (a) All money Proceeds
received by the Agent hereunder shall be held by the Agent for the benefit of
the Lenders in a Collateral Account. All Proceeds while held by the Agent in a
Collateral Account (or by the Borrower in trust for the Agent and the Lenders)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in Section 8(a).
(b) If an Event of Default shall occur and be continuing and the Agent
shall give notice of its intent to exercise such rights to the Borrower, (i) the
Agent shall have the right to receive any and all cash dividends paid in respect
of the Pledged Stock and make application thereof to the Obligations in such
order as the Agent may determine, and (ii) all shares of the Pledged Stock shall
be registered in the name of the Agent or its nominee, and the Agent or its
nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
any Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of any Issuer, or upon
the exercise by the Borrower or the Agent of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Agent may determine), all without liability
except to account for property actually received by it, but the Agent shall have
no duty to the Borrower to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Agent's election, the Agent may apply all or any
part of Proceeds held in any Collateral Account in payment of the Obligations in
such order as the Agent may elect.
(b) If an Event of Default shall have occurred and be continuing, the
Agent, on behalf of the Lenders, may exercise, in addition to all other rights
and remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the Code. Without limiting the generality of the
foregoing, the Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived to the fullest extent permitted by applicable law), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or any Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Agent or any Lender shall have the right upon any such
public sale or sales, and, to the fullest extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Borrower, which right or
equity of redemption is hereby waived or released to the extent permitted by
applicable law. The Agent shall apply any Proceeds from time to time held by it
and the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Agent and the Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Agent or any Lender
arising out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. The Borrower shall remain liable for any
deficiency
<PAGE>
5
if the proceeds of any sale or other disposition of Collateral are insufficient
to pay the Obligations and the fees and disbursements of any attorneys employed
by the Agent or any Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 8 hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the Borrower will cause
the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Agent, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,(ii)
to use its best efforts to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and (iii) to make all amendments thereto and/or to the related prospectus
which, in the opinion of the Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Borrower agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Agent shall
designate and to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
(b) The Borrower recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Borrower acknowledges
and agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(c) The Borrower further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Borrower further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Agent and the Lenders, that
the Agent and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
Section shall be specifically enforceable against the Borrower, and the Borrower
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred under the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The
Borrower hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Agreement, without any other or further instructions from the Borrower,
and the Borrower agrees that each Issuer shall be fully protected in so
complying.
11. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Subject to Section
11(c), the Borrower hereby irrevocably constitutes and appoints the Agent and
any officer or agent of the Agent, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Borrower and in the name of the Borrower or in the
Agent's own name, from time to time in the Agent's discretion, for the purpose
of carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement, including,
without limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Borrower hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted in
Section 11(a). All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.
<PAGE>
6
(c) Anything herein to the contrary notwithstanding, the exercise of
remedies or any power of attorney granted hereunder with respect to Pledged
Stock is subject to the provisions of any applicable law, rule or regulation and
to governmental approvals that may be required hereunder. No action will be
taken by the Agent or any Lender hereunder if such action will result in a
violation of any such law, rule or regulation.
12. DUTY OF AGENT. The Agent's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Agent deals with similar securities and property
for its own account, except that the Agent shall have no obligation to invest
funds held in any Collateral Account and may hold the same as demand deposits.
Neither the Agent, any Lender nor any of their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Borrower or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of
the Code, the Borrower authorizes the Agent to file financing statements with
respect to the Collateral without the signature of the Borrower in such form and
in such filing offices as the Agent reasonably determines appropriate to perfect
the security interests of the Agent under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. AUTHORITY OF AGENT. The Borrower acknowledges that the rights
and responsibilities of the Agent under this Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between the Agent
and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Borrower, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act or
refrain from acting, and neither the Borrower nor any Issuer shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
15. NOTICES. All notices, requests and demands given hereunder shall
be given in accordance with subsection 13.2 of the Credit Agreement.
16. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Borrower and the Agent, PROVIDED that any provision of this Agreement may be
waived by facsimile transmission by the Agent.
(b) No failure to exercise and no delay in exercising, on the part of
the Agent or any Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(c) The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Borrower, the Agent
and the Lenders, PROVIDED that the Borrower may not assign or transfer
<PAGE>
7
any of its rights or obligations under this Agreement without the prior written
consent of the Agent and any purported assignment without such consent shall be
null and void.
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
21. Upon the foreclosure of the capital stock of S.D. Warren Finance
Co. ("SDW Finance"), the Agent agrees, and will cause any transferee with
respect to such stock to agree, not to amend or modify the Certificate of
Incorporation or By-Laws of SDW Finance as in effect on the date of such
foreclosure and to cause SDW Finance to comply with the provisions of its
Certificate of Incorporation and By-Laws. The Agent also agrees, and will cause
any transferee to agree, to comply with the provisions of the Subscription and
Shareholder Agreement, dated as of April __, 1996, between SDW Finance and the
Borrower, including, without limitation, Sections 8 and 9 thereof, as if it were
the "Purchaser" thereunder.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
S.D. WARREN COMPANY
By:
---------------------------
Title:
SCHEDULES:
Schedule 1 - Description of Pledged Stock
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated Pledge Agreement dated April , 1996 (as the same may be amended,
supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"),
made by S.D. Warren Company, a Pennsylvania corporation, for the benefit of
Chemical Bank, as agent for the Lenders referred to in the Pledge Agreement.
The undersigned agrees for the benefit of the Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Agent promptly in writing of the
occurrence of any of the events described in Section 5(a) of the Pledge
Agreement.
3. The terms of Section 9(c) of the Pledge Agreement shall apply to
it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 9 of the Pledge Agreement.
[NAME OF ISSUER]
By:
------------------------------------
Title:
---------------------------------
Address for Notices:
---------------------------------------
---------------------------------------
Telex:
---------------------------------
Fax:
-----------------------------------
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock* Stock Certificate No. No. of Shares
- ---------------- ------------------- ----------------------- ----------------
- -------------------------
* Stock is assumed to be common stock unless otherwise indicated.
<PAGE>
EXHIBIT E TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
------------------------------
[FORM OF AMENDED AND RESTATED HOLDINGS PLEDGE AGREEMENT]
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April , 1996,
made by SDW HOLDINGS CORPORATION, a Pennsylvania corporation (the "PLEDGOR"), in
favor of CHEMICAL BANK, as agent (in such capacity, the "AGENT") for the several
banks, financial institutions and other entities parties to the Amended and
Restated Credit and Guarantee Agreement, dated as of April , 1996 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Pledgor, S.D. Warren Company, a Pennsylvania corporation
("BORROWER"), the Lenders and the Agent.
W I T N E S S E T H:
WHEREAS, in connection with the Existing Credit Agreement (as defined
in the Credit Agreement), the Pledgor entered into that certain Pledge
Agreement, dated as of December 20, 1994 (the "EXISTING PLEDGE AGREEMENT"),
pursuant to which it granted a security interest in certain of its assets as
collateral security for the Obligations (as defined in the Credit Agreement);
WHEREAS, the Borrower and the Pledgor have requested that the Agent
and the Lenders amend and restate the Existing Credit Agreement in the manner
provided in the Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement and to the obligations of the Lenders to make the Extensions of
Credit (as defined in the Credit Agreement) provided for therein that the
Pledgor shall have amended and restated the Existing Pledge Agreement in the
manner provided for herein;
NOW, THEREFORE, in consideration of the premises contained herein and
to induce the Lenders to amend and restate the Existing Credit Agreement as
provided in the Credit Agreement and to make Extensions of Credit under the
Credit Agreement, the Pledgor hereby agrees with the Agent, for the ratable
benefit of the Lenders, to amend and restate and hereby amends and restates the
Existing Pledge Agreement to read in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Amended and Restated Pledge Agreement, as the same
may be amended, modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in
the State of New York.
"COLLATERAL": the Pledged Stock issued by the Borrower and all
Proceeds thereof.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders as provided in
Section 8.
"ISSUER": the Borrower.
"NON-CONSENSUAL LIENS: as defined in Section 4(c).
<PAGE>
2
"PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by the Issuer to the
Pledgor while this Agreement is in effect and while such Capital Stock
continues to be subject to the security interest granted pursuant to this
Agreement.
"PROCEEDS": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof of the Pledged Stock and, in any event, shall include,
without limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
(c) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers to
the Agent, for the ratable benefit of the Lenders, all the Pledged Stock issued
by the Issuer and hereby grants to Agent, for the ratable benefit of the
Lenders, a first security interest in the Collateral (except for Non-Consensual
Liens), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Agent of each
certificate representing one or more shares of Pledged Stock to the Agent, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Agent so requests, signature
guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the Capital Stock of the Issuer.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock, free of any and all Liens or options
in favor of, or claims of, any other Person, except the security interests
created by this Agreement and non-consensual Liens arising involuntarily by
operation of law to the extent not prohibited by the Credit Agreement
("NON-CONSENSUAL LIENS").
(d) Upon delivery to the Agent of the stock certificates evidencing
the Pledged Stock, the security interest created by this Agreement will
constitute a valid, perfected first priority security interest (subject to
Non-Consensual Liens not prohibited by the Credit Agreement) in the Collateral,
enforceable as such against all creditors of the Pledgor and any Persons
purporting to purchase any Collateral from the Pledgor, except as affected by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
5. COVENANTS. The Pledgor covenants and agrees with the Agent and the
Lenders that, from and after the date of this Agreement until this Agreement is
terminated and the security interests created hereby are released:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a
<PAGE>
3
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Agent and the Lenders,
hold the same in trust for the Agent and the Lenders and deliver the same
forthwith to the Agent in the exact form received, duly indorsed by the Pledgor
to the Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the Agent so
requests, signature guaranteed, to be held by the Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Other than
pursuant to a distribution or transfer of any assets of the Issuer to the
Pledgor in a transaction permitted under the Credit Agreement, (i) any sums paid
upon or in respect of the Pledged Stock upon the liquidation or dissolution of
the Issuer shall be paid over to the Agent to be held by it hereunder as
additional collateral security for the Obligations, and (ii) in case any
distribution of capital shall be made on or in respect of the Pledged Stock or
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of the
Issuer or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Agent to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Pledged Stock shall be received by the
Pledgor, the Pledgor shall, until such money or property is paid or delivered to
the Agent, hold such money or property in trust for the Lenders, segregated from
other funds of the Pledgor, as additional collateral security for the
Obligations.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, the Issuer to issue
(other than to existing stockholders on a proportionate basis) any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of the Issuer,(ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral other than pursuant to a transaction permitted under the Credit
Agreement,(iii) create, incur or permit to exist any Lien on any of the
Collateral, or any interest therein, except for the security interests created
by this Agreement and Liens permitted by the Credit Agreement (except for
Non-Consensual Liens not prohibited by the Credit Agreement) or (iv) enter into
any agreement or undertaking (other than this Agreement and the other Loan
Documents) restricting the right or ability of the Pledgor or the Agent to sell,
assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first perfected security interest (subject to Non-Consensual
Liens not prohibited by the Credit Agreement) and shall defend such security
interest against claims and demands of all Persons whomsoever. At any time and
from time to time, upon the written request of the Agent, and at the sole
expense of the Pledgor, the Pledgor will promptly and duly execute and deliver
such further instruments and documents and take such further actions as the
Agent may reasonably request for the purposes of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted. If
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper shall be immediately delivered to the Agent,
duly endorsed in a manner satisfactory to the Agent, to be held as Collateral
pursuant to this Agreement.
(d) The Pledgor shall pay, and hold the Agent and the Lenders harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall
have occurred and be continuing and the Agent shall have given notice to the
Pledgor of the Agent's intent to exercise its corresponding rights pursuant to
Section 7 below, the Pledgor shall be permitted to receive all cash dividends
paid to the extent not prohibited by the Credit Agreement, in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate
right exercised or other action taken which, in the Agent's reasonable judgment,
would impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, this Agreement or any other
Loan Document.
7. RIGHTS OF THE LENDERS AND THE AGENT. (a) All money Proceeds
received by the Agent hereunder shall be held by the Agent for the benefit of
the Lenders in a Collateral Account. All Proceeds while held by the Agent in a
<PAGE>
4
Collateral Account (or by the Pledgor in trust for the Agent and the Lenders)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in Section 8(a).
(b) If an Event of Default shall occur and be continuing and the Agent
shall give notice of its intent to exercise such rights to the Pledgor, (i) the
Agent shall have the right to receive any and all cash dividends paid in respect
of the Pledged Stock and make application thereof to the Obligations in such
order as the Agent may determine, and (ii) all shares of the Pledged Stock shall
be registered in the name of the Agent or its nominee, and the Agent or its
nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
the Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of the Issuer, or upon
the exercise by the Pledgor or the Agent of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Agent may determine), all without liability
except to account for property actually received by it, but the Agent shall have
no duty to the Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Agent's election, the Agent may apply all or any
part of Proceeds held in any Collateral Account in payment of the Obligations in
such order as the Agent may elect.
(b) If an Event of Default shall have occurred and be continuing, the
Agent, on behalf of the Lenders, may exercise, in addition to all other rights
and remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the Code. Without limiting the generality of the
foregoing, the Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived to the fullest extent permitted by applicable law), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or any Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Agent or any Lender shall have the right upon any such
public sale or sales, and, to the fullest extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Pledgor, which right or
equity of redemption is hereby waived or released to the extent permitted by
applicable law. The Agent shall apply any Proceeds from time to time held by it
and the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Agent and the Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Agent, to the payment in
whole or in part of the Obligations, in such order as the Agent may elect, and
only after such application and after the payment by the Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Agent or any Lender
arising out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Agent or any Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 8 hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the Pledgor
<PAGE>
5
will cause the Issuer to (i) execute and deliver, and cause the directors and
officers of the Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Agent, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,(ii)
to use its best efforts to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and (iii) to make all amendments thereto and/or to the related prospectus
which, in the opinion of the Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to cause the Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Agent shall
designate and to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
(b) The Pledgor recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Agent and the Lenders, that
the Agent and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
Section shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred under the Credit Agreement.
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Agent in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that the Issuer shall be fully protected in so complying.
11. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Subject to Section
11(c), the Pledgor hereby irrevocably constitutes and appoints the Agent and any
officer or agent of the Agent, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Pledgor and in the name of the Pledgor or in the Agent's own
name, from time to time in the Agent's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done pursuant to the power of attorney granted in Section
11(a). All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
(c) Anything herein to the contrary notwithstanding, the exercise of
remedies or any power of attorney granted hereunder with respect to Pledged
Stock is subject to the provisions of any applicable law, rule or regulation and
to governmental approvals that may be required hereunder. No action will be
taken by the Agent or any Lender hereunder if such action will result in a
violation of any such law, rule or regulation.
<PAGE>
6
12. DUTY OF AGENT. The Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Agent deals with similar securities and property for its own
account, except that the Agent shall have no obligation to invest funds held in
any Collateral Account and may hold the same as demand deposits. Neither the
Agent, any Lender nor any of their respective directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of
the Code, the Pledgor authorizes the Agent to file financing statements with
respect to the Collateral without the signature of the Pledgor in such form and
in such filing offices as the Agent reasonably determines appropriate to perfect
the security interests of the Agent under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. AUTHORITY OF AGENT. The Pledgor acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Agent and the Pledgor, the Agent shall be conclusively presumed to be acting as
agent for the Lenders with full and valid authority so to act or refrain from
acting, and neither the Pledgor nor the Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
15. NOTICES. All notices, requests and demands given hereunder shall
be given in accordance with subsection 13.2 of the Credit Agreement.
16. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Agent, PROVIDED that any provision of this Agreement may be
waived by facsimile transmission by the Agent.
(b) No failure to exercise and no delay in exercising, on the part of
the Agent or any Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(c) The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Pledgor, the Agent and
the Lenders, PROVIDED that the Pledgor may not assign or transfer any of its
rights or obligations under this Agreement without the prior written consent of
the Agent and any purported assignment without such consent shall be null and
void.
<PAGE>
7
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
SDW HOLDINGS CORPORATION
By:
---------------------------------
Title:
------------------------------
SCHEDULES:
Schedule 1 - Description of Pledged Stock
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated Pledge Agreement dated April , 1996 (as the same may be amended,
supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"),
made by SDW Holdings Corporation, a Pennsylvania corporation, for the benefit of
Chemical Bank, as agent for the Lenders referred to in the Pledge Agreement.
The undersigned agrees for the benefit of the Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Agent promptly in writing of the
occurrence of any of the events described in Section 5(a) of the Pledge
Agreement.
3. The terms of Section 9(c) of the Pledge Agreement shall apply to
it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 9 of the Pledge Agreement.
S.D. WARREN COMPANY
By
--------------------------------
Title
-----------------------------
Address for Notices:
--------------
-----------------------------------
-----------------------------------
Telex:
----------------------------
Fax:
------------------------------
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock* Stock Certificate No. No. of Shares
- ------ --------------- --------------------- -------------
- -------------------------
*Stock is assumed to be common stock unless otherwise indicated.
<PAGE>
EXHIBIT F TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
------------------------------
[FORM OF AMENDED AND RESTATED SUBSIDIARIES GUARANTEE]
AMENDED AND RESTATED SUBSIDIARIES GUARANTEE, dated as of April __,
1996, made by each of the corporations that are signatories hereto (the
"GUARANTORS"), in favor of CHEMICAL BANK, as agent (in such capacity, the
"AGENT") for the several banks, financial institutions and other entities (the
"LENDERS") from time to time parties to the Amended and Restated Credit and
Guarantee Agreement, dated as of April __, 1996 (as the same may be amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among SDW Holdings Corporation, a Delaware corporation, S.D. Warren Company, a
Pennsylvania corporation (the "BORROWER"), the Lenders and the Agent.
W I T N E S S E T H:
WHEREAS, in connection with the Existing Credit Agreement (as defined
in the Credit Agreement) the Guarantors entered into that certain Subsidiaries
Guarantee dated as of December 20, 1994 (the "EXISTING SUBSIDIARIES GUARANTEE"),
made by the Guarantors in favor of the Agent, pursuant to which the Guarantors
guaranteed the Obligations (as defined in the Credit Agreement);
WHEREAS, the Borrower and the Guarantors have requested that the Agent
and the Lenders amend and restate the Existing Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement and to the obligations of the Lenders to make the Extensions of
Credit (as defined in the Credit Agreement) provided for therein that the
Guarantors shall have amended and restated the Existing Subsidiaries Guarantee
in the manner provided for herein;
NOW, THEREFORE, in consideration of the premises contained herein and
to induce the Lenders to amend and restate the Existing Credit Agreement as
provided in the Credit Agreement and to make Extensions of Credit under the
Credit Agreement, each Guarantor hereby agrees with the Agent, for the benefit
of the Lenders, to amend and restate and hereby amends and restates the Existing
Subsidiaries Guarantee to read in its entirety as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement. For the purposes of this Guarantee, the term "Lender"
shall include any Affiliate of any Lender which has entered into a Rate
Protection Agreement or cash management services agreement with the Borrower.
(b) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GUARANTEE. (a) Subject to the provisions of Section 2(b), each of
the Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Agent and the Lenders, and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the maximum
<PAGE>
2
aggregate amount equal to the largest amount that would not render its
obligations hereunder and thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law.
(c) Each Guarantor further agrees to pay any and all reasonable
expenses (including, without limitation, all reasonable fees and disbursements
of counsel) which may be paid or incurred by the Agent or any Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, such Guarantor under this Guarantee.
This Guarantee shall remain in full force and effect until the Obligations are
paid in full, the Commitments are terminated and no Letter of Credit remains
outstanding, notwithstanding that from time to time prior thereto the Borrower
may be free from any Obligations.
(d) Each Guarantor agrees that the Obligations may at any time and
from time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Agent or any Lender hereunder.
(e) No payment or payments made by the Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Agent or any Lender from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any set-
off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment or payments other than payments made by
such Guarantor in respect of the Obligations or payments received or collected
from such Guarantor in respect of the Obligations, remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full, the Commitments are terminated and no Letter of
Credit remains outstanding.
(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Agent or any Lender on account of its
liability hereunder, it will notify the Agent in writing that such payment is
made under this Guarantee for such purpose.
3. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 5 hereof. The
provisions of this Section shall in no respect limit the obligations and
liabilities of any Guarantor to the Agent and the Lenders, and each Guarantor
shall remain liable to the Agent and the Lenders for the full amount guaranteed
by such Guarantor hereunder.
4. RIGHT OF SET-OFF. Each Guarantor hereby irrevocably authorizes
each Lender at any time and from time to time without notice to such Guarantor
or any other Guarantor, any such notice being expressly waived by each Guarantor
to the extent permitted by applicable law, upon any amount becoming due and
payable by such Guarantor hereunder to set-off and appropriate and apply against
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of such
Guarantor, or any part thereof, whether or not the Agent or any Lender has made
any demand for payment. The Agent and each Lender shall notify such Guarantor
promptly after any such set-off and application made by the Agent or such
Lender, PROVIDED that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Agent and each
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Agent or such
Lender may have.
5. NO SUBROGATION. Notwithstanding anything to the contrary in this
Agreement, no Guarantor shall be entitled to be subrogated to any of the rights
(whether contractual, under the Bankruptcy Code, including Section 509 thereof,
under common law or otherwise) of any Lender against the Borrower or against any
collateral security or guarantee or right of offset held by any Lender for the
payment of the Obligations nor shall any Guarantor seek or be
<PAGE>
3
entitled to seek contribution or reimbursement from the Borrower or any other
Person in respect of payments made by such Guarantor hereunder until all amounts
owing to the Agent and the Lenders by the Borrower on account of the Obligations
are paid in full, the Commitments are terminated and no Letter of Credit remains
outstanding. If any amount shall be paid by to any Guarantor on account of such
subrogation rights at any time when all of the Obligations shall not have been
paid in full, the Commitments shall not have been terminated or a Letter of
Credit remains outstanding, such amount shall be held by such Guarantor in
trust, segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to the Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Agent may determine. The provisions of this paragraph
shall survive the termination of this Guarantee and the payment in full of the
Obligations, the termination of the Commitments and the cancellation, revocation
or termination of all outstanding Letters of Credit.
6. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF
RIGHTS. Each Guarantor shall, to the fullest extent permitted by applicable
law, remain obligated hereunder notwithstanding that, without any reservation of
rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by the Agent or
any Lender may be rescinded by such party and any of the Obligations continued,
and the Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Agent or any Lender, and the Credit Agreement, the other Loan
Documents, any Rate Protection Agreement or cash management services agreement
entered into by the Borrower with any Lender and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Agent (or the Required Lenders, as the
case may be) or, in the case of any such Rate Protection Agreement or cash
management services agreement, the relevant Lender, may deem advisable from time
to time, and any collateral security, guarantee or right of offset at any time
held by the Agent or any Lender for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Agent nor any Lender
shall have any obligation to protect, secure, perfect or insure any Lien at any
time held by it as security for the Obligations or for this Guarantee or any
property subject thereto. When making any demand hereunder against any of the
Guarantors, the Agent or any Lender may, but shall be under no obligation to,
make a similar demand on the Borrower or any other Guarantor or guarantor, and
any failure by the Agent or any Lender to make any such demand or to collect any
payments from the Borrower or any such other Guarantor or guarantor or any
release of the Borrower or such other Guarantor or guarantor shall not relieve
any of the Guarantors in respect of which a demand or collection is not made or
any of the Guarantors not so released of their several obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Agent or any Lender against
any of the Guarantors. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
7. GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives, to
the fullest extent permitted by applicable law, any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Agent or any Lender upon this Guarantee or
acceptance of this Guarantee; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Guarantee; and all dealings
between the Borrower and any of the Guarantors, on the one hand, and the Agent
and the Lenders, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Guarantee. Each Guarantor waives,
to the fullest extent permitted by applicable law, diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or any of the Guarantors with respect to the Obligations. Each
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Credit Agreement, any
Note, any other Loan Document or any Rate Protection Agreement or any cash
management services agreement entered into by the Borrower with any Lender, any
of the Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Agent or any Lender, (b) any defense, set-off or counterclaim (other than a
defense of payment or performance) which may at any time be available to or be
asserted by the Borrower against the Agent or any Lender or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Borrower
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Borrower for the Obligations, or of such
Guarantor under this Guarantee, in bankruptcy or in any other instance. When
pursuing its rights and remedies hereunder against any Guarantor, the Agent and
any Lender may, but shall be under no obligation to, pursue such rights and
<PAGE>
4
remedies as it may have against the Borrower or any other Person or against any
collateral security or guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Agent or any Lender to pursue such other
rights or remedies or to collect any payments from the Borrower or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower or any such
other Person or any such collateral security, guarantee or right of offset,
shall not relieve such Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Agent or any Lender against such Guarantor. This
Guarantee shall remain in full force and effect and be binding in accordance
with and to the extent of its terms upon each Guarantor and the successors and
assigns thereof, and shall inure to the benefit of the Agent and the Lenders,
and their respective successors, indorsees, transferees and assigns, until all
the Obligations and the obligations of each Guarantor under this Guarantee shall
have been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Obligations.
8. REINSTATEMENT. This Guarantee shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Agent or any Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any Guarantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any Guarantor or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
9. PAYMENTS. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Agent without set-off or counterclaim in Dollars
at the office of the Agent located at 270 Park Avenue, New York, New York 10017.
10. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents
and warrants that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged;
(b) it has the corporate power and authority and the legal right to
execute and deliver, and to perform its obligations under, this Guarantee and
the other Loan Documents to which it is a party, and has taken all necessary
corporate action to authorize its execution, delivery and performance of this
Guarantee and the other Loan Documents to which it is a party;
(c) this Guarantee and each of the other Loan Documents to which it is
a party constitutes a legal, valid and binding obligation of such Guarantor
enforceable in accordance with its terms, except as affected by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally, general equitable
principles and an implied covenant of good faith and fair dealing;
(d) the execution, delivery and performance by such Guarantor of this
Guarantee or any of the other Loan Documents to which it is a party will not
violate any provision of any Requirement of Law applicable to such Guarantor or
Contractual Obligation of such Guarantor which could reasonably be expected to
have a Material Adverse Effect and will not result in or require the creation or
imposition of any Lien on any of the properties or revenues of such Guarantor
pursuant to any such Requirement of Law or Contractual Obligation of such
Guarantor;
(e) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, without limitation, any stockholder or creditor of such
Guarantor) is required in connection with the execution, delivery or performance
by such Guarantor or the validity or enforceability of this Guarantee or any of
the other Loan Documents to which it is a party; and
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best knowledge of
such Guarantor, threatened by or against such Guarantor or against any of its
properties or revenues (i) with respect to this Guarantee or any of the other
Loan Documents to which it is a party or any
<PAGE>
5
of the transactions contemplated hereby or thereby, or (ii) which could
reasonably be expected to have a Material Adverse Effect; and
(g) the representations and warranties contained in subsections 6.8
and 6.11 of the Credit Agreement are true and correct to the extent such
representations and warranties apply to such Guarantor.
Each Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by such Guarantor on the date of
each Extension of Credit to the Borrower under the Credit Agreement on and as of
such date of Extension of Credit as though made hereunder on and as of such
date.
11. COVENANTS. Each Guarantor hereby covenants and agrees with the
Agent and each Lender that, from and after the date of this Guarantee until the
Obligations are paid in full, the Commitments are terminated and no Letter of
Credit remaining outstanding, that such Guarantor will comply with provisions of
Sections 8 and 9 of the Credit Agreement to the extent such provisions apply to
such Guarantor.
12. AUTHORITY OF AGENT. Each Guarantor acknowledges that the rights
and responsibilities of the Agent under this Guarantee with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guarantee shall, as between the Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Agent and such Guarantor, the Agent shall be conclusively presumed to be acting
as agent for the Lenders with full and valid authority so to act or refrain from
acting, and no Guarantor shall be under any obligation, or entitlement, to make
any inquiry respecting such authority.
13. NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and shall be deemed to have been duly given or made
when delivered, or three days after being deposited in the mail, postage
prepaid, or one Business Day after being sent by priority overnight mail with a
nationally recognized overnight delivery carrier, or, in the case of facsimile
transmission, when received, addressed as follows, or to such other address as
may be hereafter notified by the respective parties hereto:
(a) if to the Agent, at its address or transmission number for notices
provided in subsection 13.2 of the Credit Agreement; and
(b) if to any Guarantor, at its address or transmission number for
notices set forth under its signature below.
14. COUNTERPARTS. This Guarantee may be executed by one or more of
the Guarantors on any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the counterparts of this
Guarantee signed by all the Guarantors shall be lodged with the Agent.
15. SEVERABILITY. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. INTEGRATION. This Guarantee represents the agreement of each
Guarantor with respect to the subject matter hereof and there are no promises,
undertakings, representations or warranties by any Guarantor, the Agent or any
Lender relative to the subject matter hereof not expressly set forth or referred
to herein.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None
of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Guarantor and the Agent, PROVIDED that any provision of this Guarantee may
be waived by facsimile transmission by the Agent.
<PAGE>
6
(b) No failure to exercise and no delay in exercising, on the part of
the Agent or any Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. SECTION HEADINGS. The section headings used in this Guarantee
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
19. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Agent and the Lenders and their successors and assigns, PROVIDED that no
Guarantor may assign any of its rights or obligations under this Guarantee
without the consent of the Agent and the Required Lenders.
20. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
21. TERMINATION. Subject to Section 8, this Guarantee shall remain
in full force and effect and be binding in accordance with and to the extent of
its terms until all Obligations shall have been satisfied by payment in full,
the Commitments shall be terminated and no Letter of Credit is outstanding. A
Guarantor shall be released from its obligations hereunder in the event that all
the Capital Stock of such Guarantor shall be sold, transferred or otherwise
disposed of in accordance with the terms of the Credit Agreement.
22. SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Guarantor at its address set forth under its signature below or at such
other address of which the Administrative Agent shall have been notified
pursuant to Section 13;
(d) agrees that nothing herein shall affect the right to effect
service or process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive damages.
23. WAIVERS OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR ANY
COUNTERCLAIM THEREIN.
24. ADDITION OF GUARANTORS. Subsection 8.10(c) of the Credit
Agreement requires that any Subsidiary (other than a Foreign Subsidiary) of the
Borrower created or acquired after the Closing Date become a Guarantor
<PAGE>
7
hereunder by executing and delivering a Supplement to this Guarantee in the form
attached hereto as EXHIBIT A. From and after the date any such Subsidiary
executes and delivers a Supplement to this Guarantee in the form attached hereto
as EXHIBIT A to the Agent, such Subsidiary shall be deemed to be a Guarantor for
all purposes under this Guarantee.
<PAGE>
8
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
PRESUMPSCOT WATER POWER CO. SKYLARK, INC.
By By
--------------------------------- ---------------------------------
Title Title
------------------------------- -------------------------------
Address for Notices: Address for Notices:
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
Telephone: Telephone:
-------------------------- --------------------------
Fax: Fax:
-------------------------------- --------------------------------
<PAGE>
EXHIBIT A TO
SUBSIDIARIES GUARANTEE
----------------------
[FORM OF ADDITIONAL SUBSIDIARIES SUPPLEMENT]
SUPPLEMENT, dated _______________ to the Amended and Restated
Subsidiaries Guarantee, dated as of April __, 1996 (as amended, supplemented or
otherwise modified, the "SUBSIDIARIES GUARANTEE"), made by certain subsidiaries
of S.D. Warren Company, a Pennsylvania corporation (the "BORROWER"), from time
to time parties thereto (collectively, the "GUARANTORS").
W I T N E S S E T H :
WHEREAS, the Subsidiaries Guarantee provides that any Subsidiary
(other than a Foreign Subsidiary) of the Borrower, although not a Guarantor
thereunder at the time of the initial execution thereof, may become a Guarantor
under the Subsidiaries Guarantee upon the delivery to the Agent of a supplement
in substantially the form of this Supplement; and
WHEREAS, the undersigned was not a Subsidiary on the Closing Date and,
therefore, was not a party to the Subsidiaries Guarantee but now desires to
become a Guarantor thereunder;
NOW, THEREFORE, the undersigned hereby agrees as follows:
The undersigned agrees to be bound by all of the provisions of the
Subsidiaries Guarantee applicable to a Guarantor thereunder and agrees that
it shall, on the date this Supplement is accepted by the Agent, become a
Guarantor, for all purposes of the Subsidiaries Guarantee to the same
extent as if originally a party thereto with the representations and
warranties contained therein being deemed to be made by the undersigned as
of the date hereof. Without limiting the foregoing, subject to the
provisions of Section 2(b) of the Subsidiaries' Guarantee, the undersigned,
jointly and severally with the other Guarantors, unconditionally and
irrevocably, guarantees to the Agent, for the ratable benefit of the
Lenders and their respective successors, indorsees, transferees and
assigns, the prompt and complete payment and performance by the Borrower
when due and payable (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
Terms defined in the Subsidiaries Guarantee shall have their defined
meanings when used herein.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[INSERT NAME OF SUBSIDIARY]
By:
-------------------------------
Title:
<PAGE>
EXHIBIT G TO
CREDIT AND GUARANTEE AGREEMENT
MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
from
[Subsidiary], Mortgagor
to
CHEMICAL BANK,
as Agent, Mortgagee
DATED AS OF DECEMBER __, 1994
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Pascale I. Bissainthe, Esq.
<PAGE>
EXHIBIT G TO
CREDIT AND GUARANTEE AGREEMENT
[FORM OF SUBSIDIARY LEASEHOLD MORTGAGE]
[NOTE: THIS FORM IS NOT STATE-LAW SPECIFIC. SPECIFIC PROVISIONS,
SATISFACTORY TO AGENT'S COUNSEL, THAT ARE NECESSARY OR DESIRABLE UNDER THE LAW
OR REAL ESTATE PRACTICE OF ANY PARTICULAR sTATE IN WHICH THIS FORM IS USED WILL
BE ADDED.]
THIS MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
(collectively, the "Mortgage"), dated as of __________ is made by [Subsidiary],
a _____________ corporation ("MORTGAGOR"), whose mailing address is
_________________ to CHEMICAL BANK, whose mailing address is 270 Park Avenue,
New York, New York 10017 as agent (the "AGENT"; in such capacity, together
with its successors and assigns, "MORTGAGEE") for the several banks and other
financial institutions (the "LENDERS") from time to time parties to that
certain Credit and Guarantee Agreement dated as of December ____, 1994 (as the
same may have been and may be further amended, supplemented, restated, replaced
or otherwise modified from time to time, the "CREDIT AGREEMENT") among SDW
Holdings Corporation, a Delaware corporation, the Mortgagee, S. D. Warren
Company and the Lenders. References to this "MORTGAGE" shall mean this
instrument and any and all renewals, modifications, amendments, supplements,
extensions, consolidations, substitutions, spreaders and replacements of this
instrument.
BACKGROUND
A. Mortgagor has, on the date hereof, become the owner of (i) the
parcel(s) of real property described on Exhibit A attached hereto (the "Fee
Property") and (ii) the leasehold estate in the parcels of real property
described on Exhibit B attached hereto (the "LEASEHOLD PARCELS") created
pursuant to those certain leases described on Exhibit C attached hereto (the
"MORTGAGED LEASES") (the Fee Property and the Leasehold Parcels, together with
all of the buildings, improvements, structures and fixtures now or subsequently
located thereon (the "IMPROVEMENTS"), being collectively referred to as the
"REAL ESTATE").
B. Mortgagor is a direct or indirect wholly-owned subsidiary of
S. D. Warren Company (as successor by merger to SDW Acquisition Corporation), a
Pennsylvania corporation (the "PARENT COMPANY").
C. Pursuant to the Credit Agreement, Mortgagor has given that
certain Guarantee dated , 19 (the "GUARANTEE") and is securing
the Guarantee with this Mortgage.
<PAGE>
2
D. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Credit Agreement. References in this Mortgage
to the "DEFAULT RATE" shall mean a rate per annum equal to the ABR plus 2%.
GRANTING CLAUSES
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the
Guarantee and (ii) all interest and fees payable thereon (the items set forth in
clauses (i) and (ii) being referred to collectively as the "INDEBTEDNESS");
and
(b) the performance of all covenants, agreements, obligations and
liabilities of Mortgagor (the "OBLIGATIONS") under or pursuant to the
provisions of the Guarantee and any other document securing payment of the
Indebtedness (the "SECURITY DOCUMENTS") and any amendments, supplements,
extensions, renewals, restatements, replacements or modifications of any
of the foregoing (the Guarantee, the Security Documents and all other
documents and instruments from time to time evidencing, securing or
guaranteeing the payment of the Indebtedness or the performance of the
Obligations, as any of the same may be amended, supplemented, extended,
renewed, restated, replaced or modified from time to time, are
collectively referred to as the "MORTGAGOR OBLIGATION DOCUMENTS");
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN, AND
HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE WITH
MORTGAGE COVENANTS:
(A) the Real Estate;
(B) the leasehold estate created under and by virtue of the
Mortgaged Leases, any interest in any fee, greater or lesser title to the
Real Estate that Mortgagor may own or hereafter acquire (whether acquired
pursuant to a right or option contained in one or more of the Mortgaged
Leases or otherwise) and all credits, deposits, options, privileges and
rights of Mortgagor under the Mortgaged Leases (including all rights of
use, occupancy and enjoyment) and under any amendments, supplements,
extensions, renewals, restatements, replacements and modifications thereof
(including, without limitation, (i) the right to give consents, (ii) the
right to receive moneys payable to Mortgagor, (iii) the right, if any, to
renew or extend one or more of the Mortgaged Leases for a succeeding term
or terms, (iv) the right, if any, to purchase the Real Estate and (v) the
right to terminate or modify one or more of the Mortgaged Leases); all of
Mortgagor's claims and rights to
<PAGE>
3
the payment of damages arising under the Bankruptcy Code (as determined
below) from any rejection of one or more of the Mortgaged Leases by the
lessor thereunder or any other party;
(C) to the extent not included in (A) or (B), all right, title and
interest Mortgagor now has or may hereafter acquire in and to the
Improvements or any part thereof (whether owned in fee by Mortgagor or
held pursuant to one or more of the Mortgaged Leases or otherwise) and all
the estate, right, title, claim or demand whatsoever of Mortgagor, in
possession or expectancy, in and to the Real Estate or any part thereof;
(D) all right, title and interest of Mortgagor in, to and under all
easements, rights of way, gores of land, streets, ways, alleys, passages,
sewer rights, waters, water courses, timber, timber rights, water and
riparian rights, development rights, air rights, mineral rights and all
estates, rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to the
Real Estate, and any reversions, remainders, rents, issues, profits and
revenue thereof and all land lying in the bed of any street, road or
avenue, in front of or adjoining the Real Estate to the center line
thereof;
(E) subject to Section 18(d) hereof, all of the fixtures, chattels,
business machines, machinery, apparatus, equipment, furnishings, fittings
and articles of personal property of every kind and nature whatsoever, and
all appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts and
accessories) currently owned or subsequently acquired by Mortgagor and, in
each case, now or subsequently attached to, or contained in or used or
usable in any way in connection with any operation or letting of the Real
Estate (all of the foregoing in this paragraph (D) being referred to as
the "EQUIPMENT");
(F) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in and to all substitutes and replacements of, and all
additions and improvements to, the Real Estate and the Equipment,
subsequently acquired by or released to Mortgagor or constructed,
assembled or placed by Mortgagor on the Real Estate, immediately upon such
acquisition, release, construction, assembling or placement, including,
without limitation, any and all building materials whether stored at the
Real Estate or offsite, and, in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor;
(G) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in, to and under all leases,
<PAGE>
4
subleases, underlettings, concession agreements, management agreements,
licenses and other agreements relating to the use or occupancy of the Real
Estate or the Equipment or any part thereof, now existing or subsequently
entered into by Mortgagor and whether written or oral and all guarantees
of any of the foregoing (collectively, as any of the foregoing may be
amended, restated, extended, renewed or modified from time to time, the
"LEASES"), and all rights of Mortgagor in respect of cash and securities
deposited thereunder and the right to receive and collect the revenues,
income, rents, issues and profits thereof, together with all other rents,
royalties, issues, profits, revenue, income and other benefits arising
from the use and enjoyment of the Mortgaged Property (as defined below)
(collectively, the "RENTS");
(H) subject to Section 18(d) hereof, all insurance policies now or
subsequently obtained by Mortgagor relating to the Real Estate or
Equipment and Mortgagor's interest in and to all unearned premiums
thereunder and all proceeds of any such insurance policies (including
title insurance policies) including the right to collect and receive such
proceeds, subject to the provisions relating to insurance generally set
forth below; and all awards and other compensation, including the interest
payable thereon and the right to collect and receive the same, made to the
present or any subsequent owner of the Real Estate or Equipment for the
taking by eminent domain, condemnation or otherwise, of all or any part of
the Real Estate or any easement or other right therein;
(I) subject to Section 18(d) hereof, all right, title and interest
of Mortgagor in and to (i) all contracts from time to time executed by
Mortgagor or any manager or agent on its behalf relating to the ownership,
construction, maintenance, repair, operation, occupancy, sale or financing
of the Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or,
subject to Section 8.10 of the Credit Agreement, any property which is
adjacent or peripheral to the Real Estate, together with the right to
exercise such options and all leases of Equipment (collectively, the
"CONTRACTS"), (ii) all consents, licenses, building permits,
certificates of occupancy and other governmental approvals relating to
construction, completion, occupancy, use or operation of the Real Estate
or any part thereof (collectively, the "PERMITS") and (iii) all
drawings, plans, specifications and similar or related items relating to
the Real Estate (collectively, the "PLANS");
(J) subject to Section 18(d) hereof, all of Mortgagor's right,
title and interest in any and all monies now or subsequently on deposit
for the payment of real estate taxes or special assessments against the
Real Estate or for the payment of premiums on insurance policies
<PAGE>
5
covering the foregoing property or otherwise on deposit with or held by
Mortgagee as provided in this Mortgage; all capital, operating, reserve or
similar accounts held by or on behalf of Mortgagor and related to the
operation of the Mortgaged Property, whether now existing or hereafter
arising and all monies held in any of the foregoing accounts and any
certificates or instruments related to or evidencing such accounts;
(K) subject to Section 18(d) hereof, all accounts resulting from
the sale of timber; and
(L) subject to Section 18(d) hereof, all proceeds, both cash and
noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned or
held or subsequently acquired by Mortgagor and described in the foregoing
clauses (A) through (F) are collectively referred to as the "PREMISES", and
those described in the foregoing clauses (A) through (L) are collectively
referred to as the "MORTGAGED PROPERTY").
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for the
uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
TERMS AND CONDITIONS
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. WARRANTY OF TITLE. (a) Mortgagor warrants that Mortgagor has
good title to the Fee Property in fee simple and good title to the rest of the
Mortgaged Property related to the Fee Property, subject only to the matters
referred to in subsection 9.3 of the Credit Agreement (collectively, the
"PERMITTED ENCUMBRANCES"), and Mortgagor shall warrant, defend and preserve
such title and the lien of the Mortgage thereon against all claims of all
persons and entities. Mortgagor further warrants that it has the right to
mortgage the Mortgaged Property.
(b) Mortgagor warrants (i) that Mortgagor has good title to the
leasehold estate in the Leasehold Parcels pursuant to the Mortgaged Leases and
has a right to mortgage the same, subject only to the matters referred to in
subsection 9.3 of the Credit Agreement (collectively, the "PERMITTED
Encumbrances"), (ii) that the Real Estate is subject to no leases or liens
other than the Mortgaged Leases and this Mortgage nor to any encumbrances,
defects or other matters, subject only to the matters referred to in subsection
9.3 of the Credit Agreement (collectively, the "PERMITTED ENCUMBRANCES"),
(iii) that
<PAGE>
6
Mortgagor shall warrant and defend the lien thereon granted or intended to be
granted by this Mortgage against all persons and entities, (iv) that the
Mortgaged Leases are in full force and effect and Mortgagor is the holder of the
lessee's or tenant's interest thereunder, (v) that the Mortgaged Leases have not
been amended, supplemented or otherwise modified, except as may be specifically
described in Exhibit C attached to this Mortgage, (vi) that Mortgagor is not in
default under the Mortgaged Leases, has received no notice of default from any
of the lessors thereunder and knows of no material default by any of the lessors
thereunder, and (vii) that the granting of this Mortgage does not violate the
terms of the Mortgaged Leases nor is any consent of any of the lessors under the
Mortgaged Leases required to be obtained in connection with the granting of this
Mortgage unless such consent has been obtained.
2. PAYMENT OF INDEBTEDNESS. Mortgagor shall pay the Indebtedness
at the times and places and in the manner specified in the Credit Agreement and
shall perform all the Obligations.
3. REQUIREMENTS. (a) To the extent required in the Credit
Agreement, Mortgagor shall promptly comply with, or cause to be complied with,
and conform to all present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements, and irrespective of the
nature of the work to be done, of each of the United States of America, any
State and any municipality, local government or other political subdivision
thereof and any agency, department, bureau, board, commission or other
instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the
Mortgaged Property and all covenants, restrictions and conditions now or later
of record which may be applicable to any of the Mortgaged Property, or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property. All present and
future laws, statutes, codes, ordinances, orders, judgments, decrees, rules,
regulations and requirements of every Governmental Authority applicable to
Mortgagor or to any of the Mortgaged Property and all covenants, restrictions,
and conditions which now or later may be applicable to any of the Mortgaged
Property are collectively referred to as the "Legal Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall not
by act or omission permit any building or other improvement on any premises not
subject to the lien of this Mortgage to rely on the Premises or any part thereof
or any interest therein to fulfill any Legal Requirement, and Mortgagor hereby
assigns to Mortgagee any and all rights to give consent for all or any portion
of the Premises or any interest therein to be so used.
4. PAYMENT OF TAXES AND OTHER IMPOSITIONS. (a) To the extent
required in the Credit Agreement, promptly prior to
<PAGE>
7
the time when same become delinquent and before any interest or penalties accrue
thereon or attach thereto, Mortgagor shall pay and discharge all taxes of every
kind and nature (including, without limitation, all real and personal property,
income, franchise, withholding, transfer, gains, profits and gross receipts
taxes imposed upon or assessed against the Mortgaged Property), all charges for
any easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments, levies, permits, inspection and
license fees, all water and sewer rents and charges and all other public charges
even if unforeseen or extraordinary, imposed upon or assessed against or which
may become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing are collectively referred to as the
"Impositions"). Upon request by Mortgagee, Mortgagor shall deliver to Mortgagee
(i) original or copies of receipted bills and cancelled checks or other
reasonably satisfactory evidence evidencing payment of such Imposition if it is
a real estate tax or other public charge and (ii) evidence acceptable to
Mortgagee showing the payment of any other such Imposition. If by law any
Imposition, at Mortgagor's option, may be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Mortgagor may
elect to pay such Imposition in such installments and shall be responsible for
the payment of such installments with interest, if any.
(b) Mortgagor shall not claim, demand or be entitled to receive any
credit or credits toward the satisfaction of this Mortgage or on any interest
payable thereon for any taxes assessed against the Mortgaged Property or any
part thereof, and shall not claim any deduction from the taxable value of the
Mortgaged Property by reason of this Mortgage.
5. INSURANCE. (a) Mortgagor shall not use or permit the use of
the Mortgaged Property in any manner which would permit any insurer to cancel
any insurance policy, unless replaced prior to or simultaneously with such
cancellation (such that there is no gap in coverage) by another policy
satisfactory to Mortgagee or void coverage required to be maintained by the
Credit Agreement.
(b) In the event of foreclosure of this Mortgage or other transfer
of title to the Mortgaged Property in extinguishment of the Indebtedness, all
right, title and interest of Mortgagor in and to any insurance policies then in
force shall pass to the purchaser or grantee and Mortgagor hereby appoints
Mortgagee its attorney-in-fact, in Mortgagor's name, to assign and transfer all
such policies and proceeds to such purchaser or grantee.
(c) Until an Event of Default shall have occurred and be
continuing, all insurance and eminent domain proceeds shall be payable to
Mortgagor, free and clear of the lien of this
<PAGE>
8
Mortgage. All parties having dealings with Mortgagor in connection with
insurance and eminent domain matters shall be entitled to rely on an affidavit
of Mortgagor to the effect that no Event of Default has occurred and is
continuing, absent receipt of written notice from Mortgagee to the contrary.
6. RESTRICTIONS. Mortgagor shall not (i) except for the lien of
this Mortgage and the Permitted Encumbrances, further mortgage, nor otherwise
encumber the Mortgaged Property nor create or suffer to exist any lien, charge
or encumbrance on the Mortgaged Property, or any part thereof, whether superior
or subordinate to the lien of this Mortgage and whether recourse or
non-recourse, nor (ii) sell, transfer, convey or assign nor permit to be sold
transferred, conveyed or assigned all or any portion of, or any interest in, the
Mortgaged Property, except, in each case, as may be otherwise expressly
permitted under the Credit Agreement. In the event of any such permitted sale,
transfer, conveyance, assignment or other disposition of any part of the
Mortgaged Property, this Mortgage will remain in effect with respect to all of
the remaining Mortgaged Property.
7. MAINTENANCE; UTILITIES. (a) Mortgagor shall maintain or
cause to be maintained all the Improvements in good working order and condition
and shall not commit or suffer any material waste of the Improvements.
(b) Mortgagor shall pay or cause to be paid when due all utility
charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.
8. RIGHTS OF TENANTS. This Mortgage is subject to the rights of
any and all tenants of the Mortgaged Property now or hereafter existing and, for
so long as said tenants are not in default under the terms of their respective
leases and shall agree to attorn to Mortgagee (or Mortgagee's designee) upon its
acquisition of title to the Mortgaged Property, Mortgagee shall not disturb the
use or possession by said tenants to all or a portion of the Mortgaged Property,
as described in such tenant's lease. If an Event of Default shall have occurred
and be continuing and Mortgagee elects to foreclose this Mortgage in pursuant to
the Section of this Mortgage entitled "Remedies", so long as said tenants are
not in default under the terms of their respective leases, Mortgagee shall take
no action or fail to take any action, as the case may be, the effect of which
would be to terminate the rights of said tenants under their respective leases;
PROVIDED that if, in order validly to foreclose the lien of this Mortgage such
lease must be terminated, Mortgagee may nevertheless proceed with such
foreclosure but following the completion of such foreclosure shall enter into a
new lease of the Mortgaged Property with such tenant on the same terms and
conditions as those set forth in the then terminated lease.
<PAGE>
9
Mortgagor may, in the ordinary course of business and without the consent of
Mortgagee, enter into any new leases or modify, surrender, terminate, extend or
renew any lease now existing or hereafter created upon the Mortgaged Property,
or any portion thereof, without the consent of Mortgagee. Mortgagee agrees to
execute such other and further instruments as may be necessary to effectuate the
terms of this Section.
9. FURTHER ASSURANCES. To further assure Mortgagee's rights under
this Mortgage, Mortgagor agrees upon demand of Mortgagee to do any act or
execute any additional documents (including, but not limited to, security
agreements on any personalty included or to be included in the Mortgaged
Property and a separate assignment of each Lease in recordable form) as may be
reasonably required by Mortgagee to confirm the lien of this Mortgage and all
other rights or benefits conferred on Mortgagee.
10. MORTGAGEE'S RIGHT TO PERFORM. If Mortgagor fails to perform
any of the covenants or agreements of Mortgagor after an Event of Default shall
have occurred and be continuing, Mortgagee, without waiving or releasing
Mortgagor from any obligation or default under this Mortgage, with reasonable
efforts to provide simultaneous written notice to Mortgagor, may, at any time
(but shall be under no obligation to) pay or perform the same, and the amount or
cost thereof, with interest at the Default Rate, shall immediately be due from
Mortgagor to Mortgagee and the same shall be secured by this Mortgage and shall
be a lien on the Mortgaged Property prior to any right, title to, interest in or
claim upon the Mortgaged Property attaching subsequent to the lien of this
Mortgage. No payment or advance of money by Mortgagee under this Section shall
be deemed or construed to cure Mortgagor's default or waive any right or remedy
of Mortgagee.
11. MORTGAGOR'S EXISTENCE, ETC. Upon recordation of this
Mortgage in the appropriate office or offices, payment of all mortgage recording
fees and taxes in respect thereof and compliance with the formal requirements of
state law applicable to the recording of real estate mortgages generally, this
Mortgage shall constitute a fully perfected mortgage lien on and security
interest in the Mortgaged Property, subject only to such encumbrances, defects
and exceptions as are expressly permitted under the Credit Agreement.
12. ASBESTOS AND HAZARDOUS WASTE. Mortgagor shall comply with
Environmental Laws to the extent provided in the Credit Agreement. If Mortgagor
shall fail to so comply to the extent required in the Credit Agreement,
Mortgagee may declare an Event of Default and may (but shall not be obligated
to) do whatever is necessary to comply with the applicable Environmental Laws,
and the costs thereof, with interest at the Default Rate, shall be immediately
due from Mortgagor to Mortgagee and the same shall be added to the Indebtedness
and be secured by this
<PAGE>
10
Mortgage. If an Event of Default exists, Mortgagor shall give Mortgagee and its
agents and employees access to the Premises to cause such compliance.
13. EVENT OF DEFAULT. (a) The occurrence of an Event of Default
under the Credit Agreement shall constitute an Event of Default hereunder; and
(b) a failure to pay when due any sum under the Guarantee shall
constitute an Event of Default hereunder; and
(c) to the extent it would have a Material Adverse Effect (as
defined in the Credit Agreement), a failure of Mortgagor to duly perform and
observe, or a violation or breach of, any other terms, covenants, provisions or
conditions of this Mortgage and the continuation thereof for a 30-day period
after notice shall have been given to Mortgagor by Mortgagee specifying such
default and requiring such default be remedied, shall constitute an Event of
Default hereunder; which period may be extended to the extent required (but no
longer than 180 days) if such default is not susceptible of cure within 30 days
so long as Mortgagor has commenced to cure such default within such 30-day
period and is thereafter diligently prosecuting such cure to completion and so
long as such delay is not likely to have a Material Adverse Effect on either the
Mortgaged Property or Mortgagee's rights under this Mortgage; provided, however,
any such default that can be cured by the payment of money shall be promptly
cured after notice by Mortgagee.
14. REMEDIES.
(a) Upon the occurrence of any Event of Default, in addition to any
other rights and remedies Mortgagee may have pursuant to the Mortgagor
Obligation Documents, or as provided by law, and without limitation, (x) if such
event is an Event of Default specified in clause (i) or (ii) of Section 11(f) of
the Credit Agreement or a failure to pay any sum when due under the Guarantee
with respect to Mortgagor, automatically the Indebtedness immediately shall
become due and payable, and (y) if such event is any other Event of Default
under Section 11 of the Credit Agreement or a failure to pay any sum when due
under the Guarantee, in addition to any other rights and remedies Mortgagee may
have pursuant to the Guarantee or the Credit Agreement, Mortgagee may
immediately take such action, without notice or demand, as it deems advisable to
protect and enforce its rights against Mortgagor and in and to the Mortgaged
Property, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such manner as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law, (A)
institute and maintain an action of
<PAGE>
11
mortgage foreclosure against all or any part of the Mortgaged Property,
(B) institute and maintain an action on the Credit Agreement or the
Guarantee or both, (C) sell all or part of the Mortgaged Property
(Mortgagor expressly granting to Mortgagee the power of sale), or (D) take
such other action at law or in equity for the enforcement of this Mortgage
or any of the Mortgagor Obligation Documents as the law may allow.
Mortgagee may proceed in any such action to final judgment and execution
thereon for all sums due hereunder, together with interest thereon at the
Default Rate and all costs of suit, including, without limitation,
reasonable attorneys' fees and disbursements. Interest at the Default
Rate shall be due on any judgment obtained by Mortgagee from the date of
judgment until actual payment is made of the full amount of the judgment;
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Mortgaged Property or any other collateral as security for the
Indebtedness and Obligations enter into and upon the Mortgaged Property
and each and every part thereof and exclude Mortgagor and its agents and
employees therefrom without liability for trespass, damage or otherwise
(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee shall
be entitled, without limitation, (x) to lease all or any part or parts of
the Mortgaged Property for such periods of time and upon such conditions
as Mortgagee may, in its discretion, deem proper, (y) to enforce, cancel
or modify any Lease and (z) generally to execute, do and perform any other
act, deed, matter or thing concerning the Mortgaged Property as Mortgagee
shall deem appropriate as fully as Mortgagor might do.
(b) To the extent permitted under applicable law, the holder of
this Mortgage, in any action to foreclose it, shall be entitled to the
appointment of a receiver. In case of a foreclosure sale, the Real Estate may
be sold, at Mortgagee's election, in one parcel or in more than one parcel and
Mortgagee is specifically empowered, (without being required to do so, and in
its sole and absolute discretion) to cause successive sales of portions of the
Mortgaged Property to be held.
(c) In the event of any breach of any of the covenants, agreements,
terms or conditions contained in this Mortgage, and notwithstanding any
exculpatory or non-recourse language which may be contained herein to the
contrary, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or
<PAGE>
12
remedy as though other remedies were not provided for in this Mortgage.
15. RIGHT OF MORTGAGEE TO CREDIT SALE. Upon the occurrence of
any sale made under this Mortgage, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for the
purchase price by crediting upon the Indebtedness or other sums secured by this
Mortgage the net sales price after deducting therefrom the expenses of sale and
the cost of the action and any other sums which Mortgagee is authorized to
deduct under this Mortgage. In such event, this Mortgage, the Guarantee, the
other Mortgagor Obligation Documents, the Credit Agreement, and documents
evidencing expenditures secured hereby may be presented to the person or persons
conducting the sale in order that the amount so used or applied may be credited
upon the Indebtedness as having been paid.
16. APPOINTMENT OF RECEIVER. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice to
Mortgagor, unless otherwise required by applicable law, and without regard to
the adequacy or inadequacy of the Mortgaged Property or any other collateral as
security for the Indebtedness and Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.
17. EXTENSION, RELEASE, ETC. (a) Without affecting the lien
or charge of this Mortgage upon any portion of the Mortgaged Property not then
or theretofore released as security for the full amount of the Indebtedness,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of the
terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Mortgage
<PAGE>
13
shall secure less than all of the principal amount of the Indebtedness, it is
expressly agreed that any repayments of the principal amount of the Indebtedness
shall not reduce the amount of the lien of this Mortgage until the lien amount
shall equal the principal amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.
(c) If Mortgagee shall have the right to foreclose this Mortgage,
Mortgagor authorizes Mortgagee at its option to foreclose the lien of this
Mortgage subject to the rights of any tenants of the Mortgaged Property. The
failure to make any such tenants parties defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Indebtedness or
to foreclose the lien of this Mortgage.
(d) Unless expressly provided otherwise, in the event that
ownership of this Mortgage and title to the Mortgaged Property or any estate
therein shall become vested in the same person or entity, this Mortgage shall
not merge in such title but shall continue as a valid lien on the Mortgaged
Property for the amount secured hereby.
18. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. (a) It is
the intention of the parties hereto that this Mortgage shall constitute a
Security Agreement within the meaning of the Uniform Commercial Code (the
"CODE") of the State in which the Mortgaged Property is located. If an Event
of Default shall occur and be continuing under this Mortgage, then in addition
to having any other right or remedy available at law or in equity, Mortgagee
shall have the option of either (i) proceeding under the Code and exercising
such rights and remedies as may be provided to a secured party by the Code with
respect to all or any portion of the Mortgaged Property which is personal
property (including, without limitation, taking possession of and selling such
property) or (ii) treating such property as real property and proceeding with
respect to both the real and personal property constituting the Mortgaged
Property in accordance with Mortgagee's rights, powers and remedies with respect
to the real property (in which event the default provisions of the Code shall
not apply). If Mortgagee shall elect to proceed under the Code, then ten days'
notice of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale, selling and
the like incurred by Mortgagee shall include, but not be limited to, attorneys'
fees and legal expenses. At Mortgagee's request, Mortgagor shall assemble the
personal property and make it available to Mortgagee
<PAGE>
14
at a place designated by Mortgagee which is reasonably convenient to both
parties.
(b) Mortgagor and Mortgagee agree, to the extent permitted by law,
that: (i) some of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) as to those
fixtures, this Mortgage upon recording or registration in the real estate
records of the proper office shall constitute a financing statement filed as a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code;
(iii) except as otherwise provided, Mortgagor is the record owner of the Real
Estate and the leasehold estate in the Leasehold Parcels; and (iv) the mailing
addresses of Mortgagor and Mortgagee are as set forth on the first page of this
Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or more separate security
agreements, in form reasonably satisfactory to Mortgagee, covering all or any
part of the Mortgaged Property and will further execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, any financing
statement, affidavit, continuation statement or certificate or other document as
Mortgagee may request in order to perfect, preserve, maintain, continue or
extend the security interest under and the priority of this Mortgage and such
security instrument. Mortgagor shall from time to time, on request of
Mortgagee, deliver to Mortgagee an inventory in reasonable detail of any of the
Mortgaged Property which constitutes personal property. If Mortgagor shall fail
to furnish any financing or continuation statement within 10 days after request
by Mortgagee, then pursuant to the provisions of the Code, Mortgagor hereby
authorizes Mortgagee, without the signature of Mortgagor, to execute and file
any such financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or chattels
shall not be construed as in any way impairing the right of Mortgagee to proceed
against any personal property encumbered by this Mortgage as real property, as
set forth above. A photocopy of this Mortgage may be filed as a Financing
Statement.
(d) All rights, remedies and obligations granted, created or
otherwise arising hereunder and all representations, warranties and other
provisions hereof shall be construed, and all actions hereunder shall be
performed, in a manner consistent with, and subject to the terms and provisions
of, the Security Agreement. To the extent that the rights granted hereunder in
any item of the Mortgaged Property (other than the Real Estate and other
interests which are exclusively real property interests) conflict with any
rights granted in the same item of Mortgaged Property under the Security
Agreement, the Security Agreement shall prevail.
<PAGE>
15
19. ASSIGNMENT OF RENTS. Mortgagor hereby assigns to Mortgagee
the Rents as further security for the payment of the Indebtedness and
performance of the Obligations, and Mortgagor grants to Mortgagee the right to
enter the Mortgaged Property for the purpose of collecting the same and to let
the Mortgaged Property or any part thereof, and to apply the Rents on account of
the Indebtedness. The foregoing assignment and grant is present and absolute
and shall continue in effect until the Indebtedness is paid in full, but
Mortgagee hereby waives the right to enter the Mortgaged Property for the
purpose of collecting the Rents and Mortgagor shall be entitled to collect,
receive, use and retain the Rents until the occurrence of an Event of Default
under this Mortgage; such right of Mortgagor to collect, receive, use and retain
the Rents may be revoked by Mortgagee upon the occurrence of any Event of
Default under this Mortgage by giving not less than fifteen days' written notice
of such revocation to Mortgagor; in the event such notice is given, so long as
an Event of Default shall have occurred and be continuing, Mortgagor shall pay
over to Mortgagee, or to any receiver appointed to collect the Rents, any lease
security deposits, and shall pay monthly in advance to Mortgagee, or to any such
receiver, the fair and reasonable rental value as determined by Mortgagee for
the use and occupancy of the Mortgaged Property or of such part thereof as may
be in the possession of Mortgagor or any affiliate of Mortgagor, and upon
default in any such payment Mortgagor and any such affiliate will vacate and
surrender the possession of the Mortgaged Property to Mortgagee or to such
receiver, and in default thereof may be evicted by summary proceedings or
otherwise. Mortgagor shall not accept prepayments of installments of Rent to
become due for a period of more than one month in advance (except for security
deposits and estimated payments of percentage rent, if any).
20. ADDITIONAL RIGHTS. Upon the occurrence of any Event of
Default, Mortgagee may, in its sole discretion and without regard to the
adequacy of its security under this Mortgage, apply all or any part of any
amounts on deposit with Mortgagee under this Mortgage against all or any part of
the Indebtedness, in accordance with the provisions of the Credit Agreement, the
Guarantee and the other Mortgagor Obligation Documents (as defined therein).
Any such application shall not be construed to cure or waive any Event of
Default or invalidate any act taken by Mortgagee on account of such Event of
Default.
21. NOTICES. All notices, requests, demands and other
communications hereunder shall be given in care of the Parent Company in the
manner and to the addresses determined under Section 13.2 of the Credit
Agreement.
22. NO ORAL MODIFICATION. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this Mortgage shall be superior to the rights of
the holder of any intervening or subordinate lien or encumbrance.
<PAGE>
16
23. PARTIAL INVALIDITY. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but each shall be
construed as if such invalid, illegal or unenforceable provision had never been
included. Notwithstanding to the contrary anything contained in this Mortgage
or in any provisions of the Indebtedness or Mortgagor Obligation Documents, the
obligations of Mortgagor and of any other obligor under the Indebtedness or
Mortgagor Obligation Documents shall be subject to the limitation that neither
Mortgagee nor any Lender shall charge, take or receive, nor shall Mortgagor or
any other obligor be obligated to pay to Mortgagee or any Lender, any amounts
constituting interest in excess of the maximum rate permitted by law to be
charged by Mortgagee or any Lender, as the case may be.
24. MORTGAGOR'S WAIVER OF RIGHTS. To the fullest extent
permitted by law, Mortgagor waives the benefit of all laws now existing or that
may subsequently be enacted providing for (i) any appraisement before sale of
any portion of the Mortgaged Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Mortgaged Property from attachment, levy or sale under
execution or exemption from civil process. To the full extent Mortgagor may do
so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, exemption, extension or
redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created.
25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to
enforce payment of the Indebtedness and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Mortgagor Obligation Documents or other agreement or any laws now or hereafter
in force, notwithstanding some or all of the Indebtedness and Obligations may
now or hereafter be otherwise secured, whether by mortgage, security agreement,
pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage
nor its enforcement, shall prejudice or in any manner affect Mortgagee's right
to realize upon or enforce any other security now or hereafter held by
Mortgagee, it being agreed that Mortgagee shall be entitled to enforce this
Mortgage and any other security now
<PAGE>
17
or hereafter held by Mortgagee in such order and manner as Mortgagee may
determine in its absolute discretion. No remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other remedy herein or
by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute. Every power or remedy given by any of the
Mortgagor Obligation Documents to Mortgagee or to which it may otherwise be
entitled, may be exercised, concurrently or independently, from time to time and
as often as may be deemed expedient by Mortgagee. In no event shall Mortgagee,
in the exercise of the remedies provided in this Mortgage (including, without
limitation, in connection with the assignment of Rents to Mortgagee, or the
appointment of a receiver and the entry of such receiver on to all or any part
of the Mortgaged Property), be deemed a "mortgagee in possession," and Mortgagee
shall not in any way be made liable for any act, either of commission or
omission, in connection with the exercise of such remedies.
26. MULTIPLE SECURITY. If (a) the Premises shall consist of one
or more parcels, whether or not contiguous and whether or not located in the
same county, or (b) in addition to this Mortgage, Mortgagee shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or other
security (directly or indirectly) for the Indebtedness upon other property in
the State in which the Premises are located (whether or not such property is
owned by Mortgagor or by others) or (c) both the circumstances described in
clauses (a) and (b) shall be true, then to the fullest extent permitted by law,
Mortgagee may, at its election, commence or consolidate in a single foreclosure
action all foreclosure proceedings against all such collateral securing the
Indebtedness (including the Mortgaged Property), which action may be brought or
consolidated in the courts of any county in which any of such collateral is
located. Mortgagor acknowledges that the right to maintain a consolidated
foreclosure action is a specific inducement to some or all of the Lenders to
make certain loans to and to enter into certain agreements with Mortgagor, and
for Mortgagee to enter into the Guarantee, and Mortgagor expressly and
irrevocably waives any objections to the commencement or consolidation of the
foreclosure proceedings in a single action and any objections to the laying of
venue or based on the grounds of FORUM NON CONVENIENS which it may now or
hereafter have. Mortgagor further agrees that if Mortgagee shall be prosecuting
one or more foreclosure or other proceedings against a portion of the Mortgaged
Property or against any collateral other than the Mortgaged Property, which
collateral directly or indirectly secures the Indebtedness, or if Mortgagee
shall have obtained a judgment of foreclosure and sale or similar judgment
against such collateral, then, whether or not such proceedings are being
maintained or judgments were obtained in or outside the State in which the
Premises are located, Mortgagee may commence or continue foreclosure proceedings
and exercise its other remedies
<PAGE>
18
granted in this Mortgage against all or any part of the Mortgaged Property and
Mortgagor waives any objections to the commencement or continuation of a
foreclosure of this Mortgage or exercise of any other remedies hereunder based
on such other proceedings or judgments, and waives any right to seek to dismiss,
stay, remove, transfer or consolidate either any action under this Mortgage or
such other proceedings on such basis. Neither the commencement nor continuation
of proceedings to foreclose this Mortgage nor the exercise of any other rights
hereunder nor the recovery of any judgment by Mortgagee in any such proceedings
shall prejudice, limit or preclude Mortgagee's right to commence or continue one
or more foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Indebtedness, and Mortgagor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Mortgage, and
Mortgagor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Mortgage on
such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Mortgagee may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Indebtedness (directly or
indirectly) in the most economical and least time-consuming manner.
27. EXPENSES; INDEMNIFICATION. Mortgagor agrees (a) to pay or
reimburse Mortgagee for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, the Guarantee and the other
Mortgagor Obligation Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to Mortgagee, (b) to pay or
reimburse each Lender and the Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under the Credit
Agreement, the Guarantee, the other Mortgagor Obligation Documents and any such
other documents prepared in connection herewith or therewith, including, without
limitation, the fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel in lieu of the fees and expenses of outside
counsel) to each Lender and of counsel to the Agent, (c) to pay, indemnify, and
hold each Lender and the Agent harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other similar taxes, if any, which may be payable or
determined to be payable in connection with the
<PAGE>
19
execution and delivery of, or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Credit Agreement, the Guarantee, the
other Mortgagor Obligation Documents and any such other documents, and (d) to
pay, indemnify, and hold each Lender and the Agent harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of the Credit Agreement, the Guarantee, the other Mortgagor
Obligation Documents, the Stock Purchase Agreement, the Stock Purchase, the
Merger or the use of the proceeds of the Loans in connection with the Stock
Purchase, and any such other documents, including, without limitation, any of
the foregoing relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Mortgagor, any
of its Subsidiaries or any of the Properties (all the foregoing in this clause
(d), collectively, the "indemnified liabilities"), PROVIDED, that the
Mortgagor shall have no obligation hereunder to the Agent or any Lender with
respect to indemnified liabilities arising from (1) the gross negligence or
willful misconduct of the Agent or any such Lender or (2) legal proceedings
commenced against the Agent or any such Lender by any security holder or
creditor thereof arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such. The agreements in this
subsection shall survive repayment of the Loans and all other amounts payable
under the Credit Agreement and the Guarantee.
28. SUCCESSORS AND ASSIGNS. Except to the extent prohibited in
the Credit Agreement, all covenants of Mortgagor contained in this Mortgage are
imposed solely and exclusively for the benefit of Mortgagee and the Lenders and
their respective successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Mortgagee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Mortgagor
shall run with the land and bind Mortgagor, the successors and assigns of
Mortgagor (and each of them) and all subsequent owners, encumbrancers and
tenants of the Mortgaged Property, and shall inure to the benefit of Mortgagee
and the Lenders and their respective successors and assigns. The word
"Mortgagor" shall be construed as if it read "Mortgagors" whenever the sense of
this Mortgage so requires and if there shall be more than one Mortgagor, the
obligations of the Mortgagors shall be joint and several.
29. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon
the strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a
<PAGE>
20
waiver of any of the terms and provisions hereof, and Mortgagee, notwithstanding
any such failure, shall have the right thereafter to insist upon the strict
performance by Mortgagor of any and all of the terms and provisions of this
Mortgage to be performed by Mortgagor. Mortgagee may release, regardless of
consideration and without the necessity for any notice to or consent by the
holder of any subordinate lien on the Mortgaged Property, any part of the
security held for the obligations secured by this Mortgage without, as to the
remainder of the security, in anywise impairing or affecting the lien of this
Mortgage or the priority of such lien over any subordinate lien.
30. GOVERNING LAW, ETC. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor expressly acknowledges that by their terms the
Guarantee and the Credit Agreement shall be governed and construed in accordance
with the laws of the State of New York, without regard to principles of conflict
of law, and for purposes of consistency, Mortgagor agrees that in any IN
PERSONAM proceeding related to this Mortgage the rights of the parties to this
Mortgage shall also be governed by and construed in accordance with the laws of
the State of New York governing contracts made and to be performed in that
State, without regard to principles of conflict of law.
31. WAIVER OF TRIAL BY JURY. Mortgagor and Mortgagee each hereby
irrevocably and unconditionally waive trial by jury in any action, claim, suit
or proceeding relating to this Mortgage and for any counterclaim (other than
compulsory counterclaims) brought therein. Mortgagor hereby waives all rights
to interpose any counterclaim (other than compulsory counterclaims) in any suit
brought by Mortgagee hereunder and all rights to have any such suit consolidated
with any separate suit, action or proceeding.
32. CERTAIN DEFINITIONS. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "MORTGAGOR" shall mean "each Mortgagor or any subsequent owner or owners
of the Mortgaged Property or any part thereof or interest therein," the word
"MORTGAGEE" shall mean "Mortgagee or any successor agent under the Credit
Agreement," the word "PERSON" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "MORTGAGED PROPERTY" shall include
any portion of the Mortgaged Property or interest therein. Whenever the context
may require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience or reference only and in no way limit or amplify the provisions
hereof.
<PAGE>
21
33. RELEASE. (a) Any Mortgaged Property that is permitted to be
sold or otherwise transferred free of the lien of the Security Documents as
provided in the Credit Agreement shall be sold or otherwise transferred, as the
case may be, free and clear of this Mortgage. In connection with any such sale
or transfer, the Mortgagee shall execute and deliver to Mortgagor, or to such
person or persons as Mortgagor shall reasonably designate, a satisfaction of
mortgage and such other documents as Mortgagor may reasonably request to
evidence the release of this Mortgage with respect to such Mortgaged Property,
as well as a release of any collateral assignments or other Security Documents
in favor of Mortgagee that burden such Mortgaged Property.
(b) In addition, and not in limitation of the foregoing, any
Mortgaged Property (other than the Real Estate) that also constitutes collateral
under any other Security Document shall automatically be released from this
Mortgage in the event that such Mortgaged Property is released from the security
interest created by such other Security Document in accordance with the terms
thereof and of the Credit Agreement.
34. MORTGAGED LEASE PROVISIONS. (a) To the extent failure to do
so would have a Material Adverse Effect (as defined in the Credit Agreement),
Mortgagor will pay or cause to be paid all rent and other charges required under
the Mortgaged Leases as and when the same are due and will promptly and
faithfully observe, abide by, discharge and perform, or cause to be kept,
observed, discharged and performed, all other material terms, obligations,
covenants, conditions, agreements, indemnities, representations, warranties or
liabilities of the Mortgaged Leases on the part of the lessee thereunder to be
kept, observed, discharged and performed, and will not without the express
written consent of Mortgagee (i) in any manner, cancel, terminate or surrender,
or permit the cancellation, termination or surrender of any of the Mortgaged
Leases, in whole or in part, (ii) either orally or in writing, modify, amend or
permit any modification or amendment of any of the terms thereof in any material
respect or (iii) permit the subordination thereof to any mortgage; and any
attempt on the part of Mortgagor to do any of the foregoing without such written
consent of Mortgagee shall be null and void and of no effect and shall
constitute an Event of Default hereunder.
(b) To the extent failure to do so would have a Material Adverse
Effect (as defined in the Credit Agreement), Mortgagor will do, or cause to be
done, all things necessary to preserve and keep unimpaired all material rights
of Mortgagor as lessee under the Mortgaged Leases, and to prevent any default
under the Mortgaged Leases, or any termination, surrender, cancellation,
forfeiture, subordination or impairment thereof. In the event of the failure of
Mortgagor to make any payment required to be made by the lessee pursuant to the
provisions of the Mortgaged Leases or to observe, abide by, discharge or
perform, or cause to be observed, kept, discharged or performed,
<PAGE>
22
any of the material terms, obligations, covenants, conditions, agreements,
indemnities, representations, warranties or liabilities of the Mortgaged Leases
on the part of lessee thereunder to be observed, kept, discharged and performed,
Mortgagor does hereby authorize and irrevocably appoint and constitute Mortgagee
as its true and lawful attorney-in-fact, which appointment is coupled with an
interest, in its name, place and stead, to take any and all actions deemed
necessary or desirable by Mortgagee to perform and comply with all the
obligations of Mortgagor under the Mortgaged Leases, to do and take, but without
any obligation so to do, any action which Mortgagee deems necessary or desirable
to prevent or cure any default by Mortgagor under the Mortgaged Leases, to enter
into and upon the Premises or any part thereof to such extent and as often as
Mortgagee, in its sole discretion, deems necessary or desirable in order to
prevent or cure any default of Mortgagor pursuant thereto, to the end that the
rights of Mortgagor in and to the leasehold estate created by the Mortgaged
Leases shall be kept unimpaired and free from default, and all sums so expended
by Mortgagee, with interest thereon at the Default Rate from the date of each
such expenditure, shall be paid by Mortgagor to Mortgagee promptly upon demand
by Mortgagee. Mortgagor shall, within five (5) business days after written
request by Mortgagee, execute and deliver to Mortgagee, or to any person
designated by Mortgagee, such further instruments, agreements, powers,
assignments, conveyances or the like as may be necessary to complete or perfect
the interest, rights or powers of Mortgagee pursuant to this paragraph (b).
(c) If any action or proceeding shall be instituted to evict
Mortgagor or to recover possession of any Leasehold Parcel or any part thereof
or interest therein or any action or proceeding otherwise affecting any of the
Mortgaged Leases or this Mortgage shall be instituted, then Mortgagor will,
immediately upon service thereof on or to Mortgagor, deliver to Mortgagee a true
and complete copy of each petition, summons, complaint, notice of motion, order
to show cause and of all other provisions, pleadings, and papers, however
designated, served in any such action or proceeding.
(d) Mortgagor covenants and agrees that unless Mortgagee shall
otherwise expressly consent in writing, the fee title to the property demised by
the Mortgaged Leases and the leasehold estate and/or any subleasehold estate
shall not merge but shall always remain separate and distinct, notwithstanding
the union of said estates either in Mortgagor or a third party by purchase or
otherwise; and in case Mortgagor acquires the fee title or any other estate,
title or interest in and to any Leasehold Parcel, the lien of this Mortgage
shall, without further conveyance, simultaneously with such acquisition, be
spread to cover and attach to such acquired estate and as so spread and attached
shall be prior to the lien of any mortgage placed on the acquired estate
subsequent to the date of this Mortgage.
<PAGE>
1
(e) No release or forbearance of any of Mortgagor's obligations
under the Mortgaged Leases, pursuant to the Mortgaged Leases, or otherwise,
shall release Mortgagor from any of its obligations under this Mortgage,
including its obligation with respect to the payment of rent as provided for in
the Mortgaged Leases and the performance of all of the terms, provisions,
covenants, conditions and agreements contained in the Mortgaged Leases, to be
kept, performed and completed by the lessee therein.
This Mortgage has been duly executed by Mortgagor on the date first
above written.
WITNESS: [Subsidiary]
By:
- ------------------------- -----------------------------
Name:
Title:
[CORPORATE SEAL]
<PAGE>
STATE OF NEW YORK ) December ___, 1994
: ss.:
COUNTY OF NEW YORK )
Then personally appeared the above-named _________________________
_______________ in his/her capacity as __________________________________ of
[Subsidiary], and acknowledged the foregoing instrument to be his/her free act
and deed in his/her said capacity and the free act and deed of said corporation.
Before me,
-------------------------------
-------------------------------
(Print Name)
Notary Public State of
-------------------
My commission expires:
-------------------
<PAGE>
EXHIBIT A
Description of the Premises
[Attach Legal Description of all parcels]
<PAGE>
4
EXHIBIT B
Description of the Premises
[Attach Legal Description of all parcels]
<PAGE>
5
EXHIBIT C
Description of the Leases
[Attach Legal Description of all leases]
<PAGE>
EXHIBIT H TO
CREDIT AND GUARANTEE AGREEMENT
MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
from
[Subsidiary], Mortgagor
to
CHEMICAL BANK,
as Agent, Mortgagee
DATED AS OF DECEMBER __, 1994
After recording, please return to:
Simpson Thacher & Bartlett
a partnership which includes
professional corporations
425 Lexington Avenue
New York, New York 10017
ATTN: Pascale I. Bissainthe, Esq.
<PAGE>
EXHIBIT H TO
CREDIT AND GUARANTEE AGREEMENT
[FORM OF SUBSIDIARY FEE MORTGAGE]
[NOTE: THIS FORM IS NOT STATE-LAW SPECIFIC. SPECIFIC PROVISIONS,
SATISFACTORY TO AGENT'S COUNSEL, THAT ARE NECESSARY OR DESIRABLE UNDER THE LAW
OR REAL ESTATE PRACTICE OF ANY PARTICULAR STATE IN WHICH THIS FORM IS USED WILL
BE ADDED.]
THIS MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT
(collectively, the "Mortgage"), dated as of __________ is made by
______________________, a _____________ corporation ("MORTGAGOR"), whose mailing
address is _________________ to CHEMICAL BANK, whose mailing address is 270 Park
Avenue, New York, New York 10017 as agent (the "AGENT"; in such capacity,
together with its successors and assigns, "MORTGAGEE") for the several banks and
other financial institutions (the "LENDERS") from time to time parties to that
certain Credit and Guarantee Agreement dated as of December ____, 1994 (as the
same may have been and may be further amended, supplemented, restated, replaced
or otherwise modified from time to time, the "CREDIT AGREEMENT") among SDW
Holdings Corporation, a Delaware corporation, S.D. Warren Company, the Mortgagor
and the Lenders. References to this "MORTGAGE" shall mean this instrument and
any and all renewals, modifications, amendments, supplements, extensions,
consolidations, substitutions, spreaders and replacements of this instrument.
BACKGROUND
A. Mortgagor is the owner of the parcel(s) of real property
described on Exhibit A attached (such real property, together with all of the
buildings, improvements, structures and fixtures now or subsequently located
thereon (the "IMPROVEMENTS"), being collectively referred to as the "REAL
ESTATE").
B. Mortgagor is a direct or indirect wholly-owned subsidiary of S.
D. Warren Company (as successor by merger to SDW Acquisition Corporation), a
Pennsylvania corporation (the "PARENT COMPANY").
C. Pursuant to the Credit Agreement, Mortgagor has given that certain
Guarantee dated __________, 19__ (the "GUARANTEE") and is securing the Guarantee
with this Mortgage.
D. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Credit Agreement. References in this Mortgage
to the "DEFAULT RATE" shall mean a rate per annum equal to the ABR plus 2%.
<PAGE>
2
GRANTING CLAUSES
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Mortgagor agrees that to secure:
(a) (i) the repayment of the indebtedness evidenced by the Guarantee
and (ii) all interest and fees payable thereon (the items set forth in
clauses (i) and (ii) being referred collectively as the "INDEBTEDNESS");
and
(b) the performance of all covenants, agreements, obligations and
liabilities of Mortgagor (the "OBLIGATIONS") under or pursuant to the
provisions of the Guarantee and any other document securing payment of the
Indebtedness (the "SECURITY DOCUMENTS") and any amendments, supplements,
extensions, renewals, restatements, replacements or modifications of any of
the foregoing (the Guarantee, the Security Documents and all other
documents and instruments from time to time evidencing, securing or
guaranteeing the payment of the Indebtedness or the performance of the
Obligations, as any of the same may be amended, supplemented, extended,
renewed, restated, replaced or modified from time to time, are collectively
referred to as the "MORTGAGOR OBLIGATION DOCUMENTS");
MORTGAGOR HEREBY GRANTS TO MORTGAGEE A LIEN UPON AND A SECURITY INTEREST IN, AND
HEREBY MORTGAGES, GRANTS, ASSIGNS, TRANSFERS AND SETS OVER TO MORTGAGEE WITH
MORTGAGE COVENANTS:
(A) the Real Estate;
(B) to the extent not included in (A), all the estate, right, title,
claim or demand whatsoever of Mortgagor, in possession or expectancy, in
and to the Real Estate or any part thereof;
(C) all right, title and interest of Mortgagor in, to and under all
easements, rights of way, gores of land, streets, ways, alleys, passages,
sewer rights, waters, water courses, timber, timber rights, water and
riparian rights, development rights, air rights, mineral rights and all
estates, rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to the
Real Estate, and any reversions, remainders, rents, issues, profits and
revenue thereof and all land lying in the bed of any street, road or
avenue, in front of or adjoining the Real Estate to the center line
thereof;
(D) subject to Section 18(d) hereof, all of the fixtures, chattels,
business machines, machinery, apparatus, equipment, furnishings, fittings
and articles of personal property of every kind and nature whatsoever, and
all
<PAGE>
3
appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts and
accessories) currently owned or subsequently acquired by Mortgagor and, in
each case, now or subsequently attached to, or contained in or used or
usable in any way in connection with any operation or letting of the Real
Estate (all of the foregoing in this paragraph (D) being referred to as the
"EQUIPMENT");
(E) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in and to all substitutes and replacements of, and all additions
and improvements to, the Real Estate and the Equipment, subsequently
acquired by or released to Mortgagor or constructed, assembled or placed by
Mortgagor on the Real Estate, immediately upon such acquisition, release,
construction, assembling or placement, including, without limitation, any
and all building materials whether stored at the Real Estate or offsite,
and, in each such case, without any further mortgage, conveyance,
assignment or other act by Mortgagor;
(F) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in, to and under all leases, subleases, underlettings, concession
agreements, management agreements, licenses and other agreements relating
to the use or occupancy of the Real Estate or the Equipment or any part
thereof, now existing or subsequently entered into by Mortgagor and whether
written or oral and all guarantees of any of the foregoing (collectively,
as any of the foregoing may be amended, restated, extended, renewed or
modified from time to time, the "LEASES"), and all rights of Mortgagor in
respect of cash and securities deposited thereunder and the right to
receive and collect the revenues, income, rents, issues and profits
thereof, together with all other rents, royalties, issues, profits,
revenue, income and other benefits arising from the use and enjoyment of
the Mortgaged Property (as defined below) (collectively, the "RENTS");
(G) subject to Section 18(d) hereof, all insurance policies now or
subsequently obtained by Mortgagor relating to the Real Estate or Equipment
and Mortgagor's interest in and to all unearned premiums thereunder and all
proceeds of any such insurance policies (including title insurance
policies) including the right to collect and receive such proceeds, subject
to the provisions relating to insurance generally set forth below; and all
awards and other compensation, including the interest payable thereon and
the right to collect and receive the same, made to the present or any
subsequent owner of the Real Estate or Equipment for the taking by eminent
domain, condemnation or otherwise, of all or any part of the Real Estate or
any easement or other right therein;
<PAGE>
4
(H) subject to Section 18(d) hereof, all right, title and interest of
Mortgagor in and to (i) all contracts from time to time executed by
Mortgagor or any manager or agent on its behalf relating to the ownership,
construction, maintenance, repair, operation, occupancy, sale or financing
of the Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or,
subject to Section 8.10 of the Credit Agreement, any property which is
adjacent or peripheral to the Real Estate, together with the right to
exercise such options and all leases of Equipment (collectively, the
"CONTRACTS"), (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof (collectively, the "PERMITS") and (iii) all drawings, plans,
specifications and similar or related items relating to the Real Estate
(collectively, the "PLANS");
(I) subject to Section 18(d) hereof, all of Mortgagor's right, title
and interest in any and all monies now or subsequently on deposit for the
payment of real estate taxes or special assessments against the Real Estate
or for the payment of premiums on insurance policies covering the foregoing
property or otherwise on deposit with or held by Mortgagee as provided in
this Mortgage; all capital, operating, reserve or similar accounts held by
or on behalf of Mortgagor and related to the operation of the Mortgaged
Property, whether now existing or hereafter arising and all monies held in
any of the foregoing accounts and any certificates or instruments related
to or evidencing such accounts;
(J) subject to Section 18(d) hereof, all accounts resulting from the
sale of timber; and
(K) subject to Section 18(d) hereof, all proceeds, both cash and
noncash, of the foregoing;
(All of the foregoing property and rights and interests now owned or
held or subsequently acquired by Mortgagor and described in the foregoing
clauses (A) through (E) are collectively referred to as the "PREMISES", and
those described in the foregoing clauses (A) through (K) are collectively
referred to as the "MORTGAGED PROPERTY").
TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged unto Mortgagee, its successors and assigns for the
uses and purposes set forth, until the Indebtedness is fully paid and the
Obligations fully performed.
TERMS AND CONDITIONS
<PAGE>
5
Mortgagor further represents, warrants, covenants and agrees with
Mortgagee as follows:
1. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good
title to the Real Estate in fee simple and good title to the rest of the
Mortgaged Property, subject only to the matters referred to in subsection 9.3 of
the Credit Agreement (collectively, the "PERMITTED ENCUMBRANCES"), and Mortgagor
shall warrant, defend and preserve such title and the lien of the Mortgage
thereon against all claims of all persons and entities. Mortgagor further
warrants that it has the right to mortgage the Mortgaged Property.
2. PAYMENT OF INDEBTEDNESS. Mortgagor shall pay the Indebtedness at
the times and places and in the manner specified in the Guarantee and shall
perform all the Obligations.
3. REQUIREMENTS. (a) To the extent required in the Credit
Agreement, Mortgagor shall promptly comply with, or cause to be complied with,
and conform to all present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements, and irrespective of the
nature of the work to be done, of each of the United States of America, any
State and any municipality, local government or other political subdivision
thereof and any agency, department, bureau, board, commission or other
instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the
Mortgaged Property and all covenants, restrictions and conditions now or later
of record which may be applicable to any of the Mortgaged Property, or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property. All present and
future laws, statutes, codes, ordinances, orders, judgments, decrees, rules,
regulations and requirements of every Governmental Authority applicable to
Mortgagor or to any of the Mortgaged Property and all covenants, restrictions,
and conditions which now or later may be applicable to any of the Mortgaged
Property are collectively referred to as the "Legal Requirements".
(b) From and after the date of this Mortgage, Mortgagor shall not by
act or omission permit any building or other improvement on any premises not
subject to the lien of this Mortgage to rely on the Premises or any part thereof
or any interest therein to fulfill any Legal Requirement, and Mortgagor hereby
assigns to Mortgagee any and all rights to give consent for all or any portion
of the Premises or any interest therein to be so used.
4. PAYMENT OF TAXES AND OTHER IMPOSITIONS. (a) To the extent
required in the Credit Agreement, promptly prior to the time when same become
delinquent and before any interest or penalties accrue thereon or attach
thereto, Mortgagor shall pay and discharge all taxes of every kind and nature
(including,
<PAGE>
6
without limitation, all real and personal property, income, franchise,
withholding, transfer, gains, profits and gross receipts taxes imposed upon or
assessed against the Mortgaged Property), all charges for any easement or
agreement maintained for the benefit of any of the Mortgaged Property, all
general and special assessments, levies, permits, inspection and license fees,
all water and sewer rents and charges and all other public charges even if
unforeseen or extraordinary, imposed upon or assessed against or which may
become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing are collectively referred to as the
"Impositions"). Upon request by Mortgagee, Mortgagor shall deliver to Mortgagee
(i) original or copies of receipted bills and cancelled checks or other
reasonably satisfactory evidence evidencing payment of such Imposition if it is
a real estate tax or other public charge and (ii) evidence acceptable to
Mortgagee showing the payment of any other such Imposition. If by law any
Imposition, at Mortgagor's option, may be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Mortgagor may
elect to pay such Imposition in such installments and shall be responsible for
the payment of such installments with interest, if any.
(b) Mortgagor shall not claim, demand or be entitled to receive any
credit or credits toward the satisfaction of this Mortgage or on any interest
payable thereon for any taxes assessed against the Mortgaged Property or any
part thereof, and shall not claim any deduction from the taxable value of the
Mortgaged Property by reason of this Mortgage.
5. INSURANCE. (a) Mortgagor shall not use or permit the use of the
Mortgaged Property in any manner which would permit any insurer to cancel any
insurance policy, unless replaced prior to or simultaneously with such
cancellation (such that there is no gap in coverage) by another policy
satisfactory to Mortgagee or void coverage required to be maintained by the
Credit Agreement.
(b) In the event of foreclosure of this Mortgage or other transfer of
title to the Mortgaged Property in extinguishment of the Indebtedness, all
right, title and interest of Mortgagor in and to any insurance policies then in
force shall pass to the purchaser or grantee and Mortgagor hereby appoints
Mortgagee its attorney-in-fact, in Mortgagor's name, to assign and transfer all
such policies and proceeds to such purchaser or grantee.
(c) Until an Event of Default shall have occurred and be continuing,
all insurance and eminent domain proceeds shall be payable to Mortgagor, free
and clear of the lien of this Mortgage. All parties having dealings with
Mortgagor in connection with insurance and eminent domain matters shall be
entitled to rely on an affidavit of Mortgagor to the effect that
<PAGE>
7
no Event of Default has occurred and is continuing, absent receipt of written
notice from Mortgagee to the contrary.
6. RESTRICTIONS. Mortgagor shall not (i) except for the lien of this
Mortgage and the Permitted Encumbrances, further mortgage, nor otherwise
encumber the Mortgaged Property nor create or suffer to exist any lien, charge
or encumbrance on the Mortgaged Property, or any part thereof, whether superior
or subordinate to the lien of this Mortgage and whether recourse or
non-recourse, nor (ii) sell, transfer, convey or assign nor permit to be sold
transferred, conveyed or assigned all or any portion of, or any interest in, the
Mortgaged Property, except, in each case, as may be otherwise expressly
permitted under the Credit Agreement. In the event of any such permitted sale,
transfer, conveyance, assignment or other disposition of any part of the
Mortgaged Property, this Mortgage will remain in effect with respect to all of
the remaining Mortgaged Property.
7. MAINTENANCE; UTILITIES. (a) Mortgagor shall maintain or cause to
be maintained all the Improvements in good working order and condition and shall
not commit or suffer any material waste of the Improvements.
(b) Mortgagor shall pay or cause to be paid when due all utility
charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.
8. RIGHTS OF TENANTS. This Mortgage is subject to the rights of any
and all tenants of the Mortgaged Property now or hereafter existing and, for so
long as said tenants are not in default under the terms of their respective
leases and shall agree to attorn to Mortgagee (or Mortgagee's designee) upon its
acquisition of title to the Mortgaged Property, Mortgagee shall not disturb the
use or possession by said tenants to all or a portion of the Mortgaged Property,
as described in such tenant's lease. If an Event of Default shall have occurred
and be continuing and Mortgagee elects to foreclose this Mortgage in pursuant to
the Section of this Mortgage entitled "Remedies", so long as said tenants are
not in default under the terms of their respective leases, Mortgagee shall take
no action or fail to take any action, as the case may be, the effect of which
would be to terminate the rights of said tenants under their respective leases;
PROVIDED that if, in order validly to foreclose the lien of this Mortgage such
lease must be terminated, Mortgagee may nevertheless proceed with such
foreclosure but following the completion of such foreclosure shall enter into a
new lease of the Mortgaged Property with such tenant on the same terms and
conditions as those set forth in the then terminated lease. Mortgagor may, in
the ordinary course of business and without the consent of Mortgagee, enter into
any new leases or modify, surrender, terminate, extend or renew any lease now
existing or
<PAGE>
8
hereafter created upon the Mortgaged Property, or any portion thereof, without
the consent of Mortgagee. Mortgagee agrees to execute such other and further
instruments as may be necessary to effectuate the terms of this Section.
9. FURTHER ASSURANCES. To further assure Mortgagee's rights under
this Mortgage, Mortgagor agrees upon demand of Mortgagee to do any act or
execute any additional documents (including, but not limited to, security
agreements on any personalty included or to be included in the Mortgaged
Property and a separate assignment of each Lease in recordable form) as may be
reasonably required by Mortgagee to confirm the lien of this Mortgage and all
other rights or benefits conferred on Mortgagee.
10. MORTGAGEE'S RIGHT TO PERFORM. If Mortgagor fails to perform any
of the covenants or agreements of Mortgagor after an Event of Default shall have
occurred and be continuing, Mortgagee, without waiving or releasing Mortgagor
from any obligation or default under this Mortgage, with reasonable efforts to
provide simultaneous written notice to Mortgagor, may, at any time (but shall be
under no obligation to) pay or perform the same, and the amount or cost thereof,
with interest at the Default Rate, shall immediately be due from Mortgagor to
Mortgagee and the same shall be secured by this Mortgage and shall be a lien on
the Mortgaged Property prior to any right, title to, interest in or claim upon
the Mortgaged Property attaching subsequent to the lien of this Mortgage. No
payment or advance of money by Mortgagee under this Section shall be deemed or
construed to cure Mortgagor's default or waive any right or remedy of Mortgagee.
11. MORTGAGOR'S EXISTENCE, ETC. Upon recordation of this Mortgage
in the appropriate office or offices, payment of all mortgage recording fees and
taxes in respect thereof and compliance with the formal requirements of state
law applicable to the recording of real estate mortgages generally, this
Mortgage shall constitute a fully perfected mortgage lien on and security
interest in the Mortgaged Property, subject only to such encumbrances, defects
and exceptions as are expressly permitted under the Credit Agreement.
12. ASBESTOS AND HAZARDOUS WASTE. Mortgagor shall comply with
Environmental Laws to the extent provided in the Credit Agreement. If Mortgagor
shall fail to so comply to the extent required in the Credit Agreement,
Mortgagee may declare an Event of Default and may (but shall not be obligated
to) do whatever is necessary to comply with the applicable Environmental Laws,
and the costs thereof, with interest at the Default Rate, shall be immediately
due from Mortgagor to Mortgagee and the same shall be added to the Indebtedness
and be secured by this Mortgage. If an Event of Default exists, Mortgagor shall
give Mortgagee and its agents and employees access to the Premises to cause such
compliance.
<PAGE>
9
13. EVENT OF DEFAULT. (a) The occurrence of an Event of Default
under the Credit Agreement shall constitute an Event of Default hereunder; and
(b) a failure to pay when due any sum under the Guarantee shall
constitute an Event of Default hereunder; and
(c) to the extent it would have a Material Adverse Effect (as defined
in the Credit Agreement), a failure of Mortgagor to duly perform and observe, or
a violation or breach of, any other terms, covenants, provisions or conditions
of this Mortgage and the continuation thereof for a 30-day period after notice
shall have been given to Mortgagor by Mortgagee specifying such default and
requiring such default be remedied, shall constitute an Event of Default
hereunder; which period may be extended to the extent required (but no longer
than 180 days) if such default is not susceptible of cure within 30 days so long
as Mortgagor has commenced to cure such default within such 30-day period and is
thereafter diligently prosecuting such cure to completion and so long as such
delay is not likely to have a Material Adverse Effect on either the Mortgaged
Property or Mortgagee's rights under this Mortgage; provided, however, any such
default that can be cured by the payment of money shall be promptly cured after
notice by Mortgagee.
14. REMEDIES.
(a) Upon the occurrence of any Event of Default, in addition to any
other rights and remedies Mortgagee may have pursuant to the Mortgagor
Obligation Documents, or as provided by law, and without limitation, (x) if such
event is an Event of Default specified in clause (i) or (ii) of Section 11(f) of
the Credit Agreement or a failure to pay any sum when due under the Guarantee
with respect to Mortgagor, automatically the Indebtedness immediately shall
become due and payable, and (y) if such event is any other Event of Default
under Section 11 of the Credit Agreement or a failure to pay any sum when due
under the Guarantee, in addition to any other rights and remedies Mortgagee may
have pursuant to the Guarantee or the Credit Agreement, Mortgagee may
immediately take such action, without notice or demand, as it deems advisable to
protect and enforce its rights against Mortgagor and in and to the Mortgaged
Property, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such manner as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) Mortgagee may, to the extent permitted by applicable law, (A)
institute and maintain an action of mortgage foreclosure against all or any
part of the Mortgaged Property, (B) institute and maintain an action on the
Credit Agreement or the Guarantee or both, (C) sell all
<PAGE>
10
or part of the Mortgaged Property (Mortgagor expressly granting to
Mortgagee the power of sale), or (D) take such other action at law or in
equity for the enforcement of this Mortgage or any of the Mortgagor
Obligation Documents as the law may allow. Mortgagee may proceed in any
such action to final judgment and execution thereon for all sums due
hereunder, together with interest thereon at the Default Rate and all costs
of suit, including, without limitation, reasonable attorneys' fees and
disbursements. Interest at the Default Rate shall be due on any judgment
obtained by Mortgagee from the date of judgment until actual payment is
made of the full amount of the judgment;
(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the Mortgaged
Property or any other collateral as security for the Indebtedness and
Obligations enter into and upon the Mortgaged Property and each and every
part thereof and exclude Mortgagor and its agents and employees therefrom
without liability for trespass, damage or otherwise (Mortgagor hereby
agreeing to surrender possession of the Mortgaged Property to Mortgagee
upon demand at any such time) and use, operate, manage, maintain and
control the Mortgaged Property and every part thereof. Following such
entry and taking of possession, Mortgagee shall be entitled, without
limitation, (x) to lease all or any part or parts of the Mortgaged Property
for such periods of time and upon such conditions as Mortgagee may, in its
discretion, deem proper, (y) to enforce, cancel or modify any Lease and (z)
generally to execute, do and perform any other act, deed, matter or thing
concerning the Mortgaged Property as Mortgagee shall deem appropriate as
fully as Mortgagor might do.
(b) To the extent permitted under applicable law, the holder of this
Mortgage, in any action to foreclose it, shall be entitled to the appointment of
a receiver. In case of a foreclosure sale, the Real Estate may be sold, at
Mortgagee's election, in one parcel or in more than one parcel and Mortgagee is
specifically empowered, (without being required to do so, and in its sole and
absolute discretion) to cause successive sales of portions of the Mortgaged
Property to be held.
(c) In the event of any breach of any of the covenants, agreements,
terms or conditions contained in this Mortgage, and notwithstanding any
exculpatory or non-recourse language which may be contained herein to the
contrary, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Mortgage.
<PAGE>
11
15. RIGHT OF MORTGAGEE TO CREDIT SALE. Upon the occurrence of any
sale made under this Mortgage, whether made under the power of sale or by virtue
of judicial proceedings or of a judgment or decree of foreclosure and sale,
Mortgagee may bid for and acquire the Mortgaged Property or any part thereof.
In lieu of paying cash therefor, Mortgagee may make settlement for the purchase
price by crediting upon the Indebtedness or other sums secured by this Mortgage
the net sales price after deducting therefrom the expenses of sale and the cost
of the action and any other sums which Mortgagee is authorized to deduct under
this Mortgage. In such event, this Mortgage, the Guarantee, the Other Mortgagor
Obligation Documents, the Credit Agreement, and documents evidencing
expenditures secured hereby may be presented to the person or persons conducting
the sale in order that the amount so used or applied may be credited upon the
Indebtedness as having been paid.
16. APPOINTMENT OF RECEIVER. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice to
Mortgagor, unless otherwise required by applicable law, and without regard to
the adequacy or inadequacy of the Mortgaged Property or any other collateral as
security for the Indebtedness and Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.
17. EXTENSION, RELEASE, ETC. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged Property not then or
theretofore released as security for the full amount of the Indebtedness,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Indebtedness, (ii) extend the maturity or alter any of the
terms of the Indebtedness or any guaranty thereof, (iii) grant other
indulgences, (iv) release or reconvey, or cause to be released or reconveyed at
any time at Mortgagee's option any parcel, portion or all of the Mortgaged
Property, (v) take or release any other or additional security for any
obligation herein mentioned, or (vi) make compositions or other arrangements
with debtors in relation thereto. If at any time this Mortgage shall secure
less than all of the principal amount of the Indebtedness, it is expressly
agreed that any repayments of the principal amount of the Indebtedness shall not
reduce the amount
<PAGE>
12
of the lien of this Mortgage until the lien amount shall equal the principal
amount of the Indebtedness outstanding.
(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.
(c) If Mortgagee shall have the right to foreclose this Mortgage,
Mortgagor authorizes Mortgagee at its option to foreclose the lien of this
Mortgage subject to the rights of any tenants of the Mortgaged Property. The
failure to make any such tenants parties defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Indebtedness or
to foreclose the lien of this Mortgage.
(d) Unless expressly provided otherwise, in the event that ownership
of this Mortgage and title to the Mortgaged Property or any estate therein shall
become vested in the same person or entity, this Mortgage shall not merge in
such title but shall continue as a valid lien on the Mortgaged Property for the
amount secured hereby.
18. SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE. (a) It is the
intention of the parties hereto that this Mortgage shall constitute a Security
Agreement within the meaning of the Uniform Commercial Code (the "CODE") of the
State in which the Mortgaged Property is located. If an Event of Default shall
occur and be continuing under this Mortgage, then in addition to having any
other right or remedy available at law or in equity, Mortgagee shall have the
option of either (i) proceeding under the Code and exercising such rights and
remedies as may be provided to a secured party by the Code with respect to all
or any portion of the Mortgaged Property which is personal property (including,
without limitation, taking possession of and selling such property) or (ii)
treating such property as real property and proceeding with respect to both the
real and personal property constituting the Mortgaged Property in accordance
with Mortgagee's rights, powers and remedies with respect to the real property
(in which event the default provisions of the Code shall not apply). If
Mortgagee shall elect to proceed under the Code, then ten days' notice of sale
of the personal property shall be deemed reasonable notice and the reasonable
expenses of retaking, holding, preparing for sale, selling and the like incurred
by Mortgagee shall include, but not be limited to, attorneys' fees and legal
expenses. At Mortgagee's request, Mortgagor shall assemble the personal
property and make it available to Mortgagee at a place designated by Mortgagee
which is reasonably convenient to both parties.
<PAGE>
13
(b) Mortgagor and Mortgagee agree, to the extent permitted by law,
that: (i) some of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) as to those
fixtures, this Mortgage upon recording or registration in the real estate
records of the proper office shall constitute a financing statement filed as a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code;
(iii) except as otherwise provided, Mortgagor is the record owner of the Real
Estate; and (iv) the mailing addresses of Mortgagor and Mortgagee are as set
forth on the first page of this Mortgage.
(c) Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee one or more separate security
agreements, in form reasonably satisfactory to Mortgagee, covering all or any
part of the Mortgaged Property and will further execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, any financing
statement, affidavit, continuation statement or certificate or other document as
Mortgagee may request in order to perfect, preserve, maintain, continue or
extend the security interest under and the priority of this Mortgage and such
security instrument. Mortgagor shall from time to time, on request of
Mortgagee, deliver to Mortgagee an inventory in reasonable detail of any of the
Mortgaged Property which constitutes personal property. If Mortgagor shall fail
to furnish any financing or continuation statement within 10 days after request
by Mortgagee, then pursuant to the provisions of the Code, Mortgagor hereby
authorizes Mortgagee, without the signature of Mortgagor, to execute and file
any such financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or chattels
shall not be construed as in any way impairing the right of Mortgagee to proceed
against any personal property encumbered by this Mortgage as real property, as
set forth above. A photocopy of this Mortgage may be filed as a Financing
Statement.
(d) All rights, remedies and obligations granted, created or
otherwise arising hereunder and all representations, warranties and other
provisions hereof shall be construed, and all actions hereunder shall be
performed, in a manner consistent with, and subject to the terms and provisions
of, the Security Agreement. To the extent that the rights granted hereunder in
any item of the Mortgaged Property (other than the Real Estate and other
interests which are exclusively real property interests) conflict with any
rights granted in the same item of Mortgaged Property under the Security
Agreement, the Security Agreement shall prevail.
19. ASSIGNMENT OF RENTS. Mortgagor hereby assigns to Mortgagee the
Rents as further security for the payment of the Indebtedness and performance of
the Obligations, and Mortgagor grants to Mortgagee the right to enter the
Mortgaged Property for
<PAGE>
14
the purpose of collecting the same and to let the Mortgaged Property or any part
thereof, and to apply the Rents on account of the Indebtedness. The foregoing
assignment and grant is present and absolute and shall continue in effect until
the Indebtedness is paid in full, but Mortgagee hereby waives the right to enter
the Mortgaged Property for the purpose of collecting the Rents and Mortgagor
shall be entitled to collect, receive, use and retain the Rents until the
occurrence of an Event of Default under this Mortgage; such right of Mortgagor
to collect, receive, use and retain the Rents may be revoked by Mortgagee upon
the occurrence of any Event of Default under this Mortgage by giving not less
than fifteen days' written notice of such revocation to Mortgagor; in the event
such notice is given, so long as an Event of Default shall have occurred and be
continuing, Mortgagor shall pay over to Mortgagee, or to any receiver appointed
to collect the Rents, any lease security deposits, and shall pay monthly in
advance to Mortgagee, or to any such receiver, the fair and reasonable rental
value as determined by Mortgagee for the use and occupancy of the Mortgaged
Property or of such part thereof as may be in the possession of Mortgagor or any
affiliate of Mortgagor, and upon default in any such payment Mortgagor and any
such affiliate will vacate and surrender the possession of the Mortgaged
Property to Mortgagee or to such receiver, and in default thereof may be evicted
by summary proceedings or otherwise. Mortgagor shall not accept prepayments of
installments of Rent to become due for a period of more than one month in
advance (except for security deposits and estimated payments of percentage rent,
if any).
20. ADDITIONAL RIGHTS. Upon the occurrence of any Event of Default,
Mortgagee may, in its sole discretion and without regard to the adequacy of its
security under this Mortgage, apply all or any part of any amounts on deposit
with Mortgagee under this Mortgage against all or any part of the Indebtedness,
in accordance with the provisions of the Credit Agreement, the Guarantee and the
other Mortgagor Obligation Documents. Any such application shall not be
construed to cure or waive any Event of Default or invalidate any act taken by
Mortgagee on account of such Event of Default.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be given in care of the Parent Company in the manner and to the
addresses determined under Section 13.2 of the Credit Agreement.
22. NO ORAL MODIFICATION. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this Mortgage shall be superior to the rights of
the holder of any intervening or subordinate lien or encumbrance.
23. PARTIAL INVALIDITY. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect,
<PAGE>
15
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, but each shall be construed as if such invalid, illegal or
unenforceable provision had never been included. Notwithstanding to the
contrary anything contained in this Mortgage or in any provisions of the
Indebtedness or Mortgagor Obligation Documents, the obligations of Mortgagor and
of any other obligor under the Indebtedness or Mortgagor Obligation Documents
shall be subject to the limitation that neither Mortgagee nor any Lender shall
charge, take or receive, nor shall Mortgagor or any other obligor be obligated
to pay to Mortgagee or any Lender, any amounts constituting interest in excess
of the maximum rate permitted by law to be charged by Mortgagee or any Lender,
as the case may be.
24. MORTGAGOR'S WAIVER OF RIGHTS. To the fullest extent permitted by
law, Mortgagor waives the benefit of all laws now existing or that may
subsequently be enacted providing for (i) any appraisement before sale of any
portion of the Mortgaged Property, (ii) any extension of the time for the
enforcement of the collection of the Indebtedness or the creation or extension
of a period of redemption from any sale made in collecting such debt and (iii)
exemption of the Mortgaged Property from attachment, levy or sale under
execution or exemption from civil process. To the full extent Mortgagor may do
so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter in force
providing for any appraisement, valuation, stay, exemption, extension or
redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created.
25. REMEDIES NOT EXCLUSIVE. Mortgagee shall be entitled to enforce
payment of the Indebtedness and performance of the Obligations and to exercise
all rights and powers under this Mortgage or under any of the other Mortgagor
Obligation Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Indebtedness and Obligations may now or
hereafter be otherwise secured, whether by mortgage, security agreement, pledge,
lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its
enforcement, shall prejudice or in any manner affect Mortgagee's right to
realize upon or enforce any other security now or hereafter held by Mortgagee,
it being agreed that Mortgagee shall be entitled to enforce this Mortgage and
any other security now or hereafter held by Mortgagee in such order and manner
as Mortgagee may determine in its absolute discretion. No remedy herein
conferred upon or reserved to Mortgagee is intended to be
<PAGE>
16
exclusive of any other remedy herein or by law provided or permitted, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. Every
power or remedy given by any of the Mortgagor Obligation Documents to Mortgagee
or to which it may otherwise be entitled, may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
Mortgagee. In no event shall Mortgagee, in the exercise of the remedies
provided in this Mortgage (including, without limitation, in connection with the
assignment of Rents to Mortgagee, or the appointment of a receiver and the entry
of such receiver on to all or any part of the Mortgaged Property), be deemed a
"mortgagee in possession", and Mortgagee shall not in any way be made liable for
any act, either of commission or omission, in connection with the exercise of
such remedies.
26. MULTIPLE SECURITY. If (a) the Premises shall consist of one or
more parcels, whether or not contiguous and whether or not located in the same
county, or (b) in addition to this Mortgage, Mortgagee shall now or hereafter
hold one or more additional mortgages, liens, deeds of trust or other security
(directly or indirectly) for the Indebtedness upon other property in the State
in which the Premises are located (whether or not such property is owned by
Mortgagor or by others) or (c) both the circumstances described in clauses (a)
and (b) shall be true, then to the fullest extent permitted by law, Mortgagee
may, at its election, commence or consolidate in a single foreclosure action all
foreclosure proceedings against all such collateral securing the Indebtedness
(including the Mortgaged Property), which action may be brought or consolidated
in the courts of any county in which any of such collateral is located.
Mortgagor acknowledges that the right to maintain a consolidated foreclosure
action is a specific inducement to some or all of the Lenders to make certain
loans to and to enter into certain agreements with Mortgagor, and for Mortgagee
to enter into the Guarantee, and Mortgagor expressly and irrevocably waives any
objections to the commencement or consolidation of the foreclosure proceedings
in a single action and any objections to the laying of venue or based on the
grounds of FORUM NON CONVENIENS which it may now or hereafter have. Mortgagor
further agrees that if Mortgagee shall be prosecuting one or more foreclosure or
other proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly secures the Indebtedness, or if Mortgagee shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being maintained or judgments were
obtained in or outside the State in which the Premises are located, Mortgagee
may commence or continue foreclosure proceedings and exercise its other remedies
granted in this Mortgage against all or any part of the Mortgaged Property and
Mortgagor waives any objections to the commencement or continuation of a
foreclosure of this Mortgage or exercise of
<PAGE>
17
any other remedies hereunder based on such other proceedings or judgments, and
waives any right to seek to dismiss, stay, remove, transfer or consolidate
either any action under this Mortgage or such other proceedings on such basis.
Neither the commencement nor continuation of proceedings to foreclose this
Mortgage nor the exercise of any other rights hereunder nor the recovery of any
judgment by Mortgagee in any such proceedings shall prejudice, limit or preclude
Mortgagee's right to commence or continue one or more foreclosure or other
proceedings or obtain a judgment against any other collateral, (either in or
outside the State in which the Premises are located) which directly or
indirectly secures the Indebtedness, and Mortgagor expressly waives any
objections to the commencement of, continuation of, or entry of a judgment in
such other proceedings or exercise of any remedies in such proceedings based
upon any action or judgment connected to this Mortgage, and Mortgagor also
waives any right to seek to dismiss, stay, remove, transfer or consolidate
either such other proceedings or any action under this Mortgage on such basis.
It is expressly understood and agreed that to the fullest extent permitted by
law, Mortgagee may, at its election, cause the sale of all collateral which is
the subject of a single foreclosure action at either a single sale or at
multiple sales conducted simultaneously and take such other measures as are
appropriate in order to effect the agreement of the parties to dispose of and
administer all collateral securing the Indebtedness (directly or indirectly) in
the most economical and least time-consuming manner.
27. EXPENSES; INDEMNIFICATION. Mortgagor agrees (a) to pay or
reimburse Mortgagee for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, the Guarantee and the other
Mortgagor Obligation Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to Mortgagee,(b) to pay or
reimburse each Lender and the Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under the
Guarantee, the other Mortgagor Obligation Documents and any such other documents
prepared in connection herewith or therewith, including, without limitation, the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel in lieu of the fees and expenses of outside counsel) to each
Lender and of counsel to the Agent,(c) to pay, indemnify, and hold each Lender
and the Agent harmless from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or administration of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of,
<PAGE>
18
the Guarantee, the other Mortgagor Obligation Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the Agent
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of the Credit Agreement, the
Guarantee, the other Mortgagor Obligation Documents, the Stock Purchase
Agreement, the Stock Purchase, the Merger or the use of the proceeds of the
Loans in connection with the Stock Purchase, and any such other documents,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Mortgagor, any of its Subsidiaries or any of the
Properties (all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), PROVIDED, that the Mortgagor shall have no obligation hereunder
to the Agent or any Lender with respect to indemnified liabilities arising from
(1) the gross negligence or willful misconduct of the Agent or any such Lender
or (2) legal proceedings commenced against the Agent or any such Lender by any
security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such.
The agreements in this subsection shall survive repayment of the Loans and all
other amounts payable under the Credit Agreement and the Guarantee.
28. SUCCESSORS AND ASSIGNS. Except to the extent prohibited in the
Credit Agreement, all covenants of Mortgagor contained in this Mortgage are
imposed solely and exclusively for the benefit of Mortgagee and the Lenders and
their respective successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Mortgagee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Mortgagor
shall run with the land and bind Mortgagor, the successors and assigns of
Mortgagor (and each of them) and all subsequent owners, encumbrancers and
tenants of the Mortgaged Property, and shall inure to the benefit of Mortgagee
and the Lenders and their respective successors and assigns. The word
"Mortgagor" shall be construed as if it read "Mortgagors" whenever the sense of
this Mortgage so requires and if there shall be more than one Mortgagor, the
obligations of the Mortgagors shall be joint and several.
29. NO WAIVERS, ETC. Any failure by Mortgagee to insist upon the
strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Mortgagee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Mortgagor of any and all of
the terms and provisions of this Mortgage to be performed by
<PAGE>
19
Mortgagor. Mortgagee may release, regardless of consideration and without the
necessity for any notice to or consent by the holder of any subordinate lien on
the Mortgaged Property, any part of the security held for the obligations
secured by this Mortgage without, as to the remainder of the security, in
anywise impairing or affecting the lien of this Mortgage or the priority of such
lien over any subordinate lien.
30. GOVERNING LAW, ETC. This Mortgage shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Mortgagor expressly acknowledges that by their terms the
Guarantee and the Credit Agreement shall be governed and construed in accordance
with the laws of the State of New York, without regard to principles of conflict
of law, and for purposes of consistency, Mortgagor agrees that in any IN
PERSONAM proceeding related to this Mortgage the rights of the parties to this
Mortgage shall also be governed by and construed in accordance with the laws of
the State of New York governing contracts made and to be performed in that
State, without regard to principles of conflict of law.
31. WAIVER OF TRIAL BY JURY. Mortgagor and Mortgagee each hereby
irrevocably and unconditionally waive trial by jury in any action, claim, suit
or proceeding relating to this Mortgage and for any counterclaim (other than
compulsory counterclaims) brought therein. Mortgagor hereby waives all rights
to interpose any counterclaim (other than compulsory counterclaims) in any suit
brought by Mortgagee hereunder and all rights to have any such suit consolidated
with any separate suit, action or proceeding.
32. CERTAIN DEFINITIONS. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "MORTGAGOR" shall mean "each Mortgagor or any subsequent owner or owners of
the Mortgaged Property or any part thereof or interest therein," the word
"MORTGAGEE" shall mean "Mortgagee or any successor agent under the Credit
Agreement," the word "PERSON" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "MORTGAGED PROPERTY" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience or reference only and in no way limit or amplify the provisions
hereof.
33. RELEASE. (a) Any Mortgaged Property that is permitted to be sold
or otherwise transferred free of the lien of the Security Documents as provided
in the Credit Agreement shall
<PAGE>
1
be sold or otherwise transferred, as the case may be, free and clear of this
Mortgage. In connection with any such sale or transfer, the Mortgagee shall
execute and deliver to Mortgagor, or to such person or persons as Mortgagor
shall reasonably designate, a satisfaction of mortgage and such other documents
as Mortgagor may reasonably request to evidence the release of this Mortgage
with respect to such Mortgaged Property, as well as a release of any collateral
assignments or other Security Documents in favor of Mortgagee that burden such
Mortgaged Property.
(b) In addition, and not in limitation of the foregoing, any
Mortgaged Property (other than the Real Estate) that also constitutes collateral
under any other Security Document shall automatically be released from this
Mortgage in the event that such Mortgaged Property is released from the security
interest created by such other Security Document in accordance with the terms
thereof and of the Credit Agreement.
This Mortgage has been duly executed by Mortgagor on the date first
above written.
WITNESS: [Subsidiary]
By:
- ------------------------ -------------------------
Name:
Title:
[CORPORATE SEAL]
<PAGE>
STATE OF NEW YORK ) December ___, 1994
: ss.:
COUNTY OF NEW YORK )
Then personally appeared the above-named __________________________ in
his/her capacity as __________________________ of _________, and acknowledged
the foregoing instrument to be his/her free act and deed in his/her said
capacity and the free act and deed of said corporation.
Before me,
-------------------------
-------------------------
(Print Name)
Notary Public State of
--------------
My commission expires:
--------------
<PAGE>
EXHIBIT A
Description of the Premises
[Attach Legal Description of all parcels]
<PAGE>
EXHIBIT I TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT]
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of April __, 1996,
made by _________________________, a _______________ corporation (the
"GRANTOR"), in favor of CHEMICAL BANK, as agent (in such capacity, the "AGENT")
for the several banks, financial institutions and other entities (the "LENDERS")
from time to time parties to the Amended and Restated Credit and Guarantee
Agreement, dated as of April __, 1996 (as the same may be amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT") among SDW
Holdings Corporation, a Delaware corporation, S.D. Warren Company, a
Pennsylvania corporation (the "BORROWER"), the Lenders and the Agent.
W I T N E S S E T H :
WHEREAS, in connection with the Existing Credit Agreement (as defined
in the Credit Agreement), the Grantor entered into that certain Security
Agreement, dated as of December 20, 1994 (the "EXISTING SUBSIDIARY SECURITY
AGREEMENT"), made by the Grantor in favor of the Agent, pursuant to which the
Grantor granted a security interest in certain of its assets as collateral
security for, among other things, its obligations to the Lenders under the
Subsidiaries Guarantee dated as of December 20, 1994 (the "EXISTING
SUBSIDIARIES' GUARANTEE") to which the Grantor is a party;
WHEREAS, the Borrower and the Grantor have requested that the Agent
and the Lenders amend and restate the Existing Credit Agreement in the manner
provided in the Credit Agreement;
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement and to the obligations of the Lenders to make the Extensions of
Credit (as defined in the Credit Agreement) provided for therein that the
Subsidiaries shall have amended and restated the Existing Subsidiaries
Guarantee;
WHEREAS, in satisfaction of such condition, the Subsidiaries have
entered into an Amended and Restated Subsidiaries Guarantee of even date
herewith (as amended, supplemented or otherwise modified from time to time, the
"GUARANTEE") for the benefit of the Agent and the Lenders; and
WHEREAS, it is a further condition precedent to the effectiveness of
the Credit Agreement and to the obligations of the Lenders to make the
Extensions of Credit provided for therein that the Grantor shall have amended
and restated the Existing Subsidiary Security Agreement in the manner provided
for herein to secure payment and performance of the Grantor's obligations under
the Guarantee;
NOW, THEREFORE, in consideration of the premises and to induce the
Agent and the Lenders to amend and restate the Existing Credit Agreement as
provided in the Credit Agreement and to make Extensions of Credit under the
Credit Agreement, the Grantor hereby agrees with the Agent, for the ratable
benefit of the Lenders, to amend and restate and hereby amends and restates the
Existing Subsidiary Security Agreement to read in its entirety as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined; the
following terms which are defined in the Uniform Commercial Code in effect in
the State of New York on the date hereof are used herein as so defined: Chattel
Paper, Documents, Equipment, Farm Products, General Intangibles, Instruments,
Inventory and Proceeds; and the following terms shall have the following
meanings:
<PAGE>
2
["ACCOUNTS": as defined in the Code as in effect on the date
hereof, PROVIDED that "Accounts" shall not include any Receivables
sold, or any Receivables upon which a Lien is granted, pursuant to the
Receivables Facility or any Permitted Receivables Financing.]*
"CODE": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"COLLATERAL": as defined in Section 2; PROVIDED, that Collateral
shall not include any property which is subject to a Lien permitted
under subsection 9.3 of the Credit Agreement securing indebtedness
permitted under subsection 9.2 of the Credit Agreement to the extent
that the grant of a security interest hereunder would be prohibited by
such Lien or by the terms of such indebtedness or, as to property
acquired after the date hereof, which is subject to a prohibition on
Liens contained in any agreement entered into after the Closing Date
which is not prohibited by subsection 9.14 of the Credit Agreement,
which agreement evidences, governs or is otherwise related to the
financing of such property; PROVIDED, FURTHER, that Collateral shall
not include any property which is subject to a Lien permitted under
subsection 9.3(s) of the Credit Agreement or sold pursuant to
subsection 9.6(k) of the Credit Agreement, including such Liens and
sales with respect to any such property acquired after the date
hereof.
"COLLATERAL ACCOUNT": any account established to hold money proceeds,
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders as provided in
Section 8.
"CONTRACTS": the Receivables Sale Agreement and all Rate
Protection Agreements entered into by the Grantor, as each of the
foregoing may be amended, supplemented or otherwise modified from time
to time including, in each case, without limitation, (a) all rights of
the Grantor to receive moneys due and to become due to it thereunder
or in connection therewith, (b) all rights of the Grantor to damages
arising out of, or for, breach or default in respect thereof and (c)
all rights of the Grantor to perform and to exercise all remedies
thereunder.
"COPYRIGHT LICENSE": any agreement, written or oral, providing for
the grant by or to the Grantor of any right under any Copyright.
"COPYRIGHTS": all of the following to the extent that the Grantor now
or hereafter has any right, title or interest in any country in the world:
(i) all copyrights in all works, whether published or unpublished, now
existing or hereafter created or acquired, all registrations and recordings
thereof, and all applications in the United States Copyright Office, and
(ii) all renewals thereof.
"GUARANTEE OBLIGATIONS": as defined in the Subsidiaries Guarantee,
PROVIDED that the maximum amount of the Guarantee Obligations secured
hereunder shall in no event exceed the maximum aggregate amount equal to
the largest amount that would not render its obligations hereunder and
under the other Loan Documents to which it is a party subject to avoidance
as a fraudulent transfer or conveyance under Section 548 of Title 11 of the
United States Code or any applicable provisions of comparable state law.
"PATENT LICENSE": all agreements, whether written or oral,
providing for the grant by the Grantor of any right to manufacture,
use or sell any invention covered by a Patent, including, without
limitation, any thereof listed on SCHEDULE 1 hereto.
"PATENTS": (a) all letters patent of the United States and all
reissues and extensions thereof, including, without limitation, any
thereof referred to in SCHEDULE 1 hereto, and (b) all applications for
letters patent of the United States or any other Country and all
divisions, continuations and continuations-in-part thereof, including,
without limitation, any thereof listed on SCHEDULE 1 hereto.
_______________________________
* To be included in Security Agreement executed by SDW finance Co.
<PAGE>
3
"SECURED OBLIGATIONS": (a) the Guarantee Obligations and (b) the
obligations and liabilities of the Grantor (other than the Guarantee
Obligations) under the Loan Documents to which it is a party.
"SECURITY AGREEMENT": this Amended and Restated Security
Agreement, as amended, supplemented or otherwise modified from time to
time.
"TRADEMARK LICENSE": any agreement, written or oral, providing for
the grant by or to the Grantor of any right to use any Trademark,
including, without limitation, any thereof listed on SCHEDULE 2 hereto.
"TRADEMARKS": (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade dress,
trade styles, service marks, designs, logos and other source or
business identifiers, and the goodwill of the business associated
therewith, including customer lists, license rights, advertising
materials and all other business assets which uniquely reflect the
goodwill of the business, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, or any State thereof, or any other Country, including,
without limitation, any thereof listed on SCHEDULE 2 hereto, and (b)
all renewals thereof.
"UCC FILING COLLATERAL": as defined in Section 4(b).
2. GRANT OF SECURITY INTEREST. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Secured Obligations, the Grantor hereby
grants to the Agent for the ratable benefit of the Lenders a security interest
in all of the following property now owned or at any time hereafter acquired by
the Grantor or in which the Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the "COLLATERAL"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all Patents;
(x) all Patent Licenses;
(xi) all Timber;
(xii) all Trademarks;
(xiii) all Trademark Licenses; and
<PAGE>
4
(xiv) to the extent not otherwise included, all
Proceeds and products of any and all of the foregoing;
PROVIDED, HOWEVER, that notwithstanding any of the other provisions set forth in
this Section 2, this Security Agreement shall not constitute an assignment or
pledge of, or a grant of a security interest in or lien on, (a) any Collateral
if such assignment, pledge or grant of a security interest or lien with respect
to such Collateral is prohibited by any applicable Requirement of Law of any
Governmental Authority or[,] (b) any Collateral of the types described in
clauses (iii), (x) and (xii) if such assignment, pledge or grant of a security
interest or lien with respect to such Collateral is prohibited by the terms of
the applicable Contract, Patent License or Trademark License [or (c) any
Receivables or Related Security sold, or any Receivables or Related Security
upon which a Lien is granted, pursuant to the Receivables Facility or any
Permitted Receivables Financing.](1)
3. RIGHTS OF AGENT AND LENDERS; LIMITATIONS ON AGENT'S AND LENDERS'
OBLIGATIONS. (a) GRANTOR REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS. Anything
herein to the contrary notwithstanding, the Grantor shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such Contract.
Neither the Agent nor any Lender shall have any obligation or liability under
any Account (or any agreement giving rise thereto) or under any Contract by
reason of or arising out of this Security Agreement or the receipt by the Agent
or any such Lender of any payment relating to such Account or Contract pursuant
hereto, nor shall the Agent or any Lender be obligated in any manner to perform
any of the obligations of the Grantor under or pursuant to any Account (or any
agreement giving rise thereto) or under or pursuant to any Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto) or under any Contract, to
present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) NOTICE TO CONTRACTING PARTIES. At any time after the occurrence
and during the continuance of an Event of Default, the Agent may in its own name
or in the name of others communicate with account debtors with respect to
Accounts or parties to the Contracts to verify with them to its satisfaction the
existence, amount and terms of any Accounts or Contracts.
(c)ANALYSIS OF ACCOUNTS. The Agent shall have the right to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and the Grantor shall furnish all such
assistance and information as the Agent may require in connection with such test
verifications. Upon the Agent's request and at the expense of the Grantor, the
Grantor shall cause independent public accountants or others satisfactory to the
Agent to furnish to the Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts. The Agent in its own
name or in the name of others may at any time after the occurrence and during
the continuance of an Event of Default communicate with the obligors on the
Accounts to verify with them to the Agent's satisfaction the existence, amount
and terms of any Accounts.
(d) COLLECTIONS ON ACCOUNTS. (a) The Agent hereby authorizes the
Grantor to collect the Accounts so long as no Event of Default has occurred and
is continuing. If required by the Agent at any time after the occurrence and
during the continuance of an Event of Default, any payments of Accounts, when
collected by the Grantor, (1) shall be forthwith (and, in any event, within two
Business Days) deposited by the Grantor in the exact form received, duly
indorsed by the Grantor to the Agent if required, in a Collateral Account
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders only as provided in
Section 8(c) hereof, and (2) until so turned over, shall be held by the Grantor
in trust for the Agent and the Lenders, segregated from other funds of the
Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit. At anytime when an Event of Default has occurred and
is continuing, the Grantor shall deliver to the Agent
- -----------------------------
(1) To be included in Security Agreement executed by SDW Finance Co.
<PAGE>
5
all original and other documents evidencing, and relating to, the agreements
and transactions which gave rise to the Accounts, including, without
limitation, all original orders, invoices and shipping receipts.
4. REPRESENTATIONS AND WARRANTIES. The Grantor hereby represents and
warrants that:
(a) TITLE; NO OTHER LIENS. Except for the Lien granted to the
Agent for the ratable benefit of the Lenders pursuant to this Security
Agreement and the other Liens permitted to exist on the Collateral
pursuant to the Credit Agreement, the Grantor, owns each item of the
Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with
respect to all or any part of the Collateral is on file or of record
in any public office, except such as may have been filed in favor of
the Agent, for the ratable benefit of the Lenders, pursuant to this
Security Agreement or as may be permitted pursuant to the Credit
Agreement.
(b) PERFECTED FIRST PRIORITY LIENS. Assuming that the financing
statements described on SCHEDULE 3 hereto have been filed, the Liens
granted by the Grantor pursuant to this Security Agreement constitute
perfected Liens on the Collateral in which a security interest may be
perfected pursuant to Article 9 of the Uniform Commercial Code as in
effect in each relevant jurisdiction (the "UCC FILING COLLATERAL") in
favor of the Agent, for the ratable benefit of the Lenders, which are
prior to all other Liens on such Collateral created by the Grantor and
in existence on the date hereof (except such other Liens as are not
prohibited under the Credit Agreement) and which are enforceable as
such against all creditors of and purchasers from the Grantor (except
purchasers of inventory or Timber in the ordinary course of business
to the extent provided in Section 9-307 of the Uniform Commercial Code
as in effect in each relevant jurisdiction), except in each case as
enforceability is affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether involved in a proceeding in equity or at law) and
an implied covenant of good faith and fair dealing. Upon completion
of the other actions described in Section 20 to perfect a security
interest in the Collateral (other than the UCC Filing Collateral), the
Liens granted pursuant to this Security Agreement with respect to the
Collateral (other than the UCC Filing Collateral) which is the subject
of any applicable such action, will constitute perfected Liens on such
Collateral in which a security interest may be perfected pursuant to
applicable law as in effect in each relevant jurisdiction (to the
extent such Liens may be perfected by such applicable actions under
such laws) in favor of the Agent, for the ratable benefit of the
Lenders, which are prior to all other Liens on the Collateral created
by the Grantor and in existence on the date hereof (except such other
Liens as are not prohibited under the Credit Agreement) and which are
enforceable as such against all creditors of and purchasers from the
Grantor, except in each case as enforceability is affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether involved in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing.
(c) ACCOUNTS; GENERAL INTANGIBLES. Subject to Section 5(n), no
amount payable to the Grantor under or in connection with any Account
is evidenced by any Instrument or Chattel Paper which has not been
delivered to the Agent. The places where the Grantor currently keeps
its records concerning the Accounts are listed on SCHEDULE 4 or such
other locations as may be specified by the Borrower to the Agent
pursuant to Section 5(l).
(d) INVENTORY AND EQUIPMENT. The Inventory and the Equipment of
the Grantor are kept at the locations listed on SCHEDULE 5 hereto or
such other locations as may be specified by the Grantor to the Agent
pursuant to Section 5(l).
(e) CHIEF EXECUTIVE OFFICE. The Grantor's chief executive office
and chief place of business is located at ____________________________
or such other locations as may be specified by the Borrower to the
Agent pursuant to Section 5(l).
<PAGE>
6
(f) FARM PRODUCTS. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(g) COPYRIGHTS, PATENTS AND TRADEMARKS. The Grantor does not own
any material registered U.S. Copyrights or U.S. Copyright Licenses in
its own name as of the date hereof. SCHEDULE 1 hereto includes all
U.S. Patents and U.S. Patent Licenses owned by the Grantor in its own
name as of the date hereof. SCHEDULE 2 hereto includes all U.S.
Trademarks and U.S. Trademark Licenses owned by the Grantor in its own
name as of the date hereof. To the best of the Grantor's knowledge,
each U.S. Patent and U.S. Trademark is valid, subsisting, unexpired,
enforceable and has not been abandoned. Except as set forth in either
such Schedule, none of such U.S. Patents or U.S. Trademarks is the
subject of any licensing or franchise agreement. No holding, decision
or judgment has been rendered by any Governmental Authority which
would limit, cancel or question the validity of any U.S. Patent or
U.S. Trademark. No action or proceeding is pending (i) seeking to
limit, cancel or question the validity of any U.S. Patent or U.S.
Trademark, or (ii) which, if adversely determined, would have a
material adverse effect on the value of any U.S. Patent or U.S.
Trademark.
5. COVENANTS. The Grantor covenants and agrees with the Agent and the
Lenders that, from and after the date of this Security Agreement until this
Security Agreement is terminated and the security interests created hereby are
released:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL
PAPER. At any time and from time to time, upon the written request of
the Agent, and at the sole expense of the Grantor, the Grantor will
promptly and duly execute and deliver such further instruments and
documents and take such further action as the Agent may reasonably
request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in
any jurisdiction with respect to the Liens created hereby. The
Grantor also hereby authorizes the Agent to file any such financing or
continuation statement without the signature of the Grantor to the
extent permitted by applicable law. A carbon, photographic or other
reproduction of this Security Agreement or any financing statement
covering the Collateral shall be sufficient as a financing statement
for filing in any jurisdiction. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by
any Instrument or Chattel Paper, such Instrument or, to the extent
required under Section 5(n), Chattel Paper shall be immediately
delivered to the Agent, duly endorsed in a manner satisfactory to the
Agent, to be held as Collateral pursuant to this Security Agreement.
(b) INDEMNIFICATION. The Grantor agrees to pay, and to save the
Agent and the Lenders harmless from, any and all liabilities, costs
and expenses (including, without limitation, reasonable legal fees and
expenses) (i) with respect to, or resulting from, any delay in paying,
any and all excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral, (ii)
with respect to, or resulting from, any delay in complying with any
Requirement of Law applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Security
Agreement. In any suit, proceeding or action brought by the Agent or
any Lender under any Account or Contract for any sum owing thereunder,
or to enforce any provisions of any Account or Contract, the Grantor
will save, indemnify and keep the Agent and such Lender harmless from
and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of
a breach by the Grantor of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing to or
in favor of such account debtor or obligor or its successors from the
Grantor.
(c) MAINTENANCE OF RECORDS. The Grantor will keep and maintain
at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts. The
Grantor will
<PAGE>
7
mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the security interests granted hereby.
(d) RIGHT OF INSPECTION. The Agent shall at all times have full
and free access during normal business hours and upon reasonable
notice to all the books, correspondence and records of the Grantor,
and the Agent and its representatives may examine the same, take
extracts therefrom and make photocopies thereof, and the Grantor
agrees to render to the Agent, at the Grantor's cost and expense, such
clerical and other assistance as may be reasonably requested with
regard thereto. Upon reasonable notice to Grantor, the Agent and, at
any time after the occurrence and during the continuation of an Event
of Default, the Lenders and their respective representatives shall
also have the right, during normal business hours to enter into and
upon any premises where any of the Inventory or Equipment is located
for the purpose of inspecting the same, observing its use or otherwise
protecting its interests therein.
(e) PAYMENT OF TAXES AND OTHER AMOUNTS. The Grantor will pay
promptly when due all taxes, assessments and governmental charges or
levies imposed upon the Collateral or in respect of its income or
profits therefrom, as well as all claims of any kind (including,
without limitation, claims for labor, materials and supplies) against
or with respect to the Collateral which have a reasonable likelihood
of adverse determination, except that no such charge need be paid if
(i) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (ii) such proceedings do not involve any
material danger of the sale, forfeiture or loss of any material
portion of the Collateral or any interest therein and (iii) such
charge is adequately reserved against on the Grantor's books in
accordance with GAAP.
(f) LIENS ON COLLATERAL. The Grantor will defend the Collateral
against, and will take such other action as is necessary to remove,
any Lien or claim on or to the Collateral, other than the Liens
created hereby and other than as permitted pursuant to the Credit
Agreement, and will defend the right, title and interest of the Agent
and the Lenders in and to any of the Collateral against the claims and
demands of all Persons whomsoever.
(g) CERTAIN NOTICES. The Grantor will not fail to deliver to the
Agent a copy of each material demand, notice or document received by
it relating in any way to any Contract or any agreement giving rise to
an Account.
(h) LIMITATIONS ON DISCOUNTS AND COMPROMISES OF ACCOUNTS. Other
than in the ordinary course of business as generally conducted by the
Grantor over a period of time, the Grantor will not compromise,
compound or settle the Accounts for less than the full amount thereof,
or release, wholly or partially, any Person liable for the payment
thereof, except in each case as permitted under the Credit Agreement.
(i) MAINTENANCE OF INSURANCE. The Grantor will maintain, with
financially sound and reputable insurance companies (or, to the extent
consistent with prudent business practice, a program of self-insurance),
insurance in at least such amounts as are usually insured against in the
same general area by companies engaged in the same or a similar business
(i) insuring the Inventory and Equipment against loss by fire,
explosion, theft and such other casualties as may be reasonably
satisfactory to the Agent and (ii) insuring the Grantor, the Agent and
the Lenders against liability for personal injury and property damage
relating to such Inventory and Equipment. Such policies shall provide
that losses are payable to the Grantor, the Agent and the Lenders as
their respective interests may appear. Any such insurance policies
shall (A) contain a breach of warranty clause in favor of the Agent and
the Lenders, (B) provide that no cancellation, material reduction in
amount or material change in coverage thereof shall be effective until
at least 30 days after receipt by the Agent of written notice thereof,
(C) name the Agent and the Lenders as insured parties and (D) be
reasonably satisfactory in all other respects to the Agent. The Grantor
shall deliver to the Agent a report of a reputable insurance broker with
respect to any such insurance policies during the month
<PAGE>
8
of June in each calendar year and such supplemental reports with respect
thereto as the Agent may from time to time reasonably request.
(j) FURTHER IDENTIFICATION OF COLLATERAL. The Grantor will
furnish to the Agent from time to time statements and schedules
further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
(k) NOTICES. The Grantor will advise the Agent promptly, in
reasonable detail, at its address set forth for notices pursuant to
subsection 13.2 of the Credit Agreement, (i) of any Lien (other than
Liens created hereby or permitted under the Credit Agreement) on, or
claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which could reasonably be expected to
have a material adverse effect on the aggregate value of the
Collateral or, with respect to any material portion of the Collateral,
on the Liens created hereunder.
(l) CHANGES IN LOCATIONS, NAME, ETC. The Grantor will not (i)
change the location of its chief executive office/chief place of
business from that specified in Section 4(e) or remove its books and
records from the locations referred to in Section 4(c), (ii) permit
any of the Inventory or Equipment to be kept at a location other than
those listed on SCHEDULE 5 hereto or (iii) change its name, identity
or corporate structure to such an extent that any financing statement
filed in favor of the Agent in connection with this Security Agreement
would become seriously misleading, unless in each case it shall have
given the Agent and the Lenders at least 30 days prior written notice
thereof and all filings and other actions to maintain the perfection
of the security interests granted hereby shall have been made.
(m) PATENTS AND TRADEMARKS.
(i)The Grantor (either itself or through licensees) will, except
with respect to any Trademark that the Grantor shall reasonably
determine is of negligible economic value to it, (A) employ such
Trademark with the appropriate notice of registration and (B) not (and
not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any Trademark may become
invalidated.
(ii) The Grantor will not, except with respect to any Patent that
the Grantor shall reasonably determine is of negligible economic value
to it, do any act, or omit to do any act, whereby any Patent may
become abandoned or dedicated.
(iii)The Grantor will notify the Agent and the Lenders promptly if
it knows, or has reason to know, of any adverse final determination
with respect to any Patent or Trademark (including, without
limitation, any such final determination in any proceeding in the
United States Patent and Trademark Office or any court or tribunal in
any country) regarding the Grantor's ownership of any Patent or
Trademark or its right to register the same or to keep and maintain
the same.
(iv)Whenever the Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the
registration of any Patent or Trademark with the United States Patent
and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, the Grantor shall report
such filing to the Agent and the Lenders within fifteen Business Days
after the last day of the fiscal quarter in which such filing occurs.
Upon request of the Agent, the Grantor shall execute and deliver any
and all agreements, instruments, documents, and papers as the Agent
may request to evidence the Agent's and the Lenders' security interest
in any Patent or Trademark and the goodwill and general intangibles of
the Grantor relating thereto or represented thereby, and the Grantor
hereby constitutes the Agent as its attorney-in-fact to execute and
file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled
with an interest is
<PAGE>
9
irrevocable until the Secured Obligations are paid in full, the
Commitments are terminated and no Letter of Credit remain outstanding.
(v)The Grantor will, except with respect to any Trademark or
Patent that the Grantor shall reasonably determine is of negligible
economic value to it, take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United
States Patent and Trademark Office, or any similar office or agency in
any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration)
and to maintain each registration of the Patents and Trademarks,
including, without limitation, filing of applications for renewal,
affidavits or declarations of use and affidavits or declarations of
incontestability.
(vi)In the event that any Patent or Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party,
the Grantor shall promptly notify the Agent and the Lenders after it
learns thereof and shall, unless the Grantor shall reasonably
determine that such Patent or Trademark is of negligible economic
value to the Grantor which determination the Grantor shall promptly
report to the Agent and the Lenders, promptly sue for infringement,
misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as the
Grantor shall reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.
(n) CHATTEL PAPER. Unless an Event of Default shall have occurred and
be continuing, the Grantor shall be entitled to retain possession of all
Collateral consisting of Chattel Paper, and shall hold all such Chattel
Paper in trust for the Agent, for the ratable benefit of the Lenders. If
an Event of Default shall have occurred and be continuing, upon the request
of the Agent, such Chattel Paper shall be immediately delivered to the
Agent, to be held as Collateral pursuant to this Agreement. The Grantor
shall not permit any other Person (other than Holdings or a Subsidiary) to
possess any such Collateral at any time.
(o) GOVERNMENT CONTRACTS. The Grantor shall, to the extent
practicable, provide reasonable advance notice to the Agent prior to or, if
such advance notice is not practicable, shall provide notice to the Agent
promptly after, entering into a contract with a Governmental Authority or
prior to or, if such advance notice is not practicable, shall provide
notice to the Agent promptly after, the sale of goods to a Governmental
Authority resulting in the creation of an Account if such contract or
Account, in the aggregate together with all such contracts then in effect
(including any such contract entered into prior to the Closing Date) and/or
Accounts then outstanding (including any such Accounts arising prior to the
Closing Date), but without duplication, exceed 5% of net sales of the
Borrower and its Subsidiaries for the most recently completed fiscal year,
and shall, at the request of the Agent, provide any notices and make any
filings required under the Assignment of Claims Act in order to grant,
maintain and/or perfect the security interest all such contracts and
Accounts granted pursuant to this Security Agreement.
6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Subject to Section 8(f), the Grantor hereby irrevocably
constitutes and appoints the Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Grantor and in the
name of the Grantor or in its own name, from time to time in the Agent's
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement, and, without limiting the generality of the
foregoing, the Grantor hereby gives the Agent the power and right, on behalf of
the Grantor, without notice to or assent by the Grantor (except as set forth
below), to do the following:
(i)in the case of any Collateral, at any time when any Event of
Default shall have occurred and is continuing, in the name of the
Grantor or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under any Account,
Instrument, General Intangible or Contract or with
<PAGE>
10
respect to any other Collateral and to file any claim or to take
any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Agent for the purpose of
collecting any and all such moneys due under any Account,
Instrument, General Intangible or Contract or with respect to any
other Collateral whenever payable;
(ii)in each case, to the extent not paid, performed, discharged or
effected by the Grantor as required by this Agreement or the Credit
Agreement, to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Security Agreement and to
pay all or any part of the premiums therefor and the costs thereof;
and
(iii)at any time when an Event of Default shall have occurred and be
continuing, (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Agent or as the Agent shall
direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the Collateral; (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against the Grantor with
respect to any Collateral; (F) to settle, compromise or adjust any
suit, action or proceeding described in clause (E) above and, in
connection therewith, to give such discharges or releases as the Agent
may deem appropriate; (G) to assign, or grant licenses with respect
to, any Copyright, Patent or Trademark (along with all the goodwill of
the business to which any such Trademark pertains), throughout the
world for such term or terms, on such conditions, and in such manner,
as the Agent shall in its sole discretion determine; (H) in the
exercise of its rights under this Section 6, to use any and all
Trademarks and Trademark Licenses, if practicable and only to the
extent permitted by agreements relating thereto and applicable laws,
to the extent of the rights of the Grantor therein, and the Grantor
hereby grants a license to the Agent for such purpose and (I)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Agent were the absolute owner thereof for all
purposes, and to do, at the Agent's option and the Grantor's expense,
at any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve or realize upon the Collateral
and the Agent's and the Lenders' Liens thereon and to effect the
intent of this Security Agreement, all as fully and effectively as the
Grantor might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) OTHER POWERS. The Grantor also authorizes the Agent and the
Lenders, at any time and from time to time, to execute, in connection with the
sale provided for in Section 8 hereof, any indorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) NO DUTY ON AGENT OR LENDERS' PART. The powers conferred on the
Agent and the Lenders hereunder are solely to protect the Agent's and the
Lenders' interests in the Collateral and shall not impose any duty upon the
Agent or any Lender to exercise any such powers. The Agent and the Lenders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to the Grantor for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
7. PERFORMANCE BY AGENT OF COMPANY'S SECURED OBLIGATIONS. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with any
agreement, the expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at
<PAGE>
11
the rate per annum set forth in subsection 5.4(c) of the Credit Agreement,
shall be payable by the Grantor to the Agent on demand and shall constitute
Secured Obligations secured hereby.
8. REMEDIES. (a) NOTICE TO ACCOUNT DEBTORS AND CONTRACT PARTIES.
Upon the request of the Agent at any time after the occurrence and during the
continuance of an Event of Default, the Grantor shall notify account debtors on
the Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Agent.
(b) PROCEEDS TO BE TURNED OVER TO AGENT. In addition to the rights of
the Agent and the Lenders specified in Section 3 with respect to payments of
Accounts, if an Event of Default shall occur and be continuing, the Agent may
require, by notice to the Grantor that all Proceeds received by the Grantor
consisting of cash, checks and other near-cash items be held by the Grantor in
trust for the Agent and the Lenders, segregated from other funds of the Grantor,
and forthwith upon receipt by the Grantor, be turned over to the Agent in the
exact form received by the Grantor (duly indorsed by the Grantor to the Agent,
if required) and held by the Agent in a Collateral Account maintained under the
sole dominion and control of the Agent. All Proceeds while held by the Agent in
a Collateral Account (or by the Grantor in trust for the Agent and the Lenders)
shall continue to be held as collateral security for all the Secured Obligations
and shall not constitute payment thereof until applied as provided in Section
8(c).
(c) APPLICATION OF PROCEEDS. At such intervals as may be agreed upon
by the Grantor and the Agent, or, if an Event of Default shall have occurred and
be continuing, at any time at the Agent's election, the Agent may apply all or
any part of Proceeds held in any Collateral Account in payment of the Secured
Obligations in such order as the Agent may elect and any part of such funds
which the Agent elects not so to apply and deems not required as collateral
security for the Secured Obligations shall be paid over from time to time by the
Agent to the Grantor or to whomsoever may be lawfully entitled to receive the
same. Any balance of such Proceeds remaining after the Secured Obligations
shall have been paid in full, the Commitments shall have been terminated and no
Letter of Credit remains outstanding shall be paid over to the Grantor or to
whomsoever may be lawfully entitled to receive the same.
(d) CODE REMEDIES. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Lenders may exercise, in addition to all
other rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived to the fullest extent permitted by
applicable law), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the Agent or any Lender or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Agent or any Lender shall have the right upon any such
public sale or sales, and, to the fullest extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Grantor, which right or
equity of redemption is hereby waived or released to the extent permitted by
applicable law. The Grantor further agrees, at the Agent's request, to assemble
the Collateral and make it available to the Agent at places which the Agent
shall reasonably select, whether at the Grantor's premises or elsewhere. The
Agent shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Secured Obligations, in such order as the Agent may elect, and only after
such application and after the payment by the Agent of any other amount required
by any provision of law, including, without limitation, Section 9-504(1)(c) of
the Code, need the Agent account for the surplus, if any, to the Grantor. To
the extent permitted by applicable law, the Grantor waives all claims, damages
and demands it may acquire against the Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a
<PAGE>
12
proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition.
(e) DEFICIENCY. The Grantor shall remain liable for any deficiency if
the proceeds of any sale or other disposition of the Collateral are insufficient
to pay the Secured Obligations and the reasonable fees and disbursements of any
attorneys employed by the Agent or any Lender to collect such deficiency.
(f) Anything herein to the contrary notwithstanding, the exercise of
remedies or any power of attorney granted hereunder with respect to Collateral
is subject to any applicable Requirement of Law of any Governmental Authority.
No action will be taken by the Agent or any Lender hereunder if such action will
result in a violation of any applicable Requirement of Law of any Governmental
Authority by any Loan Party.
9. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The
Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the Agent
deals with similar property for its own account. Neither the Agent, any Lender,
nor any of their respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Grantor or
otherwise.
10. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest until this Agreement is terminated and the security
interests created hereby are released.
11. SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. SECTION HEADINGS. The Section headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
13. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
14. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the terms
or provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Grantor and
the Agent, PROVIDED that any provision of this Security Agreement may be waived
by facsimile transmission by the Agent. This Security Agreement shall be
binding upon and inure to the benefit of the permitted successors and permitted
assigns of the Grantor, the Agent and the Lenders, PROVIDED that the Grantor may
not assign its rights or obligations under this Security Agreement without the
prior written consent of the Agent and any purported assignment without such
consent shall be null and void.
15. NOTICES. All notices, requests and demands to or upon the Agent
or the Grantor to be effective shall be in writing (including by facsimile
transmission), and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered, or three days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (i) in the case of the Agent, at its address or transmission
number for notices specified in subsection 13.2 of the Credit Agreement and (ii)
in the case of the Grantor, at its address or transmission number for notices
set forth under its signature below.
<PAGE>
13
16. AUTHORITY OF AGENT. The Grantor acknowledges that the rights and
responsibilities of the Agent under this Security Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Security Agreement shall, as between the Agent
and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Grantor, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act or
refrain from acting, and the Grantor shall not be under any obligation, or
entitlement, to make any inquiry respecting such authority.
17. INTEGRATION. This Security Agreement represents the agreement of
the Grantor and the Agent with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by the Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
18. GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND SECURED
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
19. TERMINATION. (a) This Agreement and the Liens created hereby
shall terminate when all the Secured Obligations shall have been fully paid,
when no Letter of Credit shall remain outstanding and when the Commitments shall
have terminated under the Credit Agreement, at which time the Agent shall
execute and deliver to the Grantor, or to such person or persons as the Grantor
shall reasonably designate, all Uniform Commercial Code termination statements
and similar documents prepared by the Grantor at its expense which the Grantor
shall reasonably request to evidence such termination.
(b) Without limiting the foregoing, all Collateral permitted to be
sold, transferred or otherwise disposed of in accordance with the terms and
provisions of the Credit Agreement shall be sold, transferred or otherwise
disposed of free and clear of the Liens created hereby. In connection with the
foregoing, the Agent shall execute and deliver to the Grantor, or to such Person
or Persons as the Grantor shall reasonably designate, all Uniform Commercial
Code termination statements and similar documents prepared by the Grantor at its
expense which the Grantor shall reasonably request to evidence the release of
the Liens created hereby with respect to any such Collateral.
(c) Any execution and delivery of statements or documents pursuant to
this Section 19 shall be without recourse to or representation or warranty by
the Agent.
20. PERFECTION OF LIENS. The Grantor and the Agent acknowledge that
the Liens created by this Security Agreement are initially intended to be
perfected only by the filing of (a) Uniform Commercial Code financing statements
described on SCHEDULE 3, (b) the filing of a Patent and Trademark Security
Agreement in the United States Patent and Trademark Office and (c) the delivery
of all Instruments of the Grantor. It is not intended that any filing will be
made in any country other than the United States of America with respect to the
security interest granted in Patents, Patent Licenses, Trademarks or Trademark
Licenses pursuant to this Security Agreement.
<PAGE>
14
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
[NAME OF GRANTOR]
By:
---------------------------
Title:
Address for Notices:
SCHEDULES:
Schedule 1 - Patents and Patent Licenses
Schedule 2 - Trademarks and Trademark Licenses
Schedule 3 - Filing Jurisdictions
Schedule 4 - Location of Records
Schedule 5 - Locations of Inventory and Equipment
<PAGE>
EXHIBIT J TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF AMENDED AND RESTATED SUBSIDIARY PLEDGE AGREEMENT]
AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of April , 1996,
made by __________________, a _________ corporation (the "PLEDGOR"), in favor of
CHEMICAL BANK, as Agent (in such capacity, the "AGENT") for the several banks,
financial institutions and other entities (the "Lenders") from time to time
parties to the Amended and Restated Credit and Guarantee Agreement, dated as of
April , 1996 (as amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware
Corporation ("HOLDINGS"), S.D. Warren Company, a Pennsylvania corporation (the
"BORROWER"), the Lenders and the Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make loans to, and to issue or participate in letters of credit issued
for the account of, the Borrower upon the terms and subject to the conditions
set forth therein;
WHEREAS, in accordance with subsection 8.10(c) of the Credit
Agreement, the Pledgor is a party to the Subsidiaries Guarantee (as defined in
the Credit Agreement) pursuant to which the Pledgor has guaranteed the payment
and performance of the Obligations (as defined in the Credit Agreement); and
WHEREAS, in accordance with subsection 8.10(c) of the Credit
Agreement, the Pledgor is required to execute and deliver this Pledge Agreement
to secure payment and performance of the Pledgor's obligations under the
Subsidiaries Guarantee.
NOW, THEREFORE, in consideration of the premises and to induce the
Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective Extensions of Credit, under the Credit
Agreement, the Pledgor hereby agrees with the Agent, for the ratable benefit of
the Lenders, as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Pledge Agreement, as the same may be amended,
modified or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in
the State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds thereof.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders as provided in
Section 8.
"DOMESTIC ISSUER": any Issuer that is not a Foreign Issuer.
"FOREIGN ISSUER": any Issuer organized under the laws of any
jurisdiction outside the United States of America.
<PAGE>
2
"GUARANTEE OBLIGATIONS": as defined in the Subsidiaries Guarantee,
PROVIDED that the maximum amount of Guarantee Obligations secured hereunder
shall in no event exceed the maximum aggregate amount equal to the largest
amount that would not render its obligations hereunder and under the other
Loan Documents to which it is a party subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States
Code or any applicable provisions of comparable state law guaranteed by the
Pledgor under applicable federal and state laws relating to the insolvency
of debtors.
"ISSUERS": the collective reference to the companies identified on
SCHEDULE 1 attached hereto as the issuers of the Pledged Stock;
individually, each an "ISSUER."
"NON-CONSENSUAL LIENS: as defined in Section 4(c).
"PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 1
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by any Issuer to the
Pledgor while this Agreement is in effect and while such Capital Stock
continues to be subject to the security interest granted pursuant to this
Agreement.
"PROCEEDS": all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof of the Pledged Stock and, in any event, shall include,
without limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
"SECURED OBLIGATIONS": (a) the Guarantee Obligations and (b) all
obligations and liabilities of the Pledgor (other than Guarantee
Obligations) under the Loan Documents to which it is a party.
"SECURITIES ACT": the Securities Act of 1933, as amended.
(c) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby delivers
to the Agent, for the ratable benefit of the Lenders, all the Pledged Stock and
hereby grants to Agent, for the ratable benefit of the Lenders, a first security
interest in the Collateral (except for Non-Consensual Liens), as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Secured
Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Agent of each
certificate representing one or more shares of Pledged Stock to the Agent, the
Pledgor shall deliver an undated stock power covering such certificate, duly
executed in blank by the Pledgor with, if the Agent so requests, signature
guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the Capital Stock of each Domestic Issuer
and sixty-five percent of the common stock and one hundred percent of the
preferred stock of each Foreign Issuer held by the Pledgor.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock, free of any and all Liens or options
in favor of, or claims of, any other Person, except the security
<PAGE>
3
interests created by this Agreement and non-consensual Liens arising
involuntarily by operation of law to the extent not prohibited by the Credit
Agreement ("NON-CONSENSUAL LIENS").
(d) Upon delivery to the Agent of the stock certificates evidencing
the Pledged Stock, the security interest created by this Agreement will
constitute a valid, perfected first priority security interest (subject to
Non-Consensual Liens not prohibited by the Credit Agreement) in the Collateral,
enforceable as such against all creditors of the Pledgor and any Persons
purporting to purchase any Collateral from the Pledgor, except as affected by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
5. COVENANTS. The Pledgor covenants and agrees with the Agent and
the Lenders that, from and after the date of this Agreement until this Agreement
is terminated and the security interests created hereby are released:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof,
the Pledgor shall accept the same as the agent of the Agent and the Lenders,
hold the same in trust for the Agent and the Lenders and deliver the same
forthwith to the Agent in the exact form received, duly indorsed by the Pledgor
to the Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the Agent so
requests, signature guaranteed, to be held by the Agent, subject to the terms
hereof, as additional collateral security for the Secured Obligations. Other
than pursuant to a distribution or transfer of any assets of an Issuer to the
Pledgor in a transaction permitted under the Credit Agreement, (i) any sums paid
upon or in respect of the Pledged Stock upon the liquidation or dissolution of
any Issuer shall be paid over to the Agent to be held by it hereunder as
additional collateral security for the Secured Obligations, and (ii) in case any
distribution of capital shall be made on or in respect of the Pledged Stock or
any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of any
Issuer or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Agent to be held by it hereunder as additional
collateral security for the Secured Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Stock shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Agent, hold such money or property in trust for the Lenders,
segregated from other funds of the Pledgor, as additional collateral security
for the Secured Obligations.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, any Issuer to issue
(other than to existing stockholders on a proportionate basis) any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer,(ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Collateral other than pursuant to a transaction permitted under the Credit
Agreement,(iii) create, incur or permit to exist any Lien on any of the
Collateral, or any interest therein, except for the security interests created
by this Agreement and Liens permitted by the Credit Agreement (except for
Non-Consensual Liens not prohibited by the Credit Agreement) or (iv) enter into
any agreement or undertaking (other than this Agreement and the other Loan
Documents or, in the case of Collateral other than Pledged Stock, as permitted
by subsection 9.14 of the Credit Agreement) restricting the right or ability of
the Pledgor or the Agent to sell, assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first perfected security interest (subject to Non-Consensual
Liens not prohibited by the Credit Agreement) and shall defend such security
interest against claims and demands of all Persons whomsoever. At any time and
from time to time, upon the written request of the Agent, and at the sole
expense of the Pledgor, the Pledgor will promptly and duly execute and deliver
such further instruments and documents and take such further actions as the
Agent may reasonably request for the purposes of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted. If
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by
<PAGE>
4
any promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Agent, duly endorsed in a
manner satisfactory to the Agent, to be held as Collateral pursuant to this
Agreement.
(d) The Pledgor shall pay, and hold the Agent and the Lenders harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall
have occurred and be continuing and the Agent shall have given notice to the
Pledgor of the Agent's intent to exercise its corresponding rights pursuant to
Section below, the Pledgor shall be permitted to receive all cash dividends paid
to the extent not prohibited by the Credit Agreement, in respect of the Pledged
Stock and to exercise all voting and corporate rights with respect to the
Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate right
exercised or other action taken which, in the Agent's reasonable judgment, would
impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, this Agreement or any other
Loan Document.
7. RIGHTS OF THE LENDERS AND THE AGENT. (a) All money Proceeds
received by the Agent hereunder shall be held by the Agent for the benefit of
the Lenders in a Collateral Account. All Proceeds while held by the Agent in a
Collateral Account (or by the Pledgor in trust for the Agent and the Lenders)
shall continue to be held as collateral security for all the Secured Obligations
and shall not constitute payment thereof until applied as provided in Section
8(a).
(b) If an Event of Default shall occur and be continuing and the Agent
shall give notice of its intent to exercise such rights to the Pledgor, (i) the
Agent shall have the right to receive any and all cash dividends paid in respect
of the Pledged Stock and make application thereof to the Secured Obligations in
such order as the Agent may determine, and (ii) all shares of the Pledged Stock
shall be registered in the name of the Agent or its nominee, and the Agent or
its nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
any Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of any Issuer, or upon
the exercise by the Pledgor or the Agent of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Agent may determine), all without liability
except to account for property actually received by it, but the Agent shall have
no duty to the Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
8. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Agent's election, the Agent may apply all or any
part of Proceeds held in any Collateral Account in payment of the Secured
Obligations in such order as the Agent may elect.
(b) If an Event of Default shall have occurred and be continuing, the
Agent, on behalf of the Lenders, may exercise, in addition to all other rights
and remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived to the fullest extent permitted by applicable law), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or any Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for
<PAGE>
5
future delivery without assumption of any credit risk. The Agent or any Lender
shall have the right upon any such public sale or sales, and, to the fullest
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity of redemption is hereby waived
or released to the extent permitted by applicable law. The Agent shall apply
any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Agent, to the payment in whole or in part of the
Secured Obligations, in such order as the Agent may elect, and only after such
application and after the payment by the Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Agent account for the surplus, if any, to the Pledgor. To the
extent permitted by applicable law, the Pledgor waives all claims, damages and
demands it may acquire against the Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition. The Pledgor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Secured Obligations and the fees and disbursements of any attorneys employed by
the Agent or any Lender to collect such deficiency.
9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Agent shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the Pledgor will cause
the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Agent, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,(ii)
to use its best efforts to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and (iii) to make all amendments thereto and/or to the related prospectus
which, in the opinion of the Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to cause such Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Agent shall
designate and to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
(b) The Pledgor recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the Issuer thereof to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if such Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable Requirements of Law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Agent and the Lenders, that
the Agent and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
Section shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred under the Credit Agreement.
<PAGE>
6
10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Agent in writing that (a) states that an Event of
Default has occurred and (b) is otherwise in accordance with the terms of this
Agreement, without any other or further instructions from the Pledgor, and the
Pledgor agrees that each Issuer shall be fully protected in so complying.
11. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Subject to Section
11(c), the Pledgor hereby irrevocably constitutes and appoints the Agent and any
officer or agent of the Agent, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Pledgor and in the name of the Pledgor or in the Agent's own
name, from time to time in the Agent's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement, including, without
limitation, any financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully
do or cause to be done pursuant to the power of attorney granted in
Section 11(d). All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.
(c) Anything herein to the contrary notwithstanding, the exercise of
remedies or any power of attorney granted hereunder with respect to Pledged
Stock is subject to the provisions of any applicable law, rule or regulation and
to governmental approvals that may be required hereunder. No action will be
taken by the Agent or any Lender hereunder if such action will result in a
violation of any such law, rule or regulation.
12. DUTY OF AGENT. The Agent's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Agent deals with similar securities and property
for its own account, except that the Agent shall have no obligation to invest
funds held in any Collateral Account and may hold the same as demand deposits.
Neither the Agent, any Lender nor any of their respective directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of
the Code, the Pledgor authorizes the Agent to file financing statements with
respect to the Collateral without the signature of the Pledgor in such form and
in such filing offices as the Agent reasonably determines appropriate to perfect
the security interests of the Agent under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
14. AUTHORITY OF AGENT. The Pledgor acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Agent and the Pledgor, the Agent shall be conclusively presumed to be acting as
agent for the Lenders with full and valid authority so to act or refrain from
acting, and neither the Pledgor nor any Issuer shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.
15. NOTICES. All notices, requests and demands to or upon the Agent
or the Pledgor to be effective shall be in writing (including by facsimile
transmission), and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made when delivered, or three days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (i) to the Agent at its address or transmission number for
notices specified in subsection 13.2 of the Credit Agreement and (ii) if to the
Pledgor, at its address or transmission number for notices set forth under its
signature below.
<PAGE>
7
16. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
17. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Agent, PROVIDED that any provision of this Agreement may be
waived by facsimile transmission by the Agent.
(b) No failure to exercise and no delay in exercising, on the part of
the Agent or any Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(c) The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
18. SECTION HEADINGS. The section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Pledgor, the Agent and
the Lenders, PROVIDED that the Pledgor may not assign or transfer any of its
rights or obligations under this Agreement without the prior written consent of
the Agent and any purported assignment without such consent shall be null and
void.
<PAGE>
8
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
21. TERMINATION. (a) This Agreement and the Liens created hereby
shall terminate when all the Secured Obligations shall have been fully paid,
when no Letter of Credit shall remain outstanding and when the Commitments shall
have terminated under the Credit Agreement, at which time the Agent shall
execute and deliver to the Grantor, or to such person or persons as the Grantor
shall reasonably designate, all Uniform Commercial Code termination statements
and similar documents prepared by the Grantor at its expense which the Grantor
shall reasonably request to evidence such termination.
(b) Without limiting the foregoing, all Collateral permitted to be
sold, transferred or otherwise disposed of in accordance with the terms and
provisions of the Credit Agreement shall be sold, transferred or otherwise
disposed of free and clear of the Liens created hereby. In connection with the
foregoing, the Agent shall execute and deliver to the Grantor, or to such Person
or Persons as the Grantor shall reasonably designate, all Uniform Commercial
Code termination statements and similar documents prepared by the Grantor at its
expense which the Grantor shall reasonably request to evidence the release of
the Liens created hereby with respect to any such Collateral.
(c) Any execution and delivery of statements or documents pursuant to
this Section 21 shall be without recourse to or representation or warranty by
the Agent.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
[NAME OF PLEDGOR]
By
--------------------------------
Title
-----------------------------
Address for Notices:
SCHEDULES:
Schedule 1 - Description of Pledged Stock
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended
and Restated Pledge Agreement dated April , 1996 (as the same may be amended,
supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"),
made by [Name of Pledgor], a Pennsylvania corporation, for the benefit of
Chemical Bank, as agent for the Lenders referred to in the Pledge Agreement.
The undersigned agrees for the benefit of the Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Agent promptly in writing of the
occurrence of any of the events described in Section 5(a) of the Pledge
Agreement.
3. The terms of Section 9(c) of the Pledge Agreement shall apply to
it, MUTATIS MUTANDIS, with respect to all actions that may be required of it
under or pursuant to or arising out of Section of the Pledge Agreement.
[NAME OF ISSUER]
By:
-----------------------------------
Title:
--------------------------------
Address for Notices:
---------------------------------------
---------------------------------------
Telex:
--------------------------------
Fax:
----------------------------------
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Issuer Class of Stock* Stock Certificate No. No. of Shares
- ----------------- ----------------- ------------------------ ----------------
- -----------------------------
* Stock is assumed to be common stock unless otherwise indicated.
<PAGE>
EXHIBIT K TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF SWING LINE LOAN PARTICIPATION CERTIFICATE]
SWING LINE LOAN PARTICIPATION CERTIFICATE
[Name of Lender]
- --------------------
- --------------------
- --------------------
Dear Sirs:
Pursuant to subsection [( )] of the Amended and Restated Credit
and Guarantee Agreement, dated as of April __, 1996 (as amended, supplemented or
herwise modified from time to time, the "CREDIT AGREEMENT"), among SDW
Holdings Corporation, a Delaware corporation, S.D. Warren Company, a
Pennsylvania corporation, the several banks, financial institutions and other
entities from time to time parties thereto (the "LENDERS"), and Chemical Bank,
as agent for the Lenders, the undersigned, as Swing Line Lender under the Credit
Agreement, hereby acknowledges receipt from you on the date hereof of
___________ DOLLARS ($____________) as payment for the purchase of a
participating interest in the following Swing Line Loan (as defined in the
Credit Agreement):
Date of Swing Line Loan:
-----------------------
Principal Amount of Swing Line Loan
Participating Interest: $ -----------------------
Very truly yours,
CHEMICAL BANK
By:
---------------------
Title:
<PAGE>
EXHIBIT L TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF TRANCHE A TERM NOTE]
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT REFERRED
TO BELOW. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY
THE AGENT PURSUANT TO THE TERMS OF SUCH AMENDED AND RESTATED CREDIT AND
GUARANTEE AGREEMENT.
TRANCHE A TERM NOTE
$______ New York, New York
[Closing Date]
FOR VALUE RECEIVED, the undersigned, S.D. WARREN COMPANY, a
Pennsylvania corporation (the "BORROWER"), hereby unconditionally promises to
pay to the order of ____________________(the "LENDER") at the office of Chemical
Bank, located at 270 Park Avenue, New York, New York 10017, in lawful money of
the United States of America and in immediately available funds, the principal
amount of ________________ DOLLARS ($______), or, if less, the unpaid principal
amount of the Tranche A Term Loan made by the Lender pursuant to subsection 2.1
of the Credit Agreement (as defined below). The principal amount of the Tranche
A Term Loan made by the Lender shall be paid in the amounts and on the dates
specified in subsection 2.3 of the Credit Agreement. The Borrower further
agrees to pay interest in like money at such office on the unpaid principal
amount of the Tranche A Term Loan made by the Lender from time to time
outstanding at the rates and on the dates specified in subsections 5.2 and 5.4
of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche A Term Loan made by the Lender and the date and amount of each payment
or prepayment of principal with respect thereto, each conversion of all or a
portion thereof to another Type, each continuation of all or a portion thereof
as the same Type and, in the case of Eurodollar Loans, the length of each
Interest Period and the Eurodollar Rate with respect thereto. Each such
endorsement shall constitute PRIMA FACIE evidence of the accuracy of the
information endorsed, PROVIDED that the failure to make any such endorsement (or
any error therein) shall not affect the obligation of the Borrower to repay the
Tranche A Term Loan (with applicable interest) in accordance with the terms of
the Credit Agreement.
This Note (a) is one of the Tranche A Term Notes referred to in the
Amended and Restated Credit and Guarantee Agreement, dated as of the date hereof
(as the same may be amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware
corporation, the Borrower, the Lender, the other banks, financial institutions
and other entities from time to time parties thereto and Chemical Bank, as
agent, (b) is subject to the provisions of the Credit Agreement and (c) is
subject to optional and mandatory prepayment in whole or in part as provided in
the Credit Agreement. This Note is secured and guaranteed as provided in the
Loan Documents. Reference is hereby made to the Loan Documents for a
description of the properties and assets in which a security interest has been
granted, the nature and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee were granted and
the rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
<PAGE>
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
S.D. WARREN COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
Schedule A
TO TRANCHE A TERM NOTE
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Amount of ABR
Amount of Loans Converted Unpaid Principal
Amount of ABR Amount Converted Principal of ABR to Eurodollar Balance of ABR Notation Made
Date Loans to ABR Loans Loans Repaid Loans Loans By
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Schedule B
</TABLE>
<PAGE>
TO TRANCHE A TERM NOTE
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Amount Unpaid
Converted to or Interest Period Amount of Amount of Principal
Amount of Continued as and Eurodollar Principal of Eurodollar Balance of
Eurodollar Eurodollar Rate with Eurodollar Loans Loans Converted Eurodollar Notation Made
Date Loans Loans Respect Thereto Repaid to ABR Loans Loans By
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT M TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
------------------------------
[FORM OF TRANCHE B TERM NOTE]
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT REFERRED
TO BELOW. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY
THE AGENT PURSUANT TO THE TERMS OF SUCH AMENDED AND RESTATED CREDIT AND
GUARANTEE AGREEMENT.
TRANCHE B TERM NOTE
$ New York, New York
-------- [Effective Date]
FOR VALUE RECEIVED, the undersigned, S.D. WARREN COMPANY, a
Pennsylvania corporation (the "BORROWER"), hereby unconditionally promises to
pay to the order of (the "LENDER") at the office of
Chemical Bank, located at 270 Park Avenue, New York, New York 10017, in lawful
money of the United States of America and in immediately available funds, the
principal amount of DOLLARS ($ ), or, if less,
the unpaid principal amount of the Tranche B Term Loan made by the Lender
pursuant to subsection 2.1 of the Credit Agreement (as defined below). The
principal amount of the Tranche B Term Loan made by the Lender shall be paid in
the amounts and on the dates specified in subsection 2.4 of the Credit
Agreement. The Borrower further agrees to pay interest in like money at such
office on the unpaid principal amount of the Tranche B Term Loan made by the
Lender from time to time outstanding at the rates and on the dates specified in
subsections 5.2 and 5.4 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche B Term Loan made by the Lender and the date and amount of each payment
or prepayment of principal with respect thereto, each conversion of all or a
portion thereof to another Type, each continuation of all or a portion thereof
as the same Type and, in the case of Eurodollar Loans, the length of each
Interest Period and the Eurodollar Rate with respect thereto. Each such
endorsement shall constitute PRIMA FACIE evidence of the accuracy of the
information endorsed, PROVIDED that the failure to make any such endorsement (or
any error therein) shall not affect the obligation of the Borrower to repay the
Tranche B Term Loan (with applicable interest) in accordance with the terms of
the Credit Agreement.
This Note (a) is one of the Tranche B Term Notes referred to in the
Amended and Restated Credit and Guarantee Agreement, dated as of the date hereof
(as the same may be amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware
corporation, the Borrower, the Lender, the other banks, financial institutions
and other entities from time to time parties thereto and Chemical Bank, as
agent, (b) is subject to the provisions of the Credit Agreement and (c) is
subject to optional and mandatory prepayment in whole or in part as provided in
the Credit Agreement. This Note is secured and guaranteed as provided in the
Loan Documents. Reference is hereby made to the Loan Documents for a
description of the properties and assets in which a security interest has been
granted, the nature and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee were granted and
the rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
<PAGE>
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
S.D. WARREN COMPANY
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
Schedule A
to Tranche B Term Note
----------------------
<TABLE>
<CAPTION>
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
- ------------------------------------------------------------------------------------------------------------------------------
Amount of ABR Loans
Amount of Amount Converted to Amount of Principal of Converted to Eurodollar Unpaid Principal Notation
Date ABR Loans ABR Loans ABR Loans Repaid Loans Balance of ABR Loans Made By
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule B
to Tranche B Term Note
----------------------
<TABLE>
<CAPTION>
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Period and
Amount Converted Eurodollar Rate Amount of Principal Amount of Eurodollar Unpaid Principal
Amount of to or Continued as with Respect of Eurodollar Loans Loans Converted to Balance of Notation
Date Eurodollar Loans Eurodollar Loans Thereto Repaid ABR Loans Eurodollar Loans Made By
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT N TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF REVOLVING CREDIT NOTE]
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT REFERRED
TO BELOW. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY
THE AGENT PURSUANT TO THE TERMS OF SUCH AMENDED AND RESTATED CREDIT AND
GUARANTEE AGREEMENT.
REVOLVING CREDIT NOTE
$______ New York, New York
[Effective Date]
FOR VALUE RECEIVED, the undersigned, S.D. WARREN COMPANY, a
Pennsylvania corporation (the "BORROWER"), hereby unconditionally promises to
pay to the order of ________________ (the "LENDER") at the office of Chemical
Bank, located at 270 Park Avenue, New York, New York 10017, in lawful money of
the United States of America and in immediately available funds, on the
Termination Date the principal amount of ________________ DOLLARS ($________),
or, if less, the aggregate unpaid principal amount of all Revolving Credit
Loans made by the Lender to the Borrower pursuant to subsection 3.1 of the
Credit Agreement (as defined below). The Borrower further agrees to pay
interest in like money at such office on the unpaid principal amount of
Revolving Credit Loans made by the Lender from time to time outstanding at the
rates and on the dates specified in subsections 5.2 and 5.4 of the Credit
Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made by the Lender and the date and amount of each payment
or prepayment of principal thereof, each conversion of all or a portion thereof
to another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period and the
Eurodollar Rate with respect thereto. Each such endorsement shall constitute
PRIMA FACIE evidence of the accuracy of the information endorsed, PROVIDED that
the failure to make any such endorsement shall not affect the obligation of the
Borrower to repay Revolving Credit Loans (with applicable interest) in
accordance with the terms of the Credit Agreement.
This Note (a) is one of the Revolving Credit Notes referred to in the
Amended and Restated Credit and Guarantee Agreement, dated as of the date hereof
(as the same may be amended, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware
corporation, the Borrower, the Lender, the other banks, financial institutions
and other entities from time to time parties thereto and Chemical Bank, as
agent, (b) is subject to the provisions of the Credit Agreement and (c) is
subject to optional and mandatory prepayment in whole or in part as provided in
the Credit Agreement. This Note is secured and guaranteed as provided in the
Loan Documents. Reference is hereby made to the Loan Documents for a
description of the properties and assets in which a security interest has been
granted, the nature and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee were granted and
the rights of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
<PAGE>
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
S.D. WARREN COMPANY
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Schedule A
TO REVOLVING CREDIT NOTE
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
- ----------------------------------------------------------------------------------------------------------------------------------
Amount Amount of ABR Loans
Converted to Amount of Principal of Converted to Unpaid Principal Notation Made
Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans Balance of ABR Loans By
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule B
TO REVOLVING CREDIT NOTE
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Interest Period and Amount of Amount of
Converted to or Eurodollar Rate Principal Eurodollar Loans Unpaid Principal
Amount of Continued as with Respect of Eurodollar Converted to ABR Balance of Notation
Date Eurodollar Loans Eurodollar Loans Thereto Loans Repaid Loans Eurodollar Loans Made By
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT O TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF SWING LINE NOTE]
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT REFERRED
TO BELOW. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY
THE AGENT PURSUANT TO THE TERMS OF SUCH AMENDED AND RESTATED CREDIT AND
GUARANTEE AGREEMENT.
SWING LINE NOTE
New York, New York
$___________________ [Effective Date]
FOR VALUE RECEIVED, the undersigned, S.D. WARREN COMPANY, a
Pennsylvania corporation (the "BORROWER"), hereby unconditionally promises to
pay to the order of __ ___________ (the "SWING LINE LENDER"), at its offices
located at 270 Park Avenue, New York, New York 10017, in lawful money of the
United States of America and in immediately available funds on the Termination
Date, the principal amount of _______________ DOLLARS ($____________) or, if
less, the aggregate unpaid principal amount of the Swing Line Loans made by the
Swing Line Lender to the Borrower pursuant to subsection 3.6 of the Credit
Agreement (as defined below). The Borrower further agrees to pay interest in
like money at said office on the unpaid principal amount of Swing Line Loans
from time to time outstanding at the rates and on the dates specified in
subsections 5.2 and 5.4 of the Credit Agreement.
The Swing Line Lender is authorized to endorse the date and the amount
of each Swing Line Loan made by the Swing Line Lender to the Borrower pursuant
to subsection 3.6 of the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof on SCHEDULE A annexed hereto and made
a part hereof and any such recordation shall constitute PRIMA FACIE evidence of
the accuracy of the information so endorsed, PROVIDED, that any failure by the
Swing Line Lender to make such endorsement shall not affect the obligation of
the Borrower to repay the Swing Line Loans (with applicable interest) in
accordance with the terms of the Credit Agreement.
This Note (a) is the Swing Line Note referred to in the Amended and
Restated Credit and Guarantee Agreement, dated as of April __, 1996 (as the same
may be amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT", among SDW Holdings Corporation, a Delaware corporation, the
Borrower, the Lender, the other banks, other financial institutions and other
entities from time to time parties thereto (the "LENDERS"), and Chemical Bank,
as agent for the Lenders, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. This Note is secured and guaranteed
as provided in the Loan Documents. Reference is hereby made to the Loan
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions upon which the security interests and each
guarantee were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
S.D. WARREN COMPANY
By:
---------------------------------
Title:
<PAGE>
Schedule I to
Swing Line Note
---------------
LOANS AND REPAYMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Unpaid
Amount of Swing Amount of Swing Principal Balance of
Line Loans Line Loans Swing Line Loans
Made Repaid Notation Made By
Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Irrevocable Standby Letter of Credit No. T-____
December 20, 1994
BENEFICIARY
Scott Paper Company
Scott Plaza
Philadelphia, Pennsylvania 19113
Gentlemen:
At the request and for the account of SDW Acquisition Corporation, a
Pennsylvania corporation (the "BUYER"), and S.D. Warren Company, a Pennsylvania
corporation (together with its successors, the "COMPANY"), Chemical Bank (the
"ISSUING BANK") hereby establishes in favor of Scott Paper Company, a
Pennsylvania corporation ("SCOTT" and, together with its successors as provided
herein, the "BENEFICIARY"), as direct or indirect obligor with respect to the
obligations identified on SCHEDULE 1 attached hereto and made a part hereof (the
"SUPPORTED OBLIGATIONS"), this Irrevocable Standby Letter of Credit Number T-___
under which an aggregate amount not to exceed USD$170,484,931.59 is available
to be drawn in accordance with the terms hereof (as reduced from time to time in
accordance with the terms hereof, the "STATED AMOUNT") effective immediately and
expiring on the Expiration Date (as hereinafter defined). This Irrevocable
Standby Letter of Credit is transferable in its entirety but not in part only to
a permitted successor of Scott as obligor with respect to each Supported
Obligation covered by this Irrevocable Standby Letter of Credit (a "TRANSFEREE")
upon delivery to the Issuing Bank of written notice, in the form of ANNEX A
attached hereto (a "TRANSFER NOTICE"), appropriately completed and executed by
an Authorized Officer (as hereinafter defined), together with the original of
this Irrevocable Standby Letter of Credit and payment of the Issuing Bank's
reasonable administrative expenses relating to such transfer. Upon any such
<PAGE>
2
transfer of this Irrevocable Standby Letter of Credit to a Transferee, all
references herein to "Scott" or the "Beneficiary" shall thereafter mean and
refer to such Transferee.
The Stated Amount shall be irrevocably reduced from time to time,
without amendment of this Irrevocable Standby Letter of Credit, upon receipt by
the Issuing Bank of a Certificate in the form of ANNEX B attached hereto,
appropriately completed, executed by an Authorized Officer of the Beneficiary.
From and after October 8, 1998, the Stated Amount shall also reduce
automatically on each date set forth on SCHEDULE 2 attached hereto to the amount
set forth opposite such date on such Schedule to the extent the Stated Amount
has not been reduced on or prior to such date pursuant to the immediately
preceding sentence to an amount equal to or less than the Stated Amount set
forth opposite such date.
Funds under this Irrevocable Standby Letter of Credit will be made
available to the Beneficiary against receipt by the Issuing Bank of (a)
Beneficiary's sight draft(s) in the form of ANNEX C attached hereto (a "SIGHT
DRAFT") and (b) Beneficiary's drawing certificate(s) in the form of ANNEX D or
ANNEX E attached hereto, as the case may be (a "DRAWING CERTIFICATE"), each
appropriately completed and executed by an Authorized Officer of the
Beneficiary. Presentation of such documents shall be made to the Issuing Bank
at (i) its office located at 55 Water Street, 17th Floor, Room 1708, New York,
New York 10041, Attention: Standby Letter of Credit Department or (ii) at any
other office of the Issuing Bank in the Borough of Manhattan, The City of New
York which may be designated by the Issuing Bank by written notice delivered to
the Notice Address (as hereinafter defined) of the Beneficiary (such office of
the Issuing Bank being herein called the "ISSUING BANK'S OFFICE"). Customer
inquiry numbers are: (212) 638-3473 and (212) 638-3351.
More than one draw may be made hereunder, but no more than one draw
may be made hereunder in respect of any particular Supported Obligation
identified by title on SCHEDULE 1 attached hereto. Each drawing honored by the
Issuing Bank under this Irrevocable Standby Letter of Credit shall PRO TANTO
automatically reduce the Stated Amount of this Letter of Credit by the amount of
such drawing. In no event shall the aggregate amount of all drawings made
hereunder exceed the aggregate amount available of USD$170,484,931.59.
The Issuing Bank hereby agrees with the Beneficiary that if documents
are presented to the Issuing Bank under this Irrevocable Standby Letter of
Credit at the Issuing Bank's Office at or prior to 11:00 A.M, New York City
time, on a Business Day, and provided that such documents presented conform to
the terms and conditions of this Irrevocable Standby Letter of Credit,
<PAGE>
3
payment shall be effected by the Issuing Bank in immediately available funds not
later than 3:00 P.M., New York City time, on the second succeeding Business Day.
If documents are presented to the Issuing Bank under this Irrevocable Standby
Letter of Credit at the Issuing Bank's Office after 11:00 A.M, New York City
time, on a Business Day, and provided that such documents presented conform to
the terms and conditions of this Irrevocable Standby Letter of Credit, payment
shall be effected by the Issuing Bank in immediately available funds not later
than 3:00 P.M., New York City time, on the third succeeding Business Day. If
documents are presented to the Issuing Bank under this Irrevocable Standby
Letter of Credit which do not conform to the terms and conditions of this
Irrevocable Standby Letter of Credit, the Issuing Bank shall give telephonic
notice to the Beneficiary to the Notice Address of the Beneficiary (as promptly
as reasonably possible but in no event after the time payment would otherwise
have been due hereunder) stating the reason payment was not effected in
accordance with the terms and conditions of this Irrevocable Standby Letter of
Credit and that the Issuing Bank will upon the Beneficiary's instructions hold
any Sight Draft and Drawing Certificate at the disposal of the Beneficiary or
return the same to the Beneficiary. Upon receipt of any such notice, the
Beneficiary may attempt to correct any such non-conforming documents at any time
prior to the close of business on the Expiration Date.
This Irrevocable Standby Letter of Credit shall expire at the close of
business of the Issuing Bank at the Issuing Bank's Office on December 20, 1995
(the "EXPIRATION DATE"); PROVIDED, HOWEVER, that it is a condition of this
Irrevocable Standby Letter of Credit that the Expiration Date shall be
automatically extended for an additional period of one year from the present or
each future Expiration Date unless the Issuing Bank sends written notice (a
"NON-RENEWAL NOTICE") to the Beneficiary, properly addressed to the Notice
Address of the Beneficiary at least 45 days prior to the then scheduled
Expiration Date, that the Issuing Bank elects not to renew this Irrevocable
Standby Letter of Credit for such additional period, which notice (a) shall be
sent (i) by hand delivery or nationally recognized overnight delivery service
and (ii) by telecopy transmission and (b) shall be effective when sent, PROVIDED
FURTHER that in no event shall this Irrevocable Standby Letter of Credit be
extended beyond December 20, 2001 (the Issuing Bank agrees to send written
notice to the Beneficiary, properly addressed to the Notice Address of the
Beneficiary at least 45 days prior to such final Expiration Date, of such final
Expiration Date, but the failure to provide any such notice shall not extend the
Expiration Date beyond December 20, 2001), and PROVIDED FURTHER that if the
Expiration Date would otherwise occur on a date that is not a Business Day, the
Expiration Date shall automatically be extended to the next Business Day. No
<PAGE>
4
Sight Draft or Drawing Certificate payment hereunder shall be made if such
documents are presented later than the close of business on the Expiration Date.
The Stated Amount shall automatically be reduced to zero at the close of
business on the Expiration Date.
The following terms, as used herein, have the following meanings:
"Authorized Officer" means the Chairman of the Board, the President,
any Vice President, the Treasurer or any Assistant Treasurer of the
Beneficiary.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or
required by law to close.
"Notice Address" means the following address or such other address as
the Beneficiary shall designate in writing to the Issuing Bank:
Scott Paper Company
Scott Plaza
Philadelphia, Pennsylvania 19113
Attention: Treasurer's Office
Telephone Number: (610) 522-5349 or
(610) 522-5000
Telecopy Number: (610) 522-5665
with a separate copy of any written notice (other than a Non-
Renewal Notice) to the above address to the attention of the
General Counsel.
This Irrevocable Standby Letter of Credit sets forth in full the
Issuing Bank's undertaking, and such undertaking shall not in any way be
modified, amended, amplified or limited by reference to any document, instrument
or agreement referred to herein, except SCHEDULES 1 and 2 and ANNEXES A, B, C, D
and E referred to herein, and any such reference shall not be deemed to
incorporate by reference any document, instrument or agreement except for such
Schedule and Annexes.
<PAGE>
5
This Irrevocable Standby Letter of Credit is subject to and governed
by the Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce Publication No. 500 and to the extent not
inconsistent therewith, the laws of the State of New York, including, without
limitation, the Uniform Commercial Code as in effect in the State of New York.
Very truly yours,
CHEMICAL BANK
By:
-------------------------------
Title:
Authorized Officer
Date: December 20, 1994
<PAGE>
SCHEDULE 1 TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-_______
OBLIGATIONS
TITLE DESCRIPTION INITIAL MAXIMUM DRAW
Muskegon 1977 County of Muskegon, Michigan $368,688
5.75% Pollution Control Revenue
Bonds (Scott Paper Company
Project) Series B; Lease
Purchase Agreement dated as of
March 1, 1977 between County of
Muskegon, Michigan and Scott
Paper Company; Garantee Agreement
dated as of March 1, 1977 by Scott
Paper Company in favor of
The Fidelity Bank, as Trustee.
Muskegon 1980 County of Muskegon, Michigan 9-3/8% $1,379,688
Pollution Control Revenue Bonds
(Scott Paper Company Project)
Series C; Lease Purchase Agreement
dated as of November 1, 1980
between County of Muskegon,
Michigan and Scott Paper Company;
Guarantee Agreement dated as of
November 1, 1980 by Scott Paper
Company in favor of The
Fidelity Bank, as Trustee.
<PAGE>
2
Skowhegan 1990A Town of Skowhegan, Maine 8.40% $30,480,000
Solid Waste Disposal Revenue Bonds
(S.D. Warren Company Project) 1990
Series A; Loan Agreement dated as
of October 1, 1990 between Town of
Skowhegan, Maine and S.D. Warren
Company; Guaranty Agreement dated
as of October 1, 1990 by Scott
Paper Company in favor of Fidelity
Bank, National Association, as Trustee.
Skowhegan 1990B Town of Skowhegan, Maine 8.10% $12,198,600
Pollution Control Revenue Refunding
Bonds (Scott Paper Company Project)
1990 Series B; Loan Agreement dated
as of October 1, 1990 between Town
of Skowhegan, Maine and Scott Paper
Company.
Skowhegan 1993 Town of Skowhegan, Maine 5.90%
Pollution Control Revenue Refunding
Bonds Series 1993 (Scott Paper
Company Project); Loan Agreement
dated as of November 1, 1993 between
Town of Skowhegan, Maine and
Scott Paper Company.
Westbrook 1973 City of Westbrook, Maine 5-3/4% $13,395,750
Environmental Improvement Revenue
Bonds (Scott Paper Company Project)
Series A of 1973; Construction,
Financing and Installment Sale
Agreement dated as of June 15, 1973
between City of Westbrook, Maine
and Scott Paper Company.
<PAGE>
3
Westbrook 1977 City of Westbrook, Maine 6% Pollution
Control Revenue Bonds (Scott Paper
Company Project) Series A of 1977;
Construction, Financing and Installment
Sale Agreement dated as of April 1, 1977
between City of Westbrook, Maine and
Scott Paper Company.
Westbrook 1980 City of Westbrook, Maine 9-3/8% $1,103,750
Industrial Development Revenue Bonds
(Scott Paper Company Project) 1980
Series A; Construction, Financing and
Installment Sale Agreement dated as
of November 1, 1980 between City of
Westbrook, Maine and Scott Paper Company.
Westbrook Lease Agreement dated $1,478,000
Feedwater Lease December 14, 1981 among The
Connecticut Bank and Trust Company,
as Trustee, General Electric Credit
Corporation and Scott Paper Company.
Westbrook Biomass The following transaction $115,272,628
Obligations documents:
a) Refinancing Participation
Agreement dated as of December 15,
1986 among Scott Paper Company, as
Purchaser, General Electric Credit
Corporation, as Owner Participant,
and The Connecticut Bank and Trust
Company, National Association, as
Owner Trustee.
<PAGE>
4
b) Power Sales Agreement dated as of
January 1, 1982 between The
Connecticut Bank and Trust Company,
Owner Trustee, as Seller, and
Scott Paper Company, as Purchaser,
as amended by the First Amendment
dated as of December 15, 1986 to
Power Sales Agreement dated as of
January 1, 1982 between The
Connecticut Bank and Trust Company,
National Association, Owner Trustee,
as Seller, and Scott Paper Company,
as Purchaser.
c) Operating Agreement dated as of
January 1, 1982 between The
Connecticut Bank and Trust Company,
as Owner Trustee, and Scott Paper
Company, as Operator, as amended by
the First Amendment dated as of
December 15, 1986 to Operating
Agreement dated as of January
1, 1982 between The Connecticut
Bank and Trust Company, National
Association, as Owner Trustee,
and Scott Paper Company, as Operator.
<PAGE>
5
d) Ground Lease Agreement dated as of
January 1, 1982 between Scott Paper
Company, as Lessor, and The
Connecticut Bank and Trust Company,
Owner Trustee, as Lessee, as amended
by the First Amendment dated as of
December 15, 1986 to Ground Lease
Agreement dated as of January 1, 1982
between Scott Paper Company and The
Connecticut Bank and Trust Company,
National Association, Owner Trustee.
e) Facilities Agreement dated as of
January 1, 1982 between Scott Paper
Company and The Connecticut Bank
and Trust Company, as Owner Trustee,
as amended by the First Amendment
dated as of December 15, 1986 to
Facilities Agreement dated as of
January 1, 1982 between Scott
Paper Company and The Connecticut
Bank and Trust Company, National
Association, as Owner Trustee.
<PAGE>
6
f) Tax Indemnification Agreement dated
as of January 1, 1982 among General
Electric Credit Corporation, The
Connecticut Bank and Trust Company,
National Association, as Trustee,
and Scott Paper Company, as amended
by the Amendment dated as of November
25, 1986 to the Tax Indemnification
Agreement dated as of January 1, 1982
among General Electric Credit
Corporation, Owner Participant, The
Connecticut Bank and Trust Company,
National Association, as Trustee, and
Scott Paper Company.
g) Indenture and Security Agreement dated
as of December 15, 1986 among The
Connecticut Bank and Trust Company,
National Association, as Westbrook
Owner Trustee and Winslow Owner
Trustee, Scott Paper Company, and
The Bank of New York, as Indenture
Trustee.
<PAGE>
SCHEDULE 2 TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-______
SCHEDULED REDUCTIONS
--------------------
Reduction Date Reduced Stated Amount
- -------------- -----------------------
October 8, 1998 $167,975,238.00
April 9, 1999 $164,149,733.00
October 8, 1999 $158,420,379.00
April 8, 2000 $154,473,884.00
October 8, 2000 $149,995,831.00
April 9, 2001 $145,412,387.00
October 8, 2001 $139,379,790.00
<PAGE>
ANNEX A TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-______
NOTICE OF TRANSFER
[Date]
Chemical Bank
55 Water Street, 17th Floor Room 1708
New York, New York 10041
Attention: Standby Letter of Credit Department
The undersigned, [Name of Beneficiary], by its Authorized Officer,
does hereby certify that:
1. This notice is delivered pursuant to Irrevocable Standby
Letter of Credit No. T- , dated December __, 1994 (the "LETTER OF
CREDIT"), issued by Chemical Bank (the "ISSUING BANK"). All terms used
herein which are defined in the Letter of Credit shall have the meanings
given in the Letter of Credit.
2. For value received, the undersigned hereby irrevocably
transfers to:
(Name of Transferee)
(Address)
(Payment Information)
all rights of the undersigned to draw under the Letter of Credit.
3. Such Transferee is a permitted successor of Scott with
respect to each Supported Obligation covered by the Letter of Credit and
outstanding on the date hereof. Such Transferee confirms and agrees, for
the benefit of the Company, that it has assumed all of Scott's obligations
under Sections 6.3(b)(iii) and 6.3(f) of the Stock Purchase Agreement dated
as of October 8, 1994, among the Beneficiary, Sappi Limited and the Buyer
with respect to letters of credit and any related Assignment and Assumption
Agreements or Assumption Agreement, as the case may be, with respect to
each of such Supported Obligations.
4. By this transfer, all rights of the undersigned in the
Letter of Credit are transferred to the transferee named above (the
"TRANSFEREE") and the Transferee shall have the sole rights as Beneficiary
thereof, including
<PAGE>
2
sole rights relating to any amendments, including increases or extensions
thereof, whether now existing or hereafter made. All amendments are to be
advised directly to the Transferee without necessity of any consent of or
notice to the undersigned.
5. The advice of the Letter of Credit is returned herewith, and
the undersigned hereby requests that the Issuing Bank endorse the transfer
on the reverse thereof, and forward it directly to the Transferee with its
customary notice of transfer.
6. Enclosed is an amount in cash equal to, or an official or
certified check in the amount of, $________ in payment of reasonable
administrative expenses related to such transfer.
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the _____ day of _____, __________.
[NAME OF BENEFICIARY], as Beneficiary
By:
--------------------------------
Title:
Authorized Officer
[NAME OF TRANSFEREE], as Transferee
By:
--------------------------------
Title:
Authorized Officer
SIGNATURES AUTHENTICATED:
- ---------------------------
(Bank)
- ---------------------------
(Authorized Signature)
<PAGE>
ANNEX B TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-_____
CERTIFICATE FOR REDUCTION IN STATED AMOUNT
-------------------------------------------
[Date]
Chemical Bank
55 Water Street, 17th Floor Room 1708
New York, New York 10041
Attention: Standby Letter of Credit Department
The undersigned, [Name of Beneficiary], by its Authorized Officer,
does hereby certify that:
1. This certificate is delivered pursuant to Irrevocable
Standby Letter of Credit No. T-_____________, dated
December __, 1994 (the "LETTER OF CREDIT"), issued by Chemical Bank (the
"ISSUING BANK"). All terms used herein which are defined in the Letter of
Credit shall have the meanings given in the Letter of Credit.
2. The present Stated Amount of the Letter of Credit
is $______.
3. The present Stated Amount of the Letter of Credit is hereby
reduced by $_________, and the Stated Amount, after giving effect to such
reduction, of the Letter of Credit is $____________.
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the _____ day of ____________, ____________.
[NAME OF BENEFICIARY], as Beneficiary
By:
-------------------------------
Title:
Authorized Officer
<PAGE>
ANNEX C TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-______
SIGHT DRAFT
(PLACE)
(DATE)
AT SIGHT, PAY TO THE ORDER OF [NAME OF BENEFICIARY] (THE BENEFICIARY),
THE SUM OF _____________________________________________________________
UNITED STATES DOLLARS _____________________________.
DRAWN UNDER CHEMICAL BANK, LETTER OF CREDIT NUMBER T-_________, DATED
DECEMBER ____, 1994.
----------------------------------
----------------------------------
----------------------------------
(NAME AND TITLE)
AUTHORIZED OFFICER
DRAWN ON:
CHEMICAL BANK
55 WATER STREET, 17TH FLOOR ROOM 1708
NEW YORK, NEW YORK 10041
ATTENTION: STANDBY LETTER OF CREDIT DEPARTMENT
<PAGE>
ANNEX D TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-______
DRAWING CERTIFICATE
-------------------
[Date]
Chemical Bank
55 Water Street, 17th Floor Room 1708
New York, New York 10041
Attention: Standby Letter of Credit Department
The undersigned, [Name of Beneficiary], by its Authorized Officer,
does hereby certify that:
1. This certificate is delivered pursuant to Irrevocable Standby
letter of Credit No. T-________, dated December ___, 1994 (the "LETTER OF
CREDIT"), issued by Chemical Bank (the "ISSUING BANK"). All terms used herein
which are defined in the Letter of Credit shall have the meanings given in the
Letter of Credit.
2. The undersigned is the Beneficiary of the Letter of Credit.
3. The date on which this Certificate is being presented is not
later than the Expiration Date.
4. The amount for which demand for payment is made pursuant to this
Certificate does not exceed the Stated Amount of the Letter of Credit as in
effect on the date hereof.
5. The title(s) (as shown on SCHEDULE 1 to the Letter of Credit) of
the Supported Obligations in respect of which this demand for payment is made
(the "SUBJECT OBLIGATIONS") is/are as follows:
[fill in]
6. The amount for which demand for payment is made in respect of any
Subject Obligation does not exceed the Initial Maximum Draw amount with respect
to such Subject Obligation set forth in SCHEDULE 1 to the Letter of Credit. The
aggregate amount for which demand for payment is made in respect of the Subject
Obligations does not exceed an amount equal to the sum of (a) if any of the
Subject Obligations are Supported Obligations other than the Westbrook Feedwater
Lease and the Westbrook Biomass Obligations referred to in SCHEDULE 1 to the
letter of
<PAGE>
2
Credit (i) the then unpaid principal amount of such Subject Obligations [and
amounts paid in respect of the principal or premium, if any, of such Subject
Obligations within 100 days prior to events referred to in Alternative 2 or 3 of
Paragraph 7 of ANNEX D to the Letter of Credit], (ii) interest for a period of
one year on the principal amount of such Subject Obligations and, if such
Subject Obligations are not now subject to optional redemption, the additional
period, if any, to the first optional redemption date, if any, and (iii) the
maximum premium, if any, hereafter payable upon optional redemption of such
Subject Obligations, (b) if the Subject Obligations include the Westbrook
Biomass Obligations referred to in SCHEDULE 1 to the Letter of Credit, the
greater of (i) all payments required to be made by the Beneficiary on or after
the date hereof under Section 3.02 of the Power Sales Agreement referred to in
SCHEDULE 1 to the Letter of Credit [and amounts paid in respect thereof within
100 days prior to the events referred to in Alternative 2 or 3 of Paragraph 7 of
ANNEX D to the Letter of Credit*] or (ii) Stipulated Loss Value (as defined in
such Power Sales Agreement) as of the date hereof [and amounts paid in respect
thereof within 100 days prior to the events referred to in Alternative 2 or 3 of
Paragraph 7 of ANNEX D to the Letter of Credit*] and (c) if the Subject
Obligations include the Westbrook Feedwater Lease referred to in SCHEDULE 1 to
the Letter of Credit, the greater of (i) all payments required to be made by the
Beneficiary on or after the date hereof under Section 2 of such Westbrook
Feedwater Lease [and amounts paid in respect thereof within 100 days prior to
the events referred to in Alternative 2 or 3 of Paragraph 7 of ANNEX D to the
Letter of Credit*] or (ii) Stipulated Loss Value (as defined in such Westbrook
Feedwater Lease) as of the date hereof [and amounts paid in respect thereof
within 100 days prior to the events referred to in Alternative 2 or 3 of
Paragraph 7 of ANNEX D to the Letter of Credit*].
7. [Alternative 1] The Company has failed to make a payment or
otherwise perform obligations assumed by it in respect of each Supported
Obligation included in the Subject Obligations. With respect to each such
Supported Obligation, (a) the Company is not contesting the applicability of the
payment in respect of such Supported Obligation diligently by appropriate
proceedings instituted in good faith, (b) the principal of such Supported
Obligation has been accelerated or (c) the Company has failed to make a
scheduled payment in respect of such Supported Obligation.**
- --------------------
* May be included if Alternative 2 or 3 of Paragraph 7 is applicable.
** Include appropriate Alternative.
<PAGE>
3
7. [Alternative 2] The Company (a) has commenced a voluntary case
seeking relief with respect to itself or its debts under any bankruptcy,
insolvency or similar law, or has sought the appointment of a trustee, receiver
or similar official with respect to it or any substantial part of its property
or (b) has made a general assignment for the benefit of creditors, (c) has
failed generally to pay its debts as they become due or (d) has taken any
corporate action to authorize any of the foregoing.**
7. [Alternative 3] An involuntary case has been commenced against
the Company seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or similar law or seeking the
appointment of a trustee, receiver or similar official with respect to it or any
substantial part of its property.**
8. [Alternative 1] By virtue of the prompt application by the
Beneficiary of the payment demanded pursuant to this Certificate, each Supported
Obligation included in the Subject Obligations will be redeemed or defeased.
The Beneficiary hereby represents and warrants that it will promptly apply the
proceeds of the payment demanded pursuant to this certificate to the payment in
full or defeasance of each Supported Obligation included in the Subject
Obligations, and that the undersigned can so apply such proceeds without legal
restriction (including any such restriction which may, under applicable law,
arise out of the occurrence of any of the events described in Alternatives 2 and
3 of Paragraph 7 of ANNEX D of the Letter of Credit substituting the Beneficiary
for the Company therein).**
8. [Alternative 2] The Beneficiary hereby represents and warrants
that it will arrange for the maintenance and investment of the proceeds of the
payment demanded pursuant to this Certificate in short term U.S. government
securities or other investments satisfactory to the Company in a segregated
account as collateral from which payment of each Supported Obligation included
in the Subject Obligations can and will be made as and when due without legal
restriction (including any such restriction which may, under applicable law as
currently in effect, arise out of the occurrence of any of the types of events
described in Alternatives 2 and 3 of Paragraph 7 of ANNEX D of the Letter of
Credit substituting the Beneficiary for the Company therein).**
9. [Optional: In order to facilitate application of the proceeds of
the payment demanded pursuant to this Certificate, the Beneficiary hereby
requests that such proceeds be paid by wire transfer of immediately available
funds to the payee of each Supported Obligation included in the Subject
<PAGE>
4
Obligations as follows (with confirmation of such transfer to be made to the
Beneficiary at its Notice Address):
[Specify Amount, Bank, Account Number and Reference Information for
each wire transfer.]]
10. If the Subject Obligations include Supported Obligations other
than the Westbrook Biomass Obligations and the Westbrook Feedwater Lease
referred to in SCHEDULE 1 to the Letter of Credit, the Beneficiary hereby agrees
that it shall (i) hold the Buyer and the Company harmless with respect to
obligations to make payments of principal and interest on such Supported
Obligations included in the Subject Obligations to the extent of the payment
demanded pursuant to this Certificate and (ii) hold any excess of such drawing
over the payments or principal and interest on such Supported Obligations made
with the proceeds of such payment (and any earnings on such excess) in a
segregated account, with such proceeds to be invested in short term U.S.
government securities or other investments satisfactory to the Company, as
collateral solely to secure payments of principal, interest and premium (if any)
on the Supported Obligations and the payment of fees, costs and other expenses
incurred by the Beneficiary in connection therewith.
11. If the Supported Obligations included in the Subject Obligations
include the Westbrook Biomass Obligations or the Westbrook Feedwater Lease
referred to in SCHEDULE 1 to the Letter of Credit, the Beneficiary hereby agrees
that it shall hold the Company harmless from the obligations to make payments
under such Supported Obligations to the extent of the payment demanded pursuant
to this Certificate, and shall hold any excess of such payment over the payments
under such Supported Obligations (and any earnings on such excess) in a
segregated account, with such proceeds to be invested in short term U.S.
government securities or other investments satisfactory to the Company, as
collateral solely to secure payments when due under such Supported Obligations,
and the payment of fees, costs and other expenses incurred by the Beneficiary in
connection therewith.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
_______ day of __________, ____________.
[NAME OF BENEFICIARY], as
Beneficiary
By
----------------------------
Title:
Authorized Officer
<PAGE>
ANNEX E TO IRREVOCABLE
STANDBY LETTER OF CREDIT NUMBER T-______
DRAWING CERTIFICATE
--------------------
[Date]
Chemical Bank
55 Water Street, 17th Floor Room 1708
New York, New York 10041
Attention: Standby Letter of Credit Department
The undersigned, [Name of Beneficiary], by its Authorized Officer,
does hereby certify that:
1. This certificate is delivered pursuant to Irrevocable Standby
letter of Credit No. T-_______, dated December ___, 1994 (the "LETTER OF
CREDIT"), issued by Chemical Bank (the "ISSUING BANK"). All terms used
herein which are defined in the Letter of Credit shall have the meanings
given in the Letter of Credit.
2. The undersigned is the Beneficiary of the Letter of Credit.
3. The date on which this Certificate is being presented is not
later than the Expiration Date.
4. The amount for which demand for payment is made pursuant to this
Certificate does not exceed the Stated Amount of the Letter of Credit as in
effect on the date hereof.
5. (a) (i) The Beneficiary has received a Non-Renewal Notice from
the Issuing Bank pursuant to the Letter of Credit or (ii) the date on which
this Certificate is being presented is 45 days or less prior to December
20, 2001 and (b) the Beneficiary has not received a substitute letter of
credit in the form of the Letter of Credit (or in such other form as may be
satisfactory to Beneficiary) and otherwise satisfying the applicable
requirements of Section 6.3 of the Stock Purchase Agreement dated as of
October 8, 1994, among the Beneficiary, Sappi Limited and the Buyer.
6. The payment demanded pursuant to this Certificate is
$___________. The amount for which demand for payment is made in respect
of any Supported Obligation does not exceed the Initial Maximum Draw amount
with respect to such Supported Obligation set forth in SCHEDULE 1 to the
Letter of Credit.
<PAGE>
2
The aggregate amount for which demand for payment is made in respect of the
Supported Obligations does not exceed an amount equal to the sum of (a) with
respect to Supported Obligations other than the Westbrook Feedwater Lease and
the Westbrook Biomass Obligations referred to in SCHEDULE 1 to the letter of
Credit (i) the then unpaid principal amount of such Supported Obligations [and
amounts paid in respect of the principal or premium, if any, of such Supported
Obligation within 100 days prior to events referred to in Alternative 2 or 3 of
Paragraph 7 of ANNEX D to the Letter of Credit***], (ii) interest for a period
of one year on the principal amount of such Supported Obligations and, if such
Supported Obligations are not now subject to optional redemption, the additional
period, if any, to the first optional redemption date, if any, and (iii) the
maximum premium, if any, hereafter payable upon optional redemption of such
Supported Obligations, (b) with respect to the Westbrook Biomass Obligations
referred to in SCHEDULE 1 to the Letter of Credit, the greater of (i) all
payments required to be made by the Beneficiary on or after the date hereof
under Section 3.02 of the Power Sales Agreement referred to in SCHEDULE 1 to the
Letter of Credit [and amounts paid in respect thereof within 100 days prior to
the events referred to in Alternative 2 or 3 of Paragraph 7 of ANNEX D to
the Letter of Credit***] or (ii) Stipulated Loss Value (as defined in such Power
Sales Agreement) as of the date hereof [and amounts paid in respect thereof
within 100 days prior to the events referred to in Alternative 2 or 3 of
Paragraph 7 of ANNEX D to the Letter of Credit***] and (c) with respect to the
Westbrook Feedwater Lease referred to in SCHEDULE 1 to the Letter of Credit, the
greater of (i) all payments required to be made by the Beneficiary on or after
the date hereof under Section 2 of such Westbrook Feedwater Lease [and amounts
paid in respect thereof within 100 days prior to the events referred to in
Alternative 2 or 3 of Paragraph 7 of ANNEX D to
- --------------------
*** May be included if Alternative 2 or 3 of Paragraph 7 is applicable.
<PAGE>
3
the Letter of Credit***] or (ii) Stipulated Loss Value (as defined in such
Westbrook Feedwater Lease) as of the date hereof [and amounts paid in respect
thereof within 100 days prior to the events referred to in Alternative 2 or 3
of Paragraph 7 of ANNEX D to the Letter of Credit***].
IN WITNESS WHEREOF, the undersigned has executed this certificate this
day of __________, __________.
[NAME OF BENEFICIARY], as
Beneficiary
By
------------------------------
Title:
Authorized Officer
<PAGE>
EXHIBIT Q TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF LOC NOTE]
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS AND
PROVISIONS OF THE AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT REFERRED
TO BELOW. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY
THE AGENT PURSUANT TO THE TERMS OF SUCH AMENDED AND RESTATED CREDIT AND
GUARANTEE AGREEMENT.
LOC NOTE
$_______ New York, New York
[Date of LOC Loan]
FOR VALUE RECEIVED, the undersigned, S.D. WARREN COMPANY, a
Pennsylvania corporation (the "BORROWER"), hereby unconditionally promises to
pay to the order of _______________ (the "LENDER") at the office of Chemical
Bank, located at 270 Park Avenue, New York, New York 10017, in lawful money of
the United States of America and in immediately available funds, the principal
amount of _______________ DOLLARS ($_________), or, if less, the unpaid
principal amount of the LOC Loan made by the Lender on the date hereof pursuant
to subsection 4.5(c) of the Credit Agreement (as defined below). The principal
amount of the LOC Loan made by the Lender shall be paid in the amounts and on
the dates specified in the Amortization Schedule attached hereto as ANNEX A.
The Borrower further agrees to pay interest in like money at such office on the
unpaid principal amount of the LOC Loan made by the Lender from time to time
outstanding at the rates and on the dates specified in subsections 5.2 and 5.4
of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the LOC
Loan made by the Lender and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period and the
Eurodollar Rate with respect thereto. Each such endorsement shall constitute
PRIMA FACIE evidence of the accuracy of the information endorsed, PROVIDED that
the failure to make any such endorsement (or any error therein) shall not affect
the obligation of the Borrower to repay the LOC Loan (with applicable interest)
in accordance with the terms of the Credit Agreement.
This Note (a) is one of the LOC Notes referred to in the Amended and
Restated Credit and Guarantee Agreement, dated as of April __, 1996 (as the same
may be amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware corporation, the
Borrower, the Lender, the other banks, financial institutions and other entities
from time to time parties thereto and Chemical Bank, as agent, (b) is subject to
the provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit Agreement.
This Note is secured and guaranteed as provided in the Loan Documents.
Reference is hereby made to the Loan Documents for a description of the
properties and assets in which a security interest has been granted, the nature
and extent of the security and the guarantees, the terms and conditions upon
which the security interests and each guarantee were granted and the rights of
the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
<PAGE>
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
S.D. WARREN COMPANY
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
Annex A
to LOC Note
AMORTIZATION SCHEDULE
[Insert the dates on which payments would have been due on the Supported
Obligation(s) in respect of which the LOC Loans are made under the agreements
governing such Supported Obligations and the amounts due on such dates under
such agreements assuming that such Supported Obligation(s) had remained
outstanding until the maturity thereof.]
<PAGE>
Schedule A
to LOC Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of
ABR Loans
Amount of Converted to
Amount Converted Principal of Eurodollar Unpaid Principal Notation
Date Amount of ABR Loans to ABR Loans ABR Loans Repaid Loans Balance of ABR Loans Made By
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule B
to LOC Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Unpaid
Period and Principal
Amount Converted Eurodollar Rate Amount of Principal Amount of Eurodollar Balance of
Amount of to or Continued as with Respect of Eurodollar Loans Loans Converted to Eurodollar Notation
Date Eurodollar Loans Eurodollar Rate Thereto Repaid ABR Loans Loans Made By
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT R TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF BORROWING CERTIFICATE]
BORROWING CERTIFICATE
Pursuant to subsections 7.1(f), 7.1(g), 7.1(h) and 7.1(m) of the Amended
and Restated Credit and Guarantee Agreement, dated as of April __, 1996 (as the
same may be amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among SDW Holdings Corporation, a Delaware corporation,
S.D. Warren Company, a Pennsylvania corporation (the "BORROWER"), the several
banks, financial institutions and other entities from time to time parties
thereto (the "LENDERS") and Chemical Bank, as agent for the Lenders, the
undersigned, ____________________ of the Borrower, hereby certifies as follows:
1. The representations and warranties of the Borrower set forth in the
Credit Agreement and each of the other Loan Documents to which it is a
party or which are contained in any certificate, document or financial or
other statement furnished pursuant to or in connection with the Credit
Agreement or any Loan Document are true and correct on and as of the date
hereof with the same effect as if made on the date hereof, except for
representations and warranties expressly stated to relate to a specific
earlier date, in which case such representations and warranties are true
and correct as of such earlier date;
2. No Default or Event of Default has occurred and is continuing as
of the date hereof or will occur after giving effect to the making of the
Loans and the issuance of the Letters of Credit requested to be made and/or
issued on the date hereof or the consummation of each of the transactions
contemplated by the Loan Documents; and
3. _________________ is and at all times since _____________ __,
19__, has been the duly elected and qualified [Assistant] Secretary of the
Borrower and the signature set forth on the signature line for such officer
below is such officer's true and genuine signature;
and the undersigned [Assistant] Secretary of the Borrower hereby certifies as
follows:
4. There are no liquidation or dissolution proceedings pending or to
my knowledge threatened against the Borrower or any of its Subsidiaries,
nor has any other event occurred affecting or threatening the corporate
existence of the Borrower or any of its Subsidiaries;
5. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Pennsylvania;
6. (a) Attached hereto as EXHIBIT A is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Borrower on
__________ __, 19__; such resolutions have not in any way been amended,
modified, revoked or rescinded and have been in full force and effect since
their adoption to and including the date hereof and are now in full force
and effect; such resolutions are the only corporate proceedings of the
Borrower now in force relating to or affecting the matters referred to
therein;
(b) attached hereto as EXHIBIT B is a true and complete copy of
the By-laws of the Borrower as in effect at all times since __________ __,
19__, to and including the date hereof; and
(c) attached hereto as EXHIBIT C is a true and complete copy of
the Certificate of Incorporation of the Borrower as in effect at all times
since __________ __, 19__, to and including the date hereof; and
<PAGE>
2
7. The following persons are now duly elected and qualified officers
of the Borrower, holding the offices indicated next to their respective
names below, and such officers have held such offices with the Borrower at
all times since __________ __, 19__, to and including the date hereof, and
the signatures appearing opposite their respective names below are the true
and genuine signatures of such officers, and each of such officers is duly
authorized to execute and deliver on behalf of the Borrower, the Credit
Agreement and the other Loan Documents to which it is a party and any
certificate or other document to be delivered by the Borrower pursuant to
the Credit Agreement or any such Loan Document:
Name Office Signature
---- ------ ---------
[ ] [ ]
------------------
[ ] [ ]
------------------
Unless otherwise defined herein, capitalized terms which are defined
in the Credit Agreement and used herein are so used as so defined.
IN WITNESS WHEREOF, the undersigned have hereunto set our names and
affixed the corporate seal.
S.D. WARREN COMPANY S.D. WARREN COMPANY
By: By:
----------------------- ------------------------
Name: Name:
Title: Title: [Assistant] Secretary
Date: [ ] (CORPORATE SEAL)
<PAGE>
EXHIBIT T TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF ASSIGNMENT AND ACCEPTANCE]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit and Guarantee
Agreement, dated as of April , 1996 (as amended, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among SDW Holdings
Corporation, a Delaware corporation, S.D. Warren Company, a Pennsylvania
corporation (the "BORROWER"), the several banks, financial institutions and
other entities from time to time parties thereto (the "LENDERS") and Chemical
Bank, as agent for the Lenders (in such capacity, the "AGENT"). Unless
otherwise defined herein, terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
(the "ASSIGNOR") and (the "ASSIGNEE") agree as
------------ ------------
follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below) (but not prior to the registration of the
information contained herein in the Register pursuant to subsection 13.6(e) of
the Credit Agreement), a ___% interest (the "ASSIGNED INTEREST") in and to the
Assignor's rights and obligations under the Credit Agreement with respect to
those credit facilities contained in the Credit Agreement as are set forth on
SCHEDULE 1 (individually, an "ASSIGNED FACILITY"; collectively, the "ASSIGNED
FACILITIES"), in a principal amount for each Assigned Facility as set forth on
SCHEDULE 1.
2. The Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower, any of its Subsidiaries or any other
obligor or the performance or observance by the Borrower, any of its
Subsidiaries or any other obligor of any of their respective obligations under
the Credit Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (c) (i) requests that the
Agent, upon request by the Assignee, (a) exchange any attached Notes for a new
Note or Notes payable to the Assignee or, (b) if the Assignor does not hold any
Notes, issue a new Note or Notes payable to the Assignee and (ii) if (A) the
Assignor has retained any interest in the Assigned Facility and (B) the Assignor
holds any Notes, requests that the Agent exchange the attached Notes for a new
Note or Notes payable to the Assignor, in each case in amounts which reflect the
assignment being made hereby (and after giving effect to any other assignments
which have become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to subsection 6.1 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto or thereto; (d) appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under the Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Agent by the terms thereof, together with such
powers as are incidental thereto; and (e) agrees that it will be a party to and
bound by the provisions of the Credit Agreement and will perform in accordance
with its terms all the obligations which by the terms of the Credit Agreement
are required to be
<PAGE>
2
performed by it as a Lender including, if it is organized under the laws of a
jurisdiction outside the United States, its obligations pursuant to subsection
5.10(b) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be
__________, 19__ (the "EFFECTIVE DATE"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for acceptance by
it and recording by the Agent pursuant to the Credit Agreement, effective as of
the Effective Date (which shall not, unless otherwise agreed to by the Agent, be
earlier than five Business Days after the date of such acceptance and recording
by the Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments in respect of the Assigned Interest
(including payments of principal, interest, fees and other amounts) to the
Assignee whether such amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and the Assignee shall make all
appropriate adjustments in payments by the Agent for periods prior to the
Effective Date or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Lender thereunder and under
the other Loan Documents and shall be bound by the provisions thereof and (b)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
8. This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on SCHEDULE 1 hereto.
<PAGE>
SCHEDULE 1
TO ASSIGNMENT AND ACCEPTANCE
Re: Assignment and Acceptance relating to the Amended and Restated Credit and
Guarantee Agreement, dated as of April __, 1996, among SDW Holdings Corporation,
a Delaware corporation, S.D. Warren Company, a Pennsylvania corporation (the
"BORROWER"), the several banks and other financial institutions from time to
time parties thereto (the "LENDERS") and Chemical Bank, as agent for the Lenders
(in such capacity, (the "AGENT").
- --------------------------------------------------------------------------------
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Credit Principal
Facility Assigned Amount Assigned Commitment Percentage Assigned(1)
- ----------------- ------------------- ------------------------------
$ %
------- -------
The terms set forth above are hereby agreed to by:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By By
--------------------------------- -----------------------------------
Name: Name:
Title: Title:
Accepted: Consented To:
CHEMICAL BANK, as Agent S.D. WARREN COMPANY
By By
-------------------------------- -----------------------------------
Name: Name:
Title: Title:
- --------------------
1. Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all
Lenders.
<PAGE>
EXHIBIT U TO
AMENDED AND RESTATED
CREDIT AND GUARANTEE AGREEMENT
[FORM OF CONFIDENTIALITY LETTER]
[Prospective Transferee Letterhead]
[Date]
S.D. Warren Company
225 Franklin Street
Boston, Massachusetts 02110
Chemical Bank, as Agent
270 Park Avenue
New York, New York 10019
[Name of Lender]
[Address]
Attention: [ ]
Dear Sirs:
Reference is made to the Amended and Restated Credit and Guarantee
Agreement, dated as of April __, 1996 (as the same may be amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT"), among SDW
Holdings Corporation, a Delaware corporation, S.D. Warren Company, a
Pennsylvania corporation, the several banks, financial institutions and other
entities from time to time parties thereto (the "LENDERS"), and Chemical Bank,
as agent for the Lenders (the "AGENT"). Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein are so used as so defined.
The undersigned, , is considering a purchase of Loans and/or
Commitments or a participating interest in such Loans and/or Commitments under
the Credit Agreement. In connection with its consideration of such purchase,
the undersigned is to be provided copies of the Credit Agreement and certain
other Loan Documents and certain financial information concerning the Borrower
and its Affiliates (the Credit Agreement, such other Loan Documents and such
financial information, together the "INFORMATION"). Prior to receiving any such
information, the undersigned is required by subsection 13.6(f) of the Credit
Agreement to execute and deliver this Letter.
The undersigned hereby agrees to keep confidential (and cause its
employees, officers, directors, agents, attorneys, accountants and other
professional advisors to keep confidential) the Information; PROVIDED that
nothing herein shall prevent the undersigned from disclosing any such
information (i) to the Agent or any Lender, (ii) to any Transferee or
prospective Transferee which agrees to comply with the provisions of subsection
13.15 of the Credit Agreement, (iii) on a need-to-know basis to its employees,
officers, directors, agents, attorneys, accountants and other professional
advisors (each of which shall be instructed to hold the same in confidence),
(iv) upon the request or demand of any Governmental Authority (including,
without limitation, the National Association of Insurance Commissioners) having
jurisdiction over the undersigned, (v) in response to any order of any court or
other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (vi) which has been publicly disclosed other than in breach
of this Agreement or (vii) in connection with the exercise of any remedy under
the Loan Documents.
In the event the undersigned does not purchase Loans and/or
Commitments or a participants interest in such Loans and/or Commitments under
the Credit Agreement, at the Borrower's, the Agent's or the Lender identified
above's request, the undersigned agrees to return (and to cause its employees,
officers, agents, attorneys, accountants and
<PAGE>
2
other professional advisors to return) to the Borrower, the Agent or such
Lender, as the case may be, all written Information provided in connection
therewith and all copies thereof, extracts therefrom and analyses and other
materials based thereon, except that the undersigned shall be permitted to
disclose details of the Information (i) to the extent contemplated hereby and
(ii) to the extent the Borrower and the Agent shall have consented to such
disclosure in writing.
The undersigned further agrees that it will use the Information only
in connection with its evaluation of becoming a possible Loan Participant or
Assignee under the Credit Agreement.
The undertakings contained herein are for the benefit of each of you.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
[PROSPECTIVE TRANSFEREE]
By:
---------------------------
Title:
<PAGE>
Exhibit 10.2
RECEIVABLES PURCHASE AGREEMENT
among
S.D. WARREN FINANCE CO.,
as Seller,
S.D. WARREN COMPANY,
as Servicer,
BANK OF MONTREAL,
as Purchaser,
and
NESBITT BURNS SECURITIES INC.,
as Agent.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Making Purchases. . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Participation Computation . . . . . . . . . . . . . . . . 3
Section 1.4. Settlement Procedures . . . . . . . . . . . . . . . . . . 3
Section 1.5. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.6. Payments and Computations, Etc. . . . . . . . . . . . . . 8
Section 1.7. Dividing or Combining Portions of the
Investment of the Participation . . . . . . . . . . . . 8
Section 1.8. Increased Costs . . . . . . . . . . . . . . . . . . . . . 8
Section 1.9. Additional Discount on Portions of
Participation Bearing a Eurodollar Rate . . . . . . . . 9
Section 1.10. Requirements of Law. . . . . . . . . . . . . . . . . . . 10
Section 1.11. Inability to Determine Eurodollar Rate . . . . . . . . . 11
ARTICLE II. REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
Section 2.1. Representations and Warranties;
Covenants . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2. Termination Events. . . . . . . . . . . . . . . . . . . . 12
ARTICLE III. INDEMNIFICATION
Section 3.1. Indemnities by the Seller . . . . . . . . . . . . . . . . 12
ARTICLE IV. ADMINISTRATION AND COLLECTIONS
Section 4.1. Appointment of Servicer . . . . . . . . . . . . . . . . . 14
Section 4.2. Duties of Servicer. . . . . . . . . . . . . . . . . . . . 15
Section 4.3. Establishment and Use of Certain
Accounts. . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.4. Enforcement Rights. . . . . . . . . . . . . . . . . . . . 17
Section 4.5. Responsibilities of the Seller. . . . . . . . . . . . . . 18
Section 4.6. Servicing Fee . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V. MISCELLANEOUS
Section 5.1. Amendments, Etc.. . . . . . . . . . . . . . . . . . . . . 19
Section 5.2. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.3. Assignability . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.4. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . 21
Section 5.5. No Proceedings; Limitation on Payments. . . . . . . . . . 21
Section 5.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . 21
Section 5.7. GOVERNING LAW AND JURISDICTION. . . . . . . . . . . . . . 22
Section 5.8. Execution in Counterparts . . . . . . . . . . . . . . . . 22
Section 5.9. Survival of Termination . . . . . . . . . . . . . . . . . 22
Section 5.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 22
Section 5.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . 23
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 5.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.13. Purchaser's Liabilities. . . . . . . . . . . . . . . . . 23
EXHIBIT I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT II CONDITIONS OF PURCHASES . . . . . . . . . . . . . . . . . . .II-1
EXHIBIT III REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . III-1
EXHIBIT IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . .IV-1
EXHIBIT V TERMINATION EVENTS. . . . . . . . . . . . . . . . . . . . . . V-1
EXHIBIT VI COLLECTION ACCOUNT AGREEMENT. . . . . . . . . . . . . . . . .VI-1
EXHIBIT VII LIQUIDATION ACCOUNT AGREEMENT . . . . . . . . . . . . . . . VII-1
EXHIBIT VIII SPECIAL OBLIGOR CONCENTRATION LIMITS. . . . . . . . . . . .VIII-1
EXHIBIT IX PORTFOLIO CERTIFICATE . . . . . . . . . . . . . . . . . . . . .IX
SCHEDULE I CREDIT AND COLLECTION POLICY. . . . . . . . . . . . . . . . . I-1
SCHEDULE II LOCKBOX BANKS AND LOCKBOX ACCOUNTS. . . . . . . . . . . . . .II-1
SCHEDULE III TRADE NAMES . . . . . . . . . . . . . . . . . . . . . . . . III-1
SCHEDULE IV FISCAL MONTHS . . . . . . . . . . . . . . . . . . . . . . . .IV-1
ANNEX A FORM OF LOCKBOX AGREEMENT
ANNEX B FORM OF NOTICE OF PURCHASE
ANNEX C FORM OF CORPORATE OPINION
ANNEX D FORM OF BANKRUPTCY OPINION
ANNEX E FORM OF SERVICER REPORT
-ii-
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
This RECEIVABLES PURCHASE AGREEMENT (this "AGREEMENT") is entered into as
of April 23, 1996 among S.D. WARREN FINANCE CO., a Delaware corporation, as
seller (the "SELLER"), S.D. WARREN COMPANY, a Pennsylvania corporation ("SDW"),
as initial servicer (in such capacity, together with its successors and
permitted assigns in such capacity, the "SERVICER"), BANK OF MONTREAL, a
Canadian chartered bank, acting through its Chicago Branch (together with its
successors and permitted assigns, the "PURCHASER"), and NESBITT BURNS SECURITIES
INC., a Delaware corporation ("NESBITT BURNS") as agent for the Purchaser (in
such capacity, together with its successors and assigns in such capacity, the
"AGENT").
PRELIMINARY STATEMENTS. Certain terms that are capitalized and used
throughout this Agreement are defined in EXHIBIT I to this Agreement.
References in the Exhibits hereto to "the Agreement" refer to this Agreement, as
amended, modified or supplemented from time to time.
The Seller desires to sell, transfer and assign an undivided variable
percentage interest in a pool of receivables, and the Purchaser desires to
acquire such undivided variable percentage interest, as such percentage interest
shall be adjusted from time to time based upon, in part, reinvestment payments
which are made by the Purchaser and additional incremental payments made to the
Seller.
In consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereto agree as follows:
ARTICLE I.
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. PURCHASE FACILITY. (a) On the terms and conditions
hereinafter set forth, the Purchaser hereby agrees to purchase and make
reinvestments of undivided percentage ownership interests with regard to the
Participation from the Seller from time to time during the period from the date
hereof to the Facility Termination Date. Under no circumstances shall the
Purchaser make any such purchase or reinvestment if, after giving effect to such
purchase or reinvestment, the aggregate outstanding Investment of the
Participation would exceed the Purchase Limit.
<PAGE>
(b) The Seller may, upon at least 30 Business Days' notice to the Agent,
terminate the purchase facility provided in this SECTION 1 in whole or, from
time to time, irrevocably reduce in part the unused portion of the Purchase
Limit; PROVIDED that each partial reduction shall be in the amount of at least
$1,000,000, or an integral multiple of $500,000 in excess thereof.
Section 1.2. MAKING PURCHASES. (a) Each purchase (but not reinvestments)
of undivided ownership interests with regard to the Participation hereunder
shall be made upon the Seller's irrevocable written notice in the form of Annex
B delivered to the Agent in accordance with SECTION 5.2 (which notice must be
received by the Agent prior to 11:00 a.m., Chicago time) on the second Business
Day next preceding the date of such proposed purchase. Each such notice of any
such proposed purchase shall specify the desired amount and date of such
purchase and the desired duration of the initial Yield Period for the resulting
Participation. The Agent shall select the duration of such initial Yield
Period, and each subsequent Yield Period in its discretion; PROVIDED that it
shall use reasonable efforts, taking into account market conditions, to
accommodate Seller's preferences.
(b) On the date of each purchase (but not reinvestment) of undivided
ownership interests with regard to the Participation hereunder, the Purchaser
shall, upon satisfaction of the applicable conditions set forth in EXHIBIT II
hereto, make available to the Agent at its office at 111 West Monroe Street,
Chicago, Illinois 60603, the amount of such purchase in same day funds, and
after the Agent's receipt of such funds, the Agent shall make such funds
immediately available to the Seller at such office.
(c) Effective on the date of each purchase pursuant to this SECTION 1.2
and each reinvestment pursuant to SECTION 1.4, the Seller hereby sells and
assigns to the Purchaser an undivided percentage ownership interest in (i) each
Pool Receivable then existing, (ii) all Related Security with respect to such
Pool Receivables, and (iii) Collections with respect to, and other proceeds of,
such Pool Receivables and Related Security.
(d) To secure all of the Seller's obligations (monetary or otherwise)
under this Agreement and the other Transaction Documents to which it is a party,
whether now or hereafter existing or arising, due or to become due, direct or
indirect, absolute or contingent, the Seller hereby grants to the Purchaser a
security interest in all of the Seller's right, title and interest (including
without limitation any undivided interest of the Seller) in, to and under all of
the following, whether now or hereafter owned, existing or arising: (A) all
Pool Receivables, (B) all Related Security with respect to each such Pool
-2-
<PAGE>
Receivable, (C) all Collections with respect to each such Pool Receivable, (D)
the Lock Box Accounts, Collection Account and Liquidation Account and all
amounts on deposit therein and all certificates and instruments, if any, from
time to time evidencing such Lock Box Accounts, Collection Account and
Liquidation Account and amounts on deposit therein, (E) all rights of the Seller
under the Purchase and Contribution Agreement, and (F) all proceeds of, and all
amounts received or receivable under any or all of, the foregoing. The
Purchaser shall have, with respect to the property described in this
SECTION 1.2(d), and in addition to all the other rights and remedies available
to the Purchaser, all the rights and remedies of a secured party under any
applicable UCC.
Section 1.3. PARTICIPATION COMPUTATION. The Participation shall be
initially computed on the date of the initial purchase hereunder. Thereafter
until the Termination Date, the Participation shall be automatically recomputed
(or deemed to be recomputed) on each Business Day other than a Termination Day.
The Participation, as computed (or deemed recomputed) as of the day immediately
preceding the Termination Date, shall thereafter remain constant. The
Participation shall become zero when the Investment thereof and Discount thereon
shall have been paid in full, all the amounts owed by the Seller hereunder to
the Purchaser, the Agent, and any other Indemnified Party or Affected Person are
paid in full and the Servicer shall have received the accrued Servicing Fee
thereon.
Section 1.4. SETTLEMENT PROCEDURES. (a) Collection of the Pool Receivables
shall be administered by the Servicer in accordance with the terms of this
Agreement. The Seller shall provide to the Servicer (if other than the Seller)
on a timely basis all information needed for such administration, including
notice of the occurrence of any Termination Day and current computations of the
Participation.
(b) The Servicer shall, on each day on which Collections of Pool
Receivables are received (or deemed received) by the Seller or Servicer,
transfer such Collections from the Lock-Box Accounts and deposit such
Collections into the Collection Account. With respect to such Collections on
such day, the Servicer shall:
(i) transfer from the Collection Account to the Liquidation Account,
set aside for the benefit of the Purchaser, out of the percentage of such
Collections represented by the Participation, FIRST an amount equal to the
Discount accrued through such day for each Portion of Investment and not
previously set aside and SECOND, to the extent funds are available
therefor, an amount equal to the Servicing Fee (if the Originator or any
Affiliate thereof is not the Servicer), the Commitment Fee and the Program
Fee
-3-
<PAGE>
accrued through such day for the Participation and not previously set
aside; and
(ii) subject to SECTION 1.4(f), if such day is not a Termination Day,
remit to the Seller, on behalf of the Purchaser, the remainder of the
percentage of such Collections, represented by the Participation, to the
extent representing a return on the Investment; such Collections shall be
automatically reinvested in Pool Receivables, and in the Related Security
and Collections and other proceeds with respect thereto, and the
Participation shall be automatically recomputed pursuant to SECTION 1.3; IT
BEING UNDERSTOOD, that prior to remitting to the Seller the remainder of
such Collections by way of reinvestment in Pool Receivables, the Servicer
shall have calculated the Participation on such day, and if such
Participation shall exceed 100% of the Net Receivables Pool Balance on such
day, such Collections shall not be remitted to the Seller but shall be
transferred to the Liquidation Account for the benefit of the Purchaser in
accordance with PARAGRAPH (iii) below;
(iii) if such day is a Termination Day, (A) transfer to the
Liquidation Account for the Purchaser the entire remainder of the
percentage of the Collections represented by the Participation; PROVIDED
that so long as the Facility Termination Date has not occurred if any
amounts are so transferred to the Liquidation Account on any Termination
Day and thereafter, the conditions set forth in SECTION 2 of EXHIBIT II are
satisfied or are waived by the Agent, such previously set aside amounts
shall, to the extent representing a return on the Investment, be reinvested
in accordance with the preceding PARAGRAPH (ii) on the day of such
subsequent satisfaction or waiver of conditions, and (B) transfer to the
Liquidation Account for the Purchaser the entire remainder of the
Collections in the Collection Account represented by the Seller's share of
the Collections, if any; PROVIDED that so long as the Facility Termination
Date has not occurred if any amounts are so transferred to the Liquidation
Account on any Termination Day and thereafter, the conditions set forth in
SECTION 2 of EXHIBIT II are satisfied or are waived by the Agent, such
previously set aside amounts shall be distributed to the Seller on the day
of such subsequent satisfaction or waiver of conditions; and
(iv) during such times as amounts are required to be reinvested in
accordance with the foregoing PARAGRAPH (ii) or the proviso to PARAGRAPH
(iii), release to the Seller (subject to SECTION 1.4(f)) for its own
account any Collections in excess of (x) such amounts, (y) the amounts
-4-
<PAGE>
that are required to be transferred to the Liquidation Account pursuant
to PARAGRAPH (I) above and (z) in the event the Seller is not the
Servicer, all reasonable and appropriate out-of-pocket costs and
expenses of such Servicer of servicing, collecting and administering the
Pool Receivables.
(c) The Servicer shall deposit into the Purchaser's Account (or such other
account designated by the Agent), on the last day of each Settlement Period
relating to a Portion of Investment:
(i) Collections held on deposit in the Liquidation Account for the
benefit of the Purchaser pursuant to SECTION 1.4(b)(i) in respect of
accrued Discount and the Program Fees and Commitment Fees with respect to
such Portion of Investment;
(ii) Collections held on deposit in the Liquidation Account for the
benefit of the Purchaser pursuant to SECTION 1.4(f) with respect to such
Portion of Investment; and
(iii) the lesser of (x) the amount of Collections then held on deposit
in the Liquidation Account for the benefit of the Purchaser pursuant to
SECTION 1.4(b)(iii) and (y) such Portion of Investment.
The Servicer shall deposit to its own account from Collections held on deposit
in the Liquidation Account pursuant to SECTION 1.4(b)(i) in respect of the
accrued Servicing Fee, an amount equal to such accrued Servicing Fee.
(d) Upon receipt of funds deposited into the Purchaser's Account pursuant
to SECTION 1.4(c) with respect to any Portion of Investment, the Agent shall
cause such funds to be distributed as follows:
(i) if such distribution occurs on a day that is not a Termination
Day, FIRST to the Purchaser in payment in full of all accrued Discount with
respect to such Portion of Investment, SECOND, to the Purchaser in payment
of accrued and unpaid Program Fees and Commitment Fees, and THIRD, if the
Servicer has set aside amounts in respect of the Servicing Fee pursuant to
SECTION 1.4(b)(i), to the Servicer (payable in arrears on the last day of
each calendar month) in payment in full of accrued Servicing Fees so set
aside with respect to such Portion of Investment; and
(ii) if such distribution occurs on a Termination Day, FIRST to the
Purchaser in payment in full of all accrued Discount with respect to such
Portion of Investment, SECOND to the Purchaser in payment of accrued and
unpaid Program
-5-
<PAGE>
Fees and Commitment Fees, THIRD, to the Purchaser in payment in full of
such Portion of Investment, FOURTH, if SDW or any of its Affiliates is
not the Servicer, to the Servicer in payment in full of all accrued
Servicing Fees with respect to such Portion of Investment, and FIFTH, if
the Investment and accrued Discount with respect to each Portion of
Investment have been reduced to zero, and all accrued Servicing Fees
payable to the Servicer (if other than the Seller) have been paid in
full, to the Purchaser, the Agent and any other Indemnified Party or
Affected Person in payment in full of any other amounts owed thereto by
the Seller hereunder and then to the Servicer (if the Servicer is the
Seller) in payment in full of all accrued Servicing Fees.
After the Investment, Program Fees, Discount and Servicing Fees with respect to
the Participation, and any other amounts payable by the Seller to the Purchaser,
the Agent or any other Indemnified Party or Affected Person hereunder, have been
paid in full, all additional Collections with respect to the Participation shall
be paid to the Seller for its own account.
(e) For the purposes of this SECTION 1.4:
(i) if on any day the Outstanding Balance of any Pool Receivable is
reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed goods or services, or any discount, rebate or
other adjustment made by the Originator, Seller or Servicer, or any setoff
or dispute between the Seller, Originator or the Servicer and an Obligor,
the Seller shall be deemed to have received on such day a Collection of
such Pool Receivable in the amount of such reduction or adjustment;
(ii) if on any day any of the representations or warranties in
PARAGRAPHS (h) or (o) of EXHIBIT III is not true with respect to any Pool
Receivable, the Seller shall be deemed to have received on such day a
Collection of such Pool Receivable in full;
(iii) except as provided in PARAGRAPH (i) or (ii) of this
SECTION 1.4(e), or as otherwise required by applicable law or the relevant
Contract, all Collections received from an Obligor of any Receivable shall
be applied to the Receivables of such Obligor in the order of the age of
such Receivables, starting with the oldest such Receivable, unless such
Obligor designates in writing its payment for application to specific
Receivables; and
(iv) if and to the extent the Agent or the Purchaser shall be required
for any reason to pay over to an Obligor
-6-
<PAGE>
(or any trustee, receiver, custodian or similar official in any
Insolvency Proceeding) any amount received by it hereunder, such amount
shall be deemed not to have been so received but rather to have been
retained by the Seller and, accordingly, the Agent or the Purchaser, as
the case may be, shall have a claim against the Seller for such amount,
payable when and to the extent that any distribution from or on behalf
of such Obligor is made in respect thereof.
(f) If at any time the Seller shall wish to cause the reduction of a
Portion of Investment (but not to commence the liquidation, or reduction to
zero, of the entire Investment of the Participation), the Seller may do so as
follows:
(i) the Seller shall give the Agent at least five Business Days'
prior written notice thereof (including the amount of such proposed
reduction and the proposed date on which such reduction will commence),
(ii) on the proposed date of commencement of such reduction and on
each day thereafter, the Servicer shall cause Collections with respect to
such Portion of Investment not to be reinvested until the amount thereof
not so reinvested shall equal the desired amount of reduction, and
(iii) the Servicer shall hold such Collections in the Liquidation
Account for the benefit of the Purchaser, for payment to the Agent on the
last day of the current Settlement Period relating to such Portion of
Investment, and the applicable Portion of Investment shall be deemed
reduced in the amount to be paid to the Agent only when in fact finally so
paid;
provided that,
A. the amount of any such reduction shall be not less than
$1,000,000 and shall be an integral multiple of $500,000, and the entire
Investment of the Participation after giving effect to such reduction shall
be not less than $1,000,000,
B. the Seller shall choose a reduction amount, and the date of
commencement thereof, so that to the extent practicable such reduction
shall commence and conclude in the same Yield Period, and
C. if two or more Portions of Investment shall be outstanding at the
time of any proposed reduction, such proposed reduction shall be applied,
unless the Seller shall otherwise specify in the notice given pursuant to
SECTION
-7-
<PAGE>
1.4(f)(i), to the Portion of Investment with the shortest remaining
Yield Period.
Section 1.5. FEES. The Seller shall pay to the Agent certain fees in the
amounts and on the dates set forth in a letter dated April 26, 1996 between the
Seller and the Agent (as the same may be amended, amended and restated,
supplemented or modified, the "FEE LETTER") delivered pursuant to SECTION 1 of
EXHIBIT II, as such letter agreement may be amended, supplemented or otherwise
modified from time to time.
Section 1.6. PAYMENTS AND COMPUTATIONS, ETC. (a) All amounts to be paid or
deposited by the Seller or the Servicer hereunder shall be paid or deposited no
later than noon (Chicago time) on the day when due in same day funds to
the Purchaser's Account. All amounts received after noon (Chicago time) will be
deemed to have been received on the immediately succeeding Business Day.
(b) The Seller shall, to the extent permitted by law, pay interest on any
amount not paid or deposited by the Seller or Servicer when due hereunder, at an
interest rate equal to 2.0% PER ANNUM above the Base Rate, payable on demand.
(c) All computations of interest under SUBSECTION (b) above and all
computations of Discount, fees, and other amounts hereunder shall be made on the
basis of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
Section 1.7. DIVIDING OR COMBINING PORTIONS OF THE INVESTMENT OF THE
PARTICIPATION. The Seller may, on the last day of any Yield Period, either (i)
divide the Investment of the Participation into two or more portions (each, a
"PORTION OF INVESTMENT") equal, in aggregate, to the Investment of the
Participation, PROVIDED that after giving effect to such division the amount of
each such Portion of Investment shall be not less than $10,000,000, or (ii)
combine any two or more Portions of Investment outstanding on such last day and
having Yield Periods ending on such last day into a single Portion of Investment
equal to the aggregate of the Investment of such Portions of Investment.
Section 1.8. INCREASED COSTS. (a) If the Agent, the Purchaser, any
Liquidity Bank, any other Program Support Provider or any of their respective
Affiliates (each an "AFFECTED PERSON") determines that the existence of or
compliance with (i) any law or regulation or any change therein or in the
interpretation or
-8-
<PAGE>
application thereof, in each case adopted, issued or occurring after the date
hereof or (ii) any request, guideline or directive from any central bank or
other Governmental Authority (whether or not having the force of law) issued
or occurring after the date of this Agreement affects or would affect the
amount of capital required or expected to be maintained by such Affected
Person and such Affected Person determines that the amount of such capital is
increased by or based upon the existence of any commitment to make purchases
of or otherwise to maintain the investment in Pool Receivables related to
this Agreement or any related liquidity facility or credit enhancement
facility and other commitments of the same type, then, upon demand by such
Affected Person (with a copy to the Agent), the Seller shall immediately pay
to the Agent, for the account of such Affected Person, from time to time as
specified by such Affected Person, additional amounts sufficient to
compensate such Affected Person in the light of such circumstances, to the
extent that such Affected Person reasonably determines such increase in
capital to be allocable to the existence of any of such commitments. A
certificate as to such amounts submitted to the Seller and the Agent by such
Affected Person shall be conclusive and binding for all purposes, absent
manifest error.
(b) If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements referred to
in SECTION 1.9) in or in the interpretation of any law or regulation or (ii)
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Affected Person of agreeing to purchase or
purchasing, or maintaining the ownership of the Participation in respect of
which Discount is computed by reference to the Eurodollar Rate, then, upon
demand by such Affected Person, the Seller shall immediately pay to such
Affected Person, from time to time as specified, additional amounts sufficient
to compensate such Affected Person for such increased costs. A certificate as to
such amounts submitted to the Seller by such Affected Person shall be conclusive
and binding for all purposes, absent manifest error.
Section 1.9. ADDITIONAL DISCOUNT ON PORTIONS OF PARTICIPATION BEARING A
EURODOLLAR RATE. The Seller shall pay to any Affected Person, so long as such
Affected Person shall be required under regulations of the Board of Governors of
the Federal Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including "Eurocurrency Liabilities", additional
Discount on the unpaid Investment of the applicable Portion of Investment during
each Yield Period in respect of which Discount is computed by reference to the
Eurodollar Rate, for such Yield Period, at a rate per annum equal at all times
during such Yield Period to the remainder obtained
-9-
<PAGE>
by subtracting (i) the Eurodollar Rate for such Yield Period from (ii) the
rate obtained by dividing such Eurodollar Rate referred to in clause (i)
above by that percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Yield Period, payable on each date on which Discount is
payable on the applicable Portion of Investment. Such additional Discount
shall be determined by the Affected Person and notified to the Seller through
the Agent within 30 days after any Discount payment is made with respect to
which such additional Discount is requested. A certificate as to such
additional Discount submitted to the Seller by the Affected Person shall be
conclusive and binding for all purposes, absent manifest error.
Section 1.10. REQUIREMENTS OF LAW. In the event that any Affected Person
determines that the existence of or compliance with (i) any law or regulation or
any change therein or in the interpretation or application thereof, in each case
adopted, issued or occurring after the date hereof or (ii) any request,
guideline or directive from any central bank or other Governmental Authority
(whether or not having the force of law) issued or occurring after the date of
this Agreement:
(i) does or shall subject such Affected Person to any tax of any kind
whatsoever with respect to this Agreement, any increase in the
Participation or in the amount of Investment relating thereto, or does or
shall change the basis of taxation of payments to such Affected Person on
account of Collections, Discount or any other amounts payable hereunder
(excluding taxes imposed on the overall net income of such Affected Person,
and franchise taxes imposed on such Affected Person, by the jurisdiction
under the laws of which such Affected Person is organized or a political
subdivision thereof);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, purchases,
advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of such Affected Person which are not otherwise
included in the determination of the Eurodollar Rate or the Base Rate
hereunder; or
(iii) does or shall impose on such Affected Person any other
condition;
and the result of any of the foregoing is (x) to increase the cost to such
Affected Person of acting as Agent, or of agreeing to purchase or purchasing or
maintaining the ownership of undivided ownership interests with regard to the
Participation (or interests therein) or any Portion of Investment in respect of
-10-
<PAGE>
which Discount is computed by reference to the Eurodollar Rate or the Base Rate
or (y) to reduce any amount receivable hereunder (whether directly or
indirectly) funded or maintained by reference to the Eurodollar Rate or the Base
Rate, then, in any such case, upon demand by such Affected Person the Seller
shall pay such Affected Person any additional amounts necessary to compensate
such Affected Person for such additional cost or reduced amount receivable. All
such amounts shall be payable as incurred. A certificate from such Affected
Person to the Seller certifying, in reasonably specific detail, the basis for,
calculation of, and amount of such additional costs or reduced amount receivable
shall be conclusive in the absence of manifest error; PROVIDED, however, that no
Affected Person shall be required to disclose any confidential or tax planning
information in any such certificate.
Section 1.11. INABILITY TO DETERMINE EURODOLLAR RATE. In the event that
the Agent shall have determined prior to the first day of any Yield Period
(which determination shall be conclusive and binding upon the parties hereto) by
reason of circumstances affecting the interbank Eurodollar market, either (a)
dollar deposits in the relevant amounts and for the relevant Yield Period are
not available, (b) adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for such Yield Period or (c) the Eurodollar Rate determined
pursuant hereto does not accurately reflect the cost to the Purchaser (as
conclusively determined by the Agent) of maintaining any Portion of Investment
during such Yield Period, the Agent shall promptly give telephonic notice of
such determination, confirmed in writing, to the Seller prior to the first day
of such Yield Period. Upon delivery of such notice (a) no Portion of Investment
shall be funded thereafter at the Bank Rate determined by reference to the
Eurodollar Rate, unless and until the Agent shall have given notice to the
Seller that the circumstances giving rise to such determination no longer exist,
and (b) with respect to any outstanding Portions of Investment then funded at
the Bank Rate determined by reference to the Eurodollar Rate, such Bank Rate
shall automatically be converted to the Bank Rate determined by reference to the
Base Rate at the respective last days of the then-current Yield Periods relating
to such Portions of Investment.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
Section 2.1. REPRESENTATIONS AND WARRANTIES; COVENANTS. The Seller hereby
makes the representations and warranties, and
-11-
<PAGE>
hereby agrees to perform and observe the covenants, set forth in EXHIBITS
III and IV, respectively hereto.
Section 2.2. TERMINATION EVENTS. If any of the Termination Events set
forth in EXHIBIT V hereto shall occur, the Agent may, by notice to the Seller,
declare the Facility Termination Date to have occurred (in which case the
Facility Termination Date shall be deemed to have occurred); PROVIDED that,
automatically upon the occurrence of any event (without any requirement for the
passage of time or the giving of notice) described in SUBSECTION (g), (i) or (k)
of EXHIBIT V, the Facility Termination Date shall occur. Upon any such
declaration, occurrence or deemed occurrence of the Facility Termination Date,
the Purchaser and the Agent shall have, in addition to the rights and remedies
which they may have under this Agreement, all other rights and remedies provided
after default under the UCC and under other applicable law, which rights and
remedies shall be cumulative.
ARTICLE III.
INDEMNIFICATION
Section 3.1. INDEMNITIES BY THE SELLER. Without limiting any other rights
that the Agent or the Purchaser or any of their respective Affiliates,
employees, agents, successors, transferees or assigns (each, an "INDEMNIFIED
PARTY") may have hereunder or under applicable law, the Seller hereby agrees to
indemnify each Indemnified Party from and against any and all claims, damages,
expenses, losses and liabilities (including Attorney Costs) (all of the
foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") arising out
of or resulting from this Agreement or other Transaction Documents (whether
directly or indirectly) or the use of proceeds of purchases or reinvestments or
the ownership of the Participation, or any interest therein, or in respect of
any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to
the extent resulting from gross negligence or willful misconduct on the part of
such Indemnified Party, (b) recourse (except as otherwise specifically provided
in this Agreement) for uncollectible Receivables to be written off consistent
with the Credit and Collection Policy, or (c) any overall net income taxes or
franchise taxes imposed on such Indemnified Party by the jurisdiction under the
laws of which such Indemnified Party is organized or any political subdivision
thereof. Without limiting or being limited by the foregoing, and subject to the
exclusions set forth in the preceding sentence, the Seller shall pay on demand
to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all Indemnified Amounts relating to
or resulting from any of the following:
-12-
<PAGE>
(i) the failure of any Receivable included in the calculation of the
Net Receivables Pool Balance as an Eligible Receivable to be an Eligible
Receivable, the failure of any information contained in a Servicer Report
to be true and correct, or the failure of any other information provided to
the Purchaser or the Agent with respect to Receivables or this Agreement to
be true and correct;
(ii) the failure of any representation or warranty or statement made
or deemed made by the Seller (or any of its officers) under or in
connection with this Agreement to have been true and correct in all
respects when made;
(iii) the failure by the Seller to comply with any applicable law,
rule or regulation with respect to any Pool Receivable or the related
Contract; or the failure of any Pool Receivable or the related Contract to
conform to any such applicable law, rule or regulation;
(iv) the failure to vest in the Purchaser a valid and enforceable (A)
perfected undivided percentage ownership interest, to the extent of the
Participation, in the Receivables in, or purporting to be in, the
Receivables Pool and the Related Security and Collections with respect
thereto and (B) first priority perfected security interest in the items
described in SECTION 1.2(d), in each case, free and clear of any Adverse
Claim;
(v) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables in, or purporting to be in, the Receivables Pool and the
Related Security and Collections in respect thereof, whether at the time of
any purchase or reinvestment or at any subsequent time;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
in, or purporting to be in, the Receivables Pool (including, without
limitation, a defense based on such Receivable or the related Contract not
being a legal, valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim resulting from
the sale of the goods or services related to such Receivable or the
furnishing or failure to furnish such goods or services or relating to
collection activities with respect to such Receivable (if such collection
activities were performed by the Seller or any of its Affiliates acting as
Servicer or by any agent or
-13-
<PAGE>
independent contractor retained by the Seller or any of its
Affiliates);
(vii) any failure of the Seller to perform its duties or obligations
in accordance with the provisions hereof or to perform its duties or
obligations under the Contracts;
(viii) any products liability or other claim, investigation,
litigation or proceeding arising out of or in connection with merchandise,
insurance or services which are the subject of any Contract;
(ix) the commingling of Collections of Pool Receivables at any time
with other funds;
(x) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of purchases or reinvestments or the
ownership of the Participation or in respect of any Receivable, Related
Security or Contract;
(xi) any reduction in Investment as a result of the distribution of
Collections pursuant to SECTION 1.4(d), in the event that all or a portion
of such distributions shall thereafter be rescinded or otherwise must be
returned for any reason; or
(xii) any tax or governmental fee or charge (other than any tax upon
or measured by net income or gross receipts), all interest and penalties
thereon or with respect thereto, and all reasonable out-of-pocket costs and
expenses, including the reasonable fees and expenses of counsel in
defending against the same, which may arise by reason of the purchase or
ownership of the Participation, or other interests in the Receivables Pool
or in any Related Security or Contract.
ARTICLE IV.
ADMINISTRATION AND COLLECTIONS
Section 4.1. APPOINTMENT OF SERVICER. (a) The servicing, administering and
collection of the Pool Receivables shall be conducted by the Person so
designated from time to time as Servicer in accordance with this SECTION 4.1.
Until the Agent gives notice to the Seller and the Servicer (in accordance with
this SECTION 4.1) of the designation of a new Servicer, SDW is hereby designated
as, and hereby agrees to perform the duties and obligations of, the Servicer
pursuant to the terms hereof. Upon the occurrence of a Termination Event, the
Agent may designate as
-14-
<PAGE>
Servicer any Person (including itself) to succeed the Servicer or any
successor Servicer, on the condition in each case that any such Person so
designated shall agree to perform the duties and obligations of the Servicer
pursuant to the terms hereof.
(b) Upon the designation of a successor Servicer as set forth in SECTION
4.1(a) hereof, the Servicer agrees that it will terminate its activities as
Servicer hereunder in a manner which the Agent determines will facilitate the
transition of the performance of such activities to the new Servicer, and the
Servicer shall cooperate with and assist such new Servicer. Such cooperation
shall include (without limitation) access to and transfer of records and use by
the new Servicer of all licenses, hardware or software necessary or desirable to
collect the Pool Receivables and the Related Security.
(c) The Servicer acknowledges that, in making their decision to execute
and deliver this Agreement, the Agent and the Purchaser have relied on the
Servicer's agreement to act as Servicer hereunder. Accordingly, the Servicer
agrees that it will not voluntarily resign as Servicer.
(d) The Servicer may delegate its duties and obligations hereunder to any
subservicer (each, a "SUB-SERVICER"); provided that, in each such delegation,
(i) such Sub-Servicer shall agree in writing to perform the duties and
obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer
shall remain primarily liable to the Purchaser and the Agent for the performance
of the duties and obligations so delegated, (iii) the Seller, the Agent and the
Purchaser shall have the right to look solely to the Servicer for performance
and (iv) the terms of any agreement with any Sub-Servicer shall provide that the
Agent may terminate such agreement upon the termination of the Servicer
hereunder by giving notice of its desire to terminate such agreement to the
Servicer (and the Servicer shall provide appropriate notice to such Sub-
Servicer).
SECTION 4.2. DUTIES OF SERVICER. (a) The Servicer shall take or cause to
be taken all such action as may be necessary or advisable to collect each Pool
Receivable from time to time, all in accordance with this Agreement and all
applicable laws, rules and regulations, with reasonable care and diligence, and
in accordance with the Credit and Collection Policy. The Servicer shall set
aside for the accounts of the Seller and the Purchaser the amount of the
Collections to which each is entitled in accordance with ARTICLE II hereto. The
Servicer may, in accordance with the Credit and Collection Policy, extend the
maturity of any Pool Receivable (but not beyond thirty (30) days) and extend the
maturity or adjust the Outstanding Balance of any Defaulted Receivable as the
Servicer may determine to be appropriate to maximize Collections thereof;
PROVIDED, HOWEVER,
-15-
<PAGE>
that (i) such extension or adjustment shall not alter the status of such Pool
Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the
rights of the Purchaser or the Agent under this Agreement and (ii) if a
Termination Event has occurred and SDW or any of its Affiliates is still
serving as Servicer, the Seller may make such extension or adjustment only
upon the prior written approval of the Agent. The Seller shall deliver to
the Servicer and the Servicer shall hold for the benefit of the Seller and
the Agent (for the benefit of the Purchaser and individually) in accordance
with their respective interests, all records and documents (including without
limitation computer tapes or disks) with respect to each Pool Receivable.
Notwithstanding anything to the contrary contained herein, the Agent may
direct the Servicer to commence or settle any legal action to enforce
collection of any Pool Receivable or to foreclose upon or repossess any
Related Security; PROVIDED, HOWEVER, that no such direction may be given
unless a Termination Event has occurred.
(b) The Servicer's obligations hereunder shall terminate on the Final
Payout Date.
After such termination, the Servicer shall promptly deliver to the Seller
all books, records and related materials that the Seller previously provided to
the Servicer in connection with this Agreement.
Section 4.3. ESTABLISHMENT AND USE OF CERTAIN ACCOUNTS.
(a) LOCK-BOX ACCOUNTS. Prior to the initial purchase hereunder, the
Seller shall enter into Lock-Box Agreements establishing the Lock-Box Accounts
listed on SCHEDULE II with all of the Lock-Box Banks, and deliver original
counterparts thereof to the Agent.
(b) COLLECTION ACCOUNT. The Servicer agrees to establish the Collection
Account on or before the date of the first purchase hereunder. The Collection
Account shall be used to accept the transfer of Collections of Pool Receivables
from the Lock-Box Accounts pursuant to SECTION 1.4(b) and for such other
purposes described in the Transaction Documents.
(c) LIQUIDATION ACCOUNT. The Servicer agrees to establish the Liquidation
Account on or before the date of the first purchase hereunder. The Liquidation
Account shall be used to receive transfers of certain amounts of the Purchaser's
share of Collections of Pool Receivables prior to the Settlement Dates and for
such other purposes described in the Transaction Documents. No funds other than
those transferred in accordance with SECTION 1.4 shall be intentionally
transferred into the Liquidation Account.
-16-
<PAGE>
(d) PERMITTED INVESTMENTS. Any amounts in the Liquidation Account or the
Collection Account, as the case may be, may be invested by the Liquidation
Account Bank or Collection Account Bank, respectively, at Servicer's direction,
in Permitted Investments, so long as Purchaser's interest in such Permitted
Investments is perfected and such Permitted Investments are subject to no
Adverse Claims other than those of the Purchaser provided hereunder.
(e) CONTROL OF LOCK-BOX ACCOUNTS. The Agent may at any time give notice
to each Lock-Box Bank, the Collection Account Bank and the Liquidation Account
Bank that the Agent is exercising its rights under the Lock-Box Agreements, the
Collection Account Agreement and the Liquidation Account Agreement to do any or
all of the following: (i) to have the exclusive ownership and control of the
Lock-Box Accounts, the Collection Account and the Liquidation Account
transferred to the Agent and to exercise exclusive dominion and control over the
funds deposited therein, (ii) to have the proceeds that are sent to the
respective Lock-Box Accounts be redirected pursuant to its instructions rather
than deposited in the applicable Lock-Box Account, and (iii) to take any or all
other actions permitted under the applicable Lock-Box Agreement, the Collection
Account Agreement and the Liquidation Account Agreement. The Seller hereby
agrees that if the Agent at any time takes any action set forth in the preceding
sentence, the Agent shall have exclusive control of the proceeds (including
Collections) of all Pool Receivables and the Seller hereby further agrees to
take any other action that the Agent may reasonably request to transfer such
control. Any proceeds of Pool Receivables received by the Seller, as Servicer
or otherwise, thereafter shall be sent immediately to the Agent. The parties
hereto hereby acknowledge that if at any time the Agent takes control of any
Lock-Box Account, the Collection Account and the Liquidation Account, the Agent
shall not have any rights to the funds therein in excess of the unpaid amounts
due to the Agent, the Purchaser or any other Person hereunder.
Section 4.4. ENFORCEMENT RIGHTS. (a) At any time following the occurrence
of a Termination Event:
(i) the Agent may direct the Obligors that payment of all amounts
payable under any Pool Receivable be made directly to the Agent or its
designee;
(ii) the Agent may instruct the Seller or the Servicer to give notice
of the Purchaser's interest in Pool Receivables to each Obligor, which
notice shall direct that payments be made directly to the Agent or its
designee, and upon such instruction from the Agent the Seller or the
Servicer, as applicable, shall give such notice at the
-17-
<PAGE>
expense of the Seller; provided, that if the Seller or the Servicer
fails to so notify each Obligor, the Agent may so notify the Obligors;
and
(iii) the Agent may request the Seller or the Servicer to, and upon
such request the Seller or the Servicer, as applicable, shall, (A) assemble
all of the records necessary or desirable to collect the Pool Receivables
and the Related Security, and transfer or license to any new Servicer the
use of all software necessary or desirable to collect the Pool Receivables
and the Related Security, and make the same available to the Agent or its
designee at a place selected by the Agent, and (B) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections with respect to the Pool Receivables in a manner acceptable to
the Agent and, promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer,
to the Agent or its designee.
(b) The Seller hereby authorizes the Agent, and irrevocably appoints the
Agent as its attorney-in-fact with full power of substitution and with full
authority in the place and stead of the Seller, which appointment is coupled
with an interest, to take any and all steps in the name of the Seller and on
behalf of the Seller necessary or desirable, in the determination of the Agent,
to collect any and all amounts or portions thereof due under any and all Pool
Receivables or Related Security, including, without limitation, endorsing the
name of the Seller on checks and other instruments representing Collections and
enforcing such Pool Receivables, Related Security and the related Contracts.
Notwithstanding anything to the contrary contained in this SUBSECTION (b), none
of the powers conferred upon such attorney-in-fact pursuant to the immediately
preceding sentence shall subject such attorney-in-fact to any liability if any
action taken by it shall prove to be inadequate or invalid, nor shall they
confer any obligations upon such attorney-in-fact in any manner whatsoever.
Section 4.5. RESPONSIBILITIES OF THE SELLER. Anything herein to the
contrary notwithstanding, the Seller shall (i) perform all of its obligations,
if any, under the Contracts related to the Pool Receivables to the same extent
as if interests in such Pool Receivables had not been transferred hereunder, and
the exercise by the Agent or the Purchaser of its rights hereunder shall not
relieve the Seller from such obligations and (ii) pay when due any taxes,
including, without limitation, any sales taxes payable in connection with the
Pool Receivables and their creation and satisfaction. The Agent and the
Purchaser shall not have any obligation or liability with respect to any Pool
Receivable, any Related Security or any
-18-
<PAGE>
related Contract, nor shall any of them be obligated to perform any of the
obligations of the Seller under any of the foregoing.
Section 4.6. SERVICING FEE. The Servicer shall be paid a fee, through
distributions contemplated by SECTION 1.4(d), equal to 0.50% PER ANNUM of the
average outstanding Investment.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement or consent to any departure by the Seller or Servicer therefrom
shall be effective unless in a writing signed by the Agent, and, in the case of
any amendment, by the Seller and the Servicer and then such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Purchaser or Agent to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
Section 5.2. NOTICES, ETC. All notices and other communications hereunder
shall, unless otherwise stated herein, be in writing (which shall include
facsimile communication) and sent or delivered, to each party hereto, at its
address set forth under its name on the signature pages hereof or at such other
address as shall be designated by such party in a written notice to the other
parties hereto. Notices and communications by facsimile shall be effective when
sent (and shall be followed by hard copy sent by first class mail), and notices
and communications sent by other means shall be effective when received.
Section 5.3. ASSIGNABILITY. (a) This Agreement and the Purchaser's rights
and obligations herein (including ownership of the Participation) shall be
assignable, in whole or in part, by the Purchaser and its successors and assigns
with the prior written consent of the Seller; PROVIDED, HOWEVER, that such
consent shall not be unreasonably withheld; and PROVIDED, FURTHER, that no such
consent shall be required if the assignment is made to any Affiliate of the
Purchaser, any Liquidity Bank or other Program Support Provider or any Person
which is (i) in the business of issuing Notes (including, without limitation,
PAR) and (ii) associated with or administered by the Agent or any Affiliate of
the Purchaser (each such Person, a "NOTE ISSUER"). Each assignor may, in
connection with the assignment, disclose to the applicable assignee any
information relating to the Seller or
-19-
<PAGE>
the Pool Receivables furnished to such assignor by or on behalf of the
Seller, the Purchaser or the Agent.
The parties hereto anticipate that Bank of Montreal may assign all of its
rights and obligations under this Agreement and the other Transaction Documents
to Pooled Accounts Receivable Capital Corporation, a Delaware corporation
("PAR"). The Seller to the extent required hereunder hereby consents to such
assignment, and agrees that upon receipt by the Seller and the Servicer of
notice of such assignment by Bank of Montreal, (i) all references herein and in
the other Transaction Documents to the "Purchaser" shall be deemed to refer to
PAR and (ii) all references herein and in the other Transaction Documents to the
"Agent" shall refer to Nesbitt Burns, as agent for PAR. The Seller, the
Servicer and the Purchaser hereby agree to execute and deliver such documents
and instruments, including UCC financing statements, as the Agent may reasonably
request to evidence such assignment.
Upon the assignment by the Purchaser in accordance with this SECTION 5.3,
the assignee receiving such assignment shall have all of the rights of the
Purchaser with respect to the Transaction Documents and the Investment (or such
portion thereof as has been assigned).
(b) The Purchaser may at any time grant to one or more banks or other
institutions (each a "LIQUIDITY BANK") party to the Liquidity Agreement or to
any other Program Support Provider participating interests or security interests
in the Participation. In the event of any such grant by the Purchaser of a
participating interest to a Liquidity Bank or other Program Support Provider,
the Purchaser shall remain responsible for the performance of its obligations
hereunder. The Seller agrees that each Liquidity Bank or other Program Support
Provider shall be entitled to the benefits of SECTIONS 1.8, 1.9 and 1.10.
(c) This Agreement and the rights and obligations of the Agent hereunder
shall be assignable, in whole or in part, by the Agent and its successors and
assigns; PROVIDED, HOWEVER, that if such assignment is to any Person who is not
an Affiliate of the Agent, the Agent must receive the prior written consent of
the Seller (which consent shall not be unreasonably withheld).
(d) Except as provided in SECTION 4.1(d), neither the Seller nor the
Servicer may assign its rights or delegate its obligations hereunder or any
interest herein without the prior written consent of the Agent.
(e) Without limiting any other rights that may be available under
applicable law, the rights of the Purchaser may be enforced through it or by its
agents.
-20-
<PAGE>
Section 5.4. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of
indemnification granted under SECTION 3.1 hereof, the Seller agrees to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery and administration (including periodic auditing of Pool
Receivables) of this Agreement, the Liquidity Agreement, and the other documents
and agreements to be delivered hereunder, including all reasonable costs and
expenses relating to the amending, amending and restating, modifying or
supplementing of this Agreement, the Liquidity Agreement and the other documents
and agreements to be delivered hereunder and the waiving of any provisions
thereof, and including in all cases, without limitation, Attorney Costs for the
Agent, the Purchaser and their respective Affiliates and agents with respect
thereto and with respect to advising the Agent, the Purchaser and their
respective Affiliates and agents as to their rights and remedies under this
Agreement and the other Transaction Documents, and all reasonable costs and
expenses, if any (including Attorney Costs), of the Agent, the Purchaser and
their respective Affiliates and agents, in connection with the enforcement of
this Agreement and the other Transaction Documents.
(b) In addition, the Seller shall pay on demand any and all stamp and
other taxes and fees payable in connection with the execution, delivery, filing
and recording of this Agreement or the other documents or agreements to be
delivered hereunder, and agrees to save each Indemnified Party harmless from and
against any liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees.
SECTION 5.5. NO PROCEEDINGS; LIMITATION ON PAYMENTS. Each of the Seller,
the Servicer, the Agent, each assignee of the Participation or any interest
therein, and each Person which enters into a commitment to purchase the
Participation or interests therein, hereby covenants and agrees that it will not
institute against, or join any other Person in instituting against, any Note
Issuer, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding, or other proceeding under any federal or state bankruptcy or similar
law, for one year and one day after the latest maturing Note issued by any such
Note Issuer is paid in full.
Section 5.6. CONFIDENTIALITY. Unless otherwise required by applicable
law, the Seller agrees to maintain the confidentiality of this Agreement and the
other Transaction Documents (and all drafts thereof) in communications with
third parties and otherwise; PROVIDED that this Agreement may be disclosed to
(a) third parties to the extent such disclosure is made pursuant to a written
agreement of confidentiality in form and substance reasonably satisfactory to
the Agent, (b) the Seller's legal counsel and auditors if they agree to hold it
confidential and
-21-
<PAGE>
(c) to the parties to the Credit and Guarantee Agreement; PROVIDED that only
the terms and conditions of this agreement may be revealed to such parties
and not the details of any fees, pricing or interest rates.
Section 5.7. GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF PERFECTION
OR NON-PERFECTION) OF THE INTERESTS OF THE PURCHASER IN THE POOL RECEIVABLES
AND THE OTHER ITEMS DESCRIBED IN SECTION 1.2(d) IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR OF THE UNITED
STATES FOR THE FEDERAL DISTRICT OF MASSACHUSETTS, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH OF THE PURCHASER, THE SELLER, THE SERVICER AND THE AGENT
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PURCHASER, THE SELLER, THE SERVICER
AND THE AGENT IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE PURCHASER, THE SELLER, THE
SERVICER AND THE AGENT EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY MASSACHUSETTS
LAW.
Section 5.8. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one and the
same agreement.
Section 5.9. SURVIVAL OF TERMINATION. The provisions of SECTIONS 1.8,
1.9, 1.10, 3.1, 5.4, 5.5, 5.6, 5.7 and 5.10 shall survive any termination of
this Agreement.
Section 5.10. WAIVER OF JURY TRIAL. THE PURCHASER, THE SELLER, THE
SERVICER AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THE PURCHASER, THE SELLER, THE SERVICER AND THE AGENT EACH AGREE
THAT ANY SUCH CLAIM
-22-
<PAGE>
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
Section 5.11. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the Purchaser, the Seller, the Servicer and
the Agent, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof, except for any prior arrangements made with respect
to the payment by the Purchaser of (or any indemnification for) any fees, costs
or expenses payable to or incurred (or to be incurred) by or on behalf of the
Seller, the Servicer and the Agent.
Section 5.12. HEADINGS. The captions and headings of this Agreement and
in any Exhibit hereto are for convenience of reference only and shall not affect
the interpretation hereof or thereof.
Section 5.13. PURCHASER'S LIABILITIES. The obligations of the Purchaser
under this Agreement are solely the corporate obligations of the Purchaser. No
recourse shall be had for any obligation or claim arising out of or based upon
this Agreement against any stockholder, employee, officer, director or
incorporator of the Purchaser; and PROVIDED, HOWEVER, that this SECTION 5.13
shall not relieve any such Person of any liability it might otherwise have for
its own gross negligence or willful misconduct. The agreements provided in this
SECTION 5.13 shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
-23-
<PAGE>
S.D. WARREN FINANCE CO., as Seller
By:_____________________________________
Name:
Title:
S.D. WARREN FINANCE CO.
225 Franklin Street
Boston, Massachusetts 02110
Attention: _______________________
Telephone: (617) 423-7300
Facsimile: (617) 423-5494
S.D. WARREN COMPANY, as Servicer
By:_____________________________________
Name:
Title:
S.D. WARREN COMPANY
225 Franklin Street
Boston, Massachusetts 02110
Attention: _______________________
Telephone: (617) 423-7300
Facsimile: (617) 423-5494
NESBITT BURNS SECURITIES INC., as Agent
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
NESBITT BURNS SECURITIES INC.
111 West Monroe Street
Chicago, Illinois 60603
Attention: David J. Kucera
Telephone: (312) 461-3893
Facsimile: (312) 461-6327
<PAGE>
BANK OF MONTREAL, as Purchaser
By:_____________________________________
Name:
Title:
Bank of Montreal
115 S. LaSalle Street
Chicago, Illinois 60603
Attention: Steven Staples
Telephone: (312) 750-3837
Facsimile: (312) 750-3808
<PAGE>
EXHIBIT I
DEFINITIONS
As used in the Agreement (including its Exhibits), the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined). Unless otherwise
indicated, all Section, Annex, Exhibit and Schedule references in this Exhibit
are to Sections of and Annexes, Exhibits and Schedules to the Agreement.
"ADVERSE CLAIM" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement, it being understood
that a lien, security interest or other charge or encumbrance, or any other type
of preferential arrangement, in favor of the Purchaser shall not constitute an
Adverse Claim.
"AFFECTED PERSON" has the meaning set forth in Section 1.8.
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such Person, except that with
respect to the Purchaser, Affiliate shall mean the holder(s) of its capital
stock.
"AGENT" has the meaning set forth in the preamble to the Agreement.
"APPLICABLE MARGIN" has the meaning set forth in the Fee Letter.
"ATTORNEY COSTS" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel, to be paid as set forth in
the Fee Letter.
"AVERAGE MATURITY" means at any time that period of days equal to the
average days sales outstanding of the Pool Receivables calculated by the
Servicer in the then most recent Servicer Report; PROVIDED, that if the Agent
shall disagree with any such calculation, the Agent may recalculate such Average
Maturity, and any such recalculation shall be prima facie evidence of such
Average Maturity.
"BANK OF MONTREAL" means Bank of Montreal, a Canadian chartered bank.
I-1
<PAGE>
"BANK RATE" for any Yield Period for any Portion of Investment of the
Participation means an interest rate PER ANNUM equal to the Applicable Margin
above the Eurodollar Rate for such Yield Period; provided, further, that in the
case of
(i) any Yield Period on or prior to the first day of which the
Agent shall have been notified by a Liquidity Bank or the Purchaser
that the introduction of or any change in or in the interpretation of
any law or regulation makes it unlawful, or any central bank or other
Governmental Authority asserts that it is unlawful, for such Liquidity
Bank or the Purchaser to fund any Portion of Investment (based on the
Eurodollar Rate) set forth above (and such Liquidity Bank or the
Purchaser, as applicable, shall not have subsequently notified the
Agent that such circumstances no longer exist),
(ii) any Yield Period of one to (and including) 13 days,
(iii) any Yield Period as to which the Agent does not receive
notice, by no later than 12:00 noon (Chicago time) on (w) the second
Business Day preceding the first day of such Yield Period that the
Seller desires that the related Portion of Investment be funded at the
CP Rate, (x) the third Business Day preceding the first day of such
Yield Period that the Seller desires that the related Portion of
Investment be funded at the Bank Rate, or (y) the Seller has given the
notice contemplated by clause (w) of this CLAUSE (III) and the Agent
shall have notified the Seller that funding the related Portion of
Investment at the CP Rate is unacceptable to the Purchaser, or
(iv) any Yield Period relating to a Portion of Investment which
is less than $5,000,000,
the "BANK RATE" for each such Yield Period shall be an interest rate per annum
equal to the Base Rate in effect on each day of such Yield Period.
Notwithstanding the foregoing, the "BANK RATE" for each day in a Yield Period
occurring during the continuance of a Termination Event shall be an interest
rate equal to 2% PER ANNUM above the Base Rate in effect on such day.
"BANKRUPTCY CODE" means the United States Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, ET SEQ.), as amended from time to time.
"BASE RATE" means for any day, a fluctuating interest rate per annum
as shall be in effect from time to time, which
I-2
<PAGE>
rate shall be at all times equal to the rate of interest most recently
announced by Bank of Montreal at its branch in Chicago, Illinois as its prime
commercial rate for United States loans made in the United States.
"BUSINESS DAY" means any day on which (i) both (A) the Agent at its
branch office in Chicago, Illinois is open for business and (B) commercial banks
in New York City are not authorized or required to be closed for business, and
(ii) if this definition of "Business Day" is utilized in connection with the
Eurodollar Rate, dealings are carried out in the London interbank market.
"CHANGE IN CONTROL" means
(a) the failure of Sappi Limited and its wholly owned subsidiaries to
beneficially own at least 51% (or 40% after an initial public offering or
subsequent public offering of common stock) of the capital stock of S.D.
Warren Holdings or to have the right to appoint a majority of the Board of
Directors; or
(b) the failure of S.D. Warren Holdings to own all of the capital
stock of S.D. Warren Company (other than the senior preferred stock); or
(c) the failure of S.D. Warren Company to own at least 100% of the
outstanding shares of voting stock of the Seller, subject to the pledge to
Chemical Bank, as agent, under the Credit and Guarantee Agreement.
"COLLECTION ACCOUNT" means that certain bank account numbered 441-983-4
maintained at Harris Trust and Savings Bank in Chicago, Illinois which is (i)
identified as the "S.D. WARREN FINANCE CO. COLLECTION ACCOUNT," (ii) in the
Seller's name, (iii) pledged, on a first-priority basis, to the Purchaser
pursuant to SECTION 1.2(D), and (iv) is governed by the Collection Account
Agreement.
"COLLECTION ACCOUNT AGREEMENT" means a letter agreement, in the form
of EXHIBIT VI to the Agreement, among the Seller, the Agent and the Collection
Account Bank, as the same may be amended, supplemented, amended and restated, or
otherwise modified from time to time in accordance with the Agreement.
I-3
<PAGE>
"COLLECTION ACCOUNT BANK" means the bank holding the Collection
Account.
"COLLECTION DELAY PERIOD" means 0.5 times the Average Maturity or such
other number of days as the Agent may from time to time select upon three
Business Days' notice to the Seller.
"COLLECTIONS" means, with respect to any Pool Receivable, (a) all
funds which are received by the Seller, an Originator or the Servicer in payment
of any amounts owed in respect of such Receivable (including, without
limitation, purchase price, finance charges, interest and all other charges), or
applied to amounts owed in respect of such Receivable (including, without
limitation, insurance payments and net proceeds of the sale or other disposition
of repossessed goods or other collateral or property of the related Obligor or
any other Person directly or indirectly liable for the payment of such Pool
Receivable and available to be applied thereon), (b) all Collections deemed to
have been received pursuant to SECTION 1.4(e) and (c) all other proceeds of such
Receivable.
"COMMITMENT FEE" has the meaning set forth in the Fee Letter.
"COMPANY NOTE" has the meaning set forth in Section 3.2 of the
Purchase and Contribution Agreement.
"CONCENTRATION PERCENTAGE" means, for any Obligor, the percentage
equal to (a) the aggregate Outstanding Balances of all Eligible Receivables of
such Obligor DIVIDED BY (b) the aggregate Outstanding Balances of all Eligible
Receivables then in the Receivables Pool.
"CONTRACT" means, with respect to any Receivable, any and all
contracts, understandings, instruments, agreements, invoices, notes, or other
writings pursuant to which such Receivable arises or which evidences such
Receivable or under which an Obligor becomes or is obligated to make payment in
respect of such Receivable.
"CP RATE" for any Yield Period for any Portion of Investment of the
Participation means, to the extent the Purchaser funds such Portion of
Investment for such Yield Period by issuing Notes, a rate PER ANNUM equal to the
sum of (i) the rate (or if more than one rate, the weighted average of the
rates) at which Notes of the Purchaser having a term equal to such Yield Period
and to be issued to fund such Portion of Investment may be sold by any placement
agent or commercial paper dealer selected by the Agent on behalf of the
Purchaser, as agreed between each such agent or dealer and the Agent and
notified by the Agent to the Servicer; PROVIDED, that if the rate (or rates) as
agreed between any such agent or dealer and the Agent with regard to any Yield
Period for such Portion of Investment is a discount rate (or rates), then such
rate shall be
I-4
<PAGE>
the rate (or if more than one rate, the weighted average of the rates)
resulting from converting such discount rate (or rates) to an
interest-bearing equivalent rate per annum, PLUS (ii) the commissions and
charges charged by such placement agent or commercial paper dealer with
respect to such Notes, expressed as a percentage of such face amount and
converted to an interest-bearing equivalent rate PER ANNUM.
"CREDIT AND COLLECTION POLICY" means those receivables credit and
collection policies and practices of the Servicer in effect on the date of the
Agreement and described in SCHEDULE I hereto, as modified in compliance with the
Agreement.
"CREDIT AND GUARANTEE AGREEMENT" means that certain Amended and
Restated Credit and Guarantee Agreement, dated as of April 26, 1996, among SDW
Holdings Corporation, S.D. Warren Company, Chemical Bank, as agent, and the
other parties thereto.
"DEBT" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, (v) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of kinds referred to in CLAUSES (I) through (iv) above,
and (vi) liabilities in respect of unfunded vested benefits under plans covered
by Title IV of ERISA.
"DEFAULT RATIO" means the ratio (expressed as a percentage and rounded
upward to the nearest 1/100 of 1%) computed as of the last day of each Fiscal
Month by dividing (i) the aggregate Outstanding Balance of all Pool Receivables
(net of all miscellaneous credits) that were Defaulted Receivables on such day
or that would have been Defaulted Receivables on such day had they not been
written off the books of the Seller during such month by (ii) the aggregate
Outstanding Balance of all Pool Receivables on such day.
"DEFAULTED RECEIVABLE" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for
at least 61 days from the original due date for such payment;
(ii) as to which the Obligor thereof or any other Person
obligated thereon or owning any Related Security in respect thereof
has taken any action, or suffered
I-5
<PAGE>
any event to occur, of the type described in PARAGRAPH (G) of
EXHIBIT V hereto; or
(iii) which, consistent with the Credit and Collection Policy,
would be written off the Seller's books as uncollectible.
"DELINQUENCY RATIO" means the ratio (expressed as a percentage and
rounded upward to the nearest 1/100 of 1%) computed as of the last day of each
Fiscal Month by dividing (i) the aggregate Outstanding Balance of all Pool
Receivables (net of all miscellaneous credits) that were Delinquent Receivables
on such day by (ii) the aggregate Outstanding Balance of all Pool Receivables on
such day.
"DELINQUENT RECEIVABLE" means a Receivable which is not a Defaulted
Receivable and:
(i) as to which any payment, or part thereof, remains unpaid for
at least 31 days from the original due date for such payment; or
(ii) which, consistent with the Credit and Collection Policy,
would be classified as delinquent by the Seller.
"DESIGNATED OBLIGOR" means, at any time, all Obligors of the
Originators except any Obligor as to which the Agent in good faith has given
notice to Seller that such Obligor shall not be considered a Designated Obligor,
such notice to become effective on the last day of the Fiscal Month in which
such notice is given.
"DILUTION PERCENTAGE" means the greater of (a) 3.5% or (b) two (2)
times the highest Dilution Ratio as of the last day of each of the twelve (12)
months ended immediately preceding such date for so long as the Purchaser is not
PAR, or one and one-half (1.5) times the highest Dilution Ratio as of the last
day of each of the twelve (12) months ended immediately preceding such date for
so long as the Purchaser is PAR.
"DILUTION RATIO" means, for any Fiscal Month, the ratio (expressed as
a percentage and rounded upwards to the nearest 1/100th of 1%) of (a) the
aggregate Outstanding Balance of all Pool Receivables during such period that
have been reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed goods or services, or any discount or adjustment made
by the Originator, Seller or Servicer or any setoff or dispute between the
Seller, Originator or the Servicer and an Obligor, to (b) the aggregate amount
of Collections of Pool Receivables actually received during such period.
I-6
<PAGE>
"DILUTION RESERVE" for the Participation at any time means the product
of (i) the Dilution Percentage as of the end of the immediately preceding Fiscal
Month and (ii) the Investment of the Participation at the time of computation.
"DISCOUNT" means:
(i) for the Portion of Investment of the Participation for any
Yield Period to the extent the Purchaser will be funding such Portion
of Investment on the first day of such Yield Period through the
issuance of Notes,
CPR x I x ED + TF
--
360
(ii) for the Portion of Investment of the Participation for any
Yield Period to the extent the Purchaser will not be funding such
Portion of Investment on the first day of such Yield Period through
the issuance of Notes,
ED
--
BR x I x 360 + TF
where:
BR = the Bank Rate for the Portion of Investment of the
Participation for such Yield Period
I = the Portion of Investment of the Participation during such
Yield Period
CPR = the CP Rate for the Portion of Investment of the
Participation for such Yield Period
ED = the actual number of days during such Yield Period
TF = the Termination Fee, if any, for the Portion of Investment
of the Participation for such Yield Period
; PROVIDED, that no provision of the Agreement shall require the payment or
permit the collection of Discount in excess of the maximum permitted by
applicable law; and PROVIDED, FURTHER, that Discount for the Portion of
Investment of the Participation shall not be considered paid by any distribution
to the extent that at any time all or a portion of such distribution is
rescinded or must otherwise be returned for any reason.
I-7
<PAGE>
"DISCOUNT RESERVE" for the Participation at any time means the sum of
(i) the Termination Discount at such time for the Participation, and (ii) the
then accrued and unpaid Discount for the Participation.
"DIVIDENDS" means any dividend or distribution (in cash or
obligations) on any shares of any class of Seller's capital stock or any
warrants, options or other rights with respect to shares of any class of
Seller's capital stock.
"ELIGIBLE RECEIVABLES" means, at any time, Receivables:
(i) the Obligor of which is a United States resident or Canadian
resident or a resident of such other jurisdiction as has been approved
in writing by the Agent, is not an Affiliate of the Seller (unless
(x) supported by a letter of credit in a face amount at least equal to
the Outstanding Balance of such Receivables issued for the benefit of
the Liquidity Banks and/or the Purchaser and in a form acceptable to
the Agent and Liquidity Agent and issued by a financial institution
with a short-term unsecured credit rating of at least A-1/P-1 by the
Rating Agencies which is acceptable to the Agent and the Liquidity
Agent or (y) approved by the Purchaser, the Liquidity Agent and the
Rating Agencies), is not subject to any action of the type described
in PARAGRAPH (G) of EXHIBIT V, and is not an Excluded Obligor;
PROVIDED, HOWEVER, that if the Obligor of such Receivable is a
government or governmental subdivision or agency, the Outstanding
Balance of such Receivable when added to the Outstanding Balance of
all other Eligible Receivables, the Obligors of which are governments
or governmental subdivisions or agencies, does not exceed 5% of the
Outstanding Balance of all Eligible Receivables then in the
Receivables Pool and if the Obligor of such Receivable is a Canadian
resident, the Outstanding Balance of such Receivable when added to the
Outstanding Balance of all other Eligible Receivables, the Obligors of
which are Canadian residents, does not exceed 5% of the Outstanding
Balance of all Eligible Receivables then in the Receivables Pool;
PROVIDED FURTHER, HOWEVER, that Receivables the Obligors of which are
Canadian residents shall not constitute Eligible Receivables if the
claims paying rating of Canada is downgraded below "A" by S&P;
(ii) which are denominated and payable only in U.S. dollars in
the United States or Canada;
I-8
<PAGE>
(iii) which have a stated maturity and which stated maturity is
not more than 30 days after the date on which such Receivable was
generated;
(iv) which arise under a Contract which is in full force and
effect and which is a legal, valid and binding obligation of the
related Obligor, enforceable against such Obligor in accordance with
its terms;
(v) which conform with all applicable laws, rulings and
regulations in effect;
(vi) which are not the subject of any asserted dispute, offset,
hold back defense, Adverse Claim or other claim and which does not
arise from the sale of inventory which is subject to any Adverse
Claim;
(vii) which comply with the requirements of the Credit and
Collection Policy and the payment and other terms of the Contract
related to the Receivable are consistent with customary terms for an
Originator's industry and type of Receivables;
(viii) which arise from the sale and delivery of goods or
services in the ordinary course of an Originator's business;
(ix) which are not subject to any "exchange agreement" with the
Seller or Originator thereof or any contingent performance
requirements of an Originator;
(x) which do not require the consent of the related Obligor to
be sold or assigned;
(xi) which have not been modified or restructured since their
creation, except as permitted pursuant to SECTION 4.2 of the
Agreement;
(xii) in which the Seller owns good and marketable title and
which are freely assignable by the Seller;
(xiii) for which the Purchaser shall have a valid and
enforceable undivided percentage ownership interest, to the extent of
the Participation, and a valid and enforceable first priority
perfected security interest therein and in the Related Security and
Collections with respect thereto, in each case free and clear of any
Adverse Claim;
I-9
<PAGE>
(xiv) which constitute accounts as defined in the UCC, and which
are not evidenced by instruments or chattel paper;
(xv) which are not Defaulted Receivables or Delinquent
Receivables;
(xvi) for which the Seller has established no offset
arrangements with the related Obligor;
(xvii) the Obligor of which is not the Obligor of Defaulted
Receivables in an aggregate amount in excess of 10% of the aggregate
Outstanding Balance of all Receivables of such Obligor and the Obligor
of which is not the Obligor (excluding any Obligor which is an
Affiliate of the Seller) of Delinquent Receivables in an aggregate
amount in excess of 50% of the aggregate Outstanding Balance of all
Receivables of such Obligor;
(xviii) the Obligor of which is a Designated Obligor; and
(xix) which do not constitute "bill and hold" receivables;
PROVIDED, HOWEVER, that miscellaneous credits accrued and payable to an Obligor
with respect to volume and sales discounts shall be deducted from the Eligible
Receivables of each Obligor when calculating the aggregate Outstanding Balance
of Eligible Receivables.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"ERISA AFFILIATE" shall mean with respect to any Person, at any time,
each trade or business (whether or not incorporated) that would, at the time, be
treated together with such Person as a single employer under Section 4001 of
ERISA or Sections 414(b), (c), (m) or (o) of the Code.
"EURODOLLAR RATE" means, for any Yield Period, an interest rate per
annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the
following formula:
Eurodollar Rate = LIBOR
____________________________________
1.00 - Eurodollar Reserve Percentage
I-10
<PAGE>
Where,
"EURODOLLAR RESERVE PERCENTAGE" means, for any Yield Period, the
maximum reserve percentage (expressed as a decimal, rounded upward to the
nearest 1/100th of 1%) in effect on the date LIBOR for such Yield Period is
determined under regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement) with
respect to "Eurocurrency" funding (currently referred to as "Eurocurrency
liabilities") having a term comparable to such Yield Period; and
"LIBOR" means the rate of interest per annum determined by the
Liquidity Agent to be the arithmetic mean (rounded upward to the nearest
1/16th of 1%) of the rates of interest per annum notified to the Liquidity
Agent as the rate of interest at which dollar deposits in the approximate
amount of the Investment associated with such Yield Period would be offered
to major banks in the London interbank market at their request at or about
11:00 a.m. (London time) on the second Business Day prior to the
commencement of such Yield Period.
"EXCLUDED OBLIGOR" means an Obligor, so designated in writing as such
by the Agent in its sole discretion to the Seller, from time to time, it being
understood that from time to time the Agent may revoke its designation of one or
more Obligors as Excluded Obligors by written notice to the Seller.
"FACILITY TERMINATION DATE" means October 23, 1996; PROVIDED, HOWEVER,
that the "Facility Termination Date" shall mean April 23, 2001 if PAR shall
become Purchaser hereunder.
"FEDERAL FUNDS RATE" means, for any period, the PER ANNUM rate set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Board (including any
such successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate." If
on any relevant day the appropriate rate for such previous day is not yet
published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate
for such day will be the arithmetic mean as determined by the Agent of the rates
for the
I-11
<PAGE>
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
"FEE LETTER" has the meaning set forth in SECTION 1.5.
"FINAL PAYOUT DATE" means the date following the Facility Termination
Date on which no Investment or Discount in respect of the Participation under
the Agreement shall be outstanding and all other amounts payable by the
Originator, the Seller or the Servicer to the Purchaser, the Agent or any other
Affected Person under the Transaction Documents shall have been paid in full.
"FISCAL MONTH" means each fiscal month listed on SCHEDULE IV hereto,
as updated with respect to additional fiscal months by notice from the Servicer
to the Agent.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any body or entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any court, and any Person owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"INDEMNIFIED AMOUNTS" has the meaning set forth in Section 3.1.
"INDEMNIFIED PARTY" has the meaning set forth in Section 3.1.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidations, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case (a) and (b) undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"INVESTMENT" means the amount paid to the Seller in respect of the
Participation by the Purchaser pursuant to the
I-12
<PAGE>
Agreement, or such amount divided or combined in accordance with SECTION 1.7,
in each case reduced from time to time by Collections distributed and applied
on account of such Investment pursuant to SECTION 1.4(D) and increased from
time to time by reinvestments pursuant to SECTION 1.4(B)(II); PROVIDED, that
if such Investment shall have been reduced by any distribution and thereafter
all or a portion of such distribution is rescinded or must otherwise be
returned for any reason, such Investment shall be increased by the amount of
such rescinded or returned distribution, as though it had not been made.
"INVESTMENT GRADE" means, with respect to any Person's long term
public senior debt securities, a rating of at least BBB- by Standard & Poor's
Ratings Services or Baa3 by Moody's Investors Service, Inc.; PROVIDED, that if
such Person's long- term public senior debt securities are rated by more than
one of the foregoing rating agencies, then each such rating agency which rates
such securities shall have given them a rating at least equal to the categories
specified above.
"LIQUIDATION ACCOUNT" means that certain bank account numbered
441-984-2 maintained at Harris Trust and Savings Bank in Chicago, Illinois
which is (i) identified as the "S.D. WARREN FINANCE CO. LIQUIDATION ACCOUNT,"
(ii) in the Seller's name, (iii) pledged, on a first-priority basis, to the
Purchaser pursuant to SECTION 1.2(D), and (iv) is governed by the Liquidation
Account Agreement.
"LIQUIDATION ACCOUNT AGREEMENT" means a letter agreement, in the form
of EXHIBIT VII to the Agreement, among the Seller, the Agent and the Liquidation
Account Bank, as the same may be amended, supplemented, amended and restated, or
otherwise modified from time to time in accordance with the Agreement.
"LIQUIDATION ACCOUNT BANK" means the bank holding the Liquidation
Account.
"LIQUIDITY AGENT" means Bank of Montreal in its capacity as Liquidity
Agent pursuant to the Liquidity Agreement.
"LIQUIDITY AGREEMENT" means that certain Liquidity Asset Purchase
Agreement in form and substance satisfactory to the Rating Agencies and the
Agent and entered into among Bank of Montreal, such other financial institutions
as may be parties thereto, Bank of Montreal, as Liquidity Agent, Nesbitt Burns,
as servicing agent, and PAR, as amended, amended and restated, supplemented or
otherwise modified from time to time.
"LIQUIDITY BANK" has the meaning set forth in SECTION 5.3(B).
I-13
<PAGE>
"LOCK-BOX ACCOUNT" means an account maintained at a bank or other
financial institution for the purpose of receiving Collections established
pursuant to SECTION 4.3 and as listed on SCHEDULE II.
"LOCK-BOX AGREEMENT" means an agreement, in substantially the form of
ANNEX A, between the Seller and each Lock-Box Bank.
"LOCK-BOX BANK" means any of the banks or other financial institutions
holding one or more Lock-Box Accounts.
"LOSS PERCENTAGE" means, on any date, the greater of (i) 3 times the
highest Default Ratio as of the last day of each of the twelve (12) Fiscal
Months ended immediately preceding such date and (ii) 10%; PROVIDED, HOWEVER,
that if PAR shall become the Purchaser hereunder, CLAUSE (II) shall equal 7.5%.
"LOSS RESERVE" means, for the Participation, on any date, an amount
equal to
LP x NRPB
where:
LP = the Loss Percentage for the Participation on such date.
NRPB = Net Receivables Pool Balance.
"LOSS-TO-lIQUIDATION RATIO" means the ratio (expressed as a percentage
and rounded upward to the nearest 1/100th of 1%) computed as of the last day of
each Fiscal Month by dividing (i) the aggregate Outstanding Balance of all Pool
Receivables written off by the Seller, or which should have been written off by
the Seller in accordance with the Credit and Collection Policy, during such
Fiscal Month by (ii) the aggregate amount of Collections of Pool Receivables
actually received during such period.
"MOODY'S" means Moody's Investors Services, Inc.
"NET RECEIVABLES POOL BALANCE" means at any time an amount equal to
the sum of (a) the aggregate Outstanding Balances of Eligible Receivables then
in the Receivables Pool MINUS (b) the aggregate amount by which the Outstanding
Balance of the Eligible Receivables of each Obligor then in the Receivables Pool
exceeds the product of (A) the Normal Concentration Percentage for such Obligor
multiplied by (B) the Outstanding Balance of the Eligible Receivables then in
the Receivables Pool.
I-14
<PAGE>
"NORMAL CONCENTRATION PERCENTAGE" for any Obligor means at any time
3.0% if such Obligor is not a Special Obligor, or if such Obligor is a Special
Obligor, the percentage set forth opposite its name on EXHIBIT VIII; PROVIDED,
HOWEVER, that if PAR shall become the Purchaser hereunder, then the "Normal
Concentration Percentage" shall equal 2.5% if such Obligor is not a Special
Obligor.
"NOTE ISSUER" has the meaning set forth in SECTION 5.3(A).
"NOTES" means short-term promissory notes issued or to be issued by
any Note Issuer (including, without limitation, PAR) to fund its investments in
accounts receivable or other financial assets.
"OBLIGOR" means, with respect to any Receivable, the Person obligated
to make payments pursuant to the Contract relating to such Receivable.
"ORIGINATOR" has the meaning set forth in the Purchase and
Contribution Agreement.
"OUTSTANDING BALANCE" of any Receivable at any time means the then
outstanding principal balance thereof.
"PAR" has the meaning set forth in SECTION 5.3(A).
"PARTICIPATION" means, at any time, the undivided percentage ownership
interest in (i) each and every Pool Receivable now existing or hereafter
arising, other than any Pool Receivable that arises on or after the Facility
Termination Date, (ii) all Related Security with respect to such Pool
Receivables, and (iii) all Collections with respect to, and other proceeds of,
such Pool Receivables and Related Security. Such undivided percentage interest
shall be computed as
I + DR + LR + DIR + SFR
_______________________
NRB
where:
I = the Investment of the Participation at the time of
computation.
DR = the Discount Reserve of the Participation at the time of
computation.
LR = the Loss Reserve of the Participation at the time of
computation.
I-15
<PAGE>
DIR = the Dilution Reserve of the Participation at the time of the
computation.
SFR = the Servicing Fee Reserve of the Participation at the time
of computation.
NRB = the Net Receivables Pool Balance at the time of computation.
The Participation shall be determined from time to time pursuant to the
provisions of SECTION 1.3.
"PERMITTED INVESTMENTS" means certificates of deposit that are not
represented by instruments, have a maturity of one week or less and are issued
by the Collection Account Bank, Liquidation Account Bank (with respect to the
investment of funds in the Collection Account or Liquidation Account,
respectively) or Bank of Montreal; PROVIDED, HOWEVER, that the Agent (on behalf
of Purchaser) may, from time to time, upon three Business Days' prior written
notice to Servicer, remove from the scope of "Permitted Investments"
certificates of deposit of any such Bank(s) and specify to be within such scope,
certificates of deposit of any other bank.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.
"POOL RECEIVABLE" means a Receivable in the Receivables Pool.
"PORTFOLIO CERTIFICATE" means a certificate substantially in the form
of EXHIBIT IX to the Agreement.
"PORTION OF INVESTMENT" has the meaning set forth in SECTION 1.7. In
addition, at any time when the Investment of the Participation is not divided
into two or more portions, "Portion of Investment" means 100% of the Investment
of the Participation.
"PROGRAM FEE" has the meaning set forth in the Fee Letter.
"PROGRAM SUPPORT PROVIDER" means and includes any Liquidity Bank and
any other or additional Person (other than any customer of the Purchaser) now or
hereafter extending credit or having a commitment to extend credit to or for the
account of, or to make purchases from, the Purchaser or issuing a letter of
credit, surety bond or other instrument to support any
I-16
<PAGE>
obligations arising under or in connection with PAR's securitization program.
"PROGRAM SUPPORT AGREEMENT" means and includes the Liquidity Agreement
and any other agreement entered into by any Program Support Provider providing
for the issuance of one or more letters of credit for the account of the
Purchaser, the issuance of one or more surety bonds for which the Purchaser is
obligated to reimburse the applicable Program Support Provider for any drawings
thereunder, the sale by the Purchaser to any Program Support Provider of the
Participation (or portions thereof) and/or the making of loans and/or other
extensions of credit to the Purchaser in connection with the Purchaser's
securitization program, together with any letter of credit, surety bond or other
instrument issued thereunder.
"PURCHASE AND CONTRIBUTION AGREEMENT" means the Purchase and
Contribution Agreement, dated as of April 23, 1996, among the Originator and the
Seller, as the same may be modified, supplemented, amended and amended and
restated from time to time in accordance with the Transaction Documents.
"PURCHASE LIMIT" means $110,000,000, as such amount may be reduced
pursuant to SECTION 1.1(B); PROVIDED, HOWEVER, that following the written
request of the Seller, the Purchaser may, in its sole and absolute discretion,
increase the Purchase Limit to $130,000,000. References to the unused portion
of the Purchase Limit shall mean, at any time, the Purchase Limit minus the then
outstanding Investment of the Participation under the Agreement.
"PURCHASER" has the meaning set forth in the preamble to the
Agreement.
"PURCHASER'S ACCOUNT" means the special account (account number
1248566) of the Purchaser maintained at the office of Harris Trust and Savings
Bank in Chicago, Illinois (ABA #071-000-288), or such other account as may be so
designated in writing by the Agent to the Seller and the Servicer.
"RATE VARIANCE FACTOR" means 1.50; PROVIDED, that the "Rate Variance
Factor" may be changed from time to time upon at least five days' prior notice
to the Servicer.
"RATING AGENCIES" means Moody's and S&P.
"RECEIVABLE" means any indebtedness and other obligations owed to the
Originator or Seller or any right of the Seller or Originator to payment from or
on behalf of an Obligor, whether constituting an account, chattel paper,
instrument or general intangible, arising in connection with the sale of goods
I-17
<PAGE>
or the rendering of services by the Originator or Seller, and includes, without
limitation, the obligation to pay any finance charges, fees and other charges
with respect thereto. Indebtedness and other obligations arising from any one
transaction, including, without limitation, indebtedness and other obligations
represented by an individual invoice or agreement, shall constitute a Receivable
separate from a Receivable consisting of the indebtedness and other obligations
arising from any other transaction.
"RECEIVABLES POOL" means at any time all of the then outstanding
Receivables.
"RELATED SECURITY" means, with respect to any Receivable:
(i) all of the Seller's interest in any goods (including
returned goods), and documentation or title evidencing the shipment or
storage of any goods (including returned goods), relating to any sale
giving rise to such Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all UCC financing statements or
similar filings signed by an Obligor relating thereto; and
(iii) all guaranties, indemnities, insurance and other agreements
(including the related Contract) or arrangements of whatever character
from time to time supporting or securing payment of such Receivable or
otherwise relating to such Receivable whether pursuant to the Contract
related to such Receivable or otherwise.
"RESTRICTED PAYMENTS" has the meaning set forth in clause (o) of
EXHIBIT IV of the Agreement.
"S&P" means Standard and Poor's Ratings Services.
"SDW" has the meaning set forth in the Preamble to this Agreement.
"SELLER" has the meaning set forth in the preamble to the Agreement.
"SERVICER" has the meaning set forth in the preamble to the Agreement.
I-18
<PAGE>
"SERVICER REPORT" means a report, in substantially the form of ANNEX E
hereto, furnished by the Servicer to the Agent pursuant to the Agreement.
"SERVICER REPORT DATE" means the 15th day of each month, or if such
day is not a Business Day, the next Business Day.
"SERVICING FEE" shall mean the fee referred to in Section 4.6.
"SERVICING FEE RESERVE" for the Participation at any time means the
sum of (i) the unpaid Servicing Fee relating to the Participation accrued to
such time, plus (ii) an amount equal to (a) the Net Receivables Pool Balance at
the time of computation multiplied by (b) the product of (x) the percentage per
annum at which the Servicing Fee is accruing on such date and (y) a fraction
having the sum of the Average Maturity plus the Collection Delay Period (each as
in effect at such date) as its numerator and 360 as its denominator.
"SETTLEMENT PERIOD" for each Portion of Investment means each period
commencing on the first day and ending on the last day of each Yield Period for
such Portion of Investment and, on and after the Termination Date, such period
(including, without limitation, a period of one day) as shall be selected from
time to time by the Agent.
"SPECIAL OBLIGOR" means an Obligor, so designated in writing by the
Agent, having a long-term public senior debt rating of at least Investment Grade
or which has been approved by the Agent; PROVIDED, HOWEVER, if PAR is the
Purchaser, each of the Rating Agencies shall have provided a notice in writing
to the Agent to the effect that the inclusion of such Obligor as a Special
Obligor will not result in the downgrading or withdrawal of such Rating
Agencies' current rating of the Notes.
"TERMINATION DATE" means the earlier of (i) the Business Day which the
Seller so designates by notice to the Agent at least 30 Business Days in advance
and (ii) the Facility Termination Date.
"TERMINATION DAY" means (i) each day on which the conditions set forth
in SECTION 2 of EXHIBIT II are not satisfied and (ii) each day which occurs on
or after the Termination Date.
"TERMINATION DISCOUNT" means, for the Participation on any date, an
amount equal to the Rate Variance Factor on such date multiplied by the product
of (i) the Investment of the Participation on such date and (ii) the product of
(a) the Base Rate for the Participation plus 2% per annum for a 30-day Yield
I-19
<PAGE>
Period deemed to commence on such date and (b) a fraction having as its
numerator the sum of the Average Maturity plus the Collection Delay Period (each
as in effect at such date) and 360 as its denominator.
"TERMINATION EVENT" has the meaning specified in EXHIBIT V.
"TERMINATION FEE" means, for any Yield Period during which a
Termination Day occurs, the amount, if any, by which (i) the additional Discount
(calculated without taking into account any Termination Fee or any shortened
duration of such Yield Period pursuant to CLAUSE (IV) of the definition thereof)
which would have accrued during such Yield Period on the reductions of
Investment of the Participation relating to such Yield Period had such
reductions remained as Investment, exceeds (ii) the income, if any, received by
the Purchaser from the Purchaser investing the proceeds of such reductions of
Investment, as determined by the Agent, which determination shall be binding and
conclusive for all purposes, absent manifest error.
"TRANSACTION DOCUMENTS" means the Agreement, the Lock- Box Agreements,
the Collection Account Agreement, the Liquidation Account Agreement, the
Purchase and Contribution Agreement and all other certificates, instruments, UCC
financing statements, reports, notices, agreements and documents executed or
delivered under or in connection with the Agreement, in each case as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction.
"UNMATURED TERMINATION EVENT" means an event which, with the giving of
notice or lapse of time, or both, would constitute a Termination Event; it being
understood that an event or condition described in PARAGRAPH (E)(II) of EXHIBIT
V shall constitute an "Unmatured Termination Event" during the 60 day waiver
period described therein.
"YIELD PERIOD" means, with respect to each Portion of Investment:
(a) initially the period commencing on the date of a purchase
pursuant to SECTION 1.2 and ending such number of days as the Seller shall
select, subject to the approval of the Agent pursuant to SECTION 1.2, up to
60 days after such date; and
(b) thereafter each period commencing on the last day of the
immediately preceding Yield Period for any Portion of
I-20
<PAGE>
Investment of the Participation and ending such number of days (not to
exceed 60 days) as the Seller shall select, subject to the approval of the
Agent pursuant to SECTION 1.2, on notice by the Seller received by the
Agent (including notice by telephone, confirmed in writing) not later than
11:00 a.m. (Chicago time) on such last day, EXCEPT that if the Agent shall
not have received such notice or approved such period on or before 11:00
a.m. (Chicago time) on such last day, such period shall be one day;
PROVIDED, that
(i) any Yield Period in respect of which Discount is computed by
reference to the Bank Rate shall be a period from one to and including
60 days;
(ii) any Yield Period (other than of one day) which would
otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day; PROVIDED, HOWEVER, if Discount in
respect of such Yield Period is computed by reference to the
Eurodollar Rate, and such Yield Period would otherwise end on a day
which is not a Business Day, and there is no subsequent Business Day
in the same calendar month as such day, such Yield Period shall end on
the next preceding Business Day;
(iii) in the case of any Yield Period of one day, (A) if such
Yield Period is the initial Yield Period for a purchase pursuant to
SECTION 1.2, such Yield Period shall be the day of purchase of the
Participation; (B) any subsequently occurring Yield Period which is
one day shall, if the immediately preceding Yield Period is more than
one day, be the last day of such immediately preceding Yield Period,
and, if the immediately preceding Yield Period is one day, be the day
next following such immediately preceding Yield Period; and (C) if
such Yield Period occurs on a day immediately preceding a day which is
not a Business Day, such Yield Period shall be extended to the next
succeeding Business Day; and
(iv) in the case of any Yield Period for any Portion of
Investment of the Participation which commences before the Termination
Date and would otherwise end on a date occurring after the Termination
Date, such Yield Period shall end on such Termination Date and the
duration of each Yield Period which commences on or after the
Termination Date shall be of such duration as shall be selected by the
Agent.
I-21
<PAGE>
OTHER TERMS. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such Article 9.
Unless the context otherwise requires, "or" means "and/or," and "including" (and
with correlative meaning "include" and "includes") means including without
limiting the generality of any description preceding such term.
I-22
<PAGE>
EXHIBIT II
CONDITIONS OF PURCHASES
1. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial purchase
under the Agreement is subject to the conditions precedent that the Agent shall
have received on or before the date of such purchase the following, each in form
and substance (including the date thereof) satisfactory to the Agent:
(a) A counterpart of this Agreement and the other Transaction
Documents duly executed by the parties thereto.
(b) Certified copies of (i) the resolutions of the Board of Directors
of each of the Seller, the Servicer, and any Originator authorizing the
execution, delivery, and performance by the Seller, the Servicer and any
Originator of the Agreement and the other Transaction Documents, (ii) all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Agreement and the other Transaction
Documents and (iii) the certificate of incorporation and by-laws of the Seller,
the Servicer, and any Originator.
(c) A certificate of the Secretary or Assistant Secretary of the
Seller, the Servicer, and any Originator certifying the names and true
signatures of the officers of the Seller, the Servicer, and any Originator
authorized to sign the Agreement and the other Transaction Documents. Until the
Agent receives a subsequent incumbency certificate from the Seller, the
Servicer, and any other Originator in form and substance satisfactory to the
Agent, the Agent shall be entitled to rely on the last such certificate
delivered to it by the Seller, the Servicer, and any Originator.
(d) Acknowledgment copies, or time-stamped receipt copies of proper
financing statements, duly filed on or before the date of such initial purchase
under the UCC of all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the interests of the Purchaser contemplated by the
Agreement and other Transaction Documents.
(e) Acknowledgment copies, or time-stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Receivables, Contracts or Related Security
previously granted by the Seller.
(f) Completed UCC requests for information, dated on or before the
date of such initial purchase, listing the
II-1
<PAGE>
financing statements referred to in SUBSECTION (e) above and all other
effective financing statements filed in the jurisdictions referred to in
SUBSECTION (e) above that name the Seller or any Originator as debtor, together
with copies of such other financing statements (none of which shall cover any
Receivables, Contracts or Related Security), and similar search reports with
respect to federal tax liens and liens of the Pension Benefit Guaranty
Corporation in such jurisdictions as the Agent may request, showing no such
liens on any of the Receivables, Contracts or Related Security.
(g) Copies of executed (i) Lock-Box Agreements with the Lock-Box
Banks, (ii) the Collection Account Agreement with the Collection Account Bank,
and (iii) the Liquidation Account Agreement with the Liquidation Account Bank.
(h) Favorable opinions of Ropes & Gray and Jennifer Miller, counsel
for the Seller, substantially in the form of Annex C hereto and as to corporate
and such other matters as the Agent may reasonably request.
(i) Favorable opinions of Ropes & Gray, counsel for the Seller,
substantially in the form of Annex D and as to bankruptcy matters.
(j) Servicer Report representing the performance of the portfolio
purchased through the Purchase and Contribution Agreement and the Agreement for
the month prior to closing.
(k) Evidence (i) of the execution and delivery by each of the parties
thereto of the Purchase and Contribution Agreement and all documents, agreements
and instruments contemplated thereby (which evidence shall include copies,
either original or facsimile, of each of such documents, instruments and
agreements), (ii) that each of the conditions precedent to the execution and
delivery of the Purchase and Contribution Agreement has been satisfied to the
Administrator's satisfaction, and (iii) that the initial purchases under the
Purchase and Contribution Agreement have been consummated.
(l) Evidence of payment by the Seller of all accrued and unpaid fees
(including those contemplated by the Fee Letter), costs and expenses to the
extent then due and payable on the date thereof, together with Attorney Costs of
the Agent to the extent invoiced prior to or on such date, plus such additional
amounts of Attorney Costs as shall constitute the Agent's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing proceedings;
including any such costs, fees and expenses arising under or referenced in
SECTION 5.4.
II-2
<PAGE>
(m) The Fee Letter between the Seller and the Agent contemplated by
SECTION 1.5.
(n) Good standing certificates with respect to the Seller, the
Servicer and any Originator issued by the Secretaries of the States of
Massachusetts, Pennsylvania, Michigan, Maine and Alabama.
(o) Such other approvals, opinions or documents as the Agent may
reasonably request.
2. CONDITIONS PRECEDENT TO ALL PURCHASES AND REINVESTMENTS. Each
purchase (including the initial purchase) and each reinvestment shall be subject
to the further conditions precedent that:
(a) in the case of each purchase, the Servicer shall have delivered
to the Agent on or prior to such purchase, in form and substance satisfactory to
the Agent, a completed Servicer Report with respect to the immediately preceding
Fiscal Month, dated within 30 days prior to the date of such purchase together
with a listing by Obligor of all Receivables and such additional information as
may reasonably be requested by the Agent;
(b) on the date of such purchase or reinvestment the following
statements shall be true (and acceptance of the proceeds of such purchase or
reinvestment shall be deemed a representation and warranty by the Seller that
such statements are then true):
(i) the representations and warranties contained in EXHIBIT III
are true and correct on and as of the date of such purchase or reinvestment
as though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result
from such purchase or reinvestment, that constitutes a Termination Event or
an Unmatured Termination Event; and
(iii) in the case of purchases only, no event of the type
described in CLAUSE(e)(i) or (ii) of EXHIBIT V has occurred and is
continuing;
PROVIDED, HOWEVER, that an Unmatured Termination Event of the type described in
PARAGRAPH (e)(ii) of EXHIBIT V shall not be a condition precedent to
reinvestment; and
(c) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
II-3
<PAGE>
EXHIBIT III
REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, and is duly
qualified to do business, and is in good standing, as a foreign corporation in
every jurisdiction where the nature of its business requires it to be so
qualified.
(b) The execution, delivery and performance by the Seller of the
Agreement and the other Transaction Documents to which each is a party,
including the Seller's use of the proceeds of purchases and reinvestments, (i)
are within the Seller's corporate powers, (ii) have been duly authorized by all
necessary corporate action, (iii) do not contravene or result in a default under
or conflict with (1) the Seller's charter or by-laws, (2) any law, rule or
regulation applicable to the Seller, (3) any contractual restriction binding on
or affecting the Seller or its property or (4) any order, writ, judgment, award,
injunction or decree binding on or affecting the Seller or its property, and
(iv) do not result in or require the creation of any Adverse Claim upon or with
respect to any of its properties. The Agreement and the other Transaction
Documents to which it is a party have been duly executed and delivered by the
Seller.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or other Person is required for the
due execution, delivery and performance by the Seller of the Agreement or any
other Transaction Document to which it is a party other than those previously
obtained or UCC filings.
(d) Each of the Agreement and the other Transaction Documents to
which it is a party constitutes the legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms.
(e) Since its date of formation, there has been no material adverse
change in the business, operations, property or financial or other condition or
operations of the Seller, the ability of the Seller to perform its obligations
under the Agreement or the other Transaction Documents to which it is a party or
the collectibility of the Receivables, or which affects the legality, validity
or enforceability of the Agreement or the other Transaction Documents.
III-1
<PAGE>
(f) There is no pending or threatened action or proceeding affecting
the Seller before any Governmental Authority or arbitrator which could
materially adversely affect the business, operations, property, financial or
other condition or operations of the Seller, the ability of the Seller to
perform its obligations under the Agreement or the other Transaction Documents
or the collectibility of the Receivables, or which affects or purports to affect
the legality, validity or enforceability of the Agreement or the other
Transaction Documents.
(g) No proceeds of any purchase or reinvestment will be used to
acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
(h) The Seller is the legal and beneficial owner of the Pool
Receivables and Related Security, free and clear of any Adverse Claim; upon each
purchase or reinvestment, the Purchaser shall acquire a valid and enforceable
perfected undivided percentage ownership interest, to the extent of the
Participation, in each Pool Receivable then existing or thereafter arising and
in the Related Security and Collections and other proceeds, with respect
thereto, free and clear of any Adverse Claim; the Agreement creates a security
interest in favor of the Purchaser in the items described in SECTION 1.2(d), and
the Purchaser has a first priority perfected security interest in such items,
free and clear of any Adverse Claims. No effective financing statement or other
instrument similar in effect covering any Contract or any Pool Receivable or the
Related Security or Collections with respect thereto or any Lock-Box Account is
on file in any recording office, except those filed in favor of the Purchaser
relating to the Agreement.
(i) Each Servicer Report, information, exhibit, financial statement,
document, book, record or report furnished or to be furnished at any time by or
on behalf of the Seller to the Agent in connection with the Agreement is or will
be accurate in all material respects as of its date or (except as otherwise
disclosed to the Agent at such time) as of the date so furnished, and no such
item contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they were made,
not misleading.
(j) The principal place of business and chief executive office (as
such terms are used in the UCC) of the Seller and the office where the Seller
keeps its records concerning the Receivables are located at the address referred
to in PARAGRAPH (b) of EXHIBIT IV.
III-2
<PAGE>
(k) The names and addresses of all the Lock-Box Banks, together with
the account numbers of the Lock-Box Accounts of the Seller at such Lock-Box
Banks, are specified in SCHEDULE II to the Agreement (or at such other Lock-Box
Banks and/or with such other Lock-Box Accounts as have been notified to the
Agent in accordance with the Agreement) and all Lock-Box Accounts are subject to
Lock-Box Agreements. All Obligors have been directed to make all payment with
respect to each Contract to a Lock-Box Account.
(l) The Seller is not in violation of any order of any court,
arbitrator or Governmental Authority.
(m) Neither the Seller nor any Affiliate of the Seller has any direct
or indirect ownership or other financial interest in the Purchaser.
(n) No proceeds of any purchase or reinvestment will be used for any
purpose that violates any applicable law, rule or regulation, including, without
limitation, Regulations G or U of the Federal Reserve Board.
(o) Each Pool Receivable included as an Eligible Receivable in the
calculation of the Net Receivables Pool Balance is an Eligible Receivable as of
the date of such calculation.
(p) No event has occurred and is continuing, or would result from a
purchase in respect of, or reinvestment in respect of, the Participation or from
the application of the proceeds therefrom, which constitutes a Termination
Event.
(q) The Seller (and the Servicer) have complied in all material
respects with the Credit and Collection Policy with regard to each Receivable.
(r) The Seller has complied with all of the terms, covenants and
agreements contained in the Agreement and the other Transaction Documents and
applicable to it.
(s) The Seller's complete corporate name is set forth in the preamble
to the Agreement, and the Seller does not use and has not during the last six
years used any other corporate name, trade name, doing-business name or
fictitious name, except as set forth on SCHEDULE III and except for names first
used after the date of the Agreement and set forth in a notice delivered to the
Agent pursuant to PARAGRAPH (l)(vii) of EXHIBIT IV.
(t) The authorized capital stock of Seller consists of one thousand
(1000) shares of common stock, without par value, one hundred (100) shares of
which are currently issued and outstanding. All of such outstanding shares are
validly issued,
III-3
<PAGE>
fully paid and nonassessable and are owned (beneficially and of record) by SDW,
subject to a pledge to Chemical Bank, as agent, under the Credit and Guarantee
Agreement.
(u) Seller has filed all federal and other tax returns and reports
required by law to have been filed by it and has paid all taxes and governmental
charges thereby shown to be owing.
(v) The Seller is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
B. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
represents and warrants as follows:
(a) The Servicer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Pennsylvania, and is duly
qualified to do business, and is in good standing, as a foreign corporation in
every jurisdiction where the nature of its business requires it to be so
qualified.
(b) The execution, delivery and performance by the Servicer of the
Agreement and the other Transaction Documents to which it is a party, (i) are
within the Servicer's corporate powers, (ii) have been duly authorized by all
necessary corporate action, (iii) do not contravene or result in a default under
or conflict with (1) the Servicer's charter or by-laws, (2) any law, rule or
regulation applicable to the Servicer, (3) any contractual restriction binding
on or affecting the Servicer or its property or (4) any order, writ, judgment,
award, injunction or decree binding on or affecting the Servicer or its
property, and (iv) do not result in or require the creation of any Adverse Claim
upon or with respect to any of its properties. The Agreement and the other
Transaction Documents to which it is a party have been duly executed and
delivered by the Servicer.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or other Person is required for the
due execution, delivery and performance by the Servicer of the Agreement or any
other Transaction Document to which it is a party.
(d) Each of the Agreement and the other Transaction Documents to
which it is a party constitutes the legal, valid and binding obligation of the
Servicer enforceable against the Servicer in accordance with its terms.
(e) The balance sheet of the Servicer as at September 30, 1995, a
copy of which has been furnished to the Agent, fairly presents the financial
condition of the Servicer, as at such date, and since September 30, 1995 there
has been no material adverse change in the ability of the Servicer to perform
III-4
<PAGE>
its obligations under the Agreement or the other Transaction Documents to which
it is a party or the collectibility of the Receivables, or which affects the
legality, validity or enforceability of the Agreement or the other Transaction
Documents.
(f) There is no pending or threatened action or proceeding affecting
the Servicer before any Governmental Authority or arbitrator which could
materially adversely affect the business, operations, property, financial or
other condition or operations of the Servicer, the ability of the Servicer to
perform its obligations under the Agreement or the other Transaction Documents
or the collectibility of the Receivables, or which affects or purports to affect
the legality, validity or enforceability of the Agreement or the other
Transaction Documents.
(g) The Servicer has complied in all material respects with the
Credit and Collection Policy with regard to each Receivable.
III-5
<PAGE>
EXHIBIT IV
COVENANTS
COVENANTS OF THE SELLER AND THE SERVICER. Until the latest of the Facility
Termination Date, the date on which no Investment of or Discount in respect of
the Participation shall be outstanding or the date all other amounts owed by the
Seller under the Agreement to the Purchaser, the Agent and any other Indemnified
Party or Affected Person shall be paid in full:
(a) COMPLIANCE WITH LAWS, ETC. Each of the Seller and the Servicer
shall comply in all material respects with all applicable laws, rules,
regulations and orders, and preserve and maintain its corporate existence,
rights, franchises, qualifications, and privileges except to the extent that the
failure so to comply with such laws, rules and regulations or the failure so to
preserve and maintain such existence, rights, franchises, qualifications, and
privileges would not materially adversely affect the collectibility of the
Receivables or the enforceability of any related Contract or the ability of the
Seller or the Servicer to perform its obligations under any related Contract or
under the Agreement.
(b) OFFICES, RECORDS AND BOOKS OF ACCOUNT, ETC. The Seller (i) shall
keep its principal place of business and chief executive office (as such terms
are used in the UCC) and the office where it keeps its records concerning the
Receivables at the address of the Seller set forth under its name on the
signature page to the Agreement or, upon at least 60 days' prior written notice
of a proposed change to the Agent, at any other locations in jurisdictions where
all actions reasonably requested by the Agent to protect and perfect the
interest of the Purchaser in the Receivables and related items (including
without limitation the items described in SECTION 1.2(d)) have been taken and
completed and (ii) shall provide the Agent with at least 60 days' written notice
prior to making any change in the Seller's name or making any other change in
the Seller's identity or corporate structure (including a merger) which could
render any UCC financing statement filed in connection with this Agreement
"seriously misleading" as such term is used in the UCC; each notice to the Agent
pursuant to this sentence shall set forth the applicable change and the
effective date thereof. The Seller also will maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Receivables and related Contracts in the
event of the destruction of the originals thereof), and keep and maintain all
documents, books, records, computer tapes and disks and other information
reasonably necessary or advisable for the
IV-1
<PAGE>
collection of all Receivables (including, without limitation, records adequate
to permit the daily identification of each Receivable and all Collections of
and adjustments to each existing Receivable).
(c) PERFORMANCE AND COMPLIANCE WITH CONTRACTS AND CREDIT AND
COLLECTION POLICY. The Seller shall, at its expense, timely and fully perform
and comply with all material provisions, covenants and other promises required
to be observed by it under the Contracts related to the Receivables, and timely
and fully comply in all material respects with the Credit and Collection Policy
with regard to each Receivable and the related Contract.
(d) OWNERSHIP INTEREST, ETC. The Seller shall, at its expense, take
all action necessary or desirable to establish and maintain a valid and
enforceable undivided ownership interest, to the extent of the Participation, in
the Pool Receivables and the Related Security and Collections and other proceeds
with respect thereto, and a first priority perfected security interest in the
items described in SECTION 1.2(d), in each case free and clear of any Adverse
Claim, in favor of the Purchaser, including, without limitation, taking such
action to perfect, protect or more fully evidence the interest of the Purchaser
under the Agreement as the Purchaser, through the Agent, may request.
(e) SALES, LIENS, ETC. Except as provided in paragraphs (i) and (j)
of the EXHIBIT IV, the Seller shall not sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any Adverse
Claim upon or with respect to, any or all of its right, title or interest in, to
or under, any item described in SECTION 1.2(d) (including without limitation the
Seller's undivided interest in any Receivable, Related Security, or Collections,
or upon or with respect to any account to which any Collections of any
Receivables are sent), or assign any right to receive income in respect of any
items contemplated by this PARAGRAPH (e).
(f) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as provided in the
Agreement, neither the Seller nor the Servicer shall extend the maturity or
adjust the Outstanding Balance or otherwise modify the terms of any Pool
Receivable, or amend, modify or waive any term or condition of any related
Contract.
(g) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Neither the
Seller nor the Servicer shall make any material change in the character of its
business or in the Credit and Collection Policy, or any change in the Credit and
Collection Policy that would adversely affect the collectibility of the
Receivables Pool or the enforceability of any related Contract or the ability of
the Seller or Servicer to perform its obligations under any related Contract or
under the Agreement. Neither
IV-2
<PAGE>
the Seller nor the Servicer shall make any other change in the Credit and
Collection Policy without the prior written consent of the Agent.
(h) AUDITS. Each of the Seller and the Servicer shall, from time to
time during regular business hours as requested by the Agent, permit the Agent,
or its agents or representatives, (i) to examine and make copies of and
abstracts from all books, records and documents (including, without limitation,
computer tapes and disks) in the possession or under the control of the Seller
or the Servicer relating to Receivables and the Related Security, including,
without limitation, the related Contracts, and (ii) to visit the offices and
properties of the Seller and the Servicer for the purpose of examining such
materials described in clause (i) above, and to discuss matters relating to
Receivables and the Related Security or the Seller's or Servicer's performance
hereunder or under the Contracts with any of the officers, employees, agents or
contractors of the Seller having knowledge of such matters.
(i) CHANGE IN LOCK-BOX BANKS, LOCK-BOX ACCOUNTS AND PAYMENT
INSTRUCTIONS TO OBLIGORS. Neither the Seller nor the Servicer shall add or
terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account from
those listed in Schedule II to the Agreement, or make any change in its
instructions to Obligors regarding payments to be made to the Seller or the
Servicer or payments to be made to any Lock-Box Account (or related post office
box), unless the Agent shall have consented thereto in writing and the Agent
shall have received copies of all agreements and documents (including without
limitation Lock-Box Agreements) that it may request in connection therewith.
(j) DEPOSITS TO LOCK-BOX ACCOUNTS. The Seller shall, or shall cause
the Servicer to, (i) instruct all Obligors to make payments of all Receivables
to one or more Lock-Box Accounts or to post office boxes to which only Lock-Box
Banks have access (and shall instruct the Lock-Box Banks to cause all items and
amounts relating to such Receivables received in such post office boxes to be
removed and deposited into a Lock-Box Account on a daily basis), and (ii)
deposit, or cause to be deposited, any Collections of Pool Receivables received
by it or the Servicer into Lock-Box Accounts not later than one Business Day
after receipt thereof. Each Lock-Box Account, the Collection Account and the
Liquidation Account shall at all times be subject to a Lock-Box Agreement,
Collection Account Agreement or Liquidation Account Agreement, respectively.
Neither the Seller nor the Servicer will deposit or otherwise credit, or cause
or permit to be so deposited or credited, to any Lock-Box Account cash or cash
proceeds other than Collections of Pool Receivables.
IV-3
<PAGE>
(k) MARKING OF RECORDS. At its expense, the Seller (or the Servicer
on its behalf) shall mark its master data processing records relating to Pool
Receivables and related Contracts, including with a legend evidencing that the
undivided percentage ownership interests with regard to the Participation
related to such Receivables and related Contracts have been sold in accordance
with the Agreement.
(l) REPORTING REQUIREMENTS. The Seller will provide to the Agent (in
multiple copies, if requested by the Agent) the following:
(i) as soon as available and in any event within 45 days after
the end of the first three quarters of each fiscal year of the Seller,
balance sheets of the Seller and its subsidiaries as of the end of such
quarter and statements of income and retained earnings of the Seller and
its subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, certified by the chief
financial officer of the Seller;
(ii) as soon as available and in any event within 90 days after
the end of each fiscal year of the Seller, a copy of the annual report for
such year for the Seller and its subsidiaries, containing financial
statements for such year audited by Deloitte & Touche LPP or other
independent certified public accountants acceptable to the Agent;
(iii) as soon as available and in any event no later than the
last Business Day of each week, a weekly Portfolio Certificate;
(iv) as soon as available and in any event not later than the
Servicer Report Date, a Servicer Report as of the Fiscal Month ended
immediately prior to such Servicer Report Date;
(v) as soon as possible and in any event within three days after
the occurrence of each Termination Event or event which, with the giving of
notice or lapse of time, or both, would constitute a Termination Event, a
statement of the chief financial officer of the Seller setting forth
details of such Termination Event or event and the action that the Seller
has taken and proposes to take with respect thereto;
(vi) promptly after the filing or receiving thereof, copies of
all reports and notices that the Seller or any Affiliate files under ERISA
with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation or the
IV-4
<PAGE>
U.S. Department of Labor or that the Seller or any Affiliate receives from
any of the foregoing or from any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) to which the Seller or any Affiliate is or
was, within the preceding five years, a contributing employer, in each case
in respect of the assessment of withdrawal liability or an event or
condition which could, in the aggregate, result in the imposition of
liability on the Seller and/or any such Affiliate in excess of $100,000;
(vii) at least thirty days prior to any change in the Seller's
name or any other change requiring the amendment of UCC financing
statements, a notice setting forth such changes and the effective date
thereof;
(viii) such other information respecting the Receivables
(including a Seller's Report on a more frequent basis than provided in
CLAUSE (iii) above) or the condition or operations, financial or otherwise,
of the Seller or any of its Affiliates as the Agent may from time to time
reasonably request;
(ix) promptly after the Seller obtains knowledge thereof, notice
of any (a) litigation, investigation or proceeding which may exist at any
time between the Seller, the Servicer or any Originator, on the one hand,
and any Governmental Authority which, if not cured or if adversely
determined, as the case may be, would have a material adverse effect on the
business, operations, property or financial or other condition of the
Seller, the Servicer or any Originator, as the case may be, or (b)
litigation or proceeding adversely affecting the Seller or any of its
subsidiaries, the Servicer or any Originator, as the case may be, in which
the amount involved is $100,000 or more and not covered by insurance or in
which injunctive or similar relief is sought or (c) litigation or
proceeding relating to any Transaction Document; and
(x) promptly after the occurrence thereof, notice of a material
adverse change in the business, operations, property or financial or other
condition of the Seller.
(m) SEPARATE CORPORATE EXISTENCE. Each of the Seller and the Servicer
hereby acknowledges that Purchaser and the Agent are entering into the
transactions contemplated by the Agreement and the Transaction Documents in
reliance upon the Seller's identity as a legal entity separate from the Servicer
and the Originator. Therefore, from and after the date hereof, the Seller and
the Servicer shall take all reasonable steps to continue the Seller's identity
as a separate legal entity and to make it apparent to third Persons that the
Seller is an entity
IV-5
<PAGE>
with assets and liabilities distinct from those of the Servicer, the Originator
and any other Person, and is not a division of the Servicer or the Originator
or any other Person. Without limiting the generality of the foregoing and in
addition to and consistent with the covenant set forth in PARAGRAPH (a) of this
EXHIBIT IV, the Seller and the Servicer shall take such actions as shall be
required in order that:
(i) The Seller will be a limited purpose corporation whose
primary activities are restricted in its certificate of incorporation to
purchasing Receivables from the Originator, entering into agreements for
the servicing of such Receivables, selling undivided interests in such
Receivables and conducting such other activities as it deems necessary or
appropriate to carry out its primary activities;
(ii) Not less than one member of Seller's Board of Directors (the
"INDEPENDENT DIRECTORS") shall be individuals who are not direct, indirect
or beneficial stockholders, officers, directors, employees, affiliates,
associates, customers or suppliers of the Originator or any of its
Affiliates. The Seller's Board of Directors shall not approve, or take any
other action to cause the commencement of a voluntary case or other
proceeding with respect to the Seller under any applicable bankruptcy,
insolvency, reorganization, debt arrangement, dissolution or other similar
law, or the appointment of or taking possession by, a receiver, liquidator,
assignee, trustee, custodian, or other similar official for the Seller
unless in each case the Independent Directors shall approve the taking of
such action in writing prior to the taking of such action. The Independent
Directors' fiduciary duty shall be to the Seller (and creditors) and not to
the Seller's shareholders in respect of any decision of the type described
in the preceding sentence. In the event an Independent Director resigns or
otherwise ceases to be a director of the Seller, there shall be selected a
replacement Independent Director who shall not be an individual within the
proscriptions of the first sentence of this CLAUSE (ii) or any individual
who has any other type of professional relationship with the Originator or
any of its Affiliates or any management personnel of any such Person or
Affiliate and who shall be (x) a tenured professor at a business or law
school, (y) a retired judge or (z) an established independent member of the
business community, having a sound reputation and experience relative to
the duties to be performed by such individual as an Independent Director;
IV-6
<PAGE>
(iii) No Independent Director shall at any time serve as a
trustee in bankruptcy for Originator or any Affiliate thereof;
(iv) Any employee, consultant or agent of the Seller will be
compensated from the Seller's own bank accounts for services provided to
the Seller except as provided herein in respect of the Servicer's Fee. The
Seller will engage no agents other than a Servicer for the Receivables,
which Servicer will be fully compensated for its services to the Seller by
payment of the Servicer's Fee;
(v) The Seller will contract with the Servicer to perform for the
Seller all operations required on a daily basis to service its Receivables.
The Seller will pay the Servicer a monthly fee based on the level of
Receivables being managed by the Servicer. The Seller will not incur any
material indirect or overhead expenses for items shared between the Seller
and the Originator or any Affiliate thereof which are not reflected in the
Servicer's Fee. To the extent, if any, that the Seller and the Originator
or any Affiliate thereof share items of expenses not reflected in the
Servicer's Fee, such as legal, auditing and other professional services,
such expenses will be allocated to the extent practical on the basis of
actual use or the value of services rendered, and otherwise on a basis
reasonably related to the actual use or the value of services rendered, it
being understood that Originator shall pay all expenses relating to the
preparation, negotiation, execution and delivery of the Transaction
Documents, including, without limitation, legal and other fees;
(vi) The Seller's operating expenses will not be paid by
Originator or any Affiliate thereof unless the Seller shall have agreed in
writing with such Person to reimburse such Person for any such payments;
(vii) The Seller will have its own separate mailing address and
stationery;
(viii) The Seller's books and records will be maintained
separately from those of the Originator or any Affiliate thereof;
(ix) Any financial statements of the Originator or any Affiliate
thereof which are consolidated to include the Seller will contain detailed
notes clearly stating that the Seller is a separate corporate entity and
has sold ownership interests in the Seller's accounts receivable;
IV-7
<PAGE>
(x) The Seller's assets will be maintained in a manner that
facilitates their identification and segregation from those of the
Originator and any Affiliate thereof;
(xi) The Seller will strictly observe corporate formalities in
its dealings with the Originator and any Affiliate thereof, and funds or
other assets of the Seller will not be commingled with those of the
Originator or any Affiliate thereof. The Seller shall not maintain joint
bank accounts or other depository accounts to which the Originator or any
Affiliate thereof (other than SDW in its capacity as Servicer) has
independent access. None of the Seller's funds will at any time be pooled
with any funds of the Originator or any Affiliate thereof;
(xii) The Seller shall pay to the Originator the marginal
increase (or, in the absence of such increase, the market amount of its
portion) of the premium payable with respect to any insurance policy that
covers the Seller and any Affiliate thereof, but the Seller shall not,
directly or indirectly, be named or enter into an agreement to be named, as
a direct or contingent beneficiary or loss payee, under any such insurance
policy, with respect to any amounts payable due to occurrences or events
related to the Originator or any Affiliate thereof; and
(xiii) The Seller will maintain arm's length relationships with
the Originator and any Affiliate thereof. The Originator or any Affiliate
thereof that renders or otherwise furnishes services to the Seller will be
compensated by the Seller at market rates for such services. Neither the
Seller nor any Originator or any Affiliate thereof will be or will hold
itself out to be responsible for the debts of the other or the decisions or
actions respecting the daily business and affairs of the other.
(n) MERGERS, ACQUISITIONS, SALES, ETC.
(i) The Seller shall not
(A) be a party to any merger or consolidation, or directly or
indirectly purchase or otherwise acquire, whether in one or a series
of transactions, all or substantially all of the assets or any stock
of any class of, or any partnership or joint venture interest in, any
other Person, or sell, transfer, assign, convey or lease any of its
property and assets (including, without limitation, any Pool
Receivable or any interest therein) other than pursuant to this
Agreement;
IV-8
<PAGE>
(B) make, incur or suffer to exist an investment in, equity
contribution to, loan, credit or advance to, or payment obligation in
respect of the deferred purchase price of property from, any other
Person, except for obligations incurred pursuant to the Transaction
Documents; or
(C) create any direct or indirect Subsidiary or otherwise
acquire direct or indirect ownership of any equity interests in any
other Person.
(o) RESTRICTED PAYMENTS.
(i) GENERAL RESTRICTION. Except in accordance with this
SUBPARAGRAPH (i), the Seller shall not (A) purchase or redeem any shares of
its capital stock, (B) declare or pay any Dividend or set aside any funds
for any such purpose, (C) prepay, purchase or redeem any subordinated
indebtedness of the Seller, (D) lend or advance any funds or (E) repay any
loans or advances to, for or from the Originator. Actions of the type
described in this CLAUSE (i) are herein collectively called "RESTRICTED
PAYMENTS".
(ii) TYPES OF PERMITTED PAYMENTS. Subject to the limitations set
forth in CLAUSE (iii) below, the Seller may make Restricted Payments so
long as such Restricted Payments are made only to the Originator and only
in one or more of the following ways:
(A) Seller may make cash payments (including prepayments) on the
Company Note in accordance with its terms; and
(B) if no amounts are then outstanding under the Company Note,
the Seller may declare and pay Dividends.
(iii) SPECIFIC RESTRICTIONS. The Seller may make Restricted
Payments only out of Collections paid or released to the Seller pursuant to
SECTIONS 1.4(b). Furthermore, the Seller shall not pay, make or declare
(A) any Dividend if, after giving effect thereto, Seller's
Tangible Net Worth would be less than Three Million Dollars
($3,000,000); or
(B) any Restricted Payment (including any Dividend) if, after
giving effect thereto, any Termination Event or Unmatured Termination
Event shall have occurred and be continuing.
IV-9
<PAGE>
(p) USE OF SELLER'S SHARE OF COLLECTIONS. The Seller shall apply its
share of Collections to make payments in the following order of priority:
FIRST, the payment of its expenses (including, without limitation, the
obligations payable to Purchaser, the Affected Persons and the Agent under the
Transaction Documents), SECOND, the payment of accrued and unpaid interest on
the Company Note, THIRD, the payment of the outstanding principal amount of the
Company Note, and FOURTH, other legal and valid corporate purposes.
(q) AMENDMENTS TO CERTAIN DOCUMENTS.
(i) The Seller shall not amend, supplement, amend and restate, or
otherwise modify the Purchase and Contribution Agreement, the Company Note,
any other document executed under the Purchase and Contribution Agreement,
the Collection Account Agreement, the Lock-Box Agreements, the Liquidation
Account Agreement or the Seller's certificate of incorporation or by-laws,
except (A) in accordance with the terms of such document, instrument or
agreement and (B) with the advance written consent of the Agent.
(ii) The Originator shall not enter into or otherwise become
bound by, any agreement, instrument, document or other arrangement that
restricts its right to amend, supplement, amend and restate or otherwise
modify, or to extend or renew, or to waive any right under, this Agreement
or any other Transaction Document.
(r) INCURRENCE OF INDEBTEDNESS. The Seller shall not (i) create,
incur or permit to exist, any Debt or liability or (ii) cause or permit to be
issued for its account any letters of credit or bankers' acceptances, except for
Debt incurred pursuant to the Company Note and liabilities incurred pursuant to
or in connection with the Transaction Documents or otherwise permitted therein.
(s) AMENDMENTS TO PLEDGE AGREEMENT. The Servicer covenants that it
will not amend Section 21 of the Borrower Stock Pledge Agreement (as defined in
the Credit and Guarantee Agreement) without the consent of the Agent.
IV-10
<PAGE>
EXHIBIT V
TERMINATION EVENTS
Each of the following shall be a "Termination Event":
(a) (i) The Servicer (if SDW or any of its Affiliates) shall fail to
perform or observe any term, covenant or agreement under the Agreement in any
material respect or (ii) any Person which is the Servicer shall fail to make
when due (or within two Business Days after notice thereof) any payment or
deposit to be made by it under the Agreement; or
(b) The Seller shall fail (i) to transfer to any successor Servicer
when required any rights, pursuant to the Agreement, which the Seller then has
as Servicer, or (ii) to make any payment required under the Agreement, and in
either case such failure shall remain unremedied for two Business Days after
notice; or
(c) Any representation or warranty made or deemed made by the Seller
or the Servicer (or any of their respective officers) under or in connection
with the Agreement or any information or report delivered by the Seller or the
Servicer pursuant to the Agreement shall prove to have been incorrect or untrue
in any material respect when made or deemed made or delivered; or
(d) The Seller or the Servicer shall fail to perform or observe any
other term, covenant or agreement contained in the Agreement on its part to be
performed or observed and any such failure shall remain unremedied for 30 days
(or, with respect to a failure to deliver the Servicer Report or the Portfolio
Certificate pursuant to the Agreement, such failure shall remain unremedied for
five days); or
(e)(i) Any event shall occur or condition shall exist under the
Credit and Guarantee Agreement and shall continue after the applicable grace
period, if any, specified in the Credit and Guarantee Agreement, if the effect
of such event or condition is to permit the acceleration of the maturity of the
Debt under the Credit and Guarantee Agreement and the requisite Lenders (as
defined in the Credit and Guarantee Agreement) shall not have waived such event
or condition within 60 days of the occurrence thereof; or (ii) any Debt under
the Credit and Guarantee Agreement shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Debt shall be
V-1
<PAGE>
required to be made, in each case prior to the stated maturity thereof; or
(f) The Agreement or any purchase or any reinvestment pursuant to the
Agreement shall for any reason (other than pursuant to the terms hereof) (i)
cease to create, or the Participation shall for any reason cease to be, a valid
and enforceable perfected undivided percentage ownership interest to the extent
of the Participation in each Pool Receivable and the Related Security and
Collections and other proceeds with respect thereto, free and clear of any
Adverse Claim or (ii) cease to create with respect to the items described in
SECTION 1.2(d), or the interest of the Purchaser with respect to such items
shall cease to be, a valid and enforceable first priority perfected security
interest, free and clear of any Adverse Claim; or
(g) The Originator or Seller shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Originator or Seller
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 30 days, or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the Originator or Seller shall take any corporate
action to authorize any of the actions set forth above in this PARAGRAPH (g); or
(h) As of the last day of any Fiscal Month, the arithmetic average of
the Default Ratios for the most recent three Fiscal Months shall exceed 2.0% or
the arithmetic average of the Delinquency Ratio for the most recent three Fiscal
Months shall exceed 2.0% or the arithmetic average of the Loss-to-Liquidation
Ratios for the most recent twelve Fiscal Months shall exceed 0.5% or the average
of the Dilution Ratios for the most recent three Fiscal Months shall exceed 7%;
or
(i) The Participation shall exceed 100% and such condition shall
continue unremedied for 5 days; or
(j) A Change in Control shall occur; or
V-2
<PAGE>
(k) The Internal Revenue Service shall file notice of a lien pursuant
to Section 6323 of the Internal Revenue Code with regard to any assets of Seller
and such lien shall not have been released within ten Business Days, or the
Pension Benefit Guaranty Corporation shall, or shall indicate its intention to,
file notice of a lien pursuant to Section 4068 of ERISA with regard to any of
the assets of Seller or any Originator; or
(l) The aggregate Outstanding Balances of all Eligible Receivables
shall be less than 115% of the Investment and such failure shall continue
unremedied for 5 days.
V-3
<PAGE>
EXHIBIT VI
COLLECTION ACCOUNT AGREEMENT
VI-1
<PAGE>
EXHIBIT VII
LIQUIDATION ACCOUNT AGREEMENT
VII-1
<PAGE>
EXHIBIT VIII
SPECIAL OBLIGOR CONCENTRATION LIMITS
NORMAL
SENIOR UNSECURED CONCENTRATION
OBLIGOR DEBT RATING PERCENTAGE
------- ----------- ----------
International Paper A(1) 30%
Central National Gottesman NR 15%(2)
Alco Standard A(1) 20%
Mead A(1) 10%
Affiliates of Sappi NR (L/C from 15%
International (Interco) Standard Bk of
South Africa)
(1) If a Special Obligor is downgraded to BBB/Baa2 or below, the Normal
Concentration Percentage for such Obligor will be reduced to 7.5%. If a
Special Obligor is reduced below BBB-/Baa3, the Normal Concentration
Percentage will revert to 3.0% (or 2.5% if PAR is the Purchaser hereunder).
(2) The Normal Concentration Percentage for Central National Gottesman shall
only equal 15% so long as the Pool Receivables of which Central National
Gottesman is the Obligor are (x) supported by a letter of credit in a face
amount at least equal to the Outstanding Balance of such Receivables issued
for the benefit of the Liquidity Banks and/or the Purchasers and in a form
acceptable to the Agent and the Liquidity Agent and issued by a financial
institution with a short-term unsecured credit rating of at least A-1/P-1
by the Rating Agencies or (y) supported by a credit facility or arrangement
otherwise acceptable the Agent, the Liquidity Agent and the Rating
Agencies, else the Normal Concentration Percentage shall equal 3.0% (or
2.5% if PAR is the Purchaser hereunder). If the Average Maturity of the
Pool Receivables of which Central National Gottesman is the Obligor exceeds
45 days, the Normal Concentration Percentage for Central National Gottesman
will revert to 3.0% (or 2.5% if PAR is the Purchaser hereunder).
VIII-1
<PAGE>
EXHIBIT IX
PORTFOLIO CERTIFICATE
IX-1
<PAGE>
SCHEDULE I
CREDIT AND COLLECTION POLICY
Schedule I-1
<PAGE>
SCHEDULE II
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
LOCK-BOX BANK LOCK-BOX ACCOUNT
- ------------- ----------------
1. The First National Bank of Chicago 55-34062
First Chicago National
Processing Corporation
One First National Plaza
Suite 0685
Chicago, Illinois 60670-0685
Attention: Cash Management Product
Implementation Unit
2. Mellon Bank, N.A. 093-5383
Three Mellon Bank Center
Room 3119
Pittsburgh, Pennsylvania 15259
Attention: Document Control Manager
Schedule II-1
<PAGE>
SCHEDULE III
TRADE NAMES
None
Schedule III-1
<PAGE>
SCHEDULE IV
FISCAL MONTHS
- --------------------------------------------------------------
- --------------------------------------------------------------
FISCAL MONTH QUARTER CLOSING MONTH-END NUMBER DAYS
DAY CLOSING DATE OF
WEEKS
- --------------------------------------------------------------
January 1996 Qtr 2 Wed 31 Jan. 1996 4 28
- --------------------------------------------------------------
February 1996 Wed 28 Feb. 1996 4 28
- --------------------------------------------------------------
March 1996 Wed 3 April 1996 5 35
- --------------------------------------------------------------
April 1996 Qtr 3 Wed 1 May 1996 4 28
- --------------------------------------------------------------
May 1996 Wed 29 May 1996 4 28
- --------------------------------------------------------------
June 1996 Wed 3 July 1996 5 35
- --------------------------------------------------------------
July 1996 Qtr 4 Wed 31 July 1996 4 28
- --------------------------------------------------------------
August 1996 Wed 28 August 1996 4 28
- --------------------------------------------------------------
September 1996 Wed 2 October 1996 5 35
- --------------------------------------------------------------
- --------------------------------------------------------------
Schedule IV-1
<PAGE>
ANNEX A
FORM OF LOCK-BOX AGREEMENT
[Letterhead of Seller]
LOCK-BOX AGREEMENT
___________, 199__
[Name and Address of
Lock-Box Bank]
Gentlemen:
Reference is made to our [lock-box](1) account[s] no[s]. maintained with
you (the "Account[s]"). Pursuant to a Receivables Purchase Agreement dated as
of ______________, 199_ among us, as Seller, S.D. Warren Company, as Servicer,
Bank of Montreal, as purchaser (Bank of Montreal, or any successors and assigns
in such capacity, the "Purchaser"), and Nesbitt Burns Securities Inc., as agent
(the "Agent"), we have assigned and/or may hereafter assign to the Purchaser
one or more undivided percentage ownership interests in accounts, chattel
papers, instruments or general intangibles (collectively, "Receivables") with
respect to which payments are or may hereafter be made to the Account[s], and
have granted to the Purchaser a security interest in such Receivables, the
Account[s], amounts on deposit therein and related property. Your execution of
this letter agreement is a condition precedent to our continued maintenance of
the Account[s] with you.
We hereby transfer exclusive ownership and control of the Account[s] to the
Agent on behalf of the Purchaser, subject only to the condition subsequent that
the Agent shall have given you notice of its election to assume such ownership
and control, which notice may be in the form attached hereto as Exhibit A or in
any other form that gives you reasonable notice of such election.
_______________________
(1) Delete in the case of direct wire transfer accounts.
Annex A-1
<PAGE>
We hereby irrevocably instruct you, at all times from and after the date of
your receipt of notice from the Agent as described above, to make all payments
to be made by you out of or in connection with the Account[s] directly to the
Agent, at its address set forth below its signature hereto or as the Agent
otherwise notifies you, for the account of the Purchaser (account #__________,
ABA #_________), or otherwise in accordance with the instructions of the Agent.
We also hereby notify you that, at all times from and after the date of
your receipt of notice from the Agent as described above, the Agent shall be
irrevocably entitled to exercise in our place and stead any and all rights in
respect of or in connection with the Account[s], including, without limitation,
(a) the right to specify when payments are to be made out of or in connection
with the Account[s] and (b) the right to require preparation of duplicate
monthly bank statements on the Account[s] for the Agent's audit purposes and
mailing of such statements directly to an address specified by the Agent.
Notice from the Agent may be personally served or sent by Telex, facsimile
or U.S. mail, certified return receipt requested, to the address, [Telex] or
facsimile number set forth under your signature to this letter agreement (or to
such other address, [Telex] or facsimile number as to which you shall notify the
Agent in writing). If notice is given by [Telex] or facsimile, it will be
deemed to have been received when the notice is sent [and the answerback is
received (in the case of Telex)] or receipt is confirmed by telephone or other
electronic means (in the case of facsimile). All other notices will be deemed
to have been received when actually received or, in the case of personal
delivery, delivered.
By executing this letter agreement, you acknowledge and consent to the
existence of the Agent's right to ownership and control of the Account[s] and
the Purchaser's security interest in the Account[s] and amounts from time to
time on deposit therein and agree that from the date hereof the Account[s] shall
be maintained by you for the benefit of, and amounts from time to time therein
held by you as agent for, the Agent on the terms provided herein. The
Account[s] [is/are] to be titled "[Name of Seller] and Nesbitt Burns Securities
Inc. as the Agent for the Purchaser, its successors and assigns, as their
interests may appear." Except as otherwise provided in this letter agreement,
payments to the Account[s] are to be processed in accordance with the standard
procedures currently in effect. All service charges and fees with respect to
the Account[s] shall continue to be payable by us as under the arrangements
currently in effect.
By executing this letter agreement, you irrevocably waive and agree not to
assert, claim or endeavor to exercise,
Annex A-2
<PAGE>
irrevocably bar and estop yourself from asserting, claiming or exercising, and
acknowledge that you have not heretofore received a notice, writ, order or any
form of legal process from any other person or entity asserting, claiming or
exercising, any right of set-off, banker's lien or other purported form of
claim with respect to [any of] the Account[s] or any funds from time to time
therein. Except for your right to payment of your service charges and fees and
to make deductions for returned items, you shall have no rights in the
Account[s] or funds therein. To the extent you may ever have such rights, you
hereby expressly subordinate all such rights to all rights of the Agent.
You may terminate this letter agreement by cancelling the Account[s]
maintained with you, which cancellation and termination shall become effective
only upon thirty days' prior written notice thereof from you to the Agent.
Incoming [mail addressed to] [wire transfers to] the Account[s] received after
such cancellation shall be forwarded in accordance with the Agent's
instructions. This letter agreement may also be terminated upon written notice
to you by the Agent stating that the Receivables Purchase Agreement pursuant to
which this letter agreement was obtained is no longer in effect. Except as
otherwise provided in this paragraph, this letter agreement may not be
terminated or amended without the prior written consent of the Agent. This
letter agreement may be executed in any number of counterparts, and by the
parties hereto on separate counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement.
Please acknowledge your agreement to the terms set forth in this letter
agreement by signing the two copies of this letter agreement enclosed herewith
in the space provided below, sending one such signed copy to the Agent at its
address provided above and returning the other signed copy to us.
Very truly yours,
[NAME OF SELLER]
By:________________________________
Name:______________________________
Title:_____________________________
Annex A-3
<PAGE>
Acknowledged and agreed to as of the date first
written above:
NESBITT BURNS SECURITIES INC.,
as Agent
By:________________________________
Name:______________________________
Title:_____________________________
Address for notice:
111 West Monroe Street
Floor 20 East
Chicago, Illinois 60603
Attention: James P. Walsh, Director
Telephone:
Facsimile: (312) 461-6327
[NAME OF LOCK-BOX BANK]
By:________________________________
Name:______________________________
Title:_____________________________
Address for notice:
Attention:
Telex No.:
(Answerback:)
Telephone:
Facsimile:
Annex A-4
<PAGE>
EXHIBIT A to
Lock-Box Agreement
[Nesbitt Burns Securities Inc.]
[Name and Address
of Lock-Box Bank]
Re: [Name of Seller]
[Lock-Box]* Account No[s]. [and ]
--------------------------------------------
Gentlemen:
Reference is made to the letter agreement dated , 199__ (the
"Letter Agreement") among [Name of Seller], S.D. Warren Company, as Servicer,
Bank of Montreal (Bank of Montreal, or any successors and assigns thereof, the
"Purchaser"), the undersigned, as Agent and you concerning the above described
[lock-box]* account[s] (the "Account[s]"). We hereby give you notice of our
assumption of ownership and control of the Account[s] as provided in the Letter
Agreement.
We hereby instruct you to make all payments to be made by you out of or in
connection with the Account[s] [directly to the undersigned, at [our address set
forth above], for the account of the Purchaser (account no. )].
[other instructions]
Very truly yours,
NESBITT BURNS SECURITIES INC.,
as Agent
By:________________________________
Name:______________________________
Title:_____________________________
_____________________
* Delete in the case of direct wire transfer accounts.
Annex A-5
<PAGE>
ANNEX C
FORM OF CORPORATE OPINIONS
<PAGE>
ANNEX D
FORM OF BANKRUPTCY OPINION
<PAGE>
ANNEX E
FORM OF SERVICER REPORT
<PAGE>
FIRST AMENDMENT TO RECEIVABLES PURCHASE
AGREEMENT
This FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT, dated as of June
14, 1996 (this "AMENDMENT"), is entered into among S.D. WARREN FINANCE CO., a
Delaware corporation ("SELLER"), S.D. WARREN COMPANY, a Pennsylvania
corporation ("S.D. WARREN"), as Servicer, POOLED ACCOUNTS RECEIVABLE CAPITAL
CORPORATION, a Delaware corporation (the "PURCHASER"), and NESBITT BURNS
SECURITIES, INC., a Delaware corporation, as Agent for Purchaser (in such
capacity, the "AGENT").
RECITALS
1. The Seller, S.D. Warren, the Purchaser and the Agent are parties to
that certain Receivables Purchase Agreement dated as of April 23, 1996 (the
"AGREEMENT"); and
2. The parties hereto desire to amend the Agreement as hereinafter set
forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINED TERMS. Capitalized terms that are used herein
without definition and that are defined in the Agreement shall have the same
meanings herein as in the Agreement.
2. AMENDMENT TO AGREEMENT. The Agreement is hereby amended as follows:
2.1 Exhibit VIII to the Agreement is deleted in its entirety and
replaced by the Exhibit VIII attached hereto.
3. REPRESENTATIONS AND WARRANTIES. Each of the Seller and S.D. Warren
hereby represents and warrants to Purchaser and the Agent as to itself as
follows:
a. REPRESENTATIONS AND WARRANTIES. Its representations and
warranties contained in Exhibit III to the Agreement are true and
correct as of the date hereof (unless stated to relate solely to an
earlier date, in which case such representations and warranties are true
and correct as of such earlier date).
b. ENFORCEABILITY. The execution and delivery by it of this Amendment,
and the performance of its obligations under this Amendment and the
Agreement, as amended hereby, are within
<PAGE>
its corporate powers and have been duly authorized by all necessary
corporate action on its part. This Amendment and the Agreement, as
amended hereby, are its valid and legally binding obligations,
enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.
c. NO DEFAULT. No Termination Event or Unmatured Termination Event
has occurred and is continuing.
4. EFFECT OF AMENDMENT. Except as expressly amended and modified by
this Amendment, all provisions of the Agreement shall remain in full force
and effect. After this Amendment becomes effective, all references in the
Agreement (or in any other Transaction Document) to "this Agreement",
"hereof", "herein" or words of similar effect referring to the Agreement
shall be deemed to be references to the Agreement as amended by this
Amendment. This Amendment shall not be deemed to expressly or impliedly
waive, amend or supplement any provision of the Agreement other than as set
forth herein.
5. EFFECTIVENESS. This Amendment shall become effective as of the date
hereof upon receipt by the Agent of the following:
a. counterparts of this Amendment (whether by facsimile or
otherwise) executed by each of the other parties hereto; and
b. a written statement from each of Moody's and S&P that this
Amendment will not result in a downgrade or withdrawal of the rating of
the commercial paper notes of the Purchaser.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, and each
counterpart shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
7. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the Commonwealth of Massachusetts
without regard to any otherwise applicable principles of conflicts of law.
8. SECTION HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this amendment or the Agreement or any provision hereof or
thereof.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
S.D. WARREN FINANCE CO., as Seller
By:________________________________
Name:___________________________
Title:__________________________
S.D. WARREN COMPANY, as Servicer
By:________________________________
Name:___________________________
Title:__________________________
POOLED ACCOUNTS RECEIVABLE
CAPITAL CORPORATION, as Purchaser
By:________________________________
Name:___________________________
Title:__________________________
NESBITT BURNS SECURITIES, INC.,
as Agent
By:________________________________
Name:___________________________
Title:__________________________
By:________________________________
Name:___________________________
Title:__________________________
-3-
<PAGE>
EXHIBIT VIII
SPECIAL OBLIGOR CONCENTRATION LIMITS
NORMAL
SENIOR UNSECURED CONCENTRATION
OBLIGOR DEBT RATING PERCENTAGE
------- ---------------- -------------
International Paper A(1) 30%
Central National Gottesman NR 15%(2)
Alco Standard A(1) 20%
Mead A(1) 10%
Affiliates of Sappi NR (L/C from 20%
International (Interco) Standard Bk of
South Africa)
(1) If a Special Obligor is downgraded to BBB/Baa2 or below, the Normal
Concentration Percentage for such Obligor will be reduced to 7.5%. If a
Special Obligor is reduced below BBB-/Baa3, the Normal Concentration
Percentage will revert to 2.5%.
(2) The Normal Concentration Percentage for Central National Gottesman shall
equal 15% only so long as the Pool Receivables of which Central National
Gottesman is the Obligor are (x) fully supported by a letter of credit
in a face amount at least equal to the Outstanding Balance of such
Receivables issued for the benefit of the Liquidity Banks and/or the
Purchaser and in a form acceptable to the Agent and the Liquidity Agent
and issued by a financial institution with a short-term unsecured credit
rating of at least A-1/P-1 by the Rating Agencies or (y) fully supported
by the Liquidity Agreement or another credit facility or arrangement
otherwise acceptable the Agent, the Liquidity Agent and the Rating
Agencies, otherwise the Normal Concentration Percentage for Central
National Gottesman shall equal 2.5%. If the Average Maturity of the Pool
Receivables of which Central National Gottesman is the Obligor exceeds
45 days, the Normal Concentration Percentage for Central National
Gottesman will revert to 2.5%.
VIII-1
<PAGE>
Exhibit 10.2(a)
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of April 23, 1996
between
S.D. WARREN COMPANY
and
S.D. WARREN FINANCE CO.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
AGREEMENT TO PURCHASE AND CONTRIBUTE
1.1. Agreement to Purchase and Sell . . . . . . . . . . . . . . . . 2
1.2. Timing of Purchases. . . . . . . . . . . . . . . . . . . . . . 3
1.3. Consideration for Purchases. . . . . . . . . . . . . . . . . . 3
1.4. Purchase and Sale Termination Date . . . . . . . . . . . . . . 3
1.5. Intention of the Parties . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CALCULATION OF PURCHASE PRICE
2.1. Calculation of Purchase Price. . . . . . . . . . . . . . . . . 4
ARTICLE III
CONTRIBUTION OF RECEIVABLES;
PAYMENT OF PURCHASE PRICE
3.1. Contribution of Receivables. . . . . . . . . . . . . . . . . . 5
3.2. Initial Purchase Price Payment . . . . . . . . . . . . . . . . 5
3.3. Subsequent Purchase Price Payments . . . . . . . . . . . . . . 5
3.4. Settlement as to Specific Receivables. . . . . . . . . . . . . 6
3.5. Reconveyance of Receivables. . . . . . . . . . . . . . . . . . 7
ARTICLE IV
CONDITIONS OF PURCHASES
4.1. Conditions Precedent to Initial Purchase . . . . . . . . . . . 7
4.2. Certification as to Representations
and Warranties. . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ORIGINATOR
5.1. Organization and Good Standing . . . . . . . . . . . . . . . . 9
5.2. Due Qualification. . . . . . . . . . . . . . . . . . . . . . . 9
5.3. Power and Authority; Due Authorization . . . . . . . . . . . . 10
5.4. Valid Sale or Contribution;
Binding Obligations . . . . . . . . . . . . . . . . . . . . . 10
5.5. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.6. Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
5.7. Bulk Sales Act . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8. Government Approvals . . . . . . . . . . . . . . . . . . . . . 11
5.9. Financial Condition. . . . . . . . . . . . . . . . . . . . . . 11
5.10. Margin Regulations. . . . . . . . . . . . . . . . . . . . . . 11
5.11. Quality of Title. . . . . . . . . . . . . . . . . . . . . . . 11
5.12. Accuracy of Information . . . . . . . . . . . . . . . . . . . 12
5.13. Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.14. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.16. Licenses and Labor Controversies. . . . . . . . . . . . . . . 13
5.17. Compliance with Applicable Laws . . . . . . . . . . . . . . . 13
5.18. Reliance on Separate Legal Identity . . . . . . . . . . . . . 13
5.19. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . 13
5.20. Certain Definitions . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
COVENANTS OF ORIGINATOR
6.1. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 15
6.2. Reporting Requirements . . . . . . . . . . . . . . . . . . . . 17
6.3. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1. Rights of the Company. . . . . . . . . . . . . . . . . . . . . 19
7.2. Responsibilities of Originator . . . . . . . . . . . . . . . . 19
7.3. Further Action Evidencing Purchases. . . . . . . . . . . . . . 20
7.4. Application of Collections . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII
PURCHASE AND SALE TERMINATION EVENTS
8.1. Purchase and Sale Termination Events . . . . . . . . . . . . . 21
8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
INDEMNIFICATION
9.1. Indemnities by Originator. . . . . . . . . . . . . . . . . . . 23
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE X
MISCELLANEOUS
10.1. Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . 24
10.2. Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . 25
10.3. No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . 25
10.4. Binding Effect; Assignability . . . . . . . . . . . . . . . . 25
10.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 25
10.6. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . 26
10.7. Submission to Jurisdiction. . . . . . . . . . . . . . . . . . 26
10.8. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . 26
10.9. Captions and Cross References;
Incorporation by Reference . . . . . . . . . . . . . . . . . 27
10.10. Execution in Counterparts. . . . . . . . . . . . . . . . . . 27
10.11. Acknowledgment and Agreement . . . . . . . . . . . . . . . . 27
||
SCHEDULES
SCHEDULE 5.13 Office Locations
SCHEDULE 5.14 Trade Names
EXHIBITS
EXHIBIT A Form of Purchase Report
EXHIBIT B Form of Company Note
EXHIBIT C Form of Opinion of Originator's Counsel
-iii-
<PAGE>
PURCHASE AND CONTRIBUTION AGREEMENT
THIS PURCHASE AND CONTRIBUTION AGREEMENT (as amended, supplemented or
modified from time to time, this "AGREEMENT"), dated as of April 23, 1996, is
between S.D. WARREN COMPANY, a Pennsylvania corporation ("ORIGINATOR"), as
seller and contributor, and S.D. WARREN FINANCE CO., a Delaware corporation (the
"COMPANY"), as purchaser and contributee.
DEFINITIONS
Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in EXHIBIT I to the Receivables Purchase
Agreement of even date herewith (as amended, supplemented or otherwise modified
from time to time, the "RECEIVABLES PURCHASE AGREEMENT"), among the Company,
Originator, as initial Servicer, BANK OF MONTREAL, as purchaser (together with
its successors and assigns, the "PURCHASER"), and NESBITT BURNS SECURITIES,
INC., as agent for Purchaser (together with its successors and assigns, the
"AGENT").
BACKGROUND
1. The Company is a special purpose corporation, all of the capital stock
of which is wholly-owned by Originator, subject to a pledge to Chemical Bank, as
agent, under the Credit and Guarantee Agreement.
2. On the Closing Date, Originator is transferring certain Receivables
and Related Rights to the Company as a contribution to the Company in return for
100 shares of the common stock of the Company.
3. In order to finance its business, Originator wishes to sell certain
Receivables and Related Rights from time to time to the Company, and the Company
is willing, on the terms and subject to the conditions set forth herein, to
purchase such Receivables and Related Rights from Originator.
4. The Company intends to sell to Purchaser an undivided variable
percentage interest in its Receivables and Related Rights pursuant to the
Receivables Purchase Agreement in order to finance its purchases of certain
Receivables and Related Rights hereunder.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE AND CONTRIBUTE
1.1. AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions set forth in this Agreement (including ARTICLE IV), and in
consideration of the Purchase Price, Originator agrees to sell to the Company,
and does hereby sell to the Company, and the Company agrees to purchase from
Originator, and does hereby purchase from Originator, without recourse and
without regard to collectibility, all of Originator's right, title and interest
in and to:
(a) each Receivable of Originator that existed and was owing to Originator
as of the close of Originator's business on April 24, 1996 (the "CLOSING DATE")
(other than the Receivables and Related Rights contributed by Originator to the
Company pursuant to Section 3.1 (the "CONTRIBUTED RECEIVABLES"));
(b) each Receivable created or originated by Originator from the close of
Originator's business on the Closing Date to and including the Purchase and Sale
Termination Date;
(c) all rights to, but not the obligations under, all Related Security;
(d) all monies due or to become due with respect to any of the foregoing;
(e) all books and records related to any of the foregoing; and
(f) all proceeds thereof (as defined in the UCC) received on or after the
date hereof including, without limitation, all funds which either are received
by Originator, the Company or the Servicer from or on behalf of the Obligors in
payment of any amounts owed (including, without limitation, finance charges,
interest and all other charges) in respect of Receivables, or are applied to
such amounts owed by the Obligors (including, without limitation, insurance
payments, if any, that Originator or the Servicer (if other than Originator)
applies in the ordinary course of its business to amounts owed in respect of any
Receivable).
All purchases and contributions hereunder shall be made without recourse, but
shall be made pursuant to and in reliance upon the representations, warranties
and covenants of Originator, in its capacity as seller and contributor, set
forth in each Transaction Document. The Company's foregoing commitment to
purchase such
-2-
<PAGE>
Receivables and the proceeds and rights described in subsections (c) through
(f) of this SECTION 1.1 (collectively, the "RELATED RIGHTS") is herein called
the "PURCHASE FACILITY."
1.2. TIMING OF PURCHASES.
(a) CLOSING DATE PURCHASES. Originator's entire right, title and interest
in (i) each Receivable that existed and was owing to Originator as of the close
of Originator's business on the Closing Date, (other than Contributed
Receivables), (ii) all Related Rights with respect thereto shall be deemed to
have been sold to the Company on the Closing Date.
(b) REGULAR PURCHASES. After the Closing Date, each Receivable created or
originated by Originator and described in Section 1.1(b) hereof and all Related
Rights shall be purchased and owned by the Company (without any further action)
upon the creation or origination of such Receivable.
1.3. CONSIDERATION FOR PURCHASES. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to make all Purchase
Price payments to Originator, and to reflect all contributions, in accordance
with ARTICLE III.
1.4. PURCHASE AND SALE TERMINATION DATE. The "PURCHASE AND SALE
TERMINATION DATE" shall be the earlier to occur of (a) the date of the
termination of this Agreement pursuant to Section 8.2 and (b) the Payment Date
immediately following the day on which Originator shall have given notice to the
Company that Originator desires to terminate this Agreement.
As used herein, "PAYMENT DATE" means (i) the Closing Date and (ii) each
Business Day thereafter that Originator is open for business.
1.5. INTENTION OF THE PARTIES. It is the express intent of the parties
hereto that the transfers of the Receivables (other than Contributed
Receivables) and Related Rights by the Originator to the Company, as
contemplated by this Agreement be, and be treated as, sales and not as secured
loans secured by the Receivables and Related Rights. If, however,
notwithstanding the intent of the parties, such transactions are deemed to be
loans, the Originator hereby grants to the Company a first priority security
interest in all of the Originator's right, title and interest in and to the
Receivables and the Related Rights now existing and hereafter created, all
monies due or to become due and all amounts received with respect thereto, and
all proceeds thereof, to secure all of the Originator's obligations hereunder.
-3-
<PAGE>
ARTICLE II
CALCULATION OF PURCHASE PRICE
2.1. CALCULATION OF PURCHASE PRICE. On each Servicer Report Date, the
Servicer shall deliver to the Company, the Agent and Originator (if the Servicer
is other than Originator) a report in substantially the form of Exhibit A (each
such report being herein called a "PURCHASE REPORT") with respect to the matters
set forth therein and the Company's purchases of Receivables from Originator
(a) that are to be made on the Closing Date (in the case of the Purchase
Report to be delivered on the Closing Date), or
(b) that were made during the period commencing on the Servicer Report
Date immediately preceding such Servicer Report Date to (but not including) such
Servicer Report Date (in the case of each subsequent Purchase Report).
The "PURCHASE PRICE" (to be paid to Originator in accordance with the terms of
ARTICLE III) for the Receivables and the Related Rights that are purchased
hereunder shall be determined in accordance with the following formula:
PP = OB X FMVD
WHERE:
PP = Purchase Price for each Receivable as calculated on the relevant
Payment Date.
OB = the Outstanding Balance of such Receivable.
FMVD = Fair Market Value Discount, as measured on such Payment Date,
which is equal to the quotient (expressed as percentage) of (a)
one DIVIDED by (b) the sum of (i) one, plus (ii) the product of
(A) the Prime Rate on such Payment Date plus .50% and (B) a
fraction, the numerator of which is the Average Maturity
(calculated as of the last day of the calendar month next
preceding such Payment Date) and the denominator of which is 365,
plus (iii) in the event that the Loss to Liquidation Ratio (as
calculated the last day of the calendar month next preceding such
Payment Date) exceeds .35%, an amount equal to such excess.
"LOSS TO LIQUIDATION RATIO" means the ratio (expressed as a percentage)
computed as of the last day of each month by dividing (i) the aggregate
Outstanding Balance of all Receivables originated by Originator that were
charged-off as uncollectible during the most
-4-
<PAGE>
recent calendar month then ended by (ii) the aggregate Collections (other
than deemed Collections) received by the Company or the Originator during
such month.
"PRIME RATE" means a PER ANNUM rate equal to the "prime rate" as published
in the "Money Rates" section of The Wall Street Journal or such other
publication as determined by the Agent in its sole discretion.
ARTICLE III
CONTRIBUTION OF RECEIVABLES;
PAYMENT OF PURCHASE PRICE
3.1. CONTRIBUTION OF RECEIVABLES. On the Closing Date, Originator shall,
and hereby does, contribute to the capital of the Company, Receivables and
Related Rights with respect thereto consisting of each Receivable of Originator
that existed and was owing to Originator on the Closing Date, beginning with the
oldest of such Receivables and continuing chronologically thereafter, and all or
an undivided interest in the most recent of such contributed Receivables such
that the aggregate Outstanding Balance of all such contributed Receivables shall
be equal to $3,000,000.
3.2. INITIAL PURCHASE PRICE PAYMENT. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to pay to Originator
the Purchase Price for the purchase of Receivables to be made on the Closing
Date, partially in cash in the amount of the proceeds of the Purchase made by
the Purchaser on the Closing Date under the Receivables Purchase Agreement, and
partially by issuing a promissory note in the form of EXHIBIT B to Originator
with an initial principal balance equal to the remaining Purchase Price (as such
promissory note may be amended, supplemented, indorsed or otherwise modified
from time to time, together with all promissory notes issued from time to time
in substitution therefor or renewal thereof in accordance with the Transaction
Documents, being herein called the "COMPANY NOTE").
3.3. SUBSEQUENT PURCHASE PRICE PAYMENTS. On each Business Day falling
after the Closing Date and on or prior to the Purchase and Sale Termination
Date, on the terms and subject to the conditions set forth in this Agreement,
the Company shall pay to Originator the Purchase Price for the Receivables sold
by Originator to the Company on such Business Day, in cash, to the extent
provided under SECTION 1.2 of the Receivables Purchase Agreement, and to the
extent any of such Purchase Price remains unpaid, such remaining portion of such
Purchase Price shall be paid by means of an automatic increase to the
outstanding principal amount of the Company Note.
-5-
<PAGE>
Servicer shall make all appropriate record keeping entries with respect to
the Company Note or otherwise to reflect the foregoing payments and adjustments
pursuant to SECTION 3.4, and Servicer's books and records shall constitute
rebuttable presumptive evidence of the principal amount of and accrued interest
on the Company Note at any time. Furthermore, Servicer shall hold the Company
Note for the benefit of Originator, and all payments under the Company Note
shall be made to the Servicer for the account of the applicable payee thereof.
Originator hereby irrevocably authorizes Servicer to mark the Company Note
"CANCELLED" and to return the Company Note to the Company upon the final payment
thereof after the occurrence of the Purchase and Sale Termination Date.
3.4. SETTLEMENT AS TO SPECIFIC RECEIVABLES AND DILUTION.
(a) If on the day of purchase or contribution of any Receivable from
Originator hereunder, any of the representations or warranties set forth in
SECTION 5.4 or 5.11 is not true with respect to such Receivable or as a result
of any action or inaction of Originator, on any day any of the representations
or warranties set forth in SECTION 5.4 or 5.11 is no longer true with respect to
such a Receivable, then the Purchase Price (or in the case of a Contributed
Receivable, the Outstanding Balance of such Receivable (the "CONTRIBUTED
VALUE")) with respect to such Receivables shall be reduced by an amount equal to
the Outstanding Balance of such Receivable and shall be accounted to Originator
as provided in SUBSECTION (C) below; PROVIDED, that if the Company thereafter
receives payment on account of Collections due with respect to such Receivable,
the Company promptly shall deliver such funds to Originator.
(b) If, on any day, the Outstanding Balance of any Receivable (including
any Contributed Receivable) purchased (or contributed) hereunder is reduced or
adjusted as a result of any defective, rejected, returned goods or services, or
any discount or other adjustment made by Originator, Company or Servicer or any
setoff or dispute between the Seller, the Originator or the Servicer and an
Obligor as indicated on the books of the Company (or, for periods prior to the
Closing Date, the books of Originator), then the Purchase Price or the
Contributed Value, as the case may be, with respect to such Receivable shall be
reduced by the amount of such net reduction and shall be accounted to Originator
as provided in subsection (c) below.
(c) Any reduction in the Purchase Price (or Contributed Value) of any
Receivable pursuant to subsection (a) or (b) above shall be applied as a credit
for the account of the Company against the Purchase Price of Receivables
subsequently purchased by the Company from the Originator hereunder; PROVIDED,
HOWEVER if there have been no purchases of Receivables (or insufficiently large
purchases of
-6-
<PAGE>
Receivables) to create a Purchase Price sufficient to so apply such credit
against, the amount of such credit
(i) shall be paid in cash to the Company by the Originator in the
manner and for application as described in the following proviso, or
(ii) shall be deemed to be a payment under, and shall be deducted
from the principal amount outstanding under, the Company Note, to the
extent that such payment is permitted under clause (o) of EXHIBIT IV of the
Receivables Purchase Agreement;
PROVIDED, FURTHER, that at any time (y) when a Termination Event or Unmatured
Termination Event exists or (z) on or after the Purchase and Sale Termination
Date, the amount of any such credit shall be paid by Originator to the Company
by deposit in immediately available funds into the Collection Account for
application by Servicer to the same extent as if Collections of the applicable
Receivable in such amount had actually been received on such date.
(d) Each Purchase Report (other than the Purchase Report delivered on the
Closing Date) shall include, in respect of the Receivables previously generated
by Originator (including the Contributed Receivables), a calculation of the
aggregate reductions described in subsection (a) or (b) relating to such
Receivables since the last Purchase Report delivered hereunder, as indicated on
the books of the Company (or, for such period prior to the Closing Date, the
books of Originator).
3.5. RECONVEYANCE OF RECEIVABLES. In the event that Originator has paid
to the Company the full Outstanding Balance of any Receivable pursuant to
SECTION 3.4, the Company shall reconvey such Receivable to Originator, without
representation or warranty, but free and clear of all liens created by the
Company.
ARTICLE IV
CONDITIONS OF PURCHASES
4.1. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial purchase
hereunder is subject to the condition precedent that the Company shall have
received, on or before the Closing Date, the following, each (unless otherwise
indicated) dated the Closing Date, and each in form, substance and date
satisfactory to the Company:
(a) A copy of the resolutions of the Board of Directors of Originator
approving the Transaction Documents to be delivered by it and the transactions
contemplated hereby and thereby, certified by the Secretary or Assistant
Secretary of Originator;
-7-
<PAGE>
(b) Status certificates for Originator issued as of a recent date by the
Secretary of State of Massachusetts, Pennsylvania, Maine, Michigan and Alabama;
(c) A certificate of the Secretary or Assistant Secretary of Originator
certifying the names and true signatures of the officers authorized on
Originator's behalf to sign the Transaction Documents to be delivered by it (on
which certificate the Company and Servicer (if other than Originator) may
conclusively rely until such time as the Company and the Servicer shall receive
from Originator a revised certificate meeting the requirements of this
SUBSECTION (C));
(d) The articles of incorporation of Originator, duly certified by the
Secretary of State of Pennsylvania as of a recent date, together with a copy of
the by-laws of Originator, each duly certified by the Secretary or an Assistant
Secretary of Originator;
(e) Copies of the proper financing statements (Form UCC-1) that have been
duly executed and name Originator as the assignor and the Company as the
assignee (and Purchaser as assignee of the Company) of the Receivables generated
by Originator and Related Rights or other, similar instruments or documents, as
may be necessary or, in Servicer's or the Agent's opinion, desirable under the
UCC of all appropriate jurisdictions or any comparable law of all appropriate
jurisdictions to perfect the Company's ownership interest in all Receivables and
Related Rights in which an ownership interest may be assigned to it hereunder;
(f) A written search report from a Person satisfactory to Servicer and the
Agent listing all effective financing statements that name Originator as debtor
or assignor and that are filed in the jurisdictions in which filings were made
pursuant to the foregoing SUBSECTION (E), together with copies of such financing
statements (none of which, except for those described in the foregoing
SUBSECTION (e), shall cover any Receivable or any Related Right), and tax and
judgment lien search reports from a Person satisfactory to Servicer and the
Agent showing no evidence of such liens filed against Originator;
(g) Favorable opinions of Ropes & Gray, special counsel to Originator,
and Jennifer Miller, general counsel to the Originator, in the forms of
EXHIBIT C;
(h) Evidence (i) of the execution and delivery by each of the parties
thereto of each of the other Transaction Documents to be executed and delivered
in connection herewith and (ii) that each of the conditions precedent to the
execution, delivery and effectiveness of such other Transaction Documents has
been satisfied to the Company's satisfaction; and
-8-
<PAGE>
(i) A certificate from an officer of Originator to the effect that
Servicer and Originator have placed on the most recent, and have taken all steps
reasonably necessary to ensure that there shall be placed on subsequent, summary
master control data processing reports the following legend (or the substantive
equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO S.D.
WARREN FINANCE CO. PURSUANT TO A PURCHASE AND CONTRIBUTION AGREEMENT, DATED AS
OF APRIL 23, 1996, BETWEEN S.D. WARREN FINANCE CO. AND S.D. WARREN COMPANY; AND
AN INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN GRANTED TO BANK OF
MONTREAL, PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF APRIL 23,
1996, AMONG S.D. WARREN COMPANY, S.D. WARREN FINANCE CO., BANK OF MONTREAL AND
NESBITT BURNS SECURITIES, INC., AS AGENT."
4.2. CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES. Originator, by
accepting the Purchase Price related to each purchase of Receivables (and
Related Rights) shall be deemed to have certified that the representations and
warranties contained in ARTICLE V are true and correct on and as of such day,
with the same effect as though made on and as of such day.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ORIGINATOR
In order to induce the Company to enter into this Agreement and to make
purchases and accept contributions hereunder, Originator, in its capacity as
seller under this Agreement, hereby makes the representations and warranties set
forth in this ARTICLE V.
5.1. ORGANIZATION AND GOOD STANDING. Originator has been duly organized
and is validly existing as a corporation in good standing under the laws of the
state of its incorporation, with power and authority to own its properties and
to conduct its business as such properties are presently owned and such business
is presently conducted.
5.2. DUE QUALIFICATION. Originator is duly licensed or qualified to do
business as a foreign corporation in good standing in the jurisdiction where its
chief executive office and principal place of business are located and in all
other jurisdictions in which (a) the ownership or lease of its property or the
conduct of its business requires such licensing or qualification and (b) the
failure to be so licensed or qualified has not had and could not reasonably be
expected to have a Material Adverse Effect.
5.3. POWER AND AUTHORITY; DUE AUTHORIZATION. Originator has (a) all
necessary corporate power, authority and legal right (i) to execute and deliver,
and perform its obligations under, each Transaction Document to which it is a
party, as seller, and (ii) to
-9-
<PAGE>
generate, own, sell, contribute and assign Receivables and Related Rights on
the terms and subject to the conditions herein and therein provided; and (b)
duly authorized such execution and delivery and such sale, contribution and
assignment and the performance of such obligations by all necessary corporate
action.
5.4. VALID SALE OR CONTRIBUTION; BINDING OBLIGATIONS. Each sale or
contribution, as the case may be, of Receivables and Related Rights made by
Originator pursuant to this Agreement shall constitute a valid sale or
contribution, as the case may be, transfer, and assignment thereof to the
Company, enforceable against creditors of, and purchasers from, Originator; and
this Agreement constitutes, and each other Transaction Document to be signed by
Originator, as seller, when duly executed and delivered, will constitute, a
legal, valid, and binding obligation of Originator, enforceable in accordance
with its terms; except in each case as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
5.5. NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which Originator is a
party as seller, and the fulfillment of the terms hereof or thereof will not (a)
conflict with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under (i)
Originator's certificate of incorporation or by-laws, or (ii) any indenture,
loan agreement, mortgage, deed of trust, or other agreement or instrument to
which it is a party or by which it is bound, (b) result in the creation or
imposition of any Adverse Claim upon any of its properties pursuant to the terms
of any such indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument, other than the Transaction Documents, or (c) violate
any law or any order, rule, or regulation applicable to it of any court or of
any federal, state or foreign regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over it or any of its
properties.
5.6. PROCEEDINGS. There is no litigation or, to Originator's knowledge,
any proceeding or investigation pending before any court, regulatory body,
arbitrator, administrative agency, or other tribunal or governmental
instrumentality (a) asserting the invalidity of any Transaction Document to
which Originator is a party as seller, (b) seeking to prevent the sale or
contribution of Receivables and Related Rights to the Company or the
consummation of any of the other transactions contemplated by any Transaction
Document to which Originator is a party as seller, or (c) seeking any
determination or ruling that could reasonably be expected to have a Material
Adverse Effect.
-10-
<PAGE>
5.7. BULK SALES ACT. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
5.8. GOVERNMENT APPROVALS. Except for the filing of the UCC financing
statements referred to in ARTICLE IV, all of which, at the time required in
ARTICLE IV, shall have been duly made and shall be in full force and effect, no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for Originator's due
execution, delivery and performance of any Transaction Document to which it is a
party, as seller.
5.9. FINANCIAL CONDITION.
(a) On the date hereof, and on the date of each sale of Receivables by
Originator to the Company (both before and after giving effect to such sale),
Originator shall be Solvent.
(b) The consolidated balance sheets of Originator and its consolidated
subsidiaries as of September 30, 1995, and the related statements of income and
shareholders' equity of Originator and its consolidated subsidiaries for the
fiscal year then ended certified by Originator's independent accountants, copies
of which have been furnished to the Company, present fairly the consolidated
financial position of Originator and its consolidated subsidiaries for the
period ended on such date, all in accordance with generally accepted accounting
principles consistently applied; and since such date no event has occurred that
has had, or is reasonably likely to have, a Material Adverse Effect.
5.10. MARGIN REGULATIONS. No use of any funds acquired by Originator
under this Agreement will conflict with or contravene any of Regulations G, T, U
and X promulgated by the Board of Governors of the Federal Reserve System from
time to time.
5.11. QUALITY OF TITLE.
(a) Each Receivable (together with the Related Rights) which is to be sold
or contributed to the Company hereunder is or shall be owned by Originator, free
and clear of any Adverse Claim. Whenever the Company makes a purchase, or
accepts a contribution, hereunder, it shall have acquired a valid and perfected
ownership interest (free and clear of any Adverse Claim) in all Receivables
generated by Originator and all Collections related thereto, and in Originator's
entire right, title and interest in and to the other Related Rights with respect
thereto.
(b) No effective financing statement or other instrument similar in effect
covering any Receivable generated by Originator or any right related to any such
Receivable is on file in any recording office except such as may be filed in
favor of the Company or
-11-
<PAGE>
Originator, as the case may be, in accordance with this Agreement or in favor
of the Purchaser in accordance with the Receivables Purchase Agreement.
5.12. ACCURACY OF INFORMATION. No factual written information furnished
or to be furnished in writing by Originator, as seller, to the Company, the
Purchaser or the Agent for purposes of or in connection with any Transaction
Document or any transaction contemplated hereby or thereby is, and no other such
factual written information hereafter furnished (and prepared) by Originator, as
seller, to the Company, the Purchaser, or the Agent pursuant to or in connection
with any Transaction Document, taken as a whole, will be inaccurate in any
material respect as of the date it was furnished or (except as otherwise
disclosed to the Company at or prior to such time) as of the date as of which
such information is dated or certified, or shall contain any material
misstatement of fact or omitted or will omit to state any material fact
necessary to make such information, in the light of the circumstances under
which any statement therein was made, not materially misleading on the date as
of which such information is dated or certified.
5.13. OFFICES. Originator's principal place of business and chief
executive office is located at the address set forth under Originator's
signature hereto, and the offices where Originator keeps all its books, records
and documents evidencing the Receivables, the related Contracts and all other
agreements related to such Receivables are located at the addresses specified on
SCHEDULE 5.13 (or at such other locations, notified to Servicer (if other than
Originator) and the Agent in accordance with SECTION 6.1(f), in jurisdictions
where all action required by SECTION 7.3 has been taken and completed).
5.14. TRADE NAMES. Except as disclosed on SCHEDULE 5.14, Originator does
not use any trade name other than its actual corporate name. From and after the
date that fell five (5) years before the date hereof, Originator has not been
known by any legal name other than its corporate name as of the date hereof, nor
has Originator been the subject of any merger or other corporate reorganization
except as disclosed on SCHEDULE 5.14.
5.15. TAXES. Originator has filed all tax returns and reports required by
law to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except any such taxes which are not yet delinquent or
are being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with generally accepted accounting
principles shall have been set aside on its books.
5.16. LICENSES AND LABOR CONTROVERSIES.
-12-
<PAGE>
(a) Originator has not failed to obtain any licenses, permits, franchises
or other governmental authorizations necessary to the ownership of its
properties or to the conduct of its business, which violation or failure to
obtain would be reasonably likely to have a Material Adverse Effect; and
(b) There are no labor controversies pending against Originator that have
had (or are reasonably likely to have) a Material Adverse Effect.
5.17. COMPLIANCE WITH APPLICABLE LAWS. Originator is in compliance, in
all material respects, with the requirements of (i) all applicable laws, rules,
regulations, and orders of all governmental authorities (including, without
limitation, Regulation Z, laws, rules and regulations relating to usury, truth
in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy and all other consumer
laws applicable to the Receivables and related Contracts) (excluding with
respect to environmental matters which are covered by CLAUSE (ii)), and (ii) to
the best of its knowledge, all applicable environmental laws, rules, regulations
and orders of all governmental authorities.
5.18. RELIANCE ON SEPARATE LEGAL IDENTITY. Originator is aware that
Purchaser and the Agent are entering into the Transaction Documents to which
they are parties in reliance upon the Company's identity as a legal entity
separate from Originator.
5.19. PURCHASE PRICE. The purchase price payable by the Company to the
Originator hereunder is intended by the Originator and Company to be consistent
with the terms that would be obtained in an arm's length sale. The Servicer's
Fee payable to the Originator is intended to be consistent with terms that would
be obtained in an arm's length servicing arrangement.
5.20. CERTAIN DEFINITIONS. With respect to this Agreement, the terms
"Material Adverse Effect" and "Solvent" are defined as follows:
"MATERIAL ADVERSE EFFECT" means, with respect to any event or
circumstance, a material adverse effect on:
(i) the business, assets, financial condition of the Originator;
(ii) the ability of Originator or the Servicer (if it is the
Originator) to perform its obligations under the Receivables Purchase
Agreement or any other Transaction Document to which it is a party or the
performance of any such obligations;
-13-
<PAGE>
(iii) the validity or enforceability of the Receivables Purchase
Agreement or any other Transaction Document;
(iv) with respect to the Purchase and Contribution Agreement, the
status, existence, perfection, priority or enforceability of Company's
interest in the Receivables or Related Rights; or
(v) the validity or enforceability of the Receivables.
"SOLVENT" means, with respect to any Person at any time, a condition
under which:
(i) the fair value and present fair saleable value of such Person's
total assets is, on the date of determination, greater than such Person's
total liabilities (including contingent and unliquidated liabilities) at
such time;
(ii) such Person is and shall continue to be able to
pay all of its liabilities as such liabilities mature; and
(iii) such Person does not have unreasonably small capital with which
to engage in its current and in its anticipated business.
For purposes of this definition:
(A) the amount of a Person's contingent or unliquidated liabilities
at any time shall be that amount which, in light of all the facts and
circumstances then existing, represents the amount which can reasonably be
expected to become an actual or matured liability;
(B) the "fair value" of an asset shall be the amount which may be
realized within a reasonable time either through collection or sale of such
asset at its regular market value;
(C) the "regular market value" of an asset shall be the amount which
a capable and diligent business person could obtain for such asset from an
interested buyer who is willing to purchase such asset under ordinary
selling conditions; and
(D) the "present fair saleable value" of an asset means the amount
which can be obtained if such asset is sold with reasonable promptness in
an arm's length transaction in an existing and not theoretical market.
ARTICLE VI
COVENANTS OF ORIGINATOR
-14-
<PAGE>
6.1. AFFIRMATIVE COVENANTS. From the date hereof until the first day
following the Final Payout Date, Originator will, unless the Company and the
Agent shall otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all
applicable laws, rules, regulations and orders, including those with respect to
the Receivables generated by it and the related Contracts and other agreements
related thereto.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification could
reasonably be expected to have a Material Adverse Effect.
(c) RECEIVABLES REVIEW. (i) At any time and from time to time (but not
more than twice during the term of this Agreement so long as no Termination
Event has occurred and is continuing) during regular business hours, upon
reasonable prior notice, permit the Company and/or the Agent, or their
respective agents or representatives, (A) to examine, to audit and make copies
of and abstracts from all books, records and documents (including, without
limitation, computer tapes and disks) in the possession or under the control of
Originator relating to the Receivables and Related Rights, including, without
limitation, the Contracts and other agreements related thereto, and (B) to visit
Originator's offices and properties for the purpose of examining such materials
described in the foregoing CLAUSE (A) and discussing matters relating to the
Receivables and Related Rights or Originator's performance hereunder with any of
the officers or employees of Originator having knowledge of such matters; and
(ii) without limiting the provisions of CLAUSE (i) next above, from time to time
on request of the Agent, permit certified public accountants or other auditors
acceptable to the Agent to conduct a review of its books and records with
respect to the Receivables and Related Rights.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain an ability to
recreate records evidencing the Receivables in the event of the destruction of
the originals thereof.
(e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. At its
expense timely and fully perform and comply with all provisions, covenants and
other promises required to be observed by it under the related Contracts and all
other agreements related to the Receivables and Related Rights.
(f) LOCATION OF RECORDS. Keep its principal place of business and chief
executive office, and the offices where it keeps its
-15-
<PAGE>
records concerning or related to Receivables and Related Rights, at the
address(es) referred to in SCHEDULE 5.13 or, upon 30 days' prior written
notice to the Company and the Agent, at such other locations in jurisdictions
where all action required by SECTION 7.3 shall have been taken and completed.
(g) CREDIT AND COLLECTION POLICIES. Comply in all material respects with
its Credit and Collection Policy in connection with the Receivables and the
related Contracts.
(h) SEPARATE CORPORATE EXISTENCE OF THE COMPANY. Take such actions as
shall be required in order that:
(i) the Company's operating expenses (other than certain organization
expenses and expenses incurred in connection with the preparation,
negotiation and delivery of the Transaction Documents) will not be paid by
Originator;
(ii) the Company's books and records will be maintained separately
from those of Originator;
(iii) all financial statements of Originator that are consolidated to
include the Company will contain detailed notes clearly stating that (A)
all of the Company's assets are owned by the Company, and (B) the Company
is a separate entity with creditors who have received interests in the
Company's assets;
(iv) Originator will strictly observe corporate formalities in its
dealing with the Company;
(v) Originator shall not commingle its funds with any funds of the
Company;
(vi) Originator will maintain arm's length relationships with the
Company, and Originator will be compensated at market rates for any
services it renders or otherwise furnishes to the Company; and
(vii) Originator will not be, and will not hold itself out to be,
responsible for the debts of the Company or the decisions or actions in
respect of the daily business and affairs of the Company (other than with
respect to such decisions or actions of the Originator in its capacity as
Servicer).
(i) RECEIPT OF COLLECTIONS. Originator shall promptly remit to the
applicable post office box related to the Lock-Box Accounts (or cause to be
deposited directly to such Lock-Box Accounts) all Collections received by
Originator.
-16-
<PAGE>
(j) POST OFFICE BOXES. Within 60 days after the date hereof, Originator
shall deliver to the Agent (with a copy for Purchaser) a certificate from an
authorized officer of Originator to the effect that (i) the name of the renter
of all post office boxes into which Collections may from time to time be mailed
have been changed to the name of the Company (unless such post office boxes are
in the name of the relevant Lock-Box Banks) and (ii) all relevant postmasters
have been notified that each of Servicer and the Agent are authorized to collect
mail delivered to such post office boxes (unless such post office boxes are in
the name of the relevant Lock-Box Banks).
6.2. REPORTING REQUIREMENTS. From the date hereof until the first day
following the Purchase and Sale Termination Date, Originator shall, unless the
Agent and the Company shall otherwise consent in writing, furnish to the Company
and the Agent:
(a) PROCEEDINGS. As soon as possible and in any event within three
Business Days after Originator has knowledge thereof, written notice to the
Company and the Agent of (i) all pending proceedings and investigations of the
type described in SECTION 5.6 not previously disclosed to the Company and/or the
Agent and (ii) all material adverse developments that have occurred with respect
to any previously disclosed proceedings and investigations; PROVIDED, HOWEVER,
that if such proceedings and investigations are unrelated to the Receivables and
the servicing thereof, such written notice may be delivered within 10 days after
Originator has knowledge thereof;
(b) OTHER. Promptly, from time to time, such other information,
documents, records or reports respecting the Receivables, the Related Rights or
Originator's performance hereunder that the Company or the Agent may from time
to time reasonably request in order to protect the interests of the Company, the
Purchaser, the Agent or any other Affected Party under or as contemplated by the
Transaction Documents.
6.3. NEGATIVE COVENANTS. From the date hereof until the date following
the Final Payout Date, Originator agrees that, unless the Agent and the Company
shall otherwise consent in writing, it shall not:
(a) SALES, LIENS, ETC. Except as otherwise provided herein or in any
other Transaction Document, (i) sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Receivable or related Contract, Collections or Related
Security, or any interest therein, or assign any right to receive income in
respect thereof, or (ii) create or suffer to exist any Adverse Claim upon or
with respect to any proceeds of its inventory.
-17-
<PAGE>
(b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as otherwise permitted
in Section 4.2(a) of the Receivables Purchase Agreement or in accordance with
the Credit and Collection Policy, extend, amend or otherwise modify the terms of
any Receivable in any material respect, or amend, modify or waive, in any
material respect, any term or condition of any Contract related thereto (which
term or condition relates to payments under, or the enforcement of, such
Contract).
(c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Make any change
in the character of its business or materially alter its Credit and Collection
Policy, which change would, in either case, materially change the credit
standing required of particular Obligors or potential Obligors or impair, in any
material respect, the collectibility of the Receivables generated by it.
(d) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES OR CHATTEL PAPER.
Take any action to cause or permit any Receivable generated by it to become
evidenced by any "instrument" or "chattel paper" (as defined in the applicable
UCC) unless such "instrument" or "chattel paper" shall be delivered to the
Company (which in turn shall deliver the same to the Purchaser (or the Agent on
its behalf)).
(e) MERGERS, ACQUISITIONS, SALES, ETC. Merge or consolidate with another
Person (except pursuant to a merger or consolidation involving Originator where
Originator is the surviving corporation), or convey, transfer, lease or
otherwise dispose of (whether in one or in a series of transactions), all or
substantially all of its assets (whether now owned or hereafter acquired), other
than pursuant to this Agreement.
(f) LOCK-BOX BANKS. Make any changes in its instructions to Obligors
regarding Collections or add or terminate any Lock-Box Bank unless the
requirements of CLAUSE (i) of EXHIBIT IV of the Receivables Purchase Agreement
have been met.
(g) ACCOUNTING FOR PURCHASES. Account for or treat (whether in financial
statements or otherwise) the transactions contemplated hereby in any manner
other than as sales of the Receivables and Related Security by Originator to the
Company.
(h) TRANSACTION DOCUMENTS. Enter into, execute, deliver or otherwise
become bound by any agreement, instrument, document or other arrangement that
restricts the right of Originator to amend, supplement, amend and restate or
otherwise modify, or to extend or renew, or to waive any right under, this
Agreement or any other Transaction Documents.
ARTICLE VII
-18-
<PAGE>
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1. RIGHTS OF THE COMPANY. Originator hereby authorizes the Company and
the Servicer (if other than Originator) or their respective designees to take
any and all steps in Originator's name necessary or desirable, in their
respective determination, to collect all amounts due under any and all
Receivables and Related Rights, including, without limitation, endorsing
Originator's name on checks and other instruments representing Collections and
enforcing such Receivables and the provisions of the related Contracts that
concern payment and/or enforcement of rights to payment.
7.2. RESPONSIBILITIES OF ORIGINATOR. Anything herein to the contrary
notwithstanding:
(a) Originator agrees to direct, and hereby grants to each of the Company
and the Agent the authority to direct, all Obligors to make payments of
Receivables directly to a Lock-Box Account at a Lock-Box Bank. Originator
further agrees to transfer any Collections that it receives directly to Servicer
(for deposit to such a Lock-Box Account) within one Business Day of receipt
thereof, and agrees that all such Collections shall be deemed to be received in
trust for the Company.
(b) Originator shall perform its obligations hereunder, and the exercise
by the Company or its designee of its rights hereunder shall not relieve
Originator from such obligations.
(c) None of the Company, Servicer (if other than the Originator),
Purchaser or the Agent shall have any obligation or liability to any Obligor or
any other third Person with respect to any Receivables, Contracts related
thereto or any other related agreements, nor shall the Company, Servicer (if
other than the Originator), Purchaser or the Agent be obligated to perform any
of the obligations of Originator thereunder.
(d) Originator hereby grants to Servicer (if other than Originator) an
irrevocable power of attorney, with full power of substitution, coupled with an
interest, to take in the name of Originator all steps necessary or advisable to
indorse, negotiate or otherwise realize on any writing or other right of any
kind held or transmitted by Originator or transmitted or received by the Company
(whether or not from Originator) in connection with any Receivable or Related
Right.
7.3. FURTHER ACTION EVIDENCING PURCHASES. Originator agrees that from
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that the Company or
Servicer may reasonably request in order
-19-
<PAGE>
to perfect, protect or more fully evidence the Receivables (and the Related
Rights) purchased by, or contributed to, the Company hereunder, or to enable
the Company to exercise or enforce any of its rights hereunder or under any
other Transaction Document. Without limiting the generality of the
foregoing, upon the request of the Company, Originator will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate; and
(b) mark the summary master control data processing records with the
legend set forth in SECTION 4.1(i).
Originator hereby authorizes the Company or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Receivables (and the Related Rights) now
existing or hereafter generated by Originator. If Originator fails to perform
any of its agreements or obligations under this Agreement, the Company or its
designee may (but shall not be required to) itself perform, or cause performance
of, such agreement or obligation, and the expenses of the Company or its
designee incurred in connection therewith shall be payable by Originator as
provided in SECTION 10.6.
7.4. APPLICATION OF COLLECTIONS. Any payment by an Obligor in respect of
any indebtedness owed by it to Originator shall, except as otherwise specified
by such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Company or the Agent, be applied FIRST, as a Collection of any
Receivables of such Obligor, in the order of the age of such Receivables,
starting with the oldest of such Receivables, and SECOND, to any other
indebtedness of such Obligor.
ARTICLE VIII
PURCHASE AND SALE TERMINATION EVENTS
8.1. PURCHASE AND SALE TERMINATION EVENTS. Each of the following events
or occurrences described in this SECTION 8.1 shall constitute a "PURCHASE AND
SALE TERMINATION EVENT":
(a) The Facility Termination Date (as defined in the Receivables Purchase
Agreement) shall have occurred; or
(b) Originator shall fail to make any payment or deposit to be made by it
hereunder when due and such failure shall remain unremedied for one Business Day
after notice; or
-20-
<PAGE>
(c) Any representation or warranty made or deemed to be made by Originator
(or any of its officers) under or in connection with this Agreement, any other
Transaction Document or any other information or report delivered pursuant
hereto or thereto shall prove to have been false or incorrect in any material
respect when made or deemed made; or
(d) Originator shall fail to perform or observe in any material respect
any agreement contained in any of SECTIONS 6.1(h) or 6.3; or
(e) Originator shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement on its part to be performed or observed
and such failure shall remain unremedied for thirty (30) Business Days after
written notice thereof shall have been given by Servicer, the Agent or the
Company to Originator; or
(f) (i) Originator or any of its subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against Originator or any
of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for all or any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
such proceeding shall remain undismissed or unstayed for a period of 30 days; or
(ii) Originator or any of its subsidiaries shall take any corporate action to
authorize any of the actions set forth in CLAUSE (i) above in this SECTION
8.1(f);
(g) A contribution failure shall occur with respect to any benefit plan
sufficient to give rise to a lien under Section 302(f) of ERISA, or the Internal
Revenue Service shall, or shall indicate its intention in writing to Originator
to, file notice of a lien asserting a claim or claims pursuant to the Code with
regard to any of the assets of Originator, or the Pension Benefit Guaranty
Corporation shall, or shall indicate its intention in writing to Originator or
an ERISA Affiliate to, either file notice of a lien asserting a claim pursuant
to ERISA with regard to any assets of Originator or an ERISA Affiliate or
terminate any benefit plan that has unfunded benefit liabilities; or
(h) The Internal Revenue Service shall file notice of a lien pursuant to
Section 6373 of the Internal Revenue Code with regard to any of assets of
Originator and such lien shall not have been
-21-
<PAGE>
released within ten Business Days, or the Pension Benefit Guaranty
Corporation shall, or shall indicate its intention to, file notice of a lien
pursuant to Section 4068 of ERISA with regard to any of the assets of the
Originator.
8.2. REMEDIES.
(i) OPTIONAL TERMINATION. Upon the occurrence of a Purchase and Sale
Termination Event, the Company (and not Servicer) shall have the option by
notice to Originator (with a copy to the Agent) to declare the Purchase and
Sale Termination Date to have occurred.
(ii) REMEDIES CUMULATIVE. Upon any termination of the Facility
pursuant to this SECTION 8.2, the Company shall have, in addition to all
other rights and remedies under this Agreement or otherwise, all other
rights and remedies provided under the UCC of each applicable jurisdiction
and other applicable laws, which rights shall be cumulative. Without
limiting the foregoing, the occurrence of the Purchase and Sale Termination
Date shall not deny the Company any remedy in addition to termination of
the Purchase Facility to which the Company may be otherwise appropriately
entitled, whether at law or equity.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNITIES BY ORIGINATOR. Without limiting any other rights which
the Company may have hereunder or under applicable law, Originator hereby agrees
to indemnify the Company and each of its assigns, officers, directors, employees
and agents (each of the foregoing Persons being individually called a "PURCHASE
AND SALE INDEMNIFIED PARTY"), forthwith on demand, from and against any and all
damages, losses, claims, judgments, liabilities and related costs and expenses,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively called "PURCHASE AND SALE INDEMNIFIED AMOUNTS") awarded
against or incurred by any of them arising out of or as a result of the
following:
(a) the transfer by Originator of an interest in any Receivable or Related
Right to any Person other than the Company;
(b) the breach of any representation or warranty made by Originator under
or in connection with this Agreement or any other Transaction Document, or any
information or report delivered by Originator pursuant hereto or thereto which
shall have been false or incorrect in any material respect when made or deemed
made;
-22-
<PAGE>
(c) the failure by Originator to comply with any applicable law, rule or
regulation with respect to any Receivable or the related Contract, or the
nonconformity of any Receivable or the related Contract with any such applicable
law, rule or regulation;
(d) the failure to vest and maintain vested in the Company an ownership
interest in the Receivables generated by Originator and Related Rights free and
clear of any Adverse Claim, other than an Adverse Claim arising solely as a
result of an act of the Company, whether existing at the time of the purchase or
contribution of such Receivables or at any time thereafter;
(e) the failure of Originator to file with respect to itself, or any delay
by Originator in filing, financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or other applicable laws
with respect to any Receivables or purported Receivables generated by Originator
or Related Rights, whether at the time of any purchase or contribution or at any
subsequent time;
(f) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable or purported
Receivable generated by Originator (including, without limitation, a defense
based on such Receivables or the related Contracts not being a legal, valid and
binding obligation of such Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the goods or services related to any
such Receivable or the furnishing of or failure to furnish such goods or
services;
(g) any product liability claim arising out of or in connection with goods
or services that are the subject of any Receivable;
(h) any litigation, proceeding or investigation against Originator;
(i) any tax or governmental fee or charge (other than any tax excluded
pursuant to the proviso below), all interest and penalties thereon or with
respect thereto, and all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same, which may
arise by reason of the purchase, contribution or ownership of the Receivables or
any Related Right connected with any such Receivables; and
(j) any failure of Originator, individually or as Servicer, to perform its
duties or obligations in accordance with the provisions of this Agreement or any
other Transaction Document;
EXCLUDING, HOWEVER, (i) Purchase and Sale Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the
-23-
<PAGE>
part of a Purchase and Sale Indemnified Party, (ii) any indemnification which
has the effect of recourse for non-payment of the Receivables due to credit
reasons to Originator (except as otherwise specifically provided under this
SECTION 9.1) and (iii) any tax based upon or measured by net income or gross
receipts.
If for any reason the indemnification provided above in this SECTION 9.1 is
unavailable to a Purchase and Sale Indemnified Party or is insufficient to hold
such Purchase and Sale Indemnified Party harmless, then Originator shall
contribute to the amount paid or payable by such Purchase and Sale Indemnified
Party as a result of such loss, claim, damage or liability to the maximum extent
permitted under applicable law. Promptly after receipt by a Purchase and Sale
Indemnified Party under this Article IX of notice of any claim or the
commencement of any action arising out of or as a result of any of paragraphs
(a) through (j) above, the Purchase and Sale Indemnified Party shall, if a claim
in respect thereof is to be made against the Originator under this Article IX,
notify the Originator in writing of the claim or the commencement of that
action; PROVIDED, HOWEVER, that the failure to notify the Originator shall not
relieve it from any liability which it may have under this Article IX except to
the extent it has been materially prejudiced by such failure and, PROVIDED,
FURTHER, that the failure to notify the Originator shall not relieve it from any
liability which it may have to a Purchase and Sale Indemnified Party otherwise
than under this Article IX. If any such claim or action shall be brought
against a Purchase and Sale Indemnified Party, the Originator shall be entitled
to participate therein and, to the extent that it wishes, to assume the defense
thereof with counsel satisfactory to the Purchase and Sale Indemnified Party.
After notice from the Originator to the Purchase and Sale Indemnified Party of
its election to assume the defense of such claim or action, the Originator shall
not be liable to the Purchase and Sale Indemnified Party under this Article IX
for any legal or other expenses subsequently incurred by Purchase and Sale
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation. The Originator shall not (i) without the prior written
consent of the relevant Purchase and Sale Indemnified Party or Parties (which
consent shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Purchase and Sale Indemnified Party
or Parties are actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an unconditional release of each
Purchase and Sale Indemnified Party from all liability arising out of such
claim, action, suit or proceeding or (ii) be liable for any settlement of any
such action affected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment of the plaintiff in any such
-24-
<PAGE>
action, the Originator agrees to indemnify and hold harmless any indemnified
party from and against any Purchase and Sale Indemnified Amounts relating
thereto.
ARTICLE X
MISCELLANEOUS
10.1. AMENDMENTS, ETC.
(a) The provisions of this Agreement may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by Originator, the Company, the Servicer (if other than Originator)
and the Agent.
(b) No failure or delay on the part of the Company, Servicer, Originator
or any third party beneficiary in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Company,
Servicer, or Originator in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Company or
Servicer under this Agreement shall, except as may otherwise be stated in such
waiver or approval, be applicable to subsequent transactions. No waiver or
approval under this Agreement shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
10.2. NOTICES, ETC. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by express
mail or courier or by certified mail, postage-prepaid, or by facsimile, to the
intended party at the address or facsimile number of such party set forth under
its name on the signature pages hereof or at such other address or facsimile
number as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall be effective, (i) if
personally delivered or sent by express mail or courier or if sent by certified
mail, when received, and (ii) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.
10.3. NO WAIVER; CUMULATIVE REMEDIES. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.4. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon
and inure to the benefit of the Company, Originator and its respective
successors and permitted assigns. Originator may not
-25-
<PAGE>
assign its rights hereunder or any interest herein without the prior consent
of the Company and the Agent. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms,
and shall remain in full force and effect until the date after the Purchase
and Sale Termination Date on which Originator has received payment in full
for all Receivables and Related Rights purchased pursuant to SECTION 1.1
hereof. The rights and remedies with respect to any breach of any
representation and warranty made by Originator pursuant to ARTICLE V and the
indemnification and payment provisions of ARTICLE IX and SECTION 10.6 shall
be continuing and shall survive any termination of this Agreement.
10.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAW OF THE COMMONWEALTH OF MASSACHUSETTS,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF
PURCHASER IN THE RECEIVABLES, OR REMEDIES HEREUNDER IN RESPECT THEREOF, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE COMMONWEALTH OF
MASSACHUSETTS.
10.6. COSTS, EXPENSES AND TAXES. In addition to the obligations of
Originator under ARTICLE IX, Originator agrees to pay on demand:
(a) all reasonable costs and expenses in connection with the enforcement
of this Agreement and the other Transaction Documents; and
(b) all stamp and other similar taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Agreement or the other Transaction Documents, and agrees to indemnify each
Purchase and Sale Indemnified Party against any liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
10.7. SUBMISSION TO JURISDICTION. EACH PARTY HERETO HEREBY IRREVOCABLY
(a) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY MASSACHUSETTS STATE OR
UNITED STATES FEDERAL COURT SITTING IN MASSACHUSETTS, OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT; (b) AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH STATE OR UNITED STATES FEDERAL COURT; (c) WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; (d) CONSENTS
TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN
SECTION 10.2; AND (e) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A NONAPPEALABLE
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN
-26-
<PAGE>
ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 10.7 SHALL AFFECT
THE COMPANY'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST ORIGINATOR OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTIONS.
10.8. WAIVER OF JURY TRIAL. EACH PARTY HERETO EXPRESSLY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR UNDER ANY AMENDMENT,
INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
10.9. CAPTIONS AND CROSS REFERENCES; INCORPORATION BY REFERENCE. The
various captions (including, without limitation, the table of contents) in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. References in this Agreement
to any underscored Section or Exhibit are to such Section or Exhibit of this
Agreement, as the case may be. The Exhibits hereto are hereby incorporated by
reference into and made a part of this Agreement.
10.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same Agreement.
10.11. ACKNOWLEDGMENT AND AGREEMENT. By execution below, Originator
expressly acknowledges and agrees that all of the Company's rights, title, and
interests in, to, and under this Agreement shall be assigned by the Company to
the Purchaser pursuant to the Receivables Purchase Agreement, and Originator
consents to such assignment. Each of the parties hereto acknowledges and agrees
that the Agent and the Purchaser are third party beneficiaries of the rights of
the Company arising hereunder and under the other Transaction Documents to which
Originator is a party.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
S.D. WARREN FINANCE CO.
By:_________________________________
Name:
Title:
S.D. WARREN FINANCE CO.
225 Franklin Street
Boston, Massachusetts 02110
Attention:__________________________
Telephone: (617) 423-7300
Facsimile: (617) 423-5494
S.D. WARREN COMPANY
By:_________________________________
Name:
Title:
S.D. WARREN COMPANY
225 Franklin Street
Boston, Massachusetts 02110
Attention:__________________________
Telephone: (617) 423-7300
Facsimile: (617) 423-5494
Acknowledged and consented by:
S.D. WARREN COMPANY, as Servicer
By:________________________________
Name:______________________________
Title:_____________________________
S.D. WARREN COMPANY
225 Franklin Street
Boston, Massachusetts 02110
Attention:_________________________
Telephone: (617) 423-7300
Facsimile: (617) 423-5494
<PAGE>
SCHEDULE 5.13
OFFICE LOCATIONS
None.
<PAGE>
SCHEDULE 5.14
TRADE NAMES
None.
<PAGE>
EXHIBIT A
FORM OF PURCHASE REPORT
<PAGE>
EXHIBIT B
FORM OF COMPANY NOTE
<PAGE>
EXHIBIT C
FORM OF OPINION OF ORIGINATOR'S COUNSEL
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to Registration
Statement No. 33-88496 of S.D. Warren Company of our report dated September 11,
1996 (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the comparability of the balance sheet and the statements
of operations, changes in parent's equity and cash flows of the Predecessor
Corporation) appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the headings "Selected Historical
Financial Data", "Changes and Disagreements with Accounts on Accounting and
Financial Disclosure" and "Experts" in such Prospectus.
/s/ Deloitte & Touch LLP
Boston, Massachusetts
November 7, 1996
