-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DBtBoSwNCUgCvIFEYzCsgpT8XoLe2GgZ7GgkaS+6rizVxyxO2NIc6TmmK0H8fCkr MX2kZL/Vj7jX4O7QDDAwYQ== 0000950112-95-000567.txt : 19950612 0000950112-95-000567.hdr.sgml : 19950612 ACCESSION NUMBER: 0000950112-95-000567 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19950307 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORT HOWARD CORP CENTRAL INDEX KEY: 0000038195 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 391090992 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56573 FILM NUMBER: 95518924 BUSINESS ADDRESS: STREET 1: 1919 S BROADWAY CITY: GREEN BAY STATE: WI ZIP: 54304 BUSINESS PHONE: 4144358821 FORMER COMPANY: FORMER CONFORMED NAME: FORT HOWARD PAPER CO/DE DATE OF NAME CHANGE: 19870506 FORMER COMPANY: FORMER CONFORMED NAME: MARYLAND CUP CORP/WI DATE OF NAME CHANGE: 19840612 FORMER COMPANY: FORMER CONFORMED NAME: FORT HOWARD PAPER CO DATE OF NAME CHANGE: 19830926 S-1/A 1 FORT HOWARD CORPORATION AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1995 REGISTRATION NO. 33-56573 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- FORT HOWARD CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 2676 39-1090992 (State or other jurisdiction of (Primary standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
------------------- 1919 SOUTH BROADWAY GREEN BAY, WISCONSIN 54304 (414) 435-8821 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- JAMES W. NELLEN II VICE PRESIDENT AND SECRETARY FORT HOWARD CORPORATION 1919 SOUTH BROADWAY GREEN BAY, WISCONSIN 54304 (414) 435-8821 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------- COPIES TO: FAITH D. GROSSNICKLE RICHARD J. SANDLER SHEARMAN & STERLING DAVIS POLK & WARDWELL 599 LEXINGTON AVENUE 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017 (212) 848-4000 (212) 450-4000
------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box: / / ------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement contains two forms of prospectus: one to be used in connection with a United States and Canadian offering of the registrant's Common Stock (the "U.S. Prospectus") and one to be used in connection with a concurrent international offering of the Common Stock (the "International Prospectus" and, together with the U.S. Prospectus, the "Prospectuses"). The International Prospectus will be identical to the U.S. Prospectus except that it will have a different front cover page. The U.S. Prospectus is included herein and is followed by the front cover page to be used in the International Prospectus. The front cover page for the International Prospectus included herein has been labeled "Alternate Page for International Prospectus." If required pursuant to Rule 424(b) of the General Rules and Regulations under the Securities Act of 1933, as amended, ten copies of each of the Prospectuses in the forms in which they are used will be filed with the Securities and Exchange Commission. FORT HOWARD CORPORATION CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-1 PART 1 ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS ------------------------------------------- ------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Inside Front Cover Page; Additional Information; Outside Front Cover Page 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............. Prospectus Summary; Certain Risk Factors 4. Use of Proceeds............................ Use of Proceeds 5. Determination of Offering Price............ Outside Front Cover Page; Underwriters 6. Dilution................................... Dilution 7. Selling Security Holders................... Not applicable 8. Plan of Distribution....................... Outside Front Cover Page; Underwriters 9. Description of Securities to be Registered............................... Outside Front Cover Page; Prospectus Summary; Description of Capital Stock 10. Interests of Named Experts and Counsel..... Legal Matters 11. Information with Respect to the Registrant............................... Prospectus Summary; Certain Risk Factors; Capitalization; Selected Historical Consolidated Financial Data; Pro Forma Financial Data; Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations; Business; Management; Ownership of Common Stock; Certain Transactions; Description of Certain Indebtedness; Description of Capital Stock; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. Not applicable
PROSPECTUS (Subject to Completion) Issued March 7, 1995 22,000,000 Shares Fort Howard Corporation COMMON STOCK ------------------- ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE 22,000,000 SHARES OF COMMON STOCK BEING OFFERED, 17,600,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 4,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14.00 AND $16.00 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. ------------------- THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "FORT". ------------------- SEE "CERTAIN RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------- 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. ------------------- PRICE $ A SHARE -------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) --------- --------------- ----------- Per Share............................................ $ $ $ Total(3)............................................. $ $ $
- --------- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting expenses payable by the Company estimated at $1,600,000. (3) The Company has granted the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 3,300,000 additional shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ---------------------- The Shares of Common Stock are offered, subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1995, at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in New York funds. ------------------- MORGAN STANLEY & CO. Incorporated CS FIRST BOSTON SALOMON BROTHERS INC , 1995 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 STATE. PHOTOS FOR INSIDE FRONT COVER TO S-1/A UPPER RIGHT-HAND CORNER TISSUE PAPER MACHINE Fort Howard has installed eight of the eleven largest (270-inch) tissue paper machines in the world, which provide long-term productivity advantages. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER- THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PHOTOS FOR INSIDE FRONT COVER TO S-1/A UPPER RIGHT-HAND CORNER GREEN FOREST TISSUE PRODUCTS Environmentally oriented consumers have made Fort Howard's Green Forest line the leading brand in the environmentally positioned segment. MIDDLE RIGHT-HAND SIDE WASTEPAPER Fort Howard led the industry in developing sanitary tissue products from recycled wastepaper. The Company recycles over 1.4 million tons of wastepaper annually, and uses 100% wastepaper for all but a limited number of its products. BOTTOM RIGHT-HAND CORNER COMMERCIAL TISSUE PRODUCTS Its products hold a leading share--approximately 26%--of the U.S. market for commercial tissue products. That position is founded on a commitment to quality and service, as well as competitive pricing made possible by the Company's status as a low cost producer. PHOTOS FOR INSIDE FRONT COVER TO S-1/A TOP LEFT-HAND CORNER SAVANNAH GREENFIELD MILL The Company's greenfield mill located near Savannah, Georgia, is a world-class, fully integrated tissue mill that can de-ink and process fiber for tissue products from low cost wastepaper. MIDDLE LEFT-HAND SIDE BRANDED & PRIVATE LABEL TISSUE PRODUCTS The Company's consumer product growth strategy has targeted the branded value and private label segments of the U.S. market where the Company enjoys a competitive advantage as a low cost producer. BOTTOM LEFT-HAND CORNER NOUVELLE TISSUE PRODUCTS The principal brand of the Company's Fort Sterling subsidiary in the U.K. is the Nouvelle line of tissue paper products. Fort Sterling is one of four fully integrated tissue companies in that nation. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------- NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS. ------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 4 Certain Risk Factors.................. 10 Use of Proceeds....................... 16 Dividend Policy....................... 17 Dilution.............................. 17 Capitalization........................ 18 Selected Historical Consolidated Financial Data...................... 19 Pro Forma Financial Data.............. 22 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations........... 27 Business.............................. 36 Management............................ 55 PAGE ---- Ownership of Common Stock............. 67 Certain Transactions.................. 68 Description of Certain Indebtedness... 71 Description of Capital Stock.......... 82 Shares Eligible for Future Sale....... 85 Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock..................... 86 Underwriters.......................... 89 Legal Matters......................... 92 Experts............................... 92 Additional Information................ 93 Index to Financial Statements......... F-1
------------------- In this Prospectus, references to "dollar" and "$" are to United States dollars, and the terms "United States" and "U.S." mean the United States of America, its states, its territories, its possessions and all areas subject to its jurisdiction. All tons are short tons. MARDI GRAS(R), SOFT'N GENTLE(R), SO-DRI(R), PAGE(R), GREEN FOREST(R), ENVISION(R), GENERATION II(R) and NOUVELLE are trademarks of the Company that are registered or otherwise protected under laws of various jurisdictions. The Company intends to make available annual reports to its shareholders containing audited consolidated financial statements and a report thereon by the Company's independent auditors and quarterly reports containing unaudited consolidated financial data for the first three quarters of each fiscal year. The principal executive offices of the Company are located at 1919 South Broadway, Green Bay, Wisconsin 54304, and the Company's telephone number is (414) 435-8821. The Company was incorporated in Delaware in 1967. 3 PROSPECTUS SUMMARY The following information is qualified in its entirety by the detailed information and financial statements found elsewhere in this Prospectus. As used in this Prospectus, unless the context indicates otherwise: (i) the "Company" or "Fort Howard" means Fort Howard Corporation, and where appropriate, its subsidiaries; (ii) "Common Stock" means the Common Stock, par value $.01 per share, of Fort Howard Corporation; (iii) "Offering" means the offering of 22,000,000 shares of Common Stock in the underwritten public offering to which this Prospectus relates and (iv) numbers and percentages of shares outstanding assume that the U.S. Underwriters' over-allotment option is not exercised and have been adjusted to reflect a 6.5-for-one split of the Common Stock effective January 31, 1995. The market share information and, unless otherwise indicated, the industry statistical information presented herein reflect the Company's best estimates based on publicly available information, and no assurance can be given regarding the accuracy of such estimates and statistics. THE COMPANY Founded in 1919, Fort Howard is a leading manufacturer, converter and marketer of sanitary tissue products, including specialty dry form products, in the United States and the United Kingdom. Its principal products, which are sold in the commercial (away-from-home) and consumer (at-home) markets, include paper towels, bath tissue, table napkins, wipers and boxed facial tissue manufactured from virtually 100% recycled fibers. The Company believes that it is the leading producer of tissue products in the domestic commercial market with a 26% market share and has focused two-thirds of its capacity on this faster growing segment of the tissue market. In the domestic consumer market, where the Company has a 9% market share, its principal brands include Mardi Gras printed napkins (which hold the leading domestic market position) and paper towels, Soft 'N Gentle bath and facial tissue, So-Dri paper towels, Page paper towels, bath tissue and table napkins, and Green Forest, the leading domestic line of environmentally positioned, recycled tissue paper products. Fort Howard also manufactures and distributes its products in the United Kingdom where it currently has the fourth largest market share, primarily in the consumer segment of that market. For the past 20 years Fort Howard has maintained annual EBITDA margins in excess of 30%, approximately double those publicly reported by the Company's competitors over the past five years. At the same time, the Company has achieved strong market share growth on the basis of its position as a low cost producer in the markets in which it competes. From 1984 to 1994, the Company has doubled its production capacity by constructing world-class, integrated, regional tissue mills which utilize the Company's proprietary de-inking technology to produce quality tissue from a broad range of wastepaper grades. These mills enable the Company to produce low cost, quality tissue products because they: (i) include state-of-the-art wastepaper de-inking and processing systems that process relatively low grades of wastepaper to produce low cost fiber for making tissue paper; (ii) contain eight of the eleven largest (270-inch) tissue paper machines in the world, which significantly increase labor productivity; (iii) are geographically located to minimize distribution costs; (iv) generate their own steam and electrical power and (v) manufacture certain of their own process chemicals and converting materials. The Company's business strategy is focused on increasing its profitability by maintaining and enhancing its position in the United States and internationally. The Company's strategy involves: (i) maintaining its position as a low cost producer of tissue products in the markets in which it competes; (ii) sustaining its growth in domestic commercial market shipments and market share by selectively increasing sales to large distributors and national accounts, improving its position with club warehouses and expanding its specialty dry form business; (iii) sustaining its growth in domestic consumer market shipments and market share by focusing on the value segment of that market; (iv) developing opportunities for further international growth and (v) improving its financial flexibility. The Company's current plans to support growth in domestic tissue shipments include, subject to market conditions and 4 the successful completion of the Recapitalization described below, adding one world-class (270-inch) tissue paper machine over the next five years. The Company was acquired by The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and other investors in 1988 (the "Acquisition"). Morgan Stanley Group Inc. ("Morgan Stanley Group"), directly and through certain affiliated entities which it controls, including MSLEF II, currently beneficially owns 62.8% of the outstanding Common Stock of Fort Howard. Upon consummation of the Offering, Morgan Stanley Group and its affiliates will own 39.8% of the outstanding Common Stock (37.7% if the U.S. Underwriters' over-allotment option is exercised in full). Morgan Stanley Group and MSLEF II are affiliates of both Morgan Stanley & Co. Incorporated ("MS&Co"), a representative of the U.S. Underwriters, and Morgan Stanley & Co. International Limited ("MS&Co International"), a representative of the International Underwriters. THE OFFERING Common Stock offered by the Company: U.S. Offering.............................. 17,600,000 shares International Offering..................... 4,400,000 shares Total.................................. 22,000,000 shares Common Stock to be outstanding following the Offering................................... 60,101,239 shares(a) Use of Proceeds.............................. The net proceeds to the Company from the Offering will be used to repay or refinance certain indebtedness of the Company. See "Use of Proceeds." Nasdaq National Market Symbol..................................... "FORT"
- ------------ (a) Excludes 3,741,465 shares of Common Stock issuable upon exercise of outstanding options. See "Management--Compensation of Executive Officers and Directors." THE PROPOSED RECAPITALIZATION The Company is implementing a recapitalization plan (the "Recapitalization") to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain maturities, increase shareholders' equity and enhance its access to capital markets. The Recapitalization includes the following components: (1) The offering by the Company of 22,000,000 shares of Common Stock in the United States and internationally; (2) Entering into a bank credit agreement (the "New Bank Credit Agreement") consisting of a $300 million revolving credit facility (the "1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together with the 1995 Term Loan A, the "New Term Loans"); and entering into a receivables credit agreement consisting of a $60 million term loan (the "1995 Receivables Facility"); (3) The application of the net proceeds of the Offering, together with borrowings under the New Term Loans and the 1995 Receivables Facility, to prepay or redeem all of the Company's indebtedness outstanding under (a) the Company's Amended and Restated Credit Agreement, dated as of October 24, 1988, as amended (the "1988 Bank Credit Agreement"), (b) the Company's term loan agreement dated as of March 22, 1993 (the "1993 Term Loan Agreement;" the borrowings under the New Term Loans and the 1995 Receivables Facility and the prepayment of the 1988 Bank Credit Agreement and the 1993 Term Loan Agreement with such borrowings are collectively referred to as the "Bank Refinancing") and (c) all outstanding Senior Secured Floating 5 Rate Notes (the "Senior Secured Notes") due 1997 through 2000 (the "Senior Secured Note Redemption"); and (4) The application approximately one month following the closing of the Offering of borrowings under the New Term Loans, the 1995 Receivables Facility and the 1995 Revolving Credit Facility to redeem (a) all outstanding 14 1/8% Junior Subordinated Discount Debentures (the "14 1/8% Debentures") due 2004 (the "14 1/8% Debenture Redemption") and (b) all outstanding 12 5/8% Subordinated Debentures (the "12 5/8% Debentures") due 2000 (the "12 5/8% Debenture Redemption"), at 102.5% of the principal amount thereof. The Senior Secured Note Redemption, 12 5/8% Debenture Redemption and 14 1/8% Debenture Redemption are collectively referred to as the "1995 Debt Redemptions." Consummation of the Offering is conditioned on the concurrent consummation of the other components of the Recapitalization (other than the 14 1/8% Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by the Company of notices of redemption to the respective trustees of the 14 1/8% Debentures and the 12 5/8% Debentures. The estimated sources and uses of funds required to complete the Recapitalization, assuming that all components of the Recapitalization occur on March 15, 1995, are as follows (in millions):
Sources of Funds: AMOUNT Proceeds of the Offering.......................................... $ 330.0 1995 Term Loan A.................................................. 810.0 1995 Term Loan B.................................................. 330.0 1995 Revolving Credit Facility.................................... 180.9 1995 Receivables Facility......................................... 60.0 -------- Total Sources of Funds............................................ $1,710.9 -------- -------- Uses of Funds: 14 1/8% Debenture Redemption...................................... $ 566.9 Senior Secured Note Redemption.................................... 300.0 1988 Revolving Credit Facility Prepayment......................... 300.0 1988 Term Loan Prepayment......................................... 224.5 12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5 1993 Term Loan Prepayment......................................... 100.0 Company Transaction Fees and Expenses(a).......................... 70.0 -------- Total Uses of Funds............................................... $1,710.9 -------- --------
- ------------ (a) Includes underwriters' commissions and other transaction fees and expenses of the Recapitalization payable or reimbursable by the Company.
For more information concerning the Recapitalization, see "Use of Proceeds." 6 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following table sets forth summary historical consolidated financial data of the Company for the years ended December 31, 1994, 1993 and 1992, that were derived from the consolidated financial statements of the Company, which were audited by Arthur Andersen LLP, independent public accountants, whose report thereon appears elsewhere in this Prospectus. Reference is made to such report which calls attention to a change in the method of accounting for postretirement benefits other than pensions. The following table also sets forth summary unaudited pro forma consolidated financial data of the Company derived from the unaudited pro forma condensed consolidated statements of income and pro forma condensed consolidated balance sheet and notes thereto included elsewhere in this Prospectus. The pro forma financial data were prepared as if the Recapitalization had occurred on December 31, 1994 for consolidated balance sheet purposes, and as if the Recapitalization had occurred on January 1, 1994 for consolidated statement of income purposes. In addition, the sale of the Company's 8 1/4% Senior Notes due 2002 (the "8 1/4% Notes") and the Company's 9% Senior Subordinated Notes due 2006 (the "9% Notes"), the redemption of $238 million of the 12 5/8% Debentures, the redemption of all the Company's 12 3/8% Senior Subordinated Notes due 1997 (the "12 3/8% Notes") and a $100 million prepayment of the term indebtedness (the "1988 Term Loan") under the 1988 Bank Credit Agreement, all of which occurred in February and March 1994 (collectively, the "1994 Refinancing"), are also treated for consolidated statement of income purposes as if they occurred on January 1, 1994. See "Pro Forma Financial Data." THE PRO FORMA FINANCIAL DATA DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE RECAPITALIZATION IN FACT HAD OCCURRED AT DECEMBER 31, 1994, OR IF THE RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 OR TO PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD. The following financial information should be read in conjunction with "Capitalization," "Selected Historical Consolidated Financial Data," "Pro Forma Financial Data," "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and the audited consolidated financial statements and the related notes thereto included elsewhere in this Prospectus. 7 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
PRO FORMA(A) HISTORICAL ------------ ----------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------------- 1994 1994 1993 1992 ------------ ------- ------- ------- (IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net sales............................................ $ 1,274 $ 1,274 $ 1,187 $ 1,151 Cost of sales........................................ 867 867 784 726 ------------ ------- ------- ------- Gross income......................................... 407 407 403 425 Selling, general and administrative(b)............... 110 110 97 97 Amortization of goodwill(c).......................... -- -- 43 57 Goodwill write-off(c)................................ -- -- 1,980 -- Environmental charge(d).............................. 20 20 -- -- ------------ ------- ------- ------- Operating income (loss)(d)........................... 277 277 (1,717) 271 Interest expense..................................... 287 338 342 338 Other (income) expense, net.......................... -- -- (3) 2 ------------ ------- ------- ------- Loss before taxes.................................... (10) (61) (2,056) (69) Income taxes (credit)................................ 1 (19) (16) -- ------------ ------- ------- ------- Loss before extraordinary items and adjustment for accounting change.................................. (11) (42) (2,040) (69) Extraordinary items--losses on debt repurchases (net of income taxes)................................... -- (28) (12) -- Adjustment for adoption of SFAS No. 106 (net of income taxes)(e)................................... -- -- -- (11) ------------ ------- ------- ------- Net loss(d)(f)....................................... $ (11) $ (70) $(2,052) $ (80) ------------ ------- ------- ------- ------------ ------- ------- ------- Loss per share(d)(f)................................. $ (0.19) $ (1.85) $(53.85) $ (2.10) OTHER DATA: EBITDA(g)............................................ $ 393 $ 393 $ 387 $ 410 EBITDA as a percent of net sales(g).................. 30.8% 30.8% 32.6% 35.6% Depreciation of property, plant and equipment........ $ 96 $ 96 $ 88 $ 81 Non-cash interest expense(h)......................... 13 74 101 140 Capital expenditures................................. 84 84 166 233 Weighted average number of shares of Common Stock outstanding (in thousands)(f)...................... 60,103 38,103 38,107 38,107 BALANCE SHEET DATA (AT END OF PERIOD): Total assets......................................... $ 1,706 $ 1,681 $ 1,650 $ 3,575 Working capital (deficit)............................ 10 (98) (92) (124) Long-term debt (including current portion) and Common Stock with put right............................... 3,050 3,318 3,234 3,104 Shareholders' deficit................................ (1,844) (2,148) (2,081) (29)
- ------------ (a) For a discussion of the pro forma adjustments, see "Pro Forma Financial Data." (b) Selling, general and administrative expense in 1993 reflects an $8 million reduction for the reversal of all employee stock compensation expense accrued prior to 1993. See Note 13 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. (c) During the third quarter of 1993, the Company wrote off the remaining unamortized balance of its goodwill of $1.98 billion and, accordingly, there is no amortization of goodwill for periods subsequent to September 30, 1993. See "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and Note 4 of the Company's audited consolidated financial statements included elsewhere in this Prospectus.
(Footnotes continued on following page) 8 (Footnotes continued from preceding page) (d) During the fourth quarter of 1994, the Company recorded an environmental charge totaling $20 million. Excluding the effects of the environmental charge, the Company's operating income, income before taxes, net income and earnings per share in 1994, on a pro forma basis after giving effect to the Recapitalization and the 1994 Refinancing, would have been $296.8 million, $9.7 million, $3.0 million and $0.05 per share, respectively. (e) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." (f) The computation of loss per share is based on the weighted average number of shares of Common Stock outstanding during the period plus (in periods in which they have a dilutive effect) the effect of shares of Common Stock contingently issuable upon the exercise of stock options. The pro forma loss per share also assumes the issuance of 22,000,000 shares of Common Stock at an assumed initial public offering price of $15.00 per share. (g) EBITDA represents operating income plus depreciation of property, plant and equipment, amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the effects of 1993 employee stock compensation (credits). EBITDA is presented here as a measure of the Company's debt service ability. Certain financial and other restrictive covenants in the New Bank Credit Agreement and other instruments governing the Company's indebtedness are based on the Company's EBITDA, subject to certain adjustments. (h) Effective November 1, 1994, all of the Company's indebtedness requires cash interest payments. Accordingly, for periods subsequent to November 1, 1994, non-cash interest expense consists solely of amortization of debt issuance costs.
CERTAIN RISK FACTORS For a discussion of certain factors that should be considered in evaluating an investment in the Common Stock, including: pricing of the Company's products; increasing wastepaper prices; competition; recent net losses and shareholders' deficit; the Company's highly leveraged position and ability to service debt; the Company's sensitivity to interest rates; covenant restrictions that may limit the Company's operating flexibility; environmental matters; the Company's principal shareholders; restrictions on dividends; effect on the public market of shares of Common Stock eligible for future sale; dilution; anti-takeover effects of certain provisions of the Restated Certificate of Incorporation and Restated By-laws of the Company and the absence of a prior public market for the Common Stock, see "Certain Risk Factors." 9 CERTAIN RISK FACTORS In evaluating an investment in the Common Stock, purchasers of the Common Stock should carefully consider the following factors as well as the other information set forth in this Prospectus. PRICING Prices for tissue paper products are significantly affected by the levels of industry capacity and operating rates, demand, general economic conditions and competitive conduct, all of which are beyond the Company's control. The high level of growth in tissue industry capacity from 1990 through 1992, coupled with weakening commercial demand resulting from the recession and competitive new product introductions in the consumer market, caused industry operating rates and pricing to fall. The Company's average domestic net selling prices declined by approximately 5% in each of 1991 and 1992 and by 1.2% in 1993 which adversely affected the Company's operating results. Due to the impact of industry conditions on the Company's then projected operating results, which assumed that net selling prices and cost increases would approximate 1% per year and that further capacity expansion would not be justifiable given the Company's high leverage and adverse tissue industry operating conditions, the Company wrote off its remaining goodwill balance of $1.98 billion in the third quarter of 1993. As discussed in "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations," although the Company believes that the adverse economic and industry operating conditions which persisted from 1991 and into 1994 are beginning to improve, there can be no assurance that the improvement in industry operating conditions, including industry operating rates and pricing, which is not within the Company's control, will continue. In addition, beginning in the third quarter of 1994, the Company's wastepaper costs increased significantly and there can be no assurance that the improvement in industry operating conditions will enable the Company to recover increases in wastepaper costs through price increases for its products. See "--Increasing Wastepaper Prices," "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and "Business--Industry Overview." INCREASING WASTEPAPER PRICES Fort Howard uses wastepaper for substantially all its fiber requirements. The price of wastepaper is affected by demand which is primarily dependent upon de-inking and recycling capacity levels in the paper industry overall and by the price of market pulp. Prices for de-inking grades of wastepaper used by tissue producers increased sharply beginning in the third quarter of 1994. Wastepaper prices for the grades of wastepaper used in Fort Howard's products more than doubled from July 1994 to January 1995. Such wastepaper prices may increase further because of increased demand resulting from substantial additions of de-inking and recycling capacity in the paper industry which are expected to come on line during 1995 and 1996, increasing market pulp prices and other factors. If the current trend in the Company's wastepaper costs continues, there can be no assurance that the Company will be able to recover increases in the cost of wastepaper through price increases for its products and the Company's earnings could be materially adversely affected. Further, a reduction in supply of wastepaper due to increased demand or other factors could have an adverse effect on the Company's business. See "Business--Industry Overview." COMPETITION The manufacture and sale of tissue products are highly competitive. The Company's tissue products compete directly with those of a number of large diversified paper companies, including Chesapeake Corporation, Georgia-Pacific Corporation, James River Corporation of Virginia, Kimberly-Clark Corporation, Pope & Talbot, Inc., Scott Paper Company and The Procter & Gamble Company, as well as regional manufacturers, including converters of tissue into finished products who buy tissue directly from tissue mills. Over the last four years, price has become a more important competitive factor affecting tissue producers. Many of the Company's competitors are larger and more 10 strongly capitalized than the Company which may enable them to better withstand periods of declining prices and adverse operating conditions in the tissue industry. See "Business--Competition." RECENT NET LOSSES AND DEFICIT IN SHAREHOLDERS' EQUITY The Company has experienced net losses for the fiscal years ended December 31, 1994, 1993 and 1992 of $70 million, $2,052 million (including the write-off in 1993 of the Company's then remaining goodwill) and $80 million, respectively. If the current trend in the Company's wastepaper costs continues, there can be no assurance that the Company will be able to recover increases in the cost of wastepaper through price increases for its products; accordingly, there can be no assurance as to the Company's ability to generate net income in future periods. See "--Pricing," "--Increasing Wastepaper Prices" and "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations." The Company has a substantial common shareholders' deficit. At December 31, 1994, the Company's common shareholders' deficit was approximately $2,148 million. On a pro forma basis after giving effect to the Recapitalization, the Company's common shareholders' deficit would have been approximately $1,844 million at December 31, 1994. See "Capitalization." HIGHLY LEVERAGED POSITION AND ABILITY TO SERVICE DEBT The Company has substantial consolidated indebtedness. At December 31, 1994, the Company's consolidated debt was approximately $3,318 million. On a pro forma basis after giving effect to the Recapitalization, the Company's consolidated debt would have been approximately $3,050 million at December 31, 1994. See "Capitalization." For the year ended December 31, 1994, the Company's earnings before fixed charges were inadequate to cover its fixed charges by $65 million. On a pro forma basis after giving effect to the Recapitalization and the 1994 Refinancing, the deficiency of earnings to fixed charges would have been $14 million for the year ended December 31, 1994. For purposes of the computation of the deficiency of earnings to fixed charges, earnings consist of consolidated income (loss) before taxes plus fixed charges (excluding capitalized interest and amortization of deferred loan costs) plus that portion (deemed to be one-fourth) of operating lease rental expense representative of the interest factor. Although the consummation of the Recapitalization will reduce the Company's consolidated interest expense over the next several years, the Company will remain obligated to make substantial interest and principal payments on its indebtedness. See "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations--Financial Condition" and "Description of Certain Indebtedness." The ability of the Company to meet its obligations and to comply with the financial covenants contained in the agreements relating to the Company's indebtedness is largely dependent upon the future performance of the Company, which is subject to financial, business and other factors affecting it. Many of these factors, such as economic conditions, interest rate levels, job formation, demand for and selling prices of its products, costs of its raw materials, environmental regulation and other factors relating to its industry generally or to specific competitors are beyond the Company's control. There can be no assurance that the Company will generate sufficient cash flow to meet its obligations under its indebtedness, which include estimated repayment obligations, assuming consummation of the Recapitalization, of $9 million in 1995, $60 million in 1996, $115 million in 1997, $138 million in 1998 and $153 million in 1999 (and increasing thereafter). If the Company is unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on its indebtedness, or if the Company fails to comply with the various covenants in such indebtedness, it would be in default under the terms thereof, which would permit the lenders thereunder to accelerate the maturity of such indebtedness and could cause defaults under other indebtedness of the Company or result in a bankruptcy of the Company. See "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations--Financial Condition" and "Description of Certain Indebtedness." 11 SENSITIVITY TO INTEREST RATES At December 31, 1994, the Company's indebtedness had a weighted average interest rate of 10.16% and approximately $868 million of the Company's indebtedness bore interest at a floating rate. Pursuant to the Recapitalization, the Company will become more sensitive to prevailing interest rates, as $1.4 billion (or 44%) of its outstanding indebtedness will bear interest at a floating rate (assuming the Recapitalization is completed in March 1995). Of this amount, $500 million will be subject to LIBOR-based interest rate cap agreements which effectively limit the interest cost to the Company to 6% plus the Company's borrowing margin until June 1, 1996 and to 8% plus the Company's borrowing margin from June 1, 1996 until June 1, 1999. Interest rates were at comparatively low levels in 1993 and began to increase in 1994. If interest rates continue to increase in 1995, the Company may be less able to meet its debt service obligations. See "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations--Financial Condition" and "Description of Certain Indebtedness." COVENANT RESTRICTIONS MAY LIMIT COMPANY'S OPERATING FLEXIBILITY The limitations contained in the agreements relating to the Company's indebtedness, together with the highly leveraged position of the Company could limit the ability of the Company to effect future debt or equity financings and may otherwise restrict corporate activities, including its ability to avoid defaults and to respond to competitive market conditions, to provide for capital expenditures beyond those permitted or to take advantage of business opportunities. If the Company cannot generate sufficient cash flow from operations to meet its obligations, then its indebtedness might have to be refinanced. There can be no assurance that any such refinancing could be effected successfully or on terms that are acceptable to the Company. In the absence of such refinancing, the Company could be forced to dispose of assets in order to make up for any shortfall in the payments due on its indebtedness under circumstances that might not be favorable to realizing the best price for such assets. Further, there can be no assurance that any assets could be sold quickly enough, or for amounts sufficient, to enable the Company to make any such payments. See "Description of Certain Indebtedness." ENVIRONMENTAL MATTERS The Company is subject to substantial regulation by various federal, state and local authorities in the U.S. and national and local authorities in the U.K. concerned with the impact of the environment on human health, the limitation and control of emissions and discharges to the air and waters, the quality of ambient air and bodies of water and the handling, use and disposal of specified substances and solid waste at, among other locations, the Company's process waste landfills. Financial responsibility for the clean-up or other remediation of contaminated property or for natural resource damages can extend to previously owned or used properties, waterways and properties owned by third parties, as well as to properties currently owned and used by the Company even if contamination is attributable entirely to prior owners. The Company is involved in a voluntary investigation and potential clean-up of the Lower Fox River in Wisconsin and has been named as a potentially responsible party ("PRP") for alleged natural resource damages related to the Lower Fox River and Green Bay system. In addition, the Company makes capital expenditures and incurs operating expenses for clean-up obligations and other environmental matters arising in its on-going operations. Based upon currently available information and analysis, the Company recorded a $20 million charge in the fourth quarter of 1994 for estimated or anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. While the charge reflects the Company's current estimates of the costs of these environmental matters, there can be no assurance that the amount accrued will be adequate. In addition, there can be no assurance that the Company will not be named a PRP at other sites in the future or that the costs associated with such future sites would not be material. Environmental legislation and regulations and the interpretation and enforcement thereof are expected to become increasingly stringent and to further limit emission and discharge levels and may increase the likelihood and cost of environmental clean-ups or related costs, all of which are likely 12 to increase certain operating expenses, require continuing capital expenditures and adversely affect the operating flexibility of the Company's manufacturing operations. While the Company has budgeted for future capital and operating expenditures to maintain compliance with environmental legislation and regulations, indeterminable significant expenditures in connection with such compliance or other environmental matters could have a material adverse effect on the Company's financial condition and results of operations. See "Business--Environmental Matters" and "--Legal Proceedings." PRINCIPAL SHAREHOLDERS Upon consummation of the Offering, Morgan Stanley Group, directly and through certain affiliated entities which it controls, including MSLEF II, collectively will beneficially own 39.8% of the outstanding shares of Common Stock (37.7% if the U.S. Underwriters' over-allotment option is exercised in full). Currently, three of the six directors of the Company are officers of MS&Co, a subsidiary of Morgan Stanley Group. Pursuant to the terms of the Stockholders Agreement (as defined), MSLEF II and Fort Howard Equity Investors II, L.P., a Delaware limited partnership ("Fort Howard Equity Investors II"), each have the right to have a designee nominated for election to the Company's Board of Directors at any annual meeting of the Company's shareholders, so long as MSLEF II or Fort Howard Equity Investors II, as the case may be, does not already have a designee as a member of the Board of Directors at the time of such annual meeting. In addition, in the event of a vacancy on the Board of Directors created by the resignation, removal or death of a director nominated by MSLEF II or Fort Howard Equity Investors II, such shareholders have the right to have a designee nominated for election to fill such vacancy. As a result of their large share holdings, Morgan Stanley Group and its affiliates will continue to have significant influence over the management policies of the Company and over matters requiring shareholder approval, including the election of all directors, the adoption of amendments to the Company's Restated Certificate of Incorporation and the approval of mergers and sales of all or substantially all of the Company's assets, which may deter a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, even if such events might be favorable to the Company's shareholders. See "--Anti-Takeover Effects of Provisions of the Restated Certificate of Incorporation and By-laws" and "Certain Transactions--Stockholders Agreement." Since the Acquisition, MS&Co has acted as lead underwriter in connection with the public offerings of the Company's various debt securities and as financial advisor to the Company. Since 1992, MS&Co has received an aggregate of $43.7 million of underwriting and financial advisory fees in connection therewith. See "Certain Transactions--Other Transactions." RESTRICTIONS ON DIVIDENDS Since the Acquisition, the Company has not declared or paid any cash dividends on any class of its capital stock, and currently does not intend to pay dividends on the Common Stock. The New Bank Credit Agreement, the 1995 Receivables Facility and the indentures and other agreements governing the Company's indebtedness limit the payment of cash dividends on the Common Stock. See "Dividend Policy" and "Description of Certain Indebtedness." EFFECT ON PUBLIC MARKET OF SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, there will be 60,101,239 shares of Common Stock outstanding, of which the 22,000,000 shares sold pursuant to the Offering will be tradeable without restrictions by persons other than "affiliates" of the Company. The remaining shares of Common Stock will be "restricted" securities within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold in the absence of registration under the Securities Act or an exemption therefrom, including the exemptions contained in Rule 144 under the Securities Act. No prediction can be made as to the effect, if any, that future sales of shares of Common Stock, or the availability of such shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock (including shares issued upon the exercise of stock 13 options) in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock or the ability of the Company to raise capital through a public offering of its equity securities. Pursuant to the Underwriting Agreement the Company has agreed, and pursuant to the Stockholders Agreement all current shareholders of the Company are subject to an agreement, with certain limited exceptions, not to offer, pledge, sell, contract to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period beginning 7 days before and ending 180 days after the effective date of the Registration Statement in the case of current and former officers and other key employees of the Company (who beneficially own an aggregate of 791,358 shares of Common Stock), and ending one year after the effective date of the Registration Statement in the case of the remaining shareholders (who beneficially own an aggregate of 37,309,881 shares of Common Stock), without the prior written consent of certain of the representatives of the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors, L.P., a Delaware limited partnership ("Fort Howard Equity Investors"), and Fort Howard Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See "Shares Eligible for Future Sale" and "Underwriters." Pursuant to the Stockholders Agreement, Morgan Stanley Group, MSLEF II and other shareholders of the Company have certain registration rights with respect to the shares of Common Stock that they currently own. Subject to the one year lock-up period described above, Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II may choose to dispose of the Common Stock owned by them. The timing of such sales or other dispositions by such shareholders (which could include distributions to MSLEF II's, Fort Howard Equity Investors' and Fort Howard Equity II's partners) will depend on market and other conditions, but could occur relatively soon after the one year lock-up period described above, including pursuant to the exercise of their registration rights. MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II are unable to predict the timing of sales by any of their limited partners in the event of a distribution to them. Such dispositions could be privately negotiated transactions or public sales. DILUTION The deficit in net tangible book value of the Company at December 31, 1994 was $2,225 million or $58.40 per share. Assuming an initial public offering price of $15.00 per share, purchasers of the Common Stock offered hereby will incur immediate dilution in net tangible book value of $47.38 per share of Common Stock purchased. See "Dilution." ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS Certain provisions of the Restated Certificate of Incorporation (the "Certificate of Incorporation") and the Restated By-laws (the "By-laws") of the Company that will become operative immediately prior to consummation of the Offering may be deemed to have anti-takeover effects and may discourage or make more difficult a takeover attempt that a shareholder might consider in its best interest. Such provisions also may adversely affect prevailing market prices for the Common Stock. These provisions, among other things: (i) classify the Company's Board of Directors into three classes, each of which will serve for different three-year periods; (ii) provide that only the Board of Directors or the Chief Executive Officer of the Company may call special meetings of the shareholders; (iii) eliminate the ability of the shareholders to take any action without a meeting; (iv) permit the adjournment of shareholder meetings in certain circumstances and (v) limit the ability of the shareholders to amend or repeal the By-laws or any of the foregoing provisions of the Certificate of Incorporation, except with the consent of holders of at least 80% of the Company's outstanding Common Stock. In addition, the By-laws establish certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered at shareholders' meetings. See "Description of Capital Stock--Anti-Takeover Effects of Provisions of the Company's Restated Certificate of Incorporation and By-laws." 14 ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK Since the Acquisition, there has been no public market for the Common Stock. Although the Common Stock has been approved for listing on the Nasdaq National Market, there can be no assurance that an active trading market will develop for the Common Stock. Following consummation of the Offering, MS&Co will be prohibited by the rules of the New York Stock Exchange from making a market in the Common Stock. The initial public offering price for the Common Stock will be determined by negotiations among the Company and the representatives of the Underwriters in accordance with the recommendation of CS First Boston Corporation ("CS First Boston"), the "qualified independent underwriter," as is required by the by-laws of the National Association of Securities Dealers, Inc. (the "NASD"), and may not be indicative of the market price for the Common Stock after the Offering. 15 USE OF PROCEEDS The net proceeds to be received by the Company from the Offering are estimated to be approximately $310 million, assuming an initial public offering price of $15.00 per share, after deducting estimated underwriting commissions and expenses of the Offering. Following consummation of the Offering, the Company intends to use the net proceeds of the Offering, together with borrowings under the New Bank Credit Agreement and the 1995 Receivables Facility, to: (i) redeem in full all outstanding 14 1/8% Debentures which mature in 2004; (ii) redeem in full all outstanding 12 5/8% Debentures which mature in 2000, at 102.5% of the principal amount thereof; (iii) redeem in full all outstanding Senior Secured Notes, which bear interest at floating rates (a weighted average rate of 9.46% at December 31, 1994) and mature between 1997 and 2000; (iv) prepay in full $224.5 million of the 1988 Term Loan, which bears interest at floating rates (a weighted average rate of 8.19% at December 31, 1994); (v) repay $300.0 million of the Company's indebtedness under the 1988 Revolving Credit Facility which is part of the 1988 Bank Credit Agreement (the "1988 Revolving Credit Facility"), which bears interest at floating rates (a weighted average rate of 8.66% at December 31, 1994); (vi) prepay in full the 1993 Term Loan which bears interest at floating rates (at 8.57% at December 31, 1994) and (vii) pay certain fees and expenses incurred in connection with the Recapitalization. The Company is implementing the Recapitalization to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain maturities, increase shareholders' equity and enhance its access to capital markets. The Recapitalization includes the following primary components: (i) the Offering; (ii) the Bank Refinancing and (iii) the 1995 Debt Redemptions. Consummation of the Offering is conditioned upon the concurrent consummation of the other components of the Recapitalization (other than the 14 1/8% Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by the Company of notices of redemption to the respective trustees of the 14 1/8% Debentures and the 12 5/8% Debentures. The estimated sources and uses of funds required to complete the Recapitalization, assuming that all components of the Recapitalization occur on March 15, 1995, are as follows (in millions):
Sources of Funds: AMOUNT Proceeds of the Offering.......................................... $ 330.0 1995 Term Loan A.................................................. 810.0 1995 Term Loan B.................................................. 330.0 1995 Revolving Credit Facility.................................... 180.9 1995 Receivables Facility......................................... 60.0 -------- Total Sources of Funds............................................ $1,710.9 -------- -------- Uses of Funds: 14 1/8% Debenture Redemption...................................... $ 566.9 Senior Secured Note Redemption.................................... 300.0 1988 Revolving Credit Facility Prepayment(a)...................... 300.0 1988 Term Loan Prepayment......................................... 224.5 12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5 1993 Term Loan Prepayment......................................... 100.0 Company Transaction Fees and Expenses(b).......................... 70.0 -------- Total Uses of Funds............................................... $1,710.9 -------- --------
- ------------ (a) Includes estimated accrued interest on all indebtedness to be prepaid or redeemed in connection with the Recapitalization. (b) Includes underwriters' commissions and other transaction fees and expenses of the Recapitalization payable or reimbursable by the Company.
16 DIVIDEND POLICY The Company anticipates that all its earnings in the near future will be used for the repayment of indebtedness and for the development and expansion of its business and, therefore, does not anticipate paying dividends on the Common Stock in the foreseeable future. The New Bank Credit Agreement, the 1995 Receivables Facility and the indentures governing the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes and the 10% Notes limit, in each case with certain exceptions, the ability of the Company to pay dividends on the Common Stock. Subject to such restrictions, any determination to pay cash dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at the time by the Board of Directors. See "Description of Certain Indebtedness" and "Description of Capital Stock." DILUTION At December 31, 1994, the deficit in net tangible book value of the Company was $2,225 million or $58.40 per share of Common Stock. After giving effect to the sale by the Company of 22,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $15.00 per share and the Bank Refinancing, the pro forma deficit in net tangible book value of the Company at December 31, 1994, would have been $1,946 million or $32.38 per share. This represents an immediate increase in pro forma net tangible book value per share of $26.02 to existing shareholders and an immediate dilution of $47.38 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share......... $ 15.00 Deficit in net tangible book value per share prior to the Offering(a)..................................... $(58.40) Increase in net tangible book value per share attributable to new investors(a).................... 26.02 ------- Pro forma deficit in net tangible book value per share after the Offering(a)(b).............................. (32.38) ------- Dilution in net tangible book value per share to a new investor(a)(c).......................................... $ 47.38 ------- -------
- ------------ (a) Deficit in net tangible book value per share is determined by dividing the number of shares of Common Stock outstanding into the deficit in net tangible book value of the Company (shareholders' deficit plus debt issuance costs). (b) Pro forma deficit in net tangible book value per share is determined by dividing the number of shares of Common Stock outstanding (after giving effect to the Offering) into the deficit in net tangible book value of the Company (shareholders' deficit plus debt issuance costs) after the Offering. (c) Dilution is determined by subtracting the pro forma deficit in net tangible book value per share of Common Stock after the Offering from the amount of cash paid by a new investor for a share of Common Stock. The following table summarizes on a pro forma basis as of December 31, 1994, the differences in the total consideration paid and the average price per share paid by the existing shareholders with respect to the outstanding Common Stock and by the new investors with respect to the 22,000,000 shares of Common Stock to be issued by the Company at an assumed initial public offering price of $15.00 per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------ -------------------------- PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE ---------- ---------- ------------ ---------- --------- Existing shareholders........ 38,101,239 63% $613,742,893 65% $ 16.11 New investors................ 22,000,000 37% 330,000,000 35% 15.00 ---------- ----- ------------ ----- --------- Total.................... 60,101,239 100% $943,742,893 100% $ 15.70
17 CAPITALIZATION Set forth below is the actual consolidated capitalization of the Company at December 31, 1994, and the pro forma consolidated capitalization of the Company as of that date after giving effect to the Recapitalization. The information presented below should be read in conjunction with the Company's audited consolidated financial statements and the Pro Forma Financial Data included elsewhere in this Prospectus.
DECEMBER 31, 1994 -------------------------- ACTUAL PRO FORMA (A) --------- ------------- (IN MILLIONS) Current portion of long-term debt................................... $ 116.2 $ 9.0 --------- ------------- Long-Term Debt, less current portion(b): 1995 Term Loan A.................................................. -- 810.0 1995 Term Loan B.................................................. -- 330.0 1995 Receivables Facility......................................... -- 60.0 1995 Revolving Credit Facility(c)................................. -- 77.4 1988 Term Loan.................................................... 117.3 -- 1988 Revolving Credit Facility.................................... 196.5 -- 1993 Term Loan.................................................... 100.0 -- Senior Secured Notes.............................................. 300.0 -- 9 1/4% Notes...................................................... 450.0 450.0 8 1/4% Notes...................................................... 100.0 100.0 9% Notes.......................................................... 650.0 650.0 12 5/8% Debentures................................................ 145.8 -- 10% Notes......................................................... 300.0 300.0 14 1/8% Debentures................................................ 566.9 -- Capital lease obligations......................................... 179.8 179.8 Other long-term debt.............................................. 83.3 83.3 --------- ------------- Total Long-Term Debt, less current portion.......................... 3,189.6 3,040.5 Common Stock with put right(d)...................................... 11.7 -- --------- ------------- Total Indebtedness................................................ 3,317.5 3,049.5 Shareholders' Deficit: Common Stock, par value $.01 per share, 100,000,000 shares authorized, 38,101,239 shares issued and outstanding and 60,101,239 shares issued and outstanding on a pro forma basis................................ 0.4 0.6 Paid-in capital................................................... 600.1 921.8 Cumulative translation adjustment................................. (2.3) (2.3) Retained deficit.................................................. (2,746.6) (2,764.0) --------- ------------- Total Shareholders' Deficit..................................... (2,148.4) (1,843.9) --------- ------------- Total Capitalization............................................ $ 1,169.1 $ 1,205.6 --------- ------------- --------- -------------
- ------------ (a) Calculated based upon estimated proceeds to the Company from the Recapitalization. See "Use of Proceeds" and "Pro Forma Financial Data." (b) See Note 8 of the Company's audited consolidated financial statements for additional information with respect to long-term debt. (c) Upon the consummation of the Offering, borrowings under the 1995 Revolving Credit Facility are expected to be $180.9 million. (d) Reclassification of 791,358 shares of Common Stock with put right to Common Stock assumes termination of the put with respect to all of such shares at the time of the Offering. The Company is considering extending the benefit of the put right with respect to 314,925 shares held by the Company's former chairman and chief executive officer as described in "Management-- Management Equity Participation Agreement." See Note 12 of the Company's audited consolidated financial statements included elsewhere in this Prospectus.
18 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following table sets forth selected historical consolidated financial data of the Company for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 that were derived from the consolidated financial statements of the Company, which were audited by Arthur Andersen LLP, independent public accountants. The report of such accountants with respect to the years ended December 31, 1994, 1993 and 1992 appears elsewhere in this Prospectus. Reference is made to such report which calls attention to a change in the method of accounting for postretirement benefits other than pensions. The following financial information should be read in conjunction with "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and the audited consolidated financial statements and the related notes thereto included elsewhere in this Prospectus. 19 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net sales......................................... $ 1,274 $ 1,187 $ 1,151 $ 1,138 $ 1,151 Cost of sales(a).................................. 867 784 726 713 719 ------- ------- ------- ------- ------- Gross income...................................... 407 403 425 425 432 Selling, general and administrative(a)(b)......... 110 97 97 98 105 Amortization of goodwill(c)....................... -- 43 57 57 57 Goodwill write-off(c)............................. -- 1,980 -- -- -- Environmental charge(d)........................... 20 -- -- -- -- ------- ------- ------- ------- ------- Operating income (loss)(d)........................ 277 (1,717) 271 270 270 Interest expense.................................. 338 342 338 371 423 Other (income) expense, net....................... -- (3) 2 (3) (33) ------- ------- ------- ------- ------- Loss before taxes(d).............................. (61) (2,056) (69) (98) (120) Income taxes (credit)............................. (19) (16) -- (24) (37) ------- ------- ------- ------- ------- Loss before equity earnings, extraordinary items and adjustment for accounting change............ (42) (2,040) (69) (74) (83) Equity in net loss of unconsolidated subsidiaries(e)................................. -- -- -- (32) (23) ------- ------- ------- ------- ------- Net loss before extraordinary items and adjustment for accounting change........................... (42) (2,040) (69) (106) (106) Extraordinary items--losses on debt repurchases (net of income taxes)........................... (28) (12) -- (5) -- Adjustment for adoption of SFAS No. 106 (net of income taxes)(f)................................ -- -- (11) -- -- ------- ------- ------- ------- ------- Net loss(a)(d).................................... $ (70) $(2,052) $ (80) $ (111) $ (106) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Loss per share(d)(g).............................. $ (1.85) $(53.85) $ (2.10) $ (3.17) $ (3.64) OTHER DATA: EBITDA(h)......................................... $ 393 $ 387 $ 410 $ 444 $ 441 EBITDA as a percent of net sales(h)............... 30.8% 32.6% 35.6% 39.0% 38.3% Depreciation of property, plant and equipment(a).................................... $ 96 $ 88 $ 81 $ 116 $ 112 Non-cash interest expense......................... 74 101 140 141 145 Capital expenditures.............................. 84 166 233 144 97 Weighted average number of shares of Common Stock outstanding (in thousands)(g)............................... 38,103 38,107 38,107 34,868 29,197 BALANCE SHEET DATA (AT END OF PERIOD): Total assets...................................... $ 1,681 $ 1,650 $ 3,575 $ 3,470 $ 3,627 Working capital (deficit)......................... (98) (92) (124) 2 (80) Long-term debt (including current portion) and Common Stock with put right......................... 3,318 3,234 3,104 2,947 3,125 Shareholders' equity (deficit).................... (2,148) (2,081) (29) 62 13
(Footnotes on following page) 20 (Footnotes for preceding page) - ------------ (a) Effective January 1, 1992, the Company prospectively changed its estimates of the depreciable lives of certain machinery and equipment. The change had the effect of reducing depreciation expense by approximately $38 million and net loss by $24 million in 1992. (b) Selling, general and administrative expense in 1993 reflects an $8 million reduction for the reversal of all employee stock compensation expense accrued prior to 1993. See Note 13 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. (c) During the third quarter of 1993, the Company wrote off the remaining unamortized balance of its goodwill of $1.98 billion and, accordingly, there is no amortization of goodwill for periods subsequent to September 30, 1993. See "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and Note 4 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. (d) During the fourth quarter of 1994, the Company recorded an environmental charge totaling $20 million. Excluding the effects of the environmental charge, the Company's operating income, loss before taxes, net loss and loss per share in 1994 would have been $296.8 million, $41 million, $56.1 million and $1.47 per share, respectively. (e) In 1989, the Company transferred all the capital stock of Fort Howard Cup to Sweetheart for a 49.9% equity interest in Sweetheart and other assets for a total consideration of $620 million. The Company also undertook a plan to divest all its remaining international cup operations. As a result, the Company recorded a $120 million charge in 1989. As of December 31, 1991, the Company had sold all its international cup operations and had discontinued recording equity in net losses of Sweetheart because the carrying value of the Company's investment in Sweetheart was reduced to zero. (f) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This change in accounting principle, excluding the cumulative effect, decreased operating income for 1992 by $1.2 million. (g) The computation of loss per share is based on the weighted average number of shares of Common Stock outstanding during the period plus (in periods in which they have a dilutive effect) the effect of shares of Common Stock contingently issuable upon the exercise of stock options. (h) EBITDA represents operating income plus depreciation of property, plant and equipment, amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the effects of 1993 employee stock compensation (credits). EBITDA is presented here as a measure of the Company's debt service ability. Certain financial and other restrictive covenants in the New Bank Credit Agreement and other instruments governing the Company's indebtedness are based on the Company's EBITDA, subject to certain adjustments. See "Description of Certain Indebtedness."
21 PRO FORMA FINANCIAL DATA The following unaudited pro forma condensed consolidated statements of income and condensed consolidated balance sheet (collectively, the "Pro Forma Statements") were prepared to illustrate the estimated effects of the Recapitalization as if it had occurred for consolidated statement of income purposes on January 1, 1994, and for consolidated balance sheet purposes on December 31, 1994. The 1994 Refinancing is treated for consolidated statement of income purposes as if such transaction had occurred on January 1, 1994. The Pro Forma Statements assume an offering of 22,000,000 shares at an initial public offering price of $15.00 per share. The estimated transaction fees and expenses included in the following Pro Forma Statements are provided solely for the purpose of presenting the Pro Forma Statements set forth below. The actual transaction fees and expenses may differ from the assumptions set forth below. THE PRO FORMA STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE RECAPITALIZATION IN FACT HAD OCCURRED AT DECEMBER 31, 1994, OR IF THE RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 OR TO PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD. The following financial information should be read in conjunction with "Capitalization," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and the audited consolidated financial statements and the related notes thereto included elsewhere in this Prospectus. 22 PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
1994 RECAPITALIZATION REFINANCING HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ---------------- ------------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1994: Net sales.............................. $1,274,445 $1,274,445 Cost of sales.......................... 867,357 867,357 ---------- ---------- Gross income........................... 407,088 407,088 Selling, general and administrative.... 110,285 110,285 Environmental charge................... 20,000 20,000(a) ---------- ---------- Operating income....................... 276,803 276,803(a) Interest expense....................... 337,701 $(42,082)(b) $(8,680)(b) 286,939 Other expense, net..................... 118 -- -- 118 ---------- -------- ------------- ---------- Income (loss) before taxes............. (61,016) 42,082 8,680 (10,254) Income taxes (credit).................. (18,891) 16,412(c) 3,385(c) 906 ---------- -------- ------------- ---------- Net income (loss) before extraordinary item................................. (42,125) 25,670 5,295 (11,160) Extraordinary item..................... (28,170) -- 28,170(d) -- ---------- -------- ------------- ---------- Net income (loss)...................... $ (70,295) $ 25,670 $33,465 $ (11,160)(a) ---------- -------- ------------- ---------- ---------- -------- ------------- ---------- Earnings (loss) per share(e)........... $ (1.85) $ (0.19)(a) ---------- ---------- ---------- ---------- Weighted average number of shares outstanding (in thousands)(e)........ 38,103 60,103
- ------------ (a) During the fourth quarter of 1994, the Company recorded an environmental charge totaling $20 million. Excluding the effects of the environmental charge, the Company's operating income, income before taxes, net income and earnings per share in 1994, on a pro forma basis after giving effect to the Recapitalization and the 1994 Refinancing, would have been $296.8 million, $9.7 million, $3.0 million and $0.05 per share, respectively. (Footnotes continued on following page) 23 (Footnotes continued from preceding page) (b) Decreased interest expense is based upon the pro forma consolidated debt of the Company as if the Recapitalization and the 1994 Refinancing had been consummated on January 1, 1994, as follows:
1994 RECAPITALIZATION REFINANCING ----------------- ------------ (IN THOUSANDS) 1995 Term Loan A(1)(2)..................... $ 70,875 1995 Term Loan B(1)(2)..................... 30,525 1995 Receivables Facility(1)(2)............ 5,250 1995 Revolving Credit Facility(1)(2)(3).... 3,868 8 1/4% Notes............................... -- $ 1,009 9% Notes................................... -- 7,073 Amortization of debt issuance costs(4)..... 7,096 284 Elimination of historical interest expense including amortization of debt issuance costs(5)................................. (159,696) (17,046) ----------------- ------------ $ (42,082) $ (8,680) ----------------- ------------ ----------------- ------------
- ------------ (1) The interest rates utilized in the calculation of the pro forma adjustments assume a reserve adjusted Eurodollar rate of 6.25% and a margin of 2.5% for the Term Loan A, the 1995 Revolving Credit Facility and the 1995 Receivables Facility and a margin of 3.0% for the 1995 Term Loan B. (2) A change in the interest rate of 0.25% would change interest expense and income (loss) before taxes as follows: YEAR ENDED DECEMBER 31, 1994 ----------------- (IN THOUSANDS) 1995 Term Loan A................... $ 2,025 1995 Term Loan B................... 825 1995 Receivables Facility.......... 150 1995 Revolving Credit Facility..... 111 ----- $ 3,111 ----- ----- (3) Because interest on the 14 1/8% Debentures accrued to principal until November 1, 1994, the $566.9 million of proceeds required to retire the 14 1/8% Debentures in 1995 exceeds the $506.2 million principal amount of 14 1/8% Debentures outstanding at January 1, 1994 by $60.7 million (the "Excess Principal Amount"). For purposes of the Pro Forma Condensed Consolidated Statements of Income, the proceeds which will be used to retire the Excess Principal Amount have been assumed to be applied to the elimination of borrowings under the 1995 Revolving Credit Facility and to reduce borrowings assumed to be outstanding under the 1988 Revolving Credit Facility. (4) Debt issuance costs with respect to the New Bank Credit Agreement and the 1995 Receivables Facility are amortized over the life of the related new debt, ranging from 7 to 8 years. The Pro Forma Condensed Consolidated Statements of Income do not include nonrecurring charges of approximately $28.6 million representing the write-off of debt issuance costs of $24.9 million and redemption premiums of $3.7 million to be charged to expense in connection with the Recapitalization. (5) Reflects the elimination of interest expense, including amortization of debt issuance costs, associated with debt retired in connection with the Recapitalization and the 1994 Refinancing. Floating rate debt assumed to be retired as of January 1, 1994 of $1.0 billion bore interest at a weighted average rate of 6.1% in 1994. The 1995 Term Loan A, the 1995 Term Loan B and the 1995 Receivables Facility, which are being issued to retire such floating rate debt, are assumed to bear interest at substantially higher interest rates of 8.75%, 9.25% and 8.75%, respectively, because the reserve adjusted Eurodollar rate is assumed to be 6.25%, a substantial increase over interest rates in effect in 1994. (c) Reflects the adjustment of income taxes (credit) at an effective rate of 39% as a result of the pro forma adjustments described in these notes. (d) Reflects the elimination of an extraordinary loss resulting from the 1994 Refinancing. (e) The computation of earnings (loss) per share is based on the weighted average number of shares of Common Stock outstanding during the period plus (in periods in which they have a dilutive effect) the effect of shares of Common Stock contingently issuable upon the exercise of stock options. The pro forma earnings (loss) per share also assumes the issuance of 22,000,000 shares of Common Stock in the Offering. 24 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 ------------------------------------------------- RECAPITALIZATION HISTORICAL ADJUSTMENTS PRO FORMA ----------- ---------------- ----------- (IN THOUSANDS) ASSETS Current assets: Cash............................................ $ 422 $ 422 Receivables--net................................ 123,150 123,150 Inventories..................................... 130,843 130,843 Deferred income taxes........................... 20,000 20,000 Income taxes receivable......................... 5,200 5,200 ----------- ----------- Total current assets........................ 279,615 279,615 Property, plant and equipment..................... 1,932,713 1,932,713 Less: Accumulated depreciation.................. 611,762 611,762 ----------- ----------- Net property, plant and equipment............... 1,320,951 1,320,951 Other assets...................................... 80,332 $ 25,331(a) 105,663 ----------- ---------------- ----------- Total assets................................ $ 1,680,898 $ 25,331 $ 1,706,229 ----------- ---------------- ----------- ----------- ---------------- ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable................................ $ 100,981 $ 100,981 Interest payable................................ 84,273 84,273 Income taxes payable............................ 224 224 Other current liabilities....................... 75,450 75,450 Current portion of long-term debt............... 116,203 $ (107,219)(b) 8,984 ----------- ---------------- ----------- Total current liabilities................... 377,131 (107,219) 269,912 Long-term debt:................................... 1995 Term Loan A................................ -- 810,000(b) 810,000 1995 Term Loan B................................ -- 330,000(b) 330,000 1995 Receivables Facility....................... -- 60,000(b) 60,000 1995 Revolving Credit Facility.................. -- 77,363(b) 77,363 1988 Term Loan.................................. 117,315 (117,315)(b) -- 1988 Revolving Credit Facility.................. 196,500 (196,500)(b) -- 1993 Term Loan.................................. 100,000 (100,000)(b) -- Senior Secured Notes............................ 300,000 (300,000)(b) -- 9 1/4% Notes.................................... 450,000 -- 450,000 8 1/4% Notes.................................... 100,000 -- 100,000 9% Notes........................................ 650,000 -- 650,000 12 5/8% Debentures.............................. 145,815 (145,815)(b) -- 10% Notes....................................... 300,000 -- 300,000 14 1/8% Debentures.............................. 566,869 (566,869)(b) -- Capital lease obligations....................... 179,821 -- 179,821 Other........................................... 83,324 -- 83,324 ----------- ---------------- ----------- Total long-term debt........................ 3,189,644 (149,136) 3,040,508 Deferred income taxes............................. 209,697 (11,140)(c) 198,557 Other liabilities................................. 41,162 -- 41,162 Common Stock with put right....................... 11,711 (11,711)(d) -- Shareholders' deficit: Common Stock and additional paid-in capital..... 600,471 321,961(b)(e) 922,432 Cumulative translation adjustment............... (2,330) -- (2,330) Retained deficit................................ (2,746,588) (17,424)(f) (2,764,012) ----------- ---------------- ----------- Total shareholders' deficit................. (2,148,447) 304,537 (1,843,910) ----------- ---------------- ----------- Total liabilities and shareholders' deficit................................... $ 1,680,898 $ 25,331 $ 1,706,229 ----------- ---------------- ----------- ----------- ---------------- -----------
See Notes to Pro Forma Condensed Consolidated Balance Sheet 25 NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (a) Net increase in other assets is summarized as follows (in thousands): Estimated debt issuance costs associated with the Recapitalization................................................. $ 50,250 Write-off of debt issuance costs related to existing long-term debt to be repaid or retired................................... (24,919) -------- $ 25,331 -------- -------- (b) Represents (i) the issuance of $330 million of Common Stock, (ii) prepayment or redemption of existing indebtedness, (iii) issuance of new indebtedness under the New Bank Credit Agreement and the 1995 Receivables Facility and (iv) payment of fees and expenses related to the Recapitalization of $70.0 million (including estimated underwriting fees). (c) Reflects income tax benefit associated with the extraordinary loss on early extinguishment of debt arising from the Recapitalization as calculated in Note (f). (d) Reclassification of 791,358 shares of Common Stock with put right to Common Stock assumes termination of the put with respect to all of such shares at the time of the Offering. The Company is considering extending the benefit of the put right with respect to 314,925 shares held by the Company's former chairman and chief executive officer as described in "Management--Management Equity Participation Agreement." (e) Includes issuance of $330 million of Common Stock in the Offering less estimated underwriting fees and expenses related to the Offering of $19.75 million and the reclassification from Common Stock with put right described in Note (d). (f) Represents the after-tax costs related to the extraordinary loss from early extinguishment of debt as a result of the Recapitalization, summarized as follows (in thousands): Write-off of debt issuance costs related to existing long-term debt to be repaid or retired................................... $ 24,919 Redemption premium associated with 12 5/8% Debenture Redemption........................................... 3,645 -------- 28,564 Assumed tax benefit at 39%....................................... (11,140) -------- $ 17,424 -------- -------- 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Industry Conditions Sales of the Company's tissue products are generally subject to changes in industry capacity and cyclical changes in the economy, both of which can significantly impact net selling prices and the Company's profitability. From 1990 through 1992, domestic tissue industry capacity additions significantly exceeded historic capacity addition rates. At the same time, commercial demand weakened as a result of the recession. These and other factors caused industry operating rates and pricing to fall. The Company's average domestic net selling prices declined by approximately 5% in each of 1991 and 1992 and by 1.2% in 1993. Due to the impact of industry conditions on the Company's then projected operating results, which assumed that net selling price and cost increases would approximate 1% per year and that further capacity expansion would not be justifiable given the Company's high leverage and adverse tissue industry operating conditions, the Company wrote off its remaining goodwill balance of $1.98 billion in the third quarter of 1993. Low industry operating rates, competitive pricing and other factors continued to adversely affect the Company's operating results in 1994. In addition, the Company's operating results in the fourth quarter of 1994 were adversely affected by rising wastepaper costs as discussed below. The Company currently believes that pricing and demand in the tissue sector of the domestic paper industry are beginning to improve. While the Company's introduction of three price increases in the commercial market in 1993 and one in April 1994 led to a decline in commercial volume for the first nine months of 1994 compared to the same period in 1993, the Company's commercial volume improved slightly during the fourth quarter of 1994 compared to the same period in 1993. The Company introduced another commercial price increase in mid-October 1994. Because a substantial portion of the Company's commercial sales are pursuant to contracts which generally specify pricing over periods of three months to one year, there is a time lag before the Company realizes the full benefit of commercial market price increases. The Company believes that retail shelf prices in the consumer market improved slightly in 1993 and 1994 but remained competitive. Overall domestically, the Company realized average price increases of 5% in 1994 as compared to 1993. Further price increases were announced for the commercial and consumer markets effective in January 1995. Taking into account announced tissue papermaking capacity additions and normal population growth, the Company believes that the rate of capacity growth in 1995, 1996 and 1997 will fall short of the demand increase, resulting in higher industry operating rates for the period. Historically, tissue manufacturers have sought price increases during periods of higher operating rates. Accordingly, while there can be no assurance that pricing will continue to increase, the Company believes that in addition to the Company's price increases announced for the commercial and consumer markets for January 1995, further price increases are likely in 1995. The Company's operating results are also affected by the price it pays for wastepaper. Wastepaper is the principal raw material used in manufacturing the Company's tissue products. Industry costs for wastepaper and market pulp have recently begun to increase sharply. From July 1994 to January 1995, wastepaper prices for the grades of wastepaper used in the Company's products more than doubled. Wastepaper prices may increase further because of increased demand resulting from substantial additions of de-inking and recycling capacity in the paper industry which are expected to come on line during 1995 and 1996, increasing market pulp prices and other factors. Since late 1993, market pulp prices have also nearly doubled as a result of increased demand and the Company expects such prices to continue to increase due to worldwide tightening supply/demand conditions for market pulp. However, the Company believes that as market pulp and wastepaper prices increase, tissue producers will seek to increase prices to maintain profitability. 27 RESULTS OF OPERATIONS
THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31, -------------- --------------------------- 1994 1993 1994 1993 1992 ----- ----- ------ ------- ------ Net sales: Domestic tissue.................................. $ 284 $ 247 $1,060 $ 1,004 $ 978 International operations......................... 35 33 131 143 143 Other............................................ 25 12 83 40 30 ----- ----- ------ ------- ------ Consolidated..................................... $ 344 $ 292 $1,274 $ 1,187 $1,151 ----- ----- ------ ------- ------ ----- ----- ------ ------- ------ Operating income (loss): Domestic tissue (a)(b)(c)........................ $ 49 $ 70 $ 264 $(1,715) $ 252 International operations (a)..................... 2 -- 8 (1) 17 Other (a)........................................ 2 1 5 (1) 2 ----- ----- ------ ------- ------ Consolidated (a)(b)(c)........................... 53 71 277 (1,717) 271 Amortization of goodwill and goodwill write-off (a).............................................. -- -- -- 2,023 57 Depreciation....................................... 26 26 96 89 82 Environmental charge (b)........................... 20 -- 20 -- -- Employee stock compensation (c).................... -- -- -- (8) -- ----- ----- ------ ------- ------ EBITDA(d)........................................ $ 99 $ 97 $ 393 $ 387 $ 410 ----- ----- ------ ------- ------ ----- ----- ------ ------- ------ Consolidated net loss.............................. $ (25) $ (6) $ (70) $(2,052) $ (80) ----- ----- ------ ------- ------ ----- ----- ------ ------- ------ EBITDA as a percent of net sales(d)................ 28.8% 33.1% 30.8% 32.6% 35.6%
- ------------ (a) During the third quarter of 1993, the Company wrote off the remaining unamortized balance of its goodwill of $1.98 billion. See Note 4 to the Company's audited consolidated financial statements included elsewhere in this Prospectus. (b) During the fourth quarter of 1994, operating income for domestic tissue operations was reduced by a $20 million environmental charge. See Note 15 to the Company's audited consolidated financial statements included elsewhere in this Prospectus. (c) Selling, general and administrative expense in 1993 reflects an $8 million reduction for the reversal of all employee stock compensation expense accrued prior to 1993. See Note 13 to the Company's audited consolidated financial statements included elsewhere in this Prospectus. (d) EBITDA represents operating income plus depreciation of property, plant and equipment, amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the effects of 1993 employee stock compensation (credits). EBITDA is presented here as a measure of the Company's debt service ability. Certain financial and other restrictive covenants in the New Bank Credit Agreement and other instruments governing the Company's indebtedness are based on the Company's EBITDA, subject to certain adjustments. See "Description of Certain Indebtedness." FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 Net Sales. Consolidated net sales for 1994 increased 7.3% compared to 1993, while consolidated net sales for the fourth quarter of 1994 increased 17.9% as compared to the comparable quarter in 1993. These increases were due to increases in domestic tissue net sales and significant net sales increases by the Company's wastepaper brokerage subsidiary. Domestic tissue net sales increased 5.5% for fiscal year 1994 and 15.0% during the fourth quarter of 1994, in each case as compared to 1993. For 1994, the higher domestic tissue net sales were due to higher net selling prices principally in the commercial market and higher sales volume in the consumer and parent roll export markets that were partially offset by volume decreases in the commercial market during the first nine months of 1994. Overall, domestic tissue sales volume for 1994 increased slightly over 1993. The Company's decision to implement net selling price increases in the commercial market during each of the first three quarters of 1993 and to follow with a price increase in the second quarter of 1994 led to the decline in commercial volume during the first nine months of 1994. For the fourth quarter of 1994, the higher domestic tissue net sales were due to higher net selling prices and slightly higher volume in the commercial market, significantly higher volume offset by lower net selling prices in the consumer market and higher sales volume in parent roll export markets. The Company announced further price increases in the 28 commercial market effective mid-October 1994 and January 1995 and a price increase in the consumer market effective in January 1995. Because a substantial portion of the Company's commercial sales are pursuant to contracts which generally specify pricing over periods of three months to one year, there is a time lag before the Company realizes the full benefit of commercial market price increases. Net sales of the Company's international operations decreased 8.4% for fiscal year 1994 and increased 4.7% for the fourth quarter of 1994 as compared to 1993. The decrease in international net sales in 1994 was due to significantly lower net selling prices on flat volume. The increase in international net sales for the fourth quarter was due to higher volume partially offset by lower net selling prices. The international net selling price declines were attributable to product mix changes and continued competitive conditions. The significant increase in net sales of the Company's wastepaper brokerage subsidiary during 1994 and for the fourth quarter of 1994 compared to 1993 principally reflects higher net selling prices. Gross income. For fiscal year 1994 and the fourth quarter of 1994, consolidated gross margins decreased to 31.9% and 29.3% from 34.0% and 33.5% for the same periods in 1993, respectively, principally due to lower margins in domestic tissue operations where unit manufacturing cost increases exceeded net selling price increases. Such cost increases primarily resulted from higher wastepaper and other raw material costs, lower converting volume, higher depreciation expense resulting from the start-up of a new paper machine at the Muskogee mill late in the first quarter of 1994 and higher maintenance costs. From July 1994 to January 1995, wastepaper prices for the grades of wastepaper used in Fort Howard's products more than doubled and wastepaper prices may increase further due to increased demand for those wastepaper grades used by the Company. Gross margins of international operations declined in 1994 compared to 1993 principally due to the lower net selling prices. For the fourth quarter of 1994 compared to the same period in 1993, gross margins of international operations improved due to lower promotional costs and the results of cost containment activities. However, from July 1994 to January 1995, wastepaper prices for the grades of wastepaper used by international operations increased approximately 65% and wastepaper prices are expected to increase further for such operations due to increased demand for those wastepaper grades used by the Company. In addition, consolidated gross margins were negatively affected for fiscal year 1994 and the fourth quarter of 1994 by the increased proportion of net sales represented by the Company's wastepaper brokerage subsidiary which typically has lower margins than domestic tissue operations. Selling, General and Administrative Expenses. In the third quarter of 1993, the Company reversed all previously accrued employee stock compensation expense resulting in a reduction of selling, general and administrative expenses of $8 million for 1993. Excluding the effects of the reversal, selling, general and administrative expenses, as a percent of net sales, were 8.6% and 8.2% for fiscal year 1994 and fourth quarter of 1994, compared to 8.8% and 9.0% for fiscal year 1993 and fourth quarter of 1993, respectively. The decreases resulted principally from the increased proportion of net sales represented by the Company's wastepaper brokerage subsidiary and, to a lesser degree, cost containment. Amortization of Goodwill. As a result of the goodwill write-off in the third quarter of 1993, there was no amortization of goodwill in 1994 compared to $43 million for fiscal year 1993. There was no goodwill amortization in the fourth quarter of 1994 or 1993. Environmental Charge. Based upon currently available information and analysis, the Company recorded a $20 million charge in the fourth quarter of 1994 for estimated or anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. The Company expects these costs to be incurred over an extended number of years. See "Business-- Environmental Matters" and "--Legal Proceedings" and Note 15 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. Operating Income (Loss). Operating income increased to $277 million in 1994 compared to an operating loss of $1,717 million in 1993. The operating loss in 1993 resulted entirely from the goodwill write-off in the third quarter of 1993. Excluding the environmental charge from 1994 results and 29 amortization of goodwill, the goodwill write-off and the reversal of employee stock compensation expense from 1993 results, operating income would have declined to $297 million in 1994 from $299 million in 1993. For the fourth quarters of 1994 and 1993, operating income was $53 million and $71 million, respectively. Excluding the environmental charge from 1994 results, operating income would have increased to $73 million in the fourth quarter of 1994. Income Taxes. The income tax credits for 1994 and 1993 principally reflect the reversal of previously provided deferred income taxes. Extraordinary Losses. The Company's net loss in 1994 was increased by an extraordinary loss of $28 million (net of income taxes of $15 million) representing the redemption premiums on the repurchases of all the Company's remaining 12 3/8% Notes at the redemption price of 105% of the principal amount thereof and of $238 million of 12 5/8% Debentures at the redemption price of 105% of the principal amount thereof on March 11, 1994, and the write off of deferred loan costs associated with the prepayment of $100 million of the 1988 Term Loan on February 10, 1994, and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. The Company's net loss in 1993 was increased by an extraordinary loss of $12 million (net of income taxes of $7 million) representing the write-off of deferred loan costs associated with the prepayment of $250 million of the 1988 Term Loan on March 23, 1993, the repurchase of all outstanding 14 5/8% Debentures on April 21, 1993 and the repurchase of $50 million of 12 3/8% Notes on November 1, 1993. Net Loss. The Company reported net losses of $70 million and $25 million for fiscal year 1994 and the fourth quarter of 1994, respectively, as compared to net losses of $2,052 million and $6 million for the same periods in 1993. The increase in the net loss in the fourth quarter of 1994 is principally due to the environmental charge. The significant net loss for fiscal year 1993 resulted principally from the goodwill write-off in the third quarter of 1993. FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992 Net Sales. Consolidated net sales for 1993 increased 3.1% compared to 1992. Domestic tissue net sales for 1993 increased 2.7% compared to 1992 due to volume increases that were largely offset by lower net selling prices. In mid-1992, average net selling prices rose principally as a result of an attempted price increase in the commercial market but then fell to pre-price increase levels in the fourth quarter of 1992 and fell again in the first quarter of 1993, periods of seasonally lower volume shipments. Average net selling prices held flat from the first quarter of 1993 to the second quarter of 1993 and increased in each of the third and fourth quarters of 1993 from the previous quarter levels. However, in spite of introductions of net selling price increases in each of the first three quarters of 1993, average net selling prices for 1993 were below average net selling prices for 1992. Net sales of the Company's international operations were flat in 1993 compared to 1992 primarily due to significantly lower net selling prices and lower exchange rates offset by volume increases resulting from the acquisition of Stuart Edgar Limited ("Stuart Edgar") and the start-up of a new paper machine. United Kingdom retailers engaged in increasingly competitive pricing activity in 1993 across a broad range of consumer products including disposable paper products. Gross Income. Consolidated gross margins decreased to 34.0% in 1993 compared to 36.9% in 1992. Domestic tissue gross margins decreased to 37.4% in 1993 from 40.0% in 1992 primarily due to lower net selling prices and an increase in wastepaper costs as prices for wastepaper grades utilized by the Company returned to pre-recession levels. Gross margins of international operations also declined in 1993 principally due to the lower net selling prices. Unit manufacturing costs of international operations declined in 1993 compared to 1992 as a result of the start-up of a new paper machine and related facilities in the first quarter of 1993 at the Company's United Kingdom tissue operations. Selling, General and Administrative Expenses. Due to the effects of adverse tissue industry operating conditions on its long-term earnings forecast as of September 30, 1993, the Company decreased the estimated fair market valuation of its Common Stock. Accordingly, in 1993 the Company 30 reversed all previously accrued employee stock compensation expense of $8 million, resulting in a decrease in selling, general and administrative expenses, as a percent of net sales, to 8.2% in 1993 from 8.5% in 1992. Excluding the effects of employee stock compensation from both years, selling, general and administrative expenses, as a percent of net sales, would have increased slightly in 1993 to 8.8% from 8.4% for 1992. Goodwill Write-Off. As further described below, low industry operating rates and aggressive competitive pricing among tissue producers resulting from the 1991-1992 recession, additions to industry capacity and other factors adversely affected tissue industry operating conditions and the Company's operating results beginning in 1991 and through the third quarter of 1993. Declining selling prices. Although sales volume increased, industry pricing was very competitive due to the factors discussed below. The Company's average domestic net selling prices declined by approximately 5% in each of 1991 and 1992. Commercial market price increases attempted in mid-1992 were not achieved as commercial market pricing fell to pre-price increase levels in the fourth quarter of 1992 and fell again in the first quarter of 1993, periods of seasonally lower volume shipments. Average net selling prices held flat from the first quarter of 1993 to the second quarter of 1993 and increased from the second to the third quarter of 1993. However, in spite of introductions of net selling price increases in each of the first three quarters of 1993, average net selling prices for the first nine months of 1993 were below average net selling prices for the same period in 1992. Pricing in the Company's international markets declined significantly over this time period as well. Industry Operating Rates. Based on publicly available information, including data collected by the American Forest & Paper Association ("AFPA"), industry capacity additions in 1990 through 1992 significantly exceeded historic capacity addition rates. Such additions and weak demand caused industry operating rates to fall to very low levels in 1991 and 1992 in comparison to historic rates. Tissue industry operating rates increased only slightly during the first nine months of 1993 from the low levels experienced in 1991 and 1992. Announced tissue industry capacity additions through 1995, as reported by the AFPA through the first three quarters of 1993, approximated average industry shipment growth rates after 1990. For the first nine months of 1993, the industry shipment growth rate fell sharply from the already low rates in 1991 and 1992. Consequently, without an improved economic recovery and improved industry demand, tissue industry operating rates were expected to remain at relatively low levels for the near term, adversely affecting industry pricing. Economic Conditions. The 1991-1992 recession and weak recovery adversely affected tissue market growth. Job formation is an important stimulus for growth in the commercial tissue market where approximately two-thirds of the Company's domestic tissue sales are targeted. From 1990 through the first nine months of 1993, job formation was weak and was projected to improve only slightly in 1994. Accordingly, demand growth was weak in 1991, 1992 and in the first nine months of 1993, and did not appear to offer any substantial relief to the outlook for industry operating rates and pricing for the near term. Gross Margins. The Company's gross margins steadily declined in 1991, 1992 and 1993 as a result of the three factors noted above. In the first nine months of 1993, the Company's gross margins were also affected by increased wastepaper costs as prices for wastepaper grades utilized by the Company returned to pre-recession levels. As a result of these conditions, the Company expected that the significant pricing deterioration experienced in 1991 through mid-1993 would be followed by average annual price increases that approximated the Company's annual historical price increase trend for the years 1984 through 1993 of approximately 1% per year. Accordingly, during the second quarter of 1993, the Company commenced an evaluation of the carrying value of its goodwill for possible impairment. The Company revised its projections as of September 30, 1993 and concluded its evaluation in the third 31 quarter of 1993 determining that its forecasted cumulative net income before goodwill amortization was inadequate to recover the future amortization of the Company's goodwill balance over the remaining amortization period of the goodwill. For a more detailed discussion of the methodology and assumptions employed to assess the recoverability of the Company's goodwill, refer to Note 4 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. Operating Income (Loss). As a result of the goodwill write-off, the Company's operating loss was $1,717 million for 1993 compared to operating income of $271 million for 1992. Excluding amortization of goodwill, the goodwill write-off and the reversal of employee stock compensation expense from 1993 and 1992 results, operating income declined to $299 million for 1993 from $328 million for 1992. Income Taxes. The income tax credit for 1993 principally reflects the reversal of previously provided deferred income taxes. The income tax credit for 1992 reflects the reversal of previously provided deferred income taxes related to domestic tissue operations offset almost entirely by foreign income taxes. Extraordinary Loss and Accounting Change. The Company's net loss in 1993 was increased by an extraordinary loss of $12 million (net of income taxes of $7 million) representing the write-off of unamortized deferred loan costs associated with the repayment of $250 million of indebtedness under the 1993 Term Loan, the repurchase of all the 14 5/8% Debentures and the repurchase of $50 million of the 12 3/8% Notes. The net loss for 1992 was increased by the Company's adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). The cumulative effect on years prior to 1992 of adopting SFAS No. 106 is stated separately in the Company's unaudited condensed consolidated statement of income for 1992 as a one-time, after-tax charge of $11 million. Net Loss. For 1993, the Company's net loss increased, principally due to the goodwill write-off, to $2,052 million compared to $80 million for 1992. FINANCIAL CONDITION Year Ended December 31, 1994 During 1994, cash increased $195,000. Capital additions of $84 million and debt repayments of $759 million, including the prepayment of $100 million of the 1988 Term Loan, the repurchases of all outstanding 12 3/8% Notes and of $238 million of the 12 5/8% Debentures, a reduction in the 1988 Revolving Credit Facility and the purchase of interest rate cap agreements for $10 million were funded by cash provided from operations of $125 million and net proceeds of the sale of 8 1/4% Notes and 9% Notes of $728 million in February 1994. Receivables increased $17 million during 1994 due principally to higher net selling prices in the domestic tissue and wastepaper brokerage operations and sales volume increases in domestic tissue operations in the fourth quarter of 1994. The $13 million increase in inventories in 1994 resulted from increases in inventory quantities to improve service levels and the revaluation of inventories to reflect higher manufacturing costs. The liability for interest payable increased $29 million due to a change in interest payment schedules resulting from the 1994 debt repurchases from the net proceeds of the sale of the 8 1/4% Notes and 9% Notes in 1994 and for the liability with respect to the 14 1/8% Debentures for interest accruing in cash commencing on November 1, 1994. As a result of all these changes, the net working capital deficit increased to $98 million at December 31, 1994, from a deficit of $92 million at December 31, 1993. The $15 million increase in long-term other liabilities in 1994 principally reflects the classification of $18 million of the environmental charge taken in the fourth quarter as a long-term liability. Deferred and other long-term income taxes declined $34 million from 1993 to 1994 principally due to the reversal of deferred income taxes related to continuing operations and the extraordinary item. 32 Cash provided from operations declined in 1994 compared to 1993 principally due to increased interest payments resulting from the 1993 repurchases of all outstanding 14 5/8% Debentures (which accrued interest in kind) from the net proceeds of the sale of the 9 1/4% Notes and 10% Notes in 1993 (which accrue interest in cash) and higher floating interest rates. Cash provided from operations was further impacted by the increase in receivables. Year Ended December 31, 1993 During 1993, cash increased $39,000. Capital additions of $166 million and debt repayments of $841 million, including the prepayment of $250 million of the 1988 Term Loan, the repurchase of all outstanding 14 5/8% Debentures, and the repurchase of $50 million of the 12 3/8% Notes, were funded principally by cash provided from operations of $151 million, net proceeds from the sale of the 9 1/4% Notes and 10% Notes of $729 million, net proceeds of the 1993 Term Loan of $95 million, borrowings of $28 million under the 1988 Revolving Credit Facility and borrowings of $9 million by Fort Sterling Limited ("Fort Sterling"), the Company's United Kingdom tissue operations subsidiary, under its credit agreements. Inventories and interest payable increased $17 million and $22 million, respectively, during 1993. The Company increased inventories principally to improve its service levels, and secondarily due to the effects of lower volume resulting from increases in net selling prices in the third quarter of 1993, immediately preceding a period of seasonally lower volume. Interest payable increased in 1993 principally due to the repurchase of all outstanding 14 5/8% Debentures (which accrued interest in kind) from the net proceeds of the sale of the 9 1/4% Notes and 10% Notes (which accrue interest in cash). The net working capital deficit declined $32 million from $124 million at December 31, 1992 to $92 million at December 31, 1993, principally due to a $25 million reduction in the current portion of long-term debt as a result of lower current maturities under the 1988 Term Loan. Liquidity and Capital Resources; The Recapitalization The Company's principal uses of cash for the next several years will be interest and principal payments on its indebtedness and capital expenditures. The Company is implementing the Recapitalization to prepay or redeem a substantial portion of its indebtedness in order to reduce the level and overall cost of its debt, extend certain maturities, increase shareholders' equity and enhance its access to capital markets. The Recapitalization includes the following primary components: (i) the Offering; (ii) the Bank Refinancing and (iii) the 1995 Debt Redemptions. Proceeds of the Recapitalization will be used to prepay or redeem all of the Company's remaining indebtedness under its 1988 Bank Credit Agreement, the Senior Secured Notes, the 1993 Term Loan, the 12 5/8% Debentures and the 14 1/8% Debentures. After giving effect to the Recapitalization, on a pro forma basis as of December 31, 1994, the Company would have had approximately $3,050 million of long-term debt outstanding. Following the Recapitalization, the Company will have estimated repayment obligations of $9 million in 1995, $60 million in 1996, $115 million in 1997, $138 million in 1998 and $153 million in 1999 (and increasing thereafter). In addition, there may be additional required payments under the New Bank Credit Agreement out of excess cash flow, if any, and from proceeds of asset sales, if any. See "Description of Certain Indebtedness--The New Bank Credit Agreement." Capital expenditures were $84 million, $166 million and $233 million in 1994, 1993 and 1992, respectively, including an aggregate of over $350 million during those periods for capacity expansions. Subject to market conditions and the successful completion of the Recapitalization, the Company's current plans to support growth in domestic tissue shipments include adding one world-class (270-inch) tissue paper machine over the next five years and the start up of another dry form machine in the next few years. The New Bank Credit Agreement will impose limits for domestic capital expenditures, with certain exceptions, of $75 million per year. The Company will also be permitted to spend up to $250 million for domestic expansion projects including, without restriction, an additional tissue paper 33 machine at one of its existing domestic mills. Other domestic expansion projects are restricted unless the Company's ratio of Consolidated EBITDA to Consolidated Interest Expense (as such terms are defined in the New Bank Credit Agreement) exceeds certain amounts. In addition, the Company will be permitted to make capital expenditures for international expansion of up to $40 million through June 30, 1996, and up to $100 million in the aggregate after June 30, 1996 if the Company's ratio of Consolidated EBITDA to Consolidated Interest Expense exceeds certain amounts. Under the New Bank Credit Agreement, the Company may carry over to one or more years (thereby increasing the scheduled permitted limit for capital expenditures in respect of such year) the amount by which the scheduled permitted limit for each year (beginning with fiscal year 1995) exceeded the capital expenditures actually made in respect of such prior year. The Company does not believe such limitations will impair its plans for capital expenditures. Capital expenditures are projected to approximate $55 to $75 million annually for the next several years, plus $225 million of domestic expansion capital spending that is subject to market conditions and the successful completion of the Recapitalization. The portion of the above capital expenditures which are attributable to environmental matters is described in "Business--Environmental Matters." The 1995 Revolving Credit Facility will mature on the seventh anniversary of the completion of the Offering. Assuming the Recapitalization is consummated on March 15, 1995, the Company expects to have $119.1 million in available capacity under the 1995 Revolving Credit Facility. Assuming the Recapitalization is completed in March 1995, approximately $1.4 billion of the Company's outstanding indebtedness is expected to bear interest at floating rates. The Company's policy is to enter into interest rate cap and swap agreements as a hedge to effectively fix or limit its exposure to floating interest rates to, at a minimum, comply with the terms of its senior secured debt agreements. The Company is a party to LIBOR-based interest rate cap agreements which limit the interest cost to the Company with respect to $500 million of floating rate obligations to 6% plus the Company's borrowing margin until June 1, 1996, and to 8% plus the Company's borrowing margin from June 1, 1996 to June 1, 1999. The Company monitors the risk of default by the counterparties to the interest rate cap agreements and does not anticipate nonperformance. See Note 8 to the Company's audited consolidated financial statements included elsewhere in this Prospectus for additional information concerning these agreements. The limitations contained in the New Bank Credit Agreement and in the Company's indentures on the ability of the Company and its subsidiaries to incur indebtedness, together with the highly leveraged position of the Company, could limit the Company's ability to effect future financings and may otherwise restrict corporate activities, including the Company's ability to respond to market conditions, to provide for unanticipated capital expenditures (including capital expenditures for environmental matters) or to take advantage of business opportunities which may arise or to take actions that require funds in excess of those available to the Company. However, the Company believes that cash provided by operations, unused borrowing capacity under the 1995 Revolving Credit Facility and access to financing in public and private markets will be sufficient to enable it to fund capital expenditures (including planned capital expenditures for environmental matters) and meet its debt service requirements for the foreseeable future. Assuming a favorable resolution of the U.S. Tax Court appeal discussed in "Business--Legal Proceedings," the Company will have approximately $131 million of net operating loss ("NOL") carryforwards as of December 31, 1994 for federal income tax purposes which expire as follows: $11 million in 2007, $47 million in 2008 and $73 million in 2009. The aggregate amount of net operating loss carryforwards available to the Company as of December 31, 1994 could be reduced to approximately $71 million if the U.S. Tax Court decision is affirmed. Further, under the Internal Revenue Code of 1986, as amended (the "Code"), the utilization of NOL carryforwards against future taxable income is potentially limited if the Company experiences an "ownership change," as defined in the Code. The Company believes that it will not experience an ownership change in connection with the Offering or that, if it does, the resulting limitation on NOL carryforward utilization is not expected to 34 have a significant effect on the Company's financial condition or on its results of operations. It is possible, however, that following the Offering, future events (such as transfers of Common Stock by shareholders, or certain Common Stock issuances) could cause an ownership change which under the circumstances at that time could result in a limitation on the Company's ability to utilize NOL carryforwards existing at such time to offset future taxable income. Refer to Note 7 to the audited consolidated financial statements included elsewhere in this Prospectus for a description of certain matters related to income taxes. See "Business--Legal Proceedings." Seasonality During the years ended December 31, 1994, 1993, and 1992, a slightly higher amount of the Company's revenues and EBITDA have been recognized during the second and third quarters. Following the Recapitalization, the Company expects to fund seasonal working capital needs from the 1995 Revolving Credit Facility. 35 BUSINESS THE COMPANY Founded in 1919, Fort Howard is a leading manufacturer, converter and marketer of sanitary tissue products, including specialty dry form products, in the United States and the United Kingdom. Its principal products, which are sold in the commercial (away-from-home) and consumer (at-home) markets, include paper towels, bath tissue, table napkins, wipers and boxed facial tissue manufactured from virtually 100% recycled fibers. The Company believes that it is the leading producer of tissue products in the domestic commercial market with a 26% market share and has focused two-thirds of its capacity on this faster growing segment of the tissue market. In the domestic consumer market, where the Company has a 9% market share, its principal brands include Mardi Gras printed napkins (which hold the leading domestic market position) and paper towels, Soft 'N Gentle bath and facial tissue, So-Dri paper towels, Page paper towels, bath tissue and table napkins, and Green Forest, the leading domestic line of environmentally positioned, recycled tissue paper products. Fort Howard also manufactures and distributes its products in the United Kingdom where it currently has the fourth largest market share primarily in the consumer segment of the market. INDUSTRY OVERVIEW United States Demand According to statistics compiled by the AFPA, sanitary tissue paper converted product shipments in the United States were approximately 5.4 million tons in 1994. Shipments to the commercial and consumer markets represent approximately 37% and 63% of total shipments, respectively. Historically, sanitary tissue demand as evidenced by product shipments has fluctuated somewhat less than demand in the paper industry overall. Although the rate of growth in tissue market shipments slackened during the industry's recessionary period between 1991 and 1993, tissue market shipments continued to grow because of population growth, which has a stabilizing effect on demand. Total domestic tissue shipments grew from 4.1 million tons in 1984 to 5.4 million tons in 1994 for a compound annual growth rate of 2.4%. The Company believes that except in recessionary years, commercial market shipment growth rates have generally exceeded consumer market shipment growth rates. The Company also believes that, because of the increasing number of dual income households, more frequent travel and recreation and longer life expectancy, which result in increased use of away-from-home facilities, the commercial market will continue to grow faster on average than the consumer market. Shipments tend to be stronger in the second and third quarters because of seasonal demand. 36 The following table shows sanitary tissue paper converted product shipments in the United States for the years indicated according to the AFPA.
1984-1994 COMPOUND ANNUAL GROWTH 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 RATE ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- (TONS IN THOUSANDS) Commercial(1)............. 1,522 1,554 1,576 1,671 1,783 1,918 1,971 1,987 2,012 2,003 1,961 2.6% Consumer.................. 2,716 2,718 2,820 2,846 2,903 2,992 3,025 3,080 3,176 3,268 3,395 2.3% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total.................. 4,238 4,272 4,396 4,517 4,686 4,910 4,996 5,067 5,188 5,271 5,356 2.4% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
- ------------ (1) Club warehouse production and shipments are not separately reported to the AFPA. Prior to 1994, AFPA member companies reporting tissue production and shipments to the AFPA ("Reporting Companies") had varying practices with respect to classifying reported shipments to club warehouses as either commercial market or consumer market shipments. Although Fort Howard reported all shipments to club warehouses as commercial market shipments prior to 1994, it is unclear what practices had been followed by other Reporting Companies. During 1993, it appeared that certain Reporting Companies had changed their reporting of club warehouse shipments. Accordingly, beginning in 1994, Reporting Companies were requested by the AFPA to classify reported shipments to club warehouses as either commercial market or consumer market shipments based on Reporting Companies' estimates of whether the finished product was used in the commercial or consumer market. The Company believes that the decreases in commercial market shipments in 1993 and 1994 are attributable to reclassifications of reported club warehouse shipments between the commercial and consumer markets as described in footnote (1) above. Consequently, while total tissue shipment growth as reported by the AFPA was 1.6% in each of 1994 and 1993, the Company believes that shipment growth rates in the commercial and consumer markets in 1993 and 1994 as reported by the AFPA may not reflect actual shipments in the respective markets and that the long-term compound annual growth rates may not reflect actual trends for the respective markets. Commercial Market. In the commercial market, domestic tissue shipments grew from 1.5 million tons in 1984 to 2.0 million tons in 1994 for a compound annual growth rate of 2.6%. The Company believes that shipment growth rates in the commercial market are affected principally by job formation, the strength of other cyclical economic variables and changing demographic and socio-economic trends. For the three-year period prior to 1990, commercial tissue shipments showed strong growth as a result of favorable economic conditions and strong job formation during the period. From 1990 through 1993, job formation was weak and unemployment was high, adversely affecting commercial tissue market shipments during this period. According to U.S. Department of Labor statistics, in late 1993 and in 1994, job formation began to improve. To the extent economic recovery continues, the Company believes that job formation should provide an important stimulus for commercial market demand. The commercial market is comprised of a few large tissue producers that have large market positions and a significant number of small, regional manufacturers. While the full range of premium, value and economy products exist in this market, the value and economy ranges of products are predominant in the commercial market. The Company believes that advertising does not have a significant influence on commercial demand. Consumer Market. In the consumer market, domestic tissue shipments grew from 2.7 million tons in 1984 to 3.4 million tons in 1994, for a compound annual growth rate of 2.3%. The Company believes that shipment growth rates in the consumer market are principally affected by population growth trends and general economic conditions including the level of consumer confidence. The consumer market is comprised of a few large, mostly branded premium product manufacturers that actively advertise to stimulate consumer demand for their products. The product range in this market covers branded premium products (45% of market), branded value products (39%) and private 37 label products (16%). Discount retailers have been emphasizing the development of private label products to achieve higher gross margins and to lower retail shelf prices to appeal to increasingly price conscious consumers. Capacity For the ten years ended December 31, 1989, tissue industry capacity grew at a 1.8% average annual growth rate and operating rates remained at a relatively strong average level of 92.0%. The Company believes that tissue industry operating rates of approximately 92-93% represent balanced supply and demand in the tissue market. Tissue industry operating rates peaked at 97.0% in 1989. Subsequently, tissue industry capacity additions in 1990 through 1992 significantly exceeded historic capacity addition rates. At the same time, commercial demand slackened due to the recession. These and other factors caused annual operating rates to fall to a low of 89.8% in 1992. Tissue industry operating rates have increased from the low levels experienced in 1992 and were at 91.7% for 1994. Tissue industry operating rates in 1995 and future years will depend upon the level of demand and capacity growth. Taking into account announced tissue papermaking capacity additions and normal population growth, the Company believes that the rate of capacity growth in 1995, 1996 and 1997 will fall short of the demand increase, resulting in higher industry operating rates for the period. Pricing Since 1983, pricing has correlated strongly with the levels of industry operating rates. The high level of growth in tissue industry capacity from 1990 through 1992, coupled with the weakening commercial demand resulting from the recession and competitive new product introductions in the consumer market, caused industry operating rates and pricing to fall. Although specific industry pricing information is not available, the Company believes that industry pricing fell in each of 1991 and 1992 and may have fallen in 1993. In the commercial market, three industry price increases were introduced in 1993 and two were introduced in April and mid-October 1994. The Company believes that retail shelf prices in the consumer market improved slightly in 1993 and 1994, but remained competitive. Overall domestically, the Company realized average price increases of 5% for the year ended December 31, 1994 as compared to 1993. Because a substantial portion of commercial sales are pursuant to contracts which generally specify pricing over periods of three months to one year, there is a time lag before the full benefit of commerical market price increases are realized. The Company believes that growing market shipments resulting from normal population growth, together with a reduced rate of announced capacity growth, will result in higher industry operating rates in 1995, 1996 and 1997. In addition, as further discussed below, because market pulp and wastepaper prices may continue to increase, the Company believes tissue producers will seek to increase prices to maintain profitability. As a result of these factors, during the fourth quarter of 1994, the Company announced further price increases for the commercial and consumer markets effective in January 1995, and while there can be no assurance that pricing will continue to increase, the Company believes that additional price increases are likely in 1995. Raw Material Supply Fiber, which constitutes the principal raw material for making paper, is obtained either by processing virgin wood pulp or by de-inking and processing wastepaper. The Company estimates that approximately 44% of domestic total tissue production in 1993 was manufactured using wastepaper. In 1993, the latest year for which independent industry data is available, 91 million tons of wastepaper were generated in the United States of which 36 million tons were collected for recycling (including 6 million tons that were exported), 36 million tons were put into landfills and 19 million tons were incinerated or otherwise disposed of. Different grades of wastepaper are available from different sources. For example, newsprint is primarily generated by curb-side collection, corrugated containers by 38 retailers and mid to higher-grade papers by printers and through the collection of office wastepaper. Although virtually any grade of wastepaper can be used in some form of tissue production, generally only mid to higher grades of wastepaper, representing about one-third of recycled wastepaper in 1993, are used in tissue production. Historically, most large tissue manufacturers have had integrated virgin wood pulp operations and have therefore been less dependent upon market pulp for their wood pulp requirements. Recently, some large tissue producers have sold or announced an intent to consider the sale of their pulp operations and, accordingly, tissue producers increasingly are or may become more dependent on market pulp for their wood pulp requirements. According to statistics compiled in independent industry reports, the following table shows the price per ton for wastepaper and market pulp for the periods indicated. Wastepaper prices are not directly comparable to market pulp prices because wastepaper yields are generally lower than market pulp yields, wastepaper processing costs are generally higher than those associated with market pulp and market pulp prices are widely reported per metric ton while wastepaper prices are widely reported per the smaller short ton.
1989 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- ---- Market pulp per metric ton(a)......................... $830 $765 $500 $570 $415 $700 Wastepaper per short ton(b)........................... $106 $ 80 $ 67 $ 81 $ 86 $176
- ------------------- (a) Year-end market prices per metric ton for Northern Bleached Softwood Kraft. (b) Year-end market prices per short ton for Coated Book. The market price trends for this wastepaper grade are representative of the percentage price changes experienced by the Company over the period 1990 through 1994 for the grades of wastepaper used by the Company. The market price trends for Coated Book may not be representative of future price trends for the grades of wastepaper Fort Howard uses. In addition, the market prices shown in this table are not necessarily indicative of Fort Howard's or any other tissue manufacturer's actual wastepaper costs, which will depend on the particular grades of wastepaper used.
Beginning in the third quarter of 1994, wastepaper prices for de-inking grades utilized by tissue producers increased significantly. Wastepaper prices may increase further because of increased demand resulting from substantial additions of de-inking and recycling capacity in the paper industry which are expected to come on line during 1995 and 1996, increasing market pulp prices and other factors. Since late 1993, market pulp prices also have increased sharply as a result of increased demand. The Company expects market pulp prices to continue to increase due to worldwide tightening supply/demand conditions for market pulp. For the month of February 1995, the average market prices for Northern Bleached Softwood Kraft pulp and Coated Book wastepaper increased to $750 per metric ton and $213 per short ton, respectively. Historically, as market pulp and wastepaper prices increase, tissue producers have sought to increase prices to maintain profitability. United Kingdom General The tissue market in the United Kingdom is roughly one-eighth the size of the U.S. market or approximately 684,000 tons in 1993. The commercial market represents approximately one-third of the total market and the consumer market represents approximately two-thirds. Fort Sterling's operations are primarily in the consumer market. Because no definitive industry reports covering the U.K. market are available, the following information is based in part on reports commissioned by the Company and on the Company's estimates. Demand Total U.K. tissue shipments increased from 540,000 tons in 1983 to 684,000 tons in 1993 for a compound annual growth rate of 2.4%. In the consumer market, U.K. tissue shipments grew from 39 361,000 tons in 1983 to 458,000 tons in 1993 for a compound annual growth rate of 2.4%. In the commercial market, U.K. tissue shipments increased from 179,000 tons in 1983 to 226,000 tons in 1993, for a compound annual growth rate of 2.4%. Growth in the U.K. commercial market is affected by the same factors that affect growth in the U.S. commercial market. The U.K. commercial market has been growing at the same rate as the consumer market. In comparison to the U.S. commercial market, the commercial market in the U.K. has an underdeveloped distribution network and more limited product penetration, thereby offering opportunities for improved shipment growth. Fort Sterling is one of the four largest tissue producers in the U.K. and has the fourth largest market share of the total tissue market. The U.K. tissue market is characterized by low consumption of paper towels and table napkins as compared to the U.S. tissue market. Private label products command an equal and growing consumer market share compared to branded products. Private label products are more likely to be premium quality/high priced than economy/value priced. However, beginning in late 1992, as Europe began to experience a recession and as U.K. grocery price competition increased due to the emergence of grocery discounters and the introduction of club warehouses to the U.K. market, U.K. consumers began to move more heavily to economy products. From 1991 to 1993, the market share of grocery discounters in the consumer grocery market increased from 8% to 15%. The Company believes that shipment growth rates in the consumer market are principally affected by population growth trends, and to a lesser extent, changing consumption habits as the acceptance and use of paper towels and table napkins develops further. Capacity For the period from 1983 to 1993, U.K. tissue papermaking capacity grew at a compound annual growth rate of 2.6% to 668,000 tons from 518,000 tons. Taking into account waste on conversion to finished products of 6%-9%, U.K. tissue papermaking capacity falls significantly short of U.K. tissue consumption. Unlike the U.S. market, there are a large number of small, partially integrated or non-integrated tissue converters that purchase parent rolls (unconverted rolls of finished tissue) and hold a combined U.K. market share of tissue shipments of approximately 25%. Also, all the large U.K. tissue manufacturers, with the exception of Fort Sterling, purchase significant quantities of market pulp or parent rolls because there is no U.K. timber harvesting to support fully integrated, virgin wood pulp production. Taking into account announced papermaking capacity shut-downs and additions, as well as an anticipated modest consolidation of independent tissue converters, the Company expects supply conditions to tighten in 1995, 1996 and 1997. Pricing U.K. retailers have engaged in increasingly competitive pricing activity in 1993 and 1994 across a broad range of consumer products, including sanitary tissue paper products, due in part to the greater penetration of large discount chains, the entry of club warehouse chains from the U.S. and the recession in the U.K. As a result, tissue prices have declined significantly in the U.K. from 1992 through late 1994. Consumer and commercial market price increases were announced by Fort Sterling effective late in the fourth quarter of 1994 and another consumer market price increase was announced effective late in the first quarter of 1995. Although there can be no assurances, due to expected tightening supply conditions in 1995 and 1996, an improving U.K. economy and recent pressure on worldwide prices for market pulp and wastepaper, the Company believes that further price increases are likely in 1995. Raw Material Supply Market pulp and wastepaper supply and demand and cost trends in the U.K. are substantially similar to those in the United States. 40 STRATEGIC POSITION For the past 20 years Fort Howard has maintained annual EBITDA margins in excess of 30%, approximately double those publicly reported by the Company's competitors over the past five years. At the same time, the Company has achieved strong market share growth on the basis of its position as a low cost producer in the markets in which it competes. From 1984 to 1994, the Company has doubled its production capacity by constructing world-class, integrated, regional tissue mills which utilize the Company's proprietary de-inking technology to produce quality tissue from a broad range of wastepaper grades. These mills enable the Company to produce low cost, quality tissue products because they: (i) include state-of-the-art wastepaper de-inking and processing systems that process relatively low grades of wastepaper to produce low cost fiber for making tissue paper; (ii) contain eight of the eleven largest (270-inch) tissue paper machines in the world, which significantly increase labor productivity; (iii) are geographically located to minimize distribution costs; (iv) generate their own steam and electrical power and (v) manufacture certain of their own process chemicals and converting materials. The Company currently believes that pricing and demand in the tissue sector of the paper industry are beginning to improve. This improvement comes after an unprecedented period of depressed industry pricing over the past three years, which led the Company to write off its remaining goodwill balance of $1.98 billion in the third quarter of 1993. See "--Industry Overview," "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and the Company's audited consolidated financial statements included elsewhere in this Prospectus. The Company introduced three price increases in the commercial market in 1993 and two further increases in April 1994 and mid- October 1994. The Company believes that retail shelf prices in the consumer market improved slightly in 1993 and 1994, but remained competitive. Overall domestically, the Company realized average price increases of 5% for the year ended December 31, 1994 as compared to 1993. Further price increases were announced for the commercial and consumer markets effective in January 1995. Because a substantial portion of the Company's commercial market sales are pursuant to contracts which generally specify pricing over periods of three months to one year, there is a time lag before the Company realizes the full benefit of commercial market price increases. Taking into account announced tissue papermaking capacity additions and normal population growth, the Company believes that the rate of capacity growth in 1995, 1996 and 1997 will fall short of the demand increase, resulting in higher industry operating rates for the period. In addition, industry costs for market pulp and wastepaper have recently begun to increase sharply. Historically, as market pulp and wastepaper prices increase, tissue producers have sought to increase prices to maintain profitability. Accordingly, while there can be no assurance that pricing will continue to increase, the Company believes that in addition to the Company's price increases announced for the commercial and consumer markets for January 1995, further price increases are likely in 1995. BUSINESS STRATEGY Fort Howard's business strategy is focused on increasing its profitability by maintaining and enhancing its position in the United States and internationally. The Company's strategy involves: Maintaining Position as Low Cost Producer. Fort Howard is committed to maintaining its position as a low cost producer of tissue products in the markets in which it competes. The Company believes that its use of wastepaper for substantially all of its fiber requirements and, in particular, its increasingly effective consumption of lower cost wastepaper grades without sacrificing end product quality, are key components of its low cost producer strategy. Over the last ten years, because of continuous improvements in its proprietary de-inking process, Fort Howard has been able to shift significantly the mix of wastepaper to lower cost grades, thereby achieving substantial cost savings. In addition, Fort Howard owns a wastepaper brokerage company which provides it with access to sources of supply and market information for all grades of wastepaper. 41 The Company believes that it has a competitive advantage because of the Company's proprietary de-inking technology and know-how and the substantial capital investment in new equipment and technologies required by competitors to achieve operating income margins comparable to those of the Company. The Company's annual capital spending program for 1995, 1996 and 1997 includes significant amounts for the ongoing modernization of its mills, including the addition of a new coal-fired boiler in Savannah, productivity projects and continued development of improved de-inking technologies, all of which should produce additional cost savings in the near term. See "Operations--Domestic Tissue." Sustaining Growth in Commercial Market Shipments and Market Share. Approximately two-thirds of the Company's tissue shipments are to the commercial market. Fort Howard intends to continue its focus on the commercial market which has grown at a 2.6% compound annual growth rate for the decade ending December 31, 1994, compared to the consumer market which has grown at a 2.3% rate during the same period. The commercial market is expected to continue to grow at a faster rate. The Company intends to use its leading commercial market share position to capture incremental growth in the commercial market by focusing on increased sales to large distributors and national accounts, by emerging as a major supplier to club warehouses and by expanding its specialty dry form business as described below: Increasing Sales to Large Distributors and National Accounts. The Company has developed an aggressive sales team of over 200 salaried representatives that is focused on meeting the special requirements of large distributors and national accounts in the foodservice, health care, lodging, buildings and industrial subsegments of the commercial market. Such requirements include, for example, the ability to offer a full line of tissue products, strict sanitary production requirements, the ability to service locations nationwide, Electronic Data Interchange ("EDI") capabilities, and superior on-time and complete order shipping performance. The Company believes it is well-positioned to increase sales to these key customers as demand improves. Improving Position With Club Warehouses. The growing patronage of club warehouses represents an important growth opportunity for the Company. Its newly organized club warehouse sales and marketing team focuses on the special requirements of these customers, including unique product specifications, packaging sizes and design, palletized distribution, EDI capabilities, the ability to service locations nationwide, superior on-time and complete order shipping performance and the ability to grow rapidly to support new warehouse openings. The Company is relatively new to club warehouse distribution and still underrepresented in this distribution channel. The Company, however, has increased its volume in this channel substantially during the last three years. Expanding Specialty Dry Form Business. Fort Howard maintains the leading market position in the domestic production of dry form paper, the principal base fiber for baby wet wipes and a key component for feminine hygiene products. The Company believes the growth rate for the baby wet wipe industry to date has exceeded the growth rate of the tissue industry as a whole. Subject to market conditions and the successful completion of the Recapitalization, the Company's current plans are to start-up its third dry form machine in the next few years to meet the demand in this rapidly expanding market. Sustaining Growth in Consumer Market Shipments and Market Share. The Company is continuing to grow its share in the domestic consumer market and has developed the leading branded napkin, Mardi Gras, the leading environmental brand of tissue products, Green Forest, and the leading private label market share. Management expects the value segment of the 3.4 million ton consumer market, a part of the market in which the Company competes, to grow at a faster rate than the premium brand segment of that market as consumers become more value 42 conscious. The Company continues to work toward full national distribution and greater market penetration of its key value brands Soft 'N Gentle, Mardi Gras, Green Forest and So-Dri and has recently added a distribution center to serve customers in California. The Company seeks to offer its retailers margins which are among the highest in the trade and emphasizes promotional spending rather than advertising. The Company's strategy of expanding its private label market share should also enable it to benefit from the continuing growth in the value segment of the consumer market. Expanding Internationally. The Company views expansion of its international operations as an increasingly important component of its long-term business strategy and intends to focus on the following: Sustaining Growth in U.K. Shipments and Market Share. Management believes that its commercial market share in the United Kingdom is underdeveloped and that its experience in building its commercial market share in the U.S. can continue to be applied to improve results in the United Kingdom. In addition to consolidating its commercial brands, Fort Sterling is acquiring new converting capacity to fill key gaps in its napkin and wiper product lines in an effort to achieve full penetration of the foodservice channel. Fort Sterling also has restaged its Nouvelle bath tissue with enhanced attributes and is consolidating its other consumer branded products. Expanding into New International Markets. The Company also believes that significant opportunities may exist for additional growth by applying its low cost producer technology to international markets outside of the United Kingdom. The Company is exploring new international markets in Asia and Latin America whose size, competitive profile and end use tendencies will allow it to capitalize on its proprietary de-inking technologies and its experience in the United Kingdom. Improving Financial Flexibility. The Company has undertaken the Recapitalization to improve its operating and financial flexibility by reducing the level and overall cost of its debt, extending maturities of indebtedness, increasing shareholders' equity and enhancing its access to capital markets. In addition, as a result of the Recapitalization, the Company believes that it will be able to execute better its strategy and take advantage of growth opportunities. The Company's current plans to support growth in domestic tissue shipments include, subject to market conditions and the successful completion of the Recapitalization, adding one world-class (270-inch) tissue paper machine over the next five years. Any such expansion would only be undertaken after a careful evaluation of industry capacity conditions. The Company believes that this rate of expansion will contribute to improved long-term tissue industry operating conditions. DOMESTIC TISSUE OPERATIONS Fort Howard produces its domestic tissue products at three facilities: its original facility in Green Bay, Wisconsin; its Muskogee, Oklahoma mill constructed as a greenfield site which commenced papermaking production in 1978; and its greenfield mill near Savannah, Georgia which commenced production in 1987. Each of these facilities is a world-class, fully integrated tissue mill that can de-ink and process fiber from low cost wastepaper to provide virtually all of the mill's tissue fiber. In addition, each mill contains at least two 270-inch tissue paper machines, is geographically located to minimize distribution costs to its regional markets, produces all its steam and electrical power, manufactures some of the chemicals used in whitening tissue fiber and some of its converting materials, and converts, prints and packages Fort Howard's tissue products. Fort Howard has installed eight of the eleven largest (270-inch) tissue paper machines in the world which provide long-term productivity advantages. Approximately 90% of Fort Howard's domestic 43 production comes from tissue paper machines capable of making 50,000 tons or more annually, whereas the Company believes that less than one-quarter of competitors' production comes from machines with a capacity of 50,000 tons or more. Approximately 50% of Fort Howard's papermaking capacity came on-line during the last 10 years, while the Company believes that approximately three-quarters of competitors' tissue paper machines in the U.S. were built over 10 years ago, with approximately one-third over 30 years old. Because tissue paper machines are often operated for over 50 years, the Company believes that its new large machines offer a long-term competitive advantage. In addition, with each new capacity expansion, Fort Howard installed new, world-class supporting equipment consisting of large scale wastepaper processing and cleaning systems and converting equipment that provide further productivity advantages. Facilities. In Green Bay, Wisconsin, the Company operates nine tissue paper machines, including two world-class 270-inch tissue paper machines completed in 1984 and 1992. In addition, the Green Bay mill contains two dry form machines which commenced operation in 1978 and 1989. Although the Green Bay mill is the Company's original facility, having commenced production in 1920, it is well maintained, includes virtually all of Fort Howard's latest technologies and equipment and is cost competitive with the Company's newer facilities. The Company's Muskogee, Oklahoma mill contains a new 270-inch tissue paper machine which was added during the first quarter of 1994, and another 270-inch and three 200-inch tissue paper machines which were installed between 1978 and 1985. Fort Howard's greenfield mill located near Savannah, Georgia contains four 270-inch tissue paper machines that commenced production in 1987, 1988, 1989 and 1991. Each of the Company's mills also includes a coal-fired cogeneration power plant capable of producing all of the mill's steam and electricity, a modern de-inking and pulp processing plant that processes virtually all of the mill's fiber requirements from wastepaper, a chemical plant that produces high volume chemicals used in whitening fibers, high speed converting equipment for cutting, folding, printing and packaging paper into the Company's finished products and related facilities and warehousing. The Muskogee mill also includes a polywrap manufacturing plant that processes approximately one-half of the polywrap required by the Company's domestic mills and the Green Bay mill includes a large machine shop that services all the Company's domestic mills. Wastepaper. Fort Howard has led the industry in developing sanitary tissue paper products from recycled wastepaper. Fort Howard uses 100% wastepaper for all but a limited number of dry form and specialty products representing approximately 3% of its volume. Currently, Fort Howard recycles over 1.4 million tons of wastepaper annually into tissue products--about four times as much as any other U.S. tissue company. The Company believes that its use of wastepaper for substantially all of its fiber requirements gives it a cost advantage over its competitors. The Company has developed the largest network for obtaining de-inking grades of wastepaper in the domestic tissue industry. A large portion of its wastepaper requirements is sourced through Harmon Assoc. Corp. ("Harmon"), the Company's 100% owned wastepaper brokerage subsidiary. The remainder of the Company's wastepaper requirements are sourced through an in-house wastepaper purchasing group. As a wastepaper broker, Harmon can accept the total wastepaper generation from a supplier whether or not all the wastepaper is needed to meet Fort Howard's production requirements. This ability effectively increases the sources of supply to Fort Howard. In addition, Harmon's activities in export markets, as well as in grades not usually purchased by Fort Howard, provide the Company with valuable intelligence on trends in the worldwide wastepaper market. The Company also maintains innovative curbside collection programs with several municipalities and enters into contracts with large office complexes to effectively increase its sources of wastepaper supply. Energy. Each of the Company's mills includes a coal-fired cogeneration plant for the production of all its steam, which Fort Howard uses both in manufacturing tissue and in generating virtually all its electricity. The Company believes that its energy cost is significantly lower than the cost of energy 44 available to it from public utilities. In recent years, the Company has installed fluidized bed boilers to burn lower cost coal and petroleum coke efficiently and in conformity with environmental standards. Chemical, Printing and Packaging. The Company operates chemical plants at all three mills to produce some of the whitening agents used in high volumes in processing fiber. The Muskogee mill also operates a plant to process resin into polywrap to supply much of the Company's polywrap needs. The Company's own artists and graphic designers create the many and varied colored print designs for certain of Fort Howard's tissue products. In addition, all the cores and a large percentage of the labels and boxes used in packaging tissue products are manufactured at each mill using Company manufactured or purchased paper and chipboard. Distribution. The Company has geographically sited its tissue mills to serve its largest regional markets in the Midwest, Northeast and Southeast which permits it to ship its products at a low cost. The Company maintains a small number of distribution points enabling it to ship full truckloads of its broad product line at a low cost. The Company uses independent haulers to transport most of its shipments. The Company seeks to maximize the productivity of its haulers by applying a "round trip" transport concept for shipping finished goods out and hauling wastepaper back. The Company's own truck fleet is used to minimize truckload carrying costs to select markets and to handle "rush" shipments to meet customer requirements. Capital Expenditures. The Company has invested heavily in its manufacturing operations. Capital expenditures in the Company's tissue business were approximately $724 million for the five year period ended December 31, 1994, $538 million of which was incurred for capacity expansion projects. In addition, the Company's annual capital spending program includes significant investments for the ongoing modernization of each of its mills. For example, as new de-inking technologies and converting equipment are developed, the Company adds such technology and equipment at each mill to maintain low cost structures. A significant portion of the Company's capital budget since 1985 has been invested in the Savannah mill, which was completed in 1991. Total expenditures for the Savannah mill were $570 million. In 1993, the Company completed an expansion of its Green Bay tissue mill, including the addition of a new tissue paper machine and related environmental protection, pulp processing, converting, and steam generation equipment. The new tissue paper machine at the Green Bay mill commenced production in August 1992. Total expenditures for the expansion project were $180 million. In 1994, the Company completed the installation of a fifth tissue paper machine, environmental protection equipment and associated facilities at its Muskogee tissue mill. Total expenditures for the expansion were approximately $140 million. Research and Development. The Company maintains laboratory facilities with a permanent staff of engineers, scientists and technicians who are responsible for improving existing products, development of new products and processes, product quality, process control and providing technical assistance in adhering to regulatory standards. Continuing emphasis is being placed upon expanding the Company's capability to de-ink a broader range of wastepaper grades, designing new products, further automating manufacturing operations and developing improved manufacturing and environmental processes. Engineering and Maintenance. The Company's internal engineering staff provides the engineering expertise to assist in the designing, constructing, upgrading and maintenance of the Company's tissue mills. The Company's engineering staff has managed the start-up of eight of the world's largest tissue paper machines since 1984, and has designed many vital components of the tissue paper machines, wastepaper processing systems and converting equipment related to these expansions. In addition, the Company's engineers have designed key wastepaper processing and converting equipment which is manufactured in the Company's Green Bay machine shop. The Company's maintenance program at each of its domestic mills emphasizes preventive maintenance to minimize production stoppages. 45 Products Commercial Products. Fort Howard's commercial tissue products include folded and roll towels, bath and facial tissue, bulk and dispenser napkins, disposable wipers, specialty printed merchandise and dispensers. Because commercial market manufacturers offer similar product attributes to this value conscious market, competition principally involves value pricing and service. Management believes that Fort Howard's commitment to quality and service and its competitive pricing strategy afforded by its low cost producer status have provided the foundation for the continuation of its leading commercial market share of approximately 26%. The Company constantly strives to grow in new or underdeveloped subsegments of its commercial products business. With the Envision line, made from 100% recycled paper, Fort Howard was the first company to position a line of tissue paper products as made from recycled paper that meet or exceed U.S. Environmental Protection Agency ("U.S. EPA") guidelines for post-consumer wastepaper ("PCW") content of 5% to 40%. The Company believes Envision is the market leader in the rapidly growing environmental segment of the commercial market. Utilizing its advanced de-inking technology, Fort Howard set the standard dramatically higher for PCW content in commercial products by increasing the minimum PCW content of its Envision line to 90% or higher and by commissioning an outside audit of its internal controls which are maintained to assure that Envision manufacturing processes yield the stated minimum PCW content. In addition, the Company also produces parent rolls for sale to converters in international markets, including Latin America and the Middle East. Specialty Dry Form Products. In another growing product area, dry form products (used to make baby wet wipes and a key component in feminine hygiene products), the Company believes it is the largest domestic producer and one of only 13 manufacturers in the world. Dry form production is a process that converts soft, randomly laid fibers made from wood pulp into a sturdy and absorbent pulp web using air instead of water to transfer the pulp. Synthetic bonding agents are then sprayed on the pulp web, creating a sheet of fabric-like paper. Dry form is principally sold in parent roll form to meet rigorous specifications for large consumer product companies which convert it into their branded products. The Company believes that it is the leading marketer of dry form to companies in the domestic private label baby wipe market. The growth rate for this business to date has exceeded the growth rate of the tissue industry as a whole. In addition, the Company converts dry form paper into premium wipers and dinner napkins for the commercial market. Consumer Products. Fort Howard's consumer product growth strategy has targeted the branded value and private label segments of the market, where the Company enjoys a competitive advantage as a low cost producer. Management believes that these segments will continue to grow as consumers become more price conscious. The Company's value branded products such as Mardi Gras, Soft 'N Gentle and Green Forest offer a high level of softness, absorbency and brightness at substantial price savings. The appeal of Mardi Gras napkins and paper towels is enhanced by their multi-color prints with changing patterns and special seasonal designs. The attractiveness of the Mardi Gras designs and its value positioning have enabled the Company to increase the Mardi Gras napkin market share to approximately 14% in 1994, giving the Company the leading consumer napkin share. 46 Soft 'N Gentle bath tissue is the Company's largest selling consumer brand. Soft 'N Gentle bath tissue is a quality product that targets retail pricing at 20-25% below premium tissue products. The Company introduced the Green Forest line of bath tissue, paper towels and napkins in 1990 on the 20th anniversary of Earth Day. Environmentally oriented consumers have made the Green Forest line the leading brand in the environmentally positioned segment. The Company's Page bath tissue, paper towels and napkins and So-Dri paper towels are targeted to the more price conscious shopper in the economy segment of the consumer market. The retail prices of these products are typically targeted at 25-30% below the premium brands. Fort Howard is the leading tissue producer in the growing consumer private label business with an estimated one-third market share in 1994. Many national grocery chains have focused on the development of private label tissue products to support the positioning of the chain with their shoppers as well as to enhance margins. Since 1984, Fort Howard's private label business has tripled and in 1994 represented approximately 40% of Fort Howard's consumer tissue sales. Typically offered on a limited supplier basis, private label products enable the Company to form close relationships with many of the nation's fastest growing, leading grocery chains and mass merchandisers and afford opportunities for Fort Howard's branded products with these same customers. The Company believes that its ability to position branded and private label tissue products with the same grocer or mass merchandiser is a major competitive advantage, as no other major competitor emphasizes, to the same extent as Fort Howard, both branded and private label tissue products. Marketing Approximately two-thirds of the Company's products are sold through paper, institutional food and janitorial distributors into the commercial market, with the balance being principally sold through brokers to major food store chains, wholesale grocers and mass merchandisers for household (or "consumer") use. These products are produced in a broad range of weights, textures, sizes, colors and package configurations providing Fort Howard with distinct advantages as a full-line manufacturer. The Company also creates and prints logos, commercial messages and artistic designs on paper napkins and place mats for commercial customers and party goods and specialty print merchandisers. Most products are sold under Company-owned brand names, with an increasing percentage of products being sold under private labels. In the commercial segment the Company sells its products primarily under the Fort Howard name. Principal brand names of consumer products include Soft 'N Gentle, Mardi Gras, Green Forest, So-Dri and Page. Commercial Market. Fort Howard's commercial sales force of over 200 salaried representatives combines broad geographical reach and frequency of contact with the Company's major commercial customers, including large distributors, national accounts and club warehouses. Because the commercial sales force is dedicated to the sale of the Company's commercial tissue products, the Company's sales representatives are able to devote substantial time to developing end user demand, an important selling point for the Company's distributors. The Company is forging a growing number of strategic alliances with customers. The Company believes Fort Howard offers customers a number of important competitive advantages, including: (i) a profitable market growth strategy; (ii) a broad line of tissue paper products that permits distributors to limit the number of suppliers they use, increase inventory turns and profits, and reduce warehouse requirements and (iii) significant end user demand that makes Fort Howard an attractive product line. The continued development of the Company's national accounts business in the foodservice, health care, lodging, buildings and industrial subsegments of the commercial market has been an important factor in growing the Company's leading commercial market share. The Company's national accounts sales team focuses on meeting the special requirements of these large customers who prefer to negotiate purchases directly with the Company. Such requirements include, for example, strict sanitary production requirements, the ability to service locations nationwide, EDI capabilities and superior on-time and 47 complete order shipping performance. Certain of these customers, particularly the large, environmentally conscious fast food or other national chains, increasingly require the ability to offer 100% recycled paper products. The Company's newly organized club warehouse sales and marketing team focuses on the special requirements of these customers, including unique product specifications, packaging sizes and design, palletized distribution, EDI capabilities, the ability to service locations nationwide, superior on-time and complete order shipping performance and the ability to grow rapidly to support new warehouse openings. Consumer Market. Sales of the Company's consumer products are principally made through a nationwide network of independent food brokers. Regional sales managers focus on sustaining close relationships with brokers and retailers by emphasizing Fort Howard's historic strengths--value, competitive pricing and enhanced margins for retailers. The Company's national accounts sales force focuses on mass merchandisers and on implementing their "everyday low pricing" strategies. The private label sales team deals with both national accounts and food brokers and their customers. In contrast to tissue producers who emphasize marketing of their consumer products through advertising and promotion to the end consumer, Fort Howard incurs minimal advertising expense. Rather, the Company focuses its marketing efforts for consumer products on trade promotion and incentive programs targeted to grocery and mass merchandising retailers. INTERNATIONAL TISSUE OPERATIONS When it was acquired by Fort Howard in 1982, Fort Sterling was an independent recycler of wastepaper into sanitary tissue paper products sold principally under private labels into the consumer market. Since 1982, Fort Sterling has funded significant investments in recycling and other process technologies and equipment through strong cash flow from operations and borrowings, doubled its U.K. market share, introduced premium quality Nouvelle tissue paper products produced from 100% wastepaper to the United Kingdom consumer market, expanded into the commercial market and developed a strong local management team and workforce. Today, Fort Sterling is one of the four fully integrated tissue companies in the United Kingdom. For an analysis of net sales, operating income (loss) and identifiable operating assets in the United States and the U.K., see Note 16 to the audited consolidated financial statements included elsewhere in this Prospectus. Facilities. Fort Sterling currently operates three tissue paper machines and a de-inking and wastepaper processing plant at its Ramsbottom paper mill and cuts, folds, prints and packages paper into finished tissue products at its Bolton and Wigan converting facilities, all of which are located in Greater Manchester, England. In recent years, Fort Sterling has increased its capital spending to expand significantly the productive capacity of its two older tissue paper machines and to improve the capacity and productivity of its converting operations. In 1993, Fort Sterling completed a $96 million expansion which doubled the capacity of its paper mill. The expansion project added a 206-inch tissue paper machine and related de-inking and pulp processing plants. In September 1992, Fort Sterling acquired Stuart Edgar, a converter of consumer tissue products. The acquisition significantly increased Fort Sterling's converting capacity at a low capital cost and provided Fort Sterling with a modern converting plant. Fort Sterling's expansion provided an opportunity for significant market share growth. Since 1984, Fort Sterling's sales volume has increased at a compound annual growth rate of 10.0% per year. The additional tissue paper machine capacity and de-inking technologies have enabled Fort Sterling to significantly reduce its manufacturing costs. In addition, the Company believes that these improvements should better position Fort Sterling to take advantage of rising market prices if industry operating rates continue to improve and the U.K. economy continues to recover. 48 Products Consumer Products. Unlike the Company's domestic tissue operations, Fort Sterling's primary thrust has been in the larger consumer segment of the United Kingdom tissue market where over 85% of its sales are targeted. In a market where private label represents slightly less than half of all tissue sales, the Company believes that Fort Sterling maintains a leading share of the consumer private label market. Approximately two-thirds of Fort Sterling's consumer business in 1994 was sold under private labels to large grocers and convenience stores. Fort Sterling's principal brand is its Nouvelle line of tissue paper products. The Nouvelle line is positioned as 100% recycled with the product attributes approaching those of the leading United Kingdom premium brands. Commercial Products. Fort Sterling's commercial market volume in the United Kingdom has grown from less than 1% of the U.K. commercial market upon its acquisition in 1982 to 5% in 1994, and management intends to use its expanded capacity to increase its position in the commercial market. Marketing Fort Sterling maintains a direct sales force serving large and independent grocers and mass merchandisers in the consumer market. Fort Sterling has a commercial sales force which markets the Company's products via a network of independent distributors. A separate national accounts sales team targets commercial foodservice, health care and national industrial accounts. PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES While the Company owns or is a licensee of a number of patents, its operations and products are not materially dependent on any patent. The Company relies on trade secret protection for its proprietary de-inking technology which is not covered by patent. The Company's domestic tissue products for at-home use are sold under the principal brand names Soft 'N Gentle, Mardi Gras, Green Forest, So-Dri and Page. For the Company's domestic commercial tissue business, principal brand names include Envision and Generation II. All brand names are registered trademarks of the Company. A portion of the Company's tissue products are sold under private labels or brand names owned by customers. QUALITY MANAGEMENT In 1989, the Company commenced a program to educate and train all employees at its three domestic mills in the principles of "Total Quality" and to adopt total quality principles. Employees at all levels of the Company are encouraged to understand customer and supplier requirements, measure performance, develop systems and procedures to prevent nonconformance with requirements and produce continuous improvement in all work processes. Since the introduction of the program, the Company has reduced its lead times, improved on-time and complete order shipping performance, delivered improved adherence to key product specifications and fostered and implemented improvement opportunity ideas from employees that have yielded significant annual cost savings. Most recently, in May 1994, the Company's Savannah mill became the first domestic recycled tissue mill to obtain ISO-9002 certification, an achievement recognizing the Company's commitment to Total Quality. The Company's other two domestic mills will seek certification in 1995. Fort Sterling achieved similar certification, BS5750, in 1991. RAW MATERIALS AND ENERGY SOURCES The principal raw materials and supplies used to manufacture tissue products are wastepaper (which is processed to reclaim fiber), chemicals, corrugated shipping cases and packaging materials. From July 1994 to January 1995, wastepaper prices for the grades of wastepaper used in Fort Howard's products more than doubled. See "Certain Risk Factors--Increasing Wastepaper Prices." Virtually all of the Company's tissue products are made with 100% recycled fiber derived from wastepaper. The de- 49 inking technology employed by the Company allows it to use a broad range of wastepaper grades, which effectively increases both the number of sources and the quantity of wastepaper available for its manufacturing process. The Company manufactures some of the process chemicals required for the Company's tissue production at each of its domestic mill locations. The balance of its chemical requirements is purchased from outside sources. The Company also purchases significant quantities of coal for generation of electrical power and steam at all three of its domestic tissue mills. The Company seeks to maintain inventories of wastepaper, other raw materials and supplies which are adequate to meet its anticipated manufacturing needs. The Company's major sources of energy for its domestic tissue mills are coal and other fuels which are burned to produce the heat necessary to dry paper, process wastepaper, provide steam and produce virtually all the electric power at those mills. Coal is received in Green Bay in self-unloading vessels during the Great Lakes shipping season and at the Muskogee and Savannah mills by truck and rail. The Company maintains inventories of coal and other fuels at all mills. The Savannah mill can also generate electrical power by burning natural gas in combustion turbines. The primary sources of energy for the Company's United Kingdom tissue facilities are purchased electrical power and natural gas. CUSTOMERS AND BACKLOG The Company principally markets its products to customers in the United States and, to a lesser extent, the United Kingdom, Mexico, Canada and the Middle East. The business of the Company is not dependent on a single customer. Currently, a substantial portion of the Company's sales are pursuant to contracts which generally specify pricing over periods of three months to one year. The Company's products are manufactured with relatively short production time from basic materials. Products marketed under the Company's trademarks and stock items are sold from inventory. The backlog of customer orders is not significant in relation to sales. COMPETITION All the markets in which the Company sells its products are extremely competitive. The Company's tissue products compete directly with those of a number of large diversified paper companies, including Chesapeake Corporation, Georgia-Pacific Corporation, James River Corporation of Virginia, Kimberly-Clark Corporation, Pope & Talbot, Inc., Scott Paper Company and The Procter & Gamble Company, as well as regional manufacturers, including converters of tissue into finished products who buy tissue directly from tissue mills. Many of the Company's competitors are larger and more strongly capitalized than the Company which may enable them to better withstand periods of declining prices and adverse operating conditions in the tissue industry. Although customers generally take into account price, quality, distribution and service as factors when considering the purchase of products from the Company, over the last four years, price has become a more important competitive factor affecting tissue producers. PROPERTIES Except for certain facilities and equipment constructed or acquired in connection with sale and leaseback transactions pursuant to which the Company continues to possess and operate such facilities and equipment, substantially all the Company's manufacturing facilities and equipment are owned in fee. The Company's domestic and United Kingdom tissue manufacturing facilities are pledged as collateral under the terms of the Company's debt agreements. See Note 8 to the audited consolidated financial statements included elsewhere in this Prospectus. The Green Bay, Muskogee, Savannah, and United Kingdom facilities generally operate tissue paper machines at full capacity seven days per week, except for downtime for routine maintenance and the temporary shut-downs of one or two small tissue paper machines at the Green Bay mill. Converting facilities are generally operated on a 3-shift, 5-day per week basis or a 7-day per week schedule. 50 Converting capacity could be expanded by working additional hours and/or adding converting equipment. EMPLOYEES At December 31, 1994, the Company's world-wide employment was approximately 6,800, of which 5,800 persons were employed in the United States and 1,000 persons were employed in the United Kingdom. There is no union representation at any of the Company's domestic facilities. The Company's employees at its facilities in the United Kingdom are unionized and the union contracts generally require annual renegotiation of employee wage awards. The Company considers its relationship with its employees to be good. ENVIRONMENTAL MATTERS The Company is subject to substantial regulation by various federal, state and local authorities in the U.S., and by national and local authorities in the U.K. concerned with the impact of the environment on human health, the limitation and control of emissions and discharges to the air and waters, the quality of ambient air and bodies of water and the handling, use and disposal of specified substances and solid waste at, among other locations, the Company's process waste landfills. Compliance with existing laws and regulations presently requires the Company to incur substantial capital expenditures and operating costs. In addition, environmental legislation and regulations and the interpretation and enforcement thereof are expected to become increasingly stringent and to further limit emission and discharge levels and to expand the scope of regulation. As a result, it is likely that certain of the Company's operating expenses will increase and that the Company will be required to make additional capital expenditures. In addition, the operating flexibility of the Company's manufacturing operations is likely to be adversely impacted. Because other paper manufacturers are generally subject to similar environmental restrictions, the Company believes that compliance with environmental laws and regulations is not likely to have a material adverse effect on its competitive position. It is possible, however, that such compliance could have a material adverse effect on the Company's financial condition and results of operations at some point in the future. In 1994, the Company made capital expenditures of $9 million with respect to pollution abatement and environmental compliance. Included in the 1994 capital expenditures was $4 million for pollution abatement equipment in connection with completing expansion projects initiated in 1993 and prior years. The Company expects to commit to approximately $12 million of capital expenditures to maintain compliance with environmental control standards at its facilities during 1995 and 1996. Included in the 1995-96 expected expenditures is $1 million for pollution abatement equipment to be installed in connection with constructing a coal-fired boiler at the Company's Savannah mill. Although some pollution abatement and solid waste disposal facilities produce improvements in operating efficiency, most increase product costs without enhancing capacity or operating efficiency. Because the impact of new environmental laws and regulations and the implementation and enforcement of existing laws and regulations cannot be determined with certainty at this time, it is possible that there will be additional capital expenditures during these years, including but not limited to those described below. The U.S. EPA has proposed guidance for basin-wide water quality standards pursuant to the Great Lakes Water Quality Agreement between the U.S. and Canada regarding the development of water quality standards for the Great Lakes and their tributaries. This guidance is required by Court order to be issued in final form by March 1995, with a two-year period to follow in which the affected states will be required to utilize the guidance to implement specific regulations. Dischargers would then have an additional period of up to three years in which to comply with such regulations. Many manufacturers, municipal wastewater treatment authorities and others believe that the present terms of the guidance are unnecessarily complex, burdensome and environmentally unjustified. Whether the U.S. EPA will revise the proposed guidance in response to those concerns, however, cannot be determined at this time. 51 The guidance, as currently drafted and if not modified, would impose limitations on the Company's wastewater discharge from its Green Bay mill into the Fox River that as a practical matter would prohibit the Company from discharging any wastewater into the Fox River. The Company is exploring alternative technologies to enable it to discontinue all wastewater discharge to the Fox River, if required, and presently estimates cumulative capital expenditures of approximately $65 million (which includes $20 million of currently planned capital expenditures) over a several year period would be required to discontinue wastewater discharge to the Fox River. The costs to attain compliance with the guidance as proposed could vary depending upon several factors, including, among others: (i) the ultimate form of the final guidance, which could vary from the proposed guidance; (ii) the form and substance of state laws or regulations implementing the final guidance; (iii) delays or changes resulting from potential administrative and judicial challenges to the guidance which might be filed and (iv) new developments in control and process technology. The U.S. EPA has proposed new air emission and revised wastewater discharge standards for the pulp and paper industry which are commonly known as the "Cluster Rules." The components of the Cluster Rules that deal with wastewater discharges are expected to be finalized by late 1995 or early 1996. If the final rules on wastewater discharges are substantially the same as the proposed rules, the Company estimates that it will incur additional aggregate capital expenditures of approximately $1.2 million. Components of the currently proposed Cluster Rules that address air emissions will have little impact on de-inking paper mills such as the Company's mills. However, additional installments of the Cluster Rules, expected to be proposed during 1996 with expected compliance deadlines as late as the year 2000, are expected to specifically address chloroform and other air emissions from de-inking mills and likely will have a greater impact on the Company. The Company is presently unable to estimate that impact since the applicable rules have not been proposed and therefore no assurances can be given as to whether the impact will be material to the Company. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes liability, without regard to fault or to the legality of the original action, on certain classes of persons (referred to as potentially responsible parties or PRPs) associated with a release or threat of a release of hazardous substance into the environment. Financial responsibility for the clean-up or other remediation of contaminated property or for natural resource damages can extend to previously owned or used properties, waterways and properties owned by third parties, as well as to properties currently owned and used by the Company even if contamination is attributable entirely to prior owners. The Company is involved in a voluntary investigation and potential clean-up of the Lower Fox River and has been named a PRP for alleged natural resource damages to the Fox River, both of which are discussed in "Legal Proceedings" below. Except for the United States Department of Interior, Fish and Wildlife Service ("FWS") assessment of the Fox River discussed below, the Company is not presently named as a PRP at any CERCLA-related sites. However, there can be no certainty that the Company will not be named as a PRP at any other sites in the future or that the costs associated with additional sites would not be material to the Company's financial condition or results of operations. Based upon currently available information and analysis, the Company recorded a $20 million charge in the fourth quarter of 1994 for estimated or anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. The Company expects these costs to be incurred over an extended number of years. While the charge reflects the Company's current estimates of the costs of these environmental matters, there can be no assurance that the amount accrued will be adequate. LEGAL PROCEEDINGS On December 16, 1994, the Company received a Civil Investigative Demand ("CID") issued by the U.S. Department of Justice, Antitrust Division pursuant to the Antitrust Civil Process Act, Title 15 52 of the United States Code. The CID seeks documents and information as part of an Antitrust Division civil investigation to determine whether there are agreements in restraint of trade in connection with sales of sanitary paper products. The Company is cooperating with the investigation. Since July 1992, the Company has been participating with a coalition consisting of industry, local government, state regulatory commission and public interest members studying the nature and extent of PCB (polychlorinated biphenyl) and other sediment contamination of the Lower Fox River in northeast Wisconsin. The objective of the coalition is to identify, recommend and implement cost effective remediation of contaminated deposits which can be implemented on a voluntary basis. Based upon presently available information, the Company believes that there are additional parties, some of which may have substantial resources, who may in the future contribute to the remediation effort. One of the current industry coalition members, in cooperation with the Wisconsin Department of National Resources, is in the process of undertaking a demonstration of river remediation techniques on the Lower Fox River to remediate one sediment deposit located approximately 35 miles upstream from the Company's Green Bay mill. The Company's participation in the studies undertaken by the coalition is voluntary and its contributions to funding those activities to date have not been significant. The Company's participation in the coalition is not an admission of liability for any portion of any remediation and the Company does not believe its participation will prejudice any defenses available to the Company. On June 20, 1994, the FWS, a federal natural resources trustee, informed the Company that it had identified the Company and four other companies with facilities located along the Lower Fox River as PRPs for purposes of natural resource liability under CERCLA, commonly known as the "Superfund Act," and the Federal Water Pollution Control Act arising from alleged releases of PCBs to the Fox River and Green Bay system. The FWS alleges that natural resources including endangered species, fish, birds and tribal lands or lands held by the United States in trust for various tribes have been exposed to PCBs that were released from facilities located along the Fox River. The FWS has stated that it intends to undertake an assessment to determine and quantify the nature and extent of injury to natural resources. The FWS has invited the Company and the other four companies to participate in the development of the type and scope of the assessment and in the performance of the assessment, pursuant to federal regulations. It is anticipated that any assessment would require considerable time to complete. Based upon presently available information, the Company believes that there are additional parties, some of which may have substantial resources, who may be identified as PRPs for alleged natural resource damages. On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation to the Company concerning the No. 8 boiler at its Green Bay mill. The Finding alleged violation of regulations issued by the U.S. EPA under the Clean Air Act relating to New Source Performance Standards for Fossil Fuel Fired Steam Generators. In response to an accompanying Request for Information, the Company furnished certain information concerning the operation of the boiler. The Company met with representatives of the U.S. EPA in August 1992 and February 1993 to discuss the alleged violations. On January 11, 1994, the U.S. EPA informally advised the Company that, due to its internal guidelines that limit the authority of the agency to administratively resolve matters that include alleged violations extending over a period of more than one year, disposition of the Finding of Violation was being transferred to the U.S. Department of Justice. The Company met with representatives of the U.S. EPA and the U.S. Department of Justice in September 1994. On October 5, 1994, the Company and the U.S. EPA, with concurrence from the U.S. Department of Justice, reached an agreement in principle whereby the Company, without admitting any wrongdoing, has agreed to make certain modifications to the boiler which will limit its physical capacity to the level specified in the alleged relevant New Source Performance Standards. The physical modifications, which require expenditures of approximately $40,000, will not affect the utility of the No. 8 boiler. In addition, the Company has agreed to pay $350,000 to settle this matter. 53 The Company believes, based upon currently available information and analysis, that the environmental charge it has accrued in the fourth quarter of 1994 for environmental matters adequately reflects the Company's estimated or anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. The Company expects these costs to be incurred over an extended number of years. While the charge reflects the Company's current estimates of the costs of these environmental matters, there can be no assurance that the amount accrued will be adequate. In 1992, the IRS issued a statutory notice of deficiency (the "Notice") to the Company for additional income tax due for the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988 tax year for fees and expenses, other than interest, related to the 1988 debt financing and refinancing transactions. In disallowing these deductions, the IRS relied on Code Section 162(k) (which denies deductions for otherwise deductible amounts paid or incurred in connection with stock redemptions). The Company had deducted a portion of the disallowed fees and expenses in 1988 and has been deducting the balance of the fees and expenses over the terms of the 1988 long-term debt financing and refinancing. Following receipt of the Notice, the Company filed a petition in the U.S. Tax Court contesting the deficiency. In August 1994, the U.S. Tax Court issued its opinion in which it essentially adopted the interpretation of Code Section 162(k) advanced by the IRS and disallowed the deductions claimed by the Company. At present, the U.S. Tax Court is preparing an order in which it will determine the amount of the tax deficiency owed by the Company as a result of the court's decision. The Company intends to appeal the U.S. Tax Court decision to the U.S. Court of Appeals for the Seventh Circuit. In anticipation of its appeal, the Company has paid to the IRS tax of approximately $5 million potentially due for its 1988 tax year pursuant to the U.S. Tax Court opinion along with $4 million for the interest accrued on such tax. If the decision of the U.S. Tax Court is ultimately sustained, the Company estimates that the potential amount of additional taxes due on account of such disallowance for the period 1989 through 1994 would be approximately $34 million and for the period after 1994 (assuming current statutory tax rates) would be approximately $4 million, in each case exclusive of interest. While the Company is unable to predict the final result of its appeal of the U.S. Tax Court decision with certainty, it has accrued for the potential tax liability as well as for the interest charges thereon for the period 1989 through 1994 and thus the Company believes that the ultimate resolution of this case will not have a material adverse effect on the Company's financial condition or on its results of operations. The Company and its subsidiaries are parties to other lawsuits and state and federal administrative proceedings in connection with their businesses. Although the final results in all suits and proceedings cannot be predicted with certainty, the Company presently believes that the ultimate resolution of all such lawsuits and proceedings, after taking into account the liabilities accrued with respect to such matters, will not have a material adverse effect on the Company's financial condition or results of operations. 54 MANAGEMENT DIRECTORS OF THE COMPANY The following table provides certain information about each of the current directors of the Company as of December 31, 1994. Within 90 days following completion of the Offering, the Company will appoint two independent directors to the Board of Directors who are not employees of the Company or Morgan Stanley Group and its affiliates. Upon consummation of the Offering, the Company's Board of Directors will be divided into three classes of directors serving staggered three-year terms. The terms of office of the directors expire as follows: Ms. Hempel in 1996; Messrs. Riordan and Sica in 1997; and Messrs. DeMeuse, Brennan and Niehaus in 1998. See "Description of Capital Stock--Restated Certificate of Incorporation and By-laws."
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER WITH THE COMPANY AGE DIRECTORSHIPS - ------------------------------------------ --- ------------------------------------------ Donald H. DeMeuse......................... 58 Chairman of the Board of Directors and Chairman of the Board Chief Executive Officer since March 1992; President and Chief Executive Officer from July 1990 to March 1992. Prior to July 1990, President for more than five years. Director of Associated Bank Green Bay. Kathleen J. Hempel........................ 44 Vice Chairman and Chief Financial Officer Vice Chairman since March 1992; Senior Executive Vice President and Chief Financial Officer prior to that time. Director of Whirlpool Corporation. Michael T. Riordan........................ 44 President and Chief Operating Officer Director since March 1992; Vice President prior to that time. Donald Patrick Brennan.................... 54 Managing Director of MS&Co since prior to Director 1989 and head of MS&Co's Merchant Banking Division. Chairman and President of Morgan Stanley Leveraged Equity Fund II, Inc. ("MSLEF II, Inc."), Chairman of Morgan Stanley Capital Partners III, Inc. ("MSCP III") and Chairman of Morgan Stanley Venture Partners. Director of MS&Co, Jefferson Smurfit Corporation, PSF Finance Holdings, Inc., Stanklav Holdings, Inc. and Waterford Wedgwood plc. Robert H. Niehaus......................... 39 Managing Director of MS&Co since 1990; Director Principal of MS&Co prior to that time. Vice President and Director of MSLEF II, Inc. and Vice Chairman of MSCP III. Director of American Italian Pasta Company, PSF Finance Holdings, Inc., Randall's Food Markets, Inc., Silgan Corporation, Silgan Holdings Inc., Waterford Wedgwood U.K. plc (Chairman) and Waterford Crystal Ltd.
55
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER WITH THE COMPANY AGE DIRECTORSHIPS - ------------------------------------------ --- ------------------------------------------ Frank V. Sica............................. 43 Managing Director of MS&Co since prior to Director 1989. Vice President and Director of MSLEF II, Inc. since 1989 and Vice Chairman of MSCP III. Director of ARM Financial Group, Inc., Emmis Broadcasting Corporation, Interstate Natural Gas Company, Kohl's Corporation, PageMart, Inc., Southern Pacific Rail Corporation and Sullivan Communications, Inc.
EXECUTIVE OFFICERS OF THE COMPANY The following table provides certain information about each of the current executive officers of the Company as of December 31, 1994. All executive officers are elected by, and serve at the discretion of, the Board of Directors. None of the executive officers of the Company is related by blood, marriage or adoption to any other executive officer or director of the Company.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER WITH THE COMPANY AGE DIRECTORSHIPS - ------------------------------------------ --- ------------------------------------------ Donald H. DeMeuse......................... 58 See description under "--Directors of the Chairman of the Board and Chief Company." Executive Officer Kathleen J. Hempel........................ 44 See description under "--Directors of the Vice Chairman and Chief Financial Officer Company." Michael T. Riordan........................ 44 See description under "--Directors of the President and Chief Operating Officer Company." Andrew W. Donnelly........................ 52 Executive Vice President for more than Executive Vice President five years. John F. Rowley............................ 54 Executive Vice President for more than Executive Vice President five years. George F. Hartmann, Jr.................... 52 Vice President for more than five years. Vice President R. Michael Lempke......................... 42 Vice President since September 1994; Vice President and Treasurer Treasurer since November 1989. James W. Nellen II........................ 47 Vice President and Secretary for more than Vice President and Secretary five years. Daniel J. Platkowski...................... 43 Vice President for more than five years. Vice President Timothy G. Reilly......................... 44 Vice President for more than five years. Vice President Donald J. Schneider....................... 58 Vice President for more than five years. Vice President Charles L. Szews.......................... 38 Vice President since September 1994; Vice President and Controller Controller since November 1989. Charles D. Wilson......................... 49 Vice President since June 1994; Director Vice President of Government Affairs prior to that time. David K. Wong............................. 45 Vice President since June 1993; Director Vice President of Personnel from September 1990 until June 1993. Director of Recruiting and Training prior to that time. David A. Stevens.......................... 45 Assistant Vice President for more than Assistant Vice President five years.
56 COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors currently has three committees: an Executive Committee, an Audit Committee and a Compensation Committee. The Executive Committee is authorized to exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, except that it does not have the power or authority to amend the Company's Certificate of Incorporation or By-laws, adopt an agreement of merger or consolidation, recommend to the shareholders the sale, lease or exchange of all or substantially all of the Company's property and assets, recommend to the shareholders the dissolution of the Company, declare a dividend or authorize the issuance of shares of stock. The Executive Committee acts as a compensation committee for determining certain aspects of the compensation of the executive officers of the Company. The responsibilities of the Compensation Committee include administering the Company's 1995 Stock Incentive Plan and selecting the officers and key employees to whom awards will be granted. The Compensation Committee is comprised of non-management directors. See "--Compensation Committee Interlocks and Insider Participation." The responsibilities of the Audit Committee include: recommending to the Board of Directors the independent public accountants to be selected to conduct the annual audit of the accounts of the Company; reviewing the proposed scope of such audit and approving the audit fees to be paid; and reviewing the adequacy and effectiveness of the internal auditing, accounting and financial controls of the Company with the independent public accountants and the Company's financial and accounting staff. The Audit Committee will be comprised of non-management directors. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS The following table presents information concerning compensation paid for services to the Company during fiscal years 1992 through 1994 to the Chief Executive Officer and the four other most highly compensated executive officers of the Company (the "Named Executive Officers"). 57 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------- ------------ OTHER ANNUAL NUMBER OF ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) OPTIONS/SARS COMPENSATION(B) - ------------------------------ ---- -------- -------- --------------- ------------ --------------- Donald H. DeMeuse............. 1994 $750,000 $307,500 $ 7,802 0 $69,366 Chairman and Chief 1993 653,846 55,250 4,840 0 62,742 Executive Officer 1992 675,000 55,250 3,831 0 57,480 Kathleen J. Hempel............ 1994 480,000 196,800 1,036 0 27,311 Vice Chairman and Chief 1993 453,077 38,381 0 0 27,388 Financial Officer 1992 456,923 37,400 0 0 27,222 Michael T. Riordan............ 1994 375,000 153,750 4,671 0 21,400 President and Chief 1993 302,885 25,500 0 48,750 18,437 Operating Officer 1992 248,846 20,171 317 0 15,028 Andrew W. Donnelly............ 1994 330,000 135,300 162 0 18,603 Executive Vice President 1993 350,000 29,750 0 0 20,859 1992 342,692 28,050 0 0 20,133 John F. Rowley................ 1994 237,885 96,350 338 0 13,676 Executive Vice President 1993 255,000 21,675 0 0 15,111 1992 244,039 19,975 0 0 14,561
- ------------ (a) Consists of amounts reimbursed for the payment of taxes. (b) Consists of Company contributions to the Company's profit sharing plan and supplemental retirement plan, including Company contributions to the supplemental retirement plan which were paid to the participant. The following table presents information concerning unexercised stock options for the Named Executive Officers. No stock options were exercised by or granted to the Named Executive Officers during 1994. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT DECEMBER 31, IN-THE-MONEY OPTIONS HELD 1994 AT DECEMBER 31, 1994(A) ---------------------------- ---------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------- ----------- ------------- Donald H. DeMeuse............................ 505,537 37,700 -- -- Kathleen J. Hempel........................... 562,347 13,000 -- -- Michael T. Riordan........................... 119,008 54,600 -- -- Andrew W. Donnelly........................... 141,927 16,900 -- -- John F. Rowley............................... 102,323 15,600 -- --
- ------------ (a) Prior to the Offering, the Common Stock was not registered or publicly traded and, therefore, a public market price for the Common Stock was not available. Without the benefit of the Bank Refinancing and the 1995 Debt Redemptions, the Company believes that none of the exercisable or unexercisable stock options held at December 31, 1994 were in-the-money as of such date. See Notes 12 and 13 of the Company's audited consolidated financial statements included elsewhere in this Prospectus. 58 DIRECTORS' COMPENSATION Prior to the completion of the Offering, directors of the Company did not receive any compensation for service on the Board of Directors. Following the completion of the Offering, the Company intends to pay all of its directors who are not officers of the Company an annual fee (the "Annual Fee") of $30,000 plus $2,000 for attendance at each meeting, plus $1,000 for attendance at each committee meeting. In addition, the Company intends to reimburse all of its directors for their travel expenses in connection with their attendance at board and committee meetings. The Company intends to pay 50% of the Annual Fee in the form of cash and 50% of the Annual Fee in the form of shares of Common Stock pursuant to the Company's 1995 Stock Plan for Non-Employee Directors. The payment of the cash portion of the Annual Fee may be deferred by any director at such director's election pursuant to the Company's Deferred Compensation Plan for Non-Employee Directors until the earliest of (i) the date of termination of such director's service as a non-employee director, (ii) the date specified by such director in his deferred election form and (iii) the date of such director's death. EMPLOYMENT AGREEMENTS The Named Executive Officers have entered into employment agreements with the Company (the "Employment Agreements") which took effect in 1993. The Employment Agreements contain customary employment terms, have an initial term that expires on December 31, 1997, provide for automatic one-year extensions (unless notice not to extend is given by either party at least six months prior to the end of the effective term) and provide for base annual salaries and annual incentive bonuses. The present base salaries for Mr. DeMeuse, Ms. Hempel, Mr. Riordan, Mr. Donnelly and Mr. Rowley are $750,000, $480,000, $375,000, $330,000 and $250,000, respectively. In addition, the Employment Agreements for Mr. DeMeuse, Ms. Hempel and Mr. Riordan provide for participation in additional bonus arrangements which may be agreed upon in good faith from time to time with the Company. The Employment Agreements provide that certain payments in lieu of salary and bonus are to be made and certain benefits are to be continued for a stated period following termination of employment. The time periods for such payments vary depending on the cause of termination. The amount of the payments to be made to each individual would vary depending upon such individual's level of compensation and benefits at the time of termination and whether such employment is terminated prior to the end of the term by the Company for "cause" or by the employee for "good reason" (as such terms are defined in the Employment Agreements) or otherwise during the term of the agreements. In addition, the Employment Agreements for Mr. DeMeuse, Ms. Hempel and Mr. Riordan include noncompetition and confidentiality provisions. MANAGEMENT INCENTIVE PLAN The Company maintains a Management Incentive Plan which is administered by the Executive Committee. Participation is based upon individual selection by the Executive Committee from among the full-time salaried employees who, in the judgment of the Chief Executive Officer, serve in key executive, administrative, professional or technical capacities. Presently, approximately 85 individuals participate in the Management Incentive Plan. Awards are based upon the extent to which the Company's financial performance (in terms of net earnings, operating income, earnings per share, cash flow, absolute and/or relative return on equity or assets, pre-tax profits, earnings growth, revenue growth, comparison to peer companies, any combination of the foregoing and/or other appropriate measures in such manner as the Executive Committee deems appropriate) during the year has met or exceeded certain performance goals specified by the Executive Committee. Some performance goals applicable to senior managers may include elements which specify individual achievement objectives directly related to such individual's areas of management responsibility. In determining whether performance goals have been satisfied, the Executive Committee in its discretion may direct that adjustments be made to the performance goals or actual financial performance as reported to reflect extraordinary changes that have occurred during the year. The Executive Committee may alternatively 59 grant a discretionary bonus. A participant must be employed by the Company on the last day of the year in order to receive a bonus for such year, except in the case of death, disability or retirement after age 55, in which case such participant would receive a pro rata bonus. In the event of termination of a participant's employment without "cause" (as defined in the Management Incentive Plan) within two years following a "change in control" (as defined below under "1995 Stock Incentive Plan"), participants will receive a pro rata bonus for such year calculated as if the applicable performance targets have been attained. Because the performance goals under the Management Incentive Plan are determined by the Executive Committee in its discretion, it is not possible to determine the benefits and amounts that will be received by any individual participant or group of participants in the future. The Board of Directors may terminate or amend the Management Incentive Plan, in whole or in part, at any time; provided that no such termination or amendment may impair any rights which may have accrued under such plan. SUPPLEMENTAL RETIREMENT PLAN In 1983, the Company adopted a Supplemental Retirement Plan (the "Supplemental Retirement Plan"). Participation is limited to employees of the Company who are selected to participate by the Chief Executive Officer. Presently, nine individuals participate in the Supplemental Retirement Plan. Benefits under the Supplemental Retirement Plan are specified in agreements entered into between the Company and each participant. Any benefit granted in favor of an employee also serving as a director must be approved by the Executive Committee. Benefits accrued from the Company are substantially equal to the additional amount that could have been allocated to each participant's account under the Company's Profit Sharing Retirement Plan (the "Profit Sharing Plan") (which is a tax-qualified defined contribution plan with "401(k)" features) if, in the absence of the Code limitations on retirement plan contributions, the participant's entire contribution had been made to the Profit Sharing Plan. Vesting of benefits is determined by reference to each participant's vested percentage under the Profit Sharing Plan. Participants' account balances are credited with earnings based upon the investment performance of the Profit Sharing Plan. Benefits under the Supplemental Retirement Plan are distributable upon death, disability, retirement or separation from service and are payable from the general assets of the Company. The agreement with Mr. DeMeuse provides for an annual cash payment determined by reference to the difference in the amount of the Company's contribution to the Profit Sharing Plan allocated to his Profit Sharing Plan account and the amount which would have been allocated to such account in the absence of the limitations imposed by the Code. Because benefits under the Supplemental Retirement Plan are based on Company contributions to the Profit Sharing Plan, the amount of which is not presently ascertainable, it is not possible to determine the benefits and amounts that will be received by any individual participant or group of participants in the future. The Company may amend or discontinue the Supplemental Retirement Plan at any time. 1995 STOCK INCENTIVE PLAN The Company has adopted a 1995 Stock Incentive Plan (the "1995 Plan"). The 1995 Plan will be administered by the Compensation Committee, which is comprised exclusively of non-employee Directors, each of whom is "disinterested" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The 1995 Plan provides for the granting of incentive and nonqualified stock options, stock appreciation rights, restricted stock, performance shares, stock equivalents and dividend equivalents (individually, an "Award" or collectively, "Awards"). Employees who are eligible to receive Awards are those officers or other key employees with potential to contribute to the future success of the Company or its subsidiaries. The Compensation Committee has discretion to select the employees to whom Awards will be granted (from among those 60 eligible), to determine the type, size and terms and conditions applicable to each Award and the authority to interpret, construe and implement the provisions of the 1995 Plan. The Compensation Committee's decisions are binding on the Company and employees eligible to participate in the 1995 Plan and all other persons having any interest in the 1995 Plan. It is presently anticipated that approximately 130 individuals will initially participate in the 1995 Plan. A total of 3,359,662 shares of Common Stock may be subject to Awards under the 1995 Plan, subject to adjustment in accordance with the terms of the 1995 Plan. Common Stock issued under the 1995 Plan may be either authorized but unissued shares, treasury shares, or any combination thereof. To the fullest extent permitted under Rule 16b-3 under the Exchange Act and Section 422 of the Code, any shares of Common Stock subject to an Award which lapses, expires or is otherwise terminated without the issuance of such shares may become available for new Awards. The number of dividend equivalents which may be granted under the 1995 Plan will be determined by the Compensation Committee in its discretion; provided, however, that in no event will such number correspond to a greater number of shares than the maximum number of shares available for issuance under the 1995 Plan. Awards under the 1995 Plan are determined by the Compensation Committee in its discretion. For this reason, it is not possible to determine the benefits and amounts that will be received by any individual participant or group of participants in the future. Set forth below is a description of the types of Awards which may be granted under the 1995 Plan: Stock Options. Options (each, an "Option") to purchase shares of Common Stock, which may be nonqualified or incentive stock options, may be granted under the 1995 Plan at an exercise price (the "Option Price") determined by the Compensation Committee in its discretion, provided that the Option Price may be no less than the fair market value of the underlying Common Stock on the date of grant (110% of fair market value in the case of an incentive stock option granted to a ten percent shareholder). Options will expire not later than ten years after the date on which they are granted (five years in the case of an incentive stock option granted to a ten percent shareholder). Options become exercisable at such times and in such installments as determined by the Compensation Committee, and such exercisability will generally be based on (i) length of service or (ii) the attainment of performance goals established by the Compensation Committee, provided that no Option may be exercised within the first six months following the date of grant. The Compensation Committee may also accelerate the period for the exercise of any or all Options held by an optionee. Payment of the Option Price must be made in full at the time of exercise in cash, certified or bank check, note or other instrument acceptable to the Compensation Committee. As determined by the Compensation Committee, payment in full or in part may also be made by tendering to the Company shares of Common Stock having a fair market value equal to the Option Price (or such portion thereof), by a "cashless exercise" procedure to be approved by the Compensation Committee or by withholding shares of Common Stock that would otherwise have been received by the optionee. Stock Appreciation Rights. A stock appreciation right ("SAR") is an Award entitling an employee to receive an amount equal to (or subject to certain limitations, less than, if the Compensation Committee so determines at the time of grant) the excess of the fair market value of a share of Common Stock on the date of exercise over the exercise price per share specified for the SAR, multiplied by the number of shares of Common Stock with respect to which the SAR was exercised. An SAR granted in connection with an Option will be exercisable to the extent that the related Option is exercisable. Upon the exercise of an SAR related to an Option, the Option related thereto will be cancelled to the extent of the number of shares covered by such exercise, and such shares will no longer be available for grant under the 1995 Plan. Upon the exercise of a related Option, the SAR will be cancelled automatically to the extent of the number of shares covered by the exercise of the Option. SARs unrelated to an Option will contain such terms and conditions as to exercisability, vesting and duration as the Compensation 61 Committee may determine, but such duration will not be greater than ten years. The Compensation Committee may accelerate the period for the exercise of an SAR unrelated to an Option. Payment upon exercise of an SAR will be made, at the election of the Compensation Committee, in cash, in shares of Common Stock or a combination thereof. The Compensation Committee may grant limited stock appreciation rights (an "LSAR") under the 1995 Plan. An LSAR is an SAR which becomes exercisable only in the event of a "change in control" (as defined below). Any such LSAR will be settled solely in cash. An LSAR must be exercised within the 30-day period following a change in control. Restricted Stock. An Award of restricted stock ("Restricted Stock") is an Award of Common Stock which is subject to such restrictions as the Compensation Committee deems appropriate, including forfeiture conditions and restrictions against transfer for a period specified by the Compensation Committee. Restricted Stock Awards may be granted under the 1995 Plan for or without consideration. Restrictions on Restricted Stock may lapse in installments based on factors selected by the Compensation Committee. The Compensation Committee, in its sole discretion, may waive or accelerate the lapsing of restrictions in whole or in part. Prior to the expiration of the restricted period, except as otherwise provided by the Compensation Committee, a grantee who has received a Restricted Stock Award has the rights of a shareholder of the Company, including the right to vote and to receive cash dividends on the shares subject to the Award. Stock dividends issued with respect to shares covered by a Restricted Stock Award will be treated as additional shares under such Award and will be subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued. Performance Shares. A performance share Award (a "Performance Share") is an Award of a number of units which represent the right to receive a specified number of shares of Common Stock upon satisfaction of certain specified performance criteria, subject to such other terms and conditions as the Compensation Committee deems appropriate. Performance objectives will be established before, or as soon as practicable after, the commencement of the performance period (the "Performance Period") and may be based on net earnings, operating earnings or income, absolute and/or relative return on equity or assets, earnings per share, cash flow, pre-tax profits, earnings growth, revenue growth, comparisons to peer companies, any combination of the foregoing and/or such other measures, including individual measures of performance, as the Compensation Committee deems appropriate. Prior to the end of a Performance Period, the Compensation Committee, in its discretion and only under conditions which do not affect the deductibility of compensation attributable to Performance Shares under Section 162(m) of the Code, may adjust the performance objectives to reflect an event which may materially affect the performance of the Company, a subsidiary or a division, including, but not limited to, market conditions or a significant acquisition or disposition of assets or other property by the Company, a subsidiary or a division. The extent to which a grantee is entitled to payment in settlement of a Performance Share Award at the end of the Performance Period will be determined by the Compensation Committee, in its sole discretion, based on whether the performance criteria have been met. Payment in settlement of a Performance Share Award will be made as soon as practicable following the last day of the Performance Period, or at such other time as the Compensation Committee may determine, in shares of Common Stock. Stock Equivalents. A stock equivalent Award (a "Stock Equivalent") is a grant of a number of units valued, in whole or in part by reference to, or otherwise based on, shares of Common Stock. At the discretion of the Compensation Committee, Stock Equivalent Awards may relate in whole or in part to the attainment by the grantee of certain specified performance criteria. The Compensation Committee in its discretion will determine the basis for the value of units granted under a Stock Equivalent Award at the time of grant of the Award. In determining unit value, the Committee may use such measures as fair market value or appreciation in the value of a share of 62 Common Stock and may specify the date or dates over which the appreciation shall be measured, in such manner as it deems appropriate. Payment in settlement of a Stock Equivalent Award will be made as soon as practicable after the Award is earned, or at such other time as the Compensation Committee may determine, in cash, in shares of Common Stock, or some combination thereof, as determined by the Compensation Committee. Dividend Equivalents. A dividend equivalent Award (a "Dividend Equivalent") is an Award which entitles an employee to receive from the Company cash payments, in the same amount that the holder of record of a share of Common Stock on the dividend record date would be entitled to receive as cash dividends on such share of Common Stock. Grants of Options, SARs, Performance Share Awards and Stock Equivalent Awards may, in the discretion of the Compensation Committee, earn Dividend Equivalents. The Compensation Committee will establish such rules and procedures governing the crediting of Dividend Equivalents, including any timing and payment contingencies of such Dividend Equivalents, as it deems appropriate or necessary. Additional Information. Under the 1995 Plan, if there is any change in the outstanding shares of Common Stock by reason of any stock dividend, recapitalization, merger, consolidation, stock split, combination or exchange of shares or other form of reorganization, or any other change involving the Common Stock, such proportionate adjustments as may be necessary (in the form determined by the Compensation Committee) to reflect such change will be made to prevent dilution or enlargement of the rights with respect to the aggregate number of shares of Common Stock for which Awards in respect thereof may be granted under the 1995 Plan, the number of shares of Common Stock covered by each outstanding Award, and the price per share in respect thereof. Generally, an individual's rights under the 1995 Plan may not be assigned or transferred (except in the event of death). In the event of a change in control and except as the Compensation Committee (as constituted prior to such change in control) may expressly provide otherwise: (i) all Stock Options or SARs then outstanding will become fully exercisable as of the date of the change in control, whether or not then exercisable; (ii) all restrictions and conditions of all Restricted Stock Awards then outstanding will lapse as of the date of the change in control; (iii) all Performance Share Awards will be deemed to have been fully earned as of the date of the change in control and (iv) all Stock Equivalent Awards will be deemed to be free of any restrictions or conditions and fully earned as of the date of the change in control. The above notwithstanding, any Award granted within six (6) months of a change in control will not be afforded any such acceleration as to exercise, vesting and payment rights or lapsing as to conditions or restrictions. For purposes of the 1995 Plan, a "change in control" shall have occurred when (A) any person (other than (x) the Company, any subsidiary of the Company, any employee benefit plan of the Company or of any subsidiary of the Company, or any person or entity organized, appointed or established by the Company or any subsidiary of the Company for or pursuant to the terms of any such plans, (y) Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors, Fort Howard Equity Investors II, or any of their respective affiliates or (z) any general or limited partner of MSLEF II, Fort Howard Equity Investors or Fort Howard Equity Investors II), alone or together with its affiliates and associates (collectively, an "Acquiring Person")), shall become the beneficial owner of 20% or more of the then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (except pursuant to an offer for all outstanding shares of Common Stock at a price and upon such terms and conditions as a majority of the Continuing Directors (as defined below) determine to be in the best interests of the Company and its shareholders (other than an Acquiring Person on whose behalf the offer is being made)), or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director who is a representative or nominee of an Acquiring Person) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at 63 the beginning of the period or whose election or nomination for election was previously so approved (collectively, the "Continuing Directors"), no longer constitute a majority of the Board of Directors. The 1995 Plan will remain in effect until terminated by the Board of Directors and thereafter until all Awards granted thereunder are satisfied by the issuance of shares of Common Stock or the payment of cash or otherwise terminated pursuant to the terms of the 1995 Plan or under any Award agreements. Notwithstanding the foregoing, no Awards may be granted under the 1995 Plan after the tenth anniversary of the effective date of the 1995 Plan. The Board of Directors may at any time terminate, modify or amend the 1995 Plan; provided, however, that no such amendment, modification or termination may adversely affect an optionee's or grantee's rights under any Award theretofore granted under the 1995 Plan, except with the consent of such optionee or grantee, and no such amendment or modification will be effective unless and until the same is approved by the shareholders of the Company where such shareholder approval is required to comply with Rule 16b-3 under the Exchange Act, or other applicable law, regulation or Nasdaq National Market or stock exchange rule. Rule 16b-3 currently requires shareholder approval if the amendment would, among other things, materially increase the benefits accruing to optionees or grantees under the 1995 Plan. Certain Federal Income Tax Consequences of Options. Certain of the federal income tax consequences to optionees and the Company of Options granted under the 1995 Plan should generally be as set forth in the following summary. An employee to whom an incentive stock option ("ISO") which qualifies under Section 422 of the Code is granted will not recognize income at the time of grant or exercise of such Option. No federal income tax deduction will be allowable to the employee's employer upon the grant or exercise of such ISO. However, upon the exercise of an ISO, any excess in the fair market price of the Common Stock over the Option Price constitutes a tax preference item which may have alternative minimum tax consequences for the employee. When the employee sells such shares more than one year after the date of transfer of such shares and more than two years after the date of grant of such ISO, the employee will normally recognize a long-term capital gain or loss equal to the difference, if any, between the sale prices of such shares and the Option Price. If the employee does not hold such shares for the required period, when the employee sells such shares, the employee will recognize ordinary compensation income and possibly capital gain or loss in such amounts as are prescribed by the Code and the regulations thereunder and the Company will generally be entitled to a federal income tax deduction in the amount of such ordinary compensation income. An employee to whom a nonqualified stock option ("NSO") is granted will not recognize income at the time of grant of such Option. When such employee exercises such NSO, the employee will recognize ordinary compensation income equal to the difference, if any, between the Option Price paid and the fair market value, as of the date of Option exercise, of the shares the employee receives. The tax basis of such shares to such employee will be equal to the Option Price paid plus the amount includible in the employee's gross income, and the employee's holding period for such shares will commence on the date on which the employee recognized taxable income in respect of such shares. Subject to the applicable provisions of the Code and regulations thereunder, the Company will generally be entitled to a federal income tax deduction in respect of a NSO in an amount equal to the ordinary compensation income recognized by the employee. MANAGEMENT EQUITY PLAN Effective as of April 29, 1991, the Board of Directors adopted the Fort Howard Corporation Management Equity Plan (the "Management Equity Plan"). The Management Equity Plan provides for the offer of Common Stock and the grant of options to purchase Common Stock to executive officers and certain other key employees of the Company. 64 Executive officers or other key employees of the Company who hold shares of Common Stock or options pursuant to the Management Equity Plan ("Equity Investors") have entered into a Management Equity Plan Agreement with the Company. Executive officers or other key employees of the Company who have acquired shares of Common Stock pursuant to the Management Equity Plan have agreed to become bound by the terms of the Company's Stockholders Agreement. See "Certain Transactions--Stockholders Agreement." Options, whether or not vested, may not be transferred, except that vested options may be transferred in certain limited circumstances. Subject to certain exceptions, options which have not vested at the time an Equity Investor's employment is terminated are forfeited to the Company. In April 1991, certain executive officers and other key employees of the Company purchased an aggregate of 40,300 shares of Common Stock at $18.46 per share pursuant to the Management Equity Plan. In addition, options to purchase a total of 722,150 shares of Common Stock at an exercise price of $18.46 per share were granted in 1991, 1992 and 1993 pursuant to the Management Equity Plan to certain executive officers and other key employees of the Company. All options outstanding under the Management Equity Plan will become fully vested prior to the consummation of the Offering. Further, the terms and conditions of options to purchase 100,750 shares of Common Stock granted in December 1988 at an exercise price of $15.38 per share pursuant to a predecessor plan are now governed by the Management Equity Plan. The federal income tax consequences of the options granted under the Management Equity Plan are substantially similar to those for nonqualified options to be granted under the 1995 Plan, as described above. See "1995 Stock Incentive Plan--Certain Federal Income Tax Consequences of Options." It is expected that no additional shares of Common Stock or options will be sold or granted under the Management Equity Plan after the consummation of the Offering. MANAGEMENT EQUITY PARTICIPATION AGREEMENT Mr. DeMeuse, Ms. Hempel, Mr. Riordan and other current executive officers and members of the Company's senior management (the "Management Investors") are parties to an Amended and Restated Management Equity Participation Agreement, as amended, with the Company, Morgan Stanley Group and MSLEF II (the "Management Equity Participation Agreement"), pursuant to which the Management Investors purchased 410,196 shares of Common Stock in 1988 and 31,824 shares of Common Stock in 1990 at $15.38 and $20.77 per share, respectively. Management Investors who purchased shares of Common Stock pursuant to the Management Equity Participation Agreement were also granted stock options to acquire 1,807,338 and 275,990 shares of Common Stock pursuant to the Management Equity Participation Agreement at exercise prices of $15.38 and $18.46 per share, respectively. All such options will become fully vested prior to the consummation of the Offering. Certain of the Management Investors have also purchased shares of Common Stock and have been granted options to acquire additional shares of Common Stock pursuant to the terms of the Management Equity Plan. See "--Management Equity Plan." The Management Equity Participation Agreement prohibits, except in certain limited circumstances with respect to vested options ("Vested Options"), the transfer of options, whether vested or not vested, held by the Management Investors. The Management Equity Participation Agreement also provides that the Company will indemnify Management Investors for taxes on income which may be recognized upon the vesting of shares of Common Stock under certain circumstances. The indemnity is limited to the tax benefit to the Company, and if the tax benefit has not yet been received by the Company in cash at the time when the taxes must be paid by a Management Investor, the Company will make a nonrecourse loan to the Management Investor (secured by Common Stock and Vested Options) until the time the tax benefit is actually received. 65 The Management Equity Participation Agreement contains noncompetition provisions applicable to each Management Investor except Mr. DeMeuse, Ms. Hempel and Mr. Riordan, whose noncompetition agreements are contained in their respective Employment Agreements. (Similar noncompetition provisions are applicable to the Equity Investors under the Management Equity Plan.) The federal income tax consequences of the options granted under the Management Equity Participation Agreement are substantially similar to those for nonqualified options granted under the 1995 Plan, as described above. See "1995 Stock Incentive Plan--Certain Federal Income Tax Consequences of Options." In 1988 and 1990, the Company's former chairman of the board and chief executive officer (the "former executive") acquired shares of Common Stock and was granted options to acquire additional shares of Common Stock pursuant to the Management Equity Participation Agreement. Under the terms of an agreement entered into with the Company at the time of his resignation in July 1990, as amended, he retained his entire interest in the Company's Common Stock and all options to acquire additional shares thereof granted to him pursuant to the Management Equity Participation Agreement were vested. In addition, all the shares of the Company's Common Stock then owned by him became putable to the Company, and he retained certain other put rights previously granted to him with respect to such options and the shares issuable upon the exercise thereof. Such put rights are, with certain limited exceptions, currently scheduled to expire upon consummation of the Offering. The Company is considering extending the benefit of the put right with respect to the shares of Common Stock to the ten-day period following expiration of the 180-day lock-up agreement contained in the Stockholders Agreement, if the former executive agrees not to exercise his current put right with respect to such shares prior to consummation of the Offering. If such an agreement is not reached, the Company does not believe that exercise of the put would have a material impact on the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Executive Committee currently acts as a compensation committee for determining certain aspects of the compensation of the executive officers of the Company. The members of the Executive Committee are Donald H. DeMeuse, the Company's Chairman and Chief Executive Officer, and Donald Patrick Brennan. The Executive Committee administers the Company's Management Equity Plan which provides for the offer of Common Stock and the grant of options to purchase Common Stock to executive officers and certain other key employees of the Company. The Executive Committee also administers the Company's Management Incentive Plan under which annual cash awards are paid to employees serving in key executive, administrative, professional and technical capacities. Awards generally are based upon the extent to which the Company's financial performance during the year has met or exceeded certain performance goals specified by the Executive Committee. The Board of Directors has appointed a Compensation Committee, the members of which are Donald Patrick Brennan and Robert H. Niehaus. The Compensation Committee will administer the Company's 1995 Plan and select the officers and key employees to whom Awards under the 1995 Plan will be granted. Salaries and employment contract terms are determined by the entire Board of Directors for the Chief Executive Officer, by the Executive Committee for other executive officers who also serve as directors of the Company and by the Company's Chief Executive Officer for other executive officers of the Company. 66 OWNERSHIP OF COMMON STOCK The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of December 31, 1994, by holders having beneficial ownership of more than five percent of the Company's Common Stock, by certain other principal holders, by each of the Company's directors, by the Named Executive Officers, and by all directors and all executive officers of the Company as a group.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO THE OFFERING AFTER THE OFFERING ------------------------ ------------------------ NUMBER OF PERCENT NUMBER OF PERCENT NAME SHARES OF CLASS SHARES OF CLASS - ----------------------------------------------- ---------- ---------- ---------- ---------- The Morgan Stanley Leveraged................... 20,889,290(a) 54.8% 20,889,290(a) 34.8% Equity Fund II, L.P. 1221 Avenue of the Americas New York, New York 10020 Mellon Bank, N.A., as Trustee for.............. 6,715,507(b) 17.6 6,715,507(b) 11.2 First Plaza Group Trust One Mellon Bank Center Pittsburgh, Pennsylvania 15258 Leeway & Co.................................... 3,357,750 8.8 3,357,750 5.6 1 Enterprise Drive North Quincy, Massachusetts 02171 Morgan Stanley Group Inc....................... 3,036,884(c) 8.0 3,036,884(c) 5.1 1251 Avenue of the Americas New York, New York 10020 Donald H. DeMeuse.............................. 672,749(d) 1.7 672,749(d) 1.1 Kathleen J. Hempel............................. 594,691(e) 1.5 594,691(e) 1.0 Michael T. Riordan............................. 135,420(f) * 135,420(f) * Donald Patrick Brennan......................... 0 -- 0 -- Frank V. Sica.................................. 0 -- 0 -- Robert H. Niehaus.............................. 0 -- 0 -- Andrew W. Donnelly............................. 158,177(g) * 158,177(g) * John F. Rowley................................. 113,373(h) * 113,373(h) * All Directors and Executive Officers as a Group........................................ 2,301,693(i) 5.8 2,301,693(i) 3.7
- ------------ * Less than 1%. (a) MSLEF II, Inc. is the sole general partner of MSLEF II and is a wholly owned subsidiary of Morgan Stanley Group. Includes 1,701,290 shares held by Fort Howard Equity Investors II and 663,000 shares held by Fort Howard Equity Investors. Morgan Stanley Equity Investors Inc. is the sole general partner of both of these partnerships and is a wholly owned subsidiary of Morgan Stanley Group. (b) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza Group Trust ("First Plaza"), a trust under and for the benefit of certain employee benefit plans of General Motors Corporation ("GM") and its subsidiaries. These shares may be deemed to be owned beneficially by General Motors Investment Management Corporation ("GMIMCo"), a wholly owned subsidiary of GM. GMIMCo's principal business is providing investment advice and investment management services with respect to the assets of certain employee benefit plans of GM and its subsidiaries and with respect to the assets of certain direct and indirect subsidiaries of GM and associated entities. GMIMCo is serving as First Plaza's investment manager with respect to these shares and in that capacity it has the sole power to direct the Trustee as to the voting and disposition of these shares. Because of the Trustee's limited role, beneficial ownership of the shares by the Trustee is disclaimed.
(Footnotes continued on following page) 67 (Footnotes continued from preceding page) (c) Includes 260,000 shares for which Morgan Stanley Group exercises exclusive voting rights but as to which it disclaims beneficial ownership. (d) Includes 505,537 shares subject to acquisition within 60 days by exercise of employee stock options. (e) Includes 562,347 shares subject to acquisition within 60 days by exercise of employee stock options. (f) Includes 119,008 shares subject to acquisition within 60 days by exercise of employee stock options. (g) Includes 141,927 shares subject to acquisition within 60 days by exercise of employee stock options. (h) Includes 102,323 shares subject to acquisition within 60 days by exercise of employee stock options. (i) Includes 1,897,681 shares subject to acquisition within 60 days by exercise of employee stock options.
CERTAIN TRANSACTIONS STOCKHOLDERS AGREEMENT The Company, Morgan Stanley Group, MSLEF II, certain other investors and the Management Investors (each, a "Holder") have entered into a stockholders agreement (the "Stockholders Agreement"), which contains certain restrictions with respect to the transferability of Common Stock by certain parties thereunder, certain registration rights granted by the Company with respect to such shares and certain arrangements with respect to the nomination of designees to the Board of Directors. Pursuant to the terms of the Stockholders Agreement, in the event that one or more Holders (other than certain individual investors including the Management Investors) (each, a "Controlling Shareholder") sell a majority of the shares of Common Stock subject to the Stockholders Agreement to a third party, certain other Holders have the right to elect to sell on the same terms the same percentage of such other Holder's shares to the third party as the Controlling Shareholder is selling of its shares of Common Stock. In addition, if a Controlling Shareholder sells all of its shares of Common Stock to a third party, the Controlling Shareholder has the right to require that certain remaining Holders sell all of their shares to the third party on the same terms. Pursuant to the terms of the Stockholders Agreement, Holders of specified percentages of Common Stock will be entitled to certain demand registration rights ("Demand Rights") with respect to shares of Common Stock held by them; provided, however, that the Company (or purchasers designated by the Company) shall have the right to purchase at fair market value the shares which are the subject of Demand Rights in lieu of registering such shares of Common Stock. In addition to the Demand Rights, Holders are, subject to certain limitations, entitled to register shares of Common Stock in connection with a registration statement prepared by the Company to register its equity securities. The Stockholders Agreement contains customary terms and provisions with respect to, among other things, registration procedures and certain rights to indemnification granted by parties thereunder in connection with the registration of Common Stock subject to such agreement. Pursuant to the terms of the Stockholders Agreement, MSLEF II and Fort Howard Equity Investors II each have the right to have a designee nominated for election to the Company's Board of Directors at any annual meeting of the Company's shareholders, so long as MSLEF II or Fort Howard Equity Investors II, as the case may be, does not already have a designee as a member of the Board of Directors at the time of such annual meeting. In addition, in the event of a vacancy on the Board of Directors created by the resignation, removal or death of a director nominated by MSLEF II or Fort Howard Equity Investors II, such shareholders have the right to have a designee nominated for election to fill such vacancy. 68 Pursuant to the Stockholders Agreement, all Holders are subject to an agreement, with certain limited exceptions, not to offer, pledge, sell, contract to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period beginning 7 days before and ending 180 days after the effective date of the Registration Statement in the case of current and former officers and other key employees of the Company (who beneficially own an aggregate of 791,358 shares of Common Stock), and ending one year after the effective date of the Registration Statement in the case of the remaining Holders (who beneficially own an aggregate of 37,309,881 shares of Common Stock), without the prior written consent of certain of the representatives of the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case of the remaining Holders. The Stockholders Agreement also provides that, in connection with any future underwritten offering of Common Stock by the Company, the Holders will not, subject to certain limited exceptions, offer, pledge, sell, contract to sell or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, for a period beginning 7 days before and ending 180 days after the effective date of the related registration statement without the prior written consent of certain of the representatives of the underwriters thereof, in the case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case of the remaining Holders. See "Shares Eligible for Future Sale." THE CUP TRANSFER AND CUP SALES On November 14, 1989, the Company transferred all the capital stock of Fort Howard Cup to Sweetheart, a new company organized on behalf of MSLEF II, the Company and certain executive officers of Sweetheart and other investors in the Cup Transfer. The business transferred to Sweetheart constituted all the Company's U.S. and Canadian disposable foodservice operations. As a result of the Cup Transfer, the Company received: (i) $532.25 million in cash; (ii) 430,172 shares of Sweetheart Class B Common Stock representing 49.9% of the Sweetheart Common Stock then outstanding, with a fair value of $87.4 million and (iii) certain other adjustments. The total value of the cash and other assets received by the Company as a result of the Cup Transfer was approximately $620 million. The Company has not undertaken any guarantees of Sweetheart's indebtedness as a result of the Cup Transfer. On the date of the Cup Transfer, the Sweetheart Class B Common Stock owned by the Company constituted 49.9% of the shares of Sweetheart Common Stock then outstanding, and the Sweetheart Class A Common Stock owned by MSLEF II, Morgan Stanley Group and certain executive officers and key employees of Sweetheart and other investors constituted 22.4%, 14% and 13.7%, respectively, of the shares of Sweetheart Common Stock then outstanding. On December 29, 1989, the Company sold its Pacific Basin cup business for approximately $10.7 million in cash as part of a program to divest its remaining international cup operations. The Company sold its European disposable foodservice operations for a net selling price of approximately $49 million on December 30, 1991. On August 30, 1993, the Company sold all of its Sweetheart Class B Common Stock for $5.1 million. As a result of the completion of the Cup Transfer and the sales of its remaining international cup operations, the Company has divested all of its operating interests in those businesses. OTHER TRANSACTIONS The Company has entered into an agreement with MS&Co for financial advisory services in consideration for which the Company pays MS&Co an annual fee of $1 million. MS&Co is also entitled to reimbursement for all reasonable expenses incurred in performance of the foregoing services. 69 The Company paid MS&Co approximately $1.0 million, $1.0 million and $1.1 million for these and other miscellaneous services in 1994, 1993 and 1992, respectively. This agreement was terminated on December 31, 1994. In connection with the sale of the 8 1/4% Notes and the 9% Notes in 1994, MS&Co received approximately $20.4 million in underwriting fees. In connection with the sale of the 9 1/4% Notes and the 10% Notes in 1993, MS&Co received approximately $19.5 million in underwriting fees. In 1992, MS&Co received approximately $0.7 million in connection with the underwriting of the reissuance of the Company's Development Authority of Effingham County Pollution Control Revenue Refunding Bonds, Series 1988. Based on transactions of similar size and nature, the Company believes the foregoing fees received by MS&Co are no less favorable to the Company than would be available from unaffiliated third parties. MS&Co served as lead underwriter for the initial public offering of the 9 1/4% Notes, the 10% Notes, the 8 1/4% Notes, the 9% Notes, the 12 3/8% Notes, the 12 5/8% Debentures, the 14 1/8% Debentures and the Pass Through Certificates and is a market-maker with respect to such securities. In connection with the repurchases of certain of the Company's securities as described in Note 8 to the audited consolidated financial statements included elsewhere in the Prospectus, $52.8 million aggregate principal amount at maturity of the 14 5/8% Debentures and $132.7 million aggregate principal amount at maturity of the 14 1/8% Debentures were purchased through MS&Co. In addition, $46.5 million and $77.5 million aggregate principal amount at maturity of the 14 1/8% Debentures were purchased from Leeway & Co. and First Plaza Group Trust, respectively, shareholders of the Company. The purchases were made in negotiated transactions at market prices. The Company is a party to an interest rate cap agreement with MS&Co that was purchased in 1994 for $2.1 million. 70 DESCRIPTION OF CERTAIN INDEBTEDNESS The following summary of the instruments governing certain indebtedness of the Company does not purport to be complete and is qualified in its entirety by reference to such instruments, copies of which have been filed, or incorporated by reference, as exhibits to the Registration Statement of which this Prospectus is a part. Capitalized terms used but not defined herein have the meanings ascribed to them in such instruments. THE NEW BANK CREDIT AGREEMENT The Company has entered into a commitment letter dated January 31, 1995 (the "Commitment Letter") with Bankers Trust Company ("Bankers Trust"), Chemical Bank and Bank of America National Trust and Savings Association with respect to the New Bank Credit Agreement and the 1995 Receivables Facility. Set forth below is a description of the New Bank Credit Agreement that the Company contemplates entering into pursuant to the Commitment Letter. General. The New Bank Credit Agreement will provide for the 1995 Term Loan A (in an amount of $810 million), the 1995 Term Loan B (in an amount of $330 million) and the 1995 Revolving Credit Facility (in an amount of $300 million). The 1995 Term Loan A and the 1995 Revolving Credit Facility will each have a final maturity on the seventh anniversary of the consummation of the Offering. The 1995 Term Loan B will have a final maturity of December 31, 2002. It is anticipated that $180.9 million will be borrowed under the 1995 Revolving Credit Facility in connection with the Recapitalization (assuming all components of the Recapitalization are consummated on March 15, 1995) and that the Company will have $119.1 million in available capacity under the 1995 Revolving Credit Facility after the consummation of the Recapitalization. As part of the 1995 Revolving Credit Facility, the New Bank Credit Agreement will provide for the issuance of letters of credit in the normal course of business of up to $50 million. Bankers Trust will provide a $25 million swing line facility within the 1995 Revolving Credit Facility, which is available for working capital and other general corporate purposes. It is anticipated that upon the consummation of the Recapitalization no letters of credit will be outstanding under the New Bank Credit Agreement. Interest. The 1995 Term Loan A and the 1995 Revolving Credit Facility will bear interest, at the Company's option, at Bankers Trust's prime rate, plus 1.50% or, subject to certain limitations, at a reserve adjusted Eurodollar rate, plus 2.50%; the foregoing rates will be subject to adjustment downward based on the ratings by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Services, Inc. ("Moody's") of the Company's long-term senior unsecured debt and/or certain operating performance measures. The 1995 Term Loan B will bear interest, at the Company's option, at Bankers Trust's prime rate, plus 2.00% or, subject to certain limitations, at a reserve adjusted Eurodollar rate, plus 3.00%. 71 Repayment. The New Term Loans and the 1995 Revolving Credit Facility will be subject to mandatory and optional repayments and prepayments. As indicated below, the Company will be required to make scheduled repayments of the New Term Loans. The New Term Loans will be payable in installments on the last day of each six-month period following the date of the closing of the Offering, except that payment of the sixteenth installment shall be made on December 31, 2002. The amount of each installment for the 1995 Term Loan A and the 1995 Term Loan B are as follows:
1995 TERM 1995 TERM INSTALLMENT LOAN A LOAN B - ------------------------------------------------------ --------- --------- (IN MILLIONS) 1st.................................................. $ 0.0 $ 0.0 2nd.................................................. $ 0.0 $ 0.0 3rd.................................................. $ 42.0 $ 2.0 4th.................................................. $ 42.0 $ 2.0 5th.................................................. $ 55.0 $ 2.0 6th.................................................. $ 55.0 $ 2.0 7th.................................................. $ 67.5 $ 2.0 8th.................................................. $ 67.5 $ 2.0 9th.................................................. $ 67.5 $ 2.0 10th.................................................. $ 67.5 $ 2.0 11th.................................................. $ 80.0 $ 2.0 12th.................................................. $ 80.0 $ 2.0 13th.................................................. $ 93.0 $ 45.0 14th.................................................. $ 93.0 $ 45.0 15th.................................................. $ 0.0 $ 110.0 16th.................................................. $ 0.0 $ 110.0
The Company will also be required to make mandatory prepayments of the New Term Loans on or before the last day of March of each year commencing March 31, 1996 and ending on but including March 31, 2002 in an amount equal to 50% of Excess Cash Flow for the year ending on the immediately preceding December 31. "Excess Cash Flow" for any period is defined as the Net Cash Provided From Operations during such period, reduced by the sum, without duplication, of: (i) the scheduled principal payments of the New Term Loans paid during such period; (ii) payments with respect to the principal portion of indebtedness constituting capital leases; (iii) with certain exceptions, each of the following amounts paid during such period: (a) certain mandatory prepayments of the New Term Loans, (b) certain voluntary prepayments of the New Term Loans, (c) scheduled, voluntary or mandatory payments or prepayments of the principal of permitted indebtedness other than intercompany indebtedness, the New Term Loans and certain obligations owed for all or any part of the deferred purchase price of property or services, (d) payments in respect of Consolidated Domestic Capital Expenditures, (e) payments in respect of Consolidated Capital Expenditures (other than Consolidated Domestic Capital Expenditures) but only to the extent not financed with the proceeds of indebtedness (excluding intercompany indebtedness) incurred by a foreign subsidiary, (f) certain permitted payments in respect of equity and (g) certain investments made by the Company and its subsidiaries in joint ventures and foreign subsidiaries. "Net Cash Provided From Operations" for any period is defined as the Adjusted Consolidated Net Income for such period, minus (plus) the increase (decrease), if any, in Adjusted Working Capital from the first day to the last day of such period. "Adjusted Consolidated Net Income" for any period is defined as consolidated net income during such period plus (minus) the sum, without duplication, of the amount of depreciation, depletion, amortization of intangibles, deferred taxes, accreted and zero coupon bond interest and other non-cash 72 expenses (income), losses (gains) or other charges (credits) that, pursuant to GAAP, were deducted (added) in determining such consolidated net income. "Adjusted Working Capital" means, at any time, Consolidated Current Assets minus Consolidated Current Liabilities at such time. "Consolidated Current Assets" means, at any time, the consolidated current assets of the Company and its subsidiaries (whether or not consolidated with the Company for financial reporting purposes and including, without limitation, all receivables subsidiaries) at such time. "Consolidated Current Liabilities" means, at any time, the consolidated current liabilities of the Company and its subsidiaries (whether or not consolidated with the Company for financial reporting purposes and including, without limitation, all receivables subsidiaries) at such time, but excluding the current portion of any long-term indebtedness which would otherwise be included therein and any indebtedness with a maturity which may, by the terms of the instrument evidencing or governing such indebtedness, be extended, renewed or reborrowed by the Company to a date that is later than one year after such time. "Consolidated Capital Expenditures" means, for any period, the sum of: (i) the aggregate of all capital expenditures by the Company and its subsidiaries during such period, plus (ii) to the extent not covered by clause (i) hereof, the aggregate of all expenditures by the Company and its subsidiaries to acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of or interest in, any person, including, without limitation, the amount of any indebtedness of any such acquired person existing at the date of or by reason of such purchase or acquisition, whether or not such indebtedness is assumed or guaranteed by the Company or any subsidiary of the Company, it being understood that each item covered by this clause (ii) shall be deemed incurred as of the date of the applicable acquisition, provided that any indebtedness referred to in this clause (ii) of any acquired person that is not a wholly owned subsidiary of the Company shall only be included in an amount equal to the product of (1) the Company's direct or indirect percentage of equity ownership in such acquired person at the time such indebtedness is incurred or deemed incurred and (2) the amount of such indebtedness. "Consolidated Domestic Capital Expenditures" means, for any period, the sum of: (i) the aggregate of all capital expenditures by the Company and its domestic subsidiaries during such period, plus (ii) to the extent not covered by clause (i) hereof, the aggregate of all expenditures by the Company and its domestic subsidiaries to acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of or interest in, any person, including, without limitation, the amount of any indebtedness of any such acquired person existing at the date of or by reason of such purchase or acquisition, whether or not such indebtedness is assumed or guaranteed by the Company or any subsidiary of the Company, it being understood that each item covered by this clause (ii) shall be deemed incurred as of the date of the applicable acquisition, provided that any indebtedness referred to in this clause (ii) of any acquired person that is not a wholly owned subsidiary of the Company shall only be included in an amount equal to the product of (1) the Company's direct or indirect percentage of equity ownership in such acquired person at the time such indebtedness is incurred or deemed incurred and (2) the amount of such indebtedness. Excess Cash Flow prepayments under the New Bank Credit Agreement will be allocated pro rata between the New Term Loans. The portion of any such prepayment allocable to the 1995 Term Loan A will be applied in the direct order of maturity until such application results in the prepayment in whole of all the amortization payments scheduled to become due in the 12-month period following such date of prepayment, and then on a pro rata basis to the remaining scheduled amortization installments. The portion of any such prepayment allocable to the 1995 Term Loan B will be applied pro rata to the remaining scheduled amortization installments. In the event that any such prepayment is due at a time when the New Term Loans have been fully repaid, the 1995 Revolving Credit Facility commitments 73 will be reduced by an amount equal to the amount of such prepayment and the Company will be required to (a) prepay the 1995 Revolving Credit Facility in an amount equal to the excess, if any, of the aggregate principal amount of the 1995 Revolving Credit Facility then outstanding over the aggregate amount of the 1995 Revolving Credit Facility commitments (after giving effect to such reduction) and (b) retain the remaining amount of such prepayment. The New Term Loans will also provide for mandatory prepayments from proceeds of Asset Sales, permitted sale/leaseback transactions and permitted receivables transactions; provided, however, that no prepayments will be required with respect to any permitted receivables transaction the net proceeds of which are used to pay amounts owing pursuant to the 1995 Receivables Facility, except to the extent that the net proceeds of such receivables transaction exceed the then outstanding principal amount of the 1995 Receivables Facility. "Asset Sale" is defined as the sale, transfer or other disposition after the date of the closing of the Offering (in a single transaction or a series of related transactions) by the Company or any of its subsidiaries of: (i) any of the stock of any of the Company's subsidiaries; (ii) substantially all of the assets of any geographic or other division or line of business of the Company or any of its subsidiaries or (iii) any real property or any other assets (including, without limitation, any assets which do not constitute substantially all of the assets of any geographic or other division or line of business but excluding any assets manufactured, constructed or otherwise produced or purchased for sale to others in the ordinary course of business) of the Company or any of its subsidiaries having a fair value in excess of $2 million; provided that any asset sale described in clause (iii) above shall not be deemed to be an "Asset Sale" unless and until the aggregate amount of the fair value of the proceeds of all such sales after the date of the Offering by the Company and its subsidiaries occurring in any fiscal year of the Company equals or exceeds $10 million. Excluded from Asset Sales are: (A) sales of cash and cash equivalents in the ordinary course of business; (B) sales or other transfers of receivables pursuant to certain permitted receivables transactions; (C) sales of assets effected pursuant to certain permitted sale/leaseback transactions and (D) up to $30 million of dispositions of plants or facilities of the Company, or of a subsidiary of the Company, located outside the United States if the proceeds of such dispositions are redeployed outside the United States within six months following each such disposition. So long as the New Bank Credit Agreement remains in effect, the net cash proceeds of Asset Sales are to be applied to prepay the indebtedness under the New Bank Credit Agreement. It is contemplated that the net cash proceeds from Asset Sales, permitted sale/leaseback transactions and permitted receivables transactions will be applied in the same manner as the Excess Cash Flow prepayments. If the utilization of the 1995 Revolving Credit Facility exceeds the commitment thereunder, the Company will be required to prepay the 1995 Revolving Credit Facility by an amount equal to such excess. The New Term Loans and the 1995 Revolving Credit Facility may be prepaid in whole or in part at any time without premium or penalty (subject to reimbursement of the lender's redeployment costs in the case of a prepayment of Eurodollar loans other than on the last day of the relevant interest period), and the 1995 Revolving Credit Facility commitment may be reduced by the Company in whole or in part at any time without premium or penalty. Security. The indebtedness under the New Bank Credit Agreement will be secured by a first lien (subject to permitted liens) on the Collateral other than certain trade receivables of the Company and its subsidiaries, and will be secured by a second lien on such trade receivables. "Collateral" is defined as the inventory, certain receivables, intellectual property and real property of the Company and certain of its subsidiaries, and the capital stock of or other evidence of the ownership interest in certain of the Company's subsidiaries. 74 Covenants; Events of Default. The New Bank Credit Agreement will contain two financial covenants that require the Company to maintain certain specified ratios at specified times. These financial covenants will be as follows: (i) A requirement that the Company maintain a ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense of not less than 1.25 to 1.00 for the first and second full fiscal quarters (taken as one accounting period) following the Recapitalization, 1.25 to 1.00 for the first, second and third full fiscal quarters (taken as one accounting period) following the Recapitalization and for any period of four consecutive full fiscal quarters (in each case taken as one accounting period) following the Recapitalization not less than the ratio shown below during the indicated period ending December 30: 1996-- 1.40 to 1.00 1997-- 1.50 to 1.00 1998-- 1.60 to 1.00 1999-- 1.75 to 1.00 2000-- 1.85 to 1.00 Thereafter-- 2.00 to 1.00 "Consolidated EBITDA" for any period is defined as the total of the amounts for such period of (a) consolidated net income (subject to certain adjustments), plus (b) provision for taxes based on income, plus (c) total interest expense (including that attributable to capital leases and including, without limitation, to the extent not otherwise included by this clause (c), all interest expense or expenses in the nature of interest expense incurred by any receivables subsidiary), plus (d) depreciation expense, plus (e) amortization expense, plus (f) other non-cash items reducing or deducted in calculating consolidated net income, minus (g) other non-cash items increasing consolidated net income, minus (h) charges against the Company's $20,000,000 special reserve established in respect of certain environmental matters, all as determined on a consolidated basis for the Company and its subsidiaries for such period taken as a single accounting period determined (other than in the case of clause (h)) in conformity with GAAP. "Consolidated Interest Expense" for any period is defined as the sum of: (i) total interest expense for such period (including that attributable to capital leases) of the Company and its subsidiaries on a consolidated basis with respect to all outstanding indebtedness of the Company and its subsidiaries; (ii) net costs under interest rate swap, cap, collar or similar agreements for such period and (iii) to the extent not otherwise included above, all interest expense or expenses in the nature of interest expense incurred by any receivables subsidiary, but excluding interest expense not payable in cash (including amortization of discount), certain fees payable to the administrative agent and the Banks under the New Bank Credit Agreement on or prior to the date of the Offering and the transaction costs relating to the Recapitalization, all as determined on a consolidated basis for the Company and its subsidiaries in conformity with GAAP. (ii) A requirement that the Company maintain at all times a ratio of (a) Senior Secured Indebtedness as of the end of any fiscal quarter to (b) Consolidated EBITDA for the prior four 75 fiscal quarters, of not more than the ratio shown below during the indicated period: September 30, 1995 to December 30, 1995 --4.25 to 1 December 31, 1995 to March 30, 1996 --4.00 to 1 March 31, 1996 to June 29, 1996 --3.90 to 1 June 30, 1996 to September 29, 1996 --3.80 to 1 September 30, 1996 to December 30, 1996 --3.70 to 1 December 31, 1996 to March 30, 1997 --3.45 to 1 March 31, 1997 to June 29, 1997 --3.30 to 1 June 30, 1997 to September 29, 1997 --3.20 to 1 September 30, 1997 to December 30, 1997 --3.10 to 1 December 31, 1997 to December 30, 1998 --3.00 to 1 December 31, 1998 to December 30, 1999 --2.75 to 1 December 31, 1999 to December 30, 2000 --2.50 to 1 Thereafter --2.00 to 1 "Senior Secured Indebtedness" is defined as the following obligations of the Company and/or any of its subsidiaries: (i) the amount of any indebtedness incurred by the Company or any subsidiary of the Company in connection with the 1995 Receivables Facility or any permitted receivables transaction; (ii) that portion of obligations with respect to capital leases which is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) indebtedness incurred with respect to certain permitted sale/leaseback transactions and certain permitted expansion construction financings; (iv) indebtedness of the Company or any subsidiary of the Company that is not Subordinated Indebtedness and is secured by any lien on any property of the Company or any subsidiary of the Company and (v) the full amount of the obligations of the Company or any subsidiary of the Company under any letter of credit issued for the account of the Company or any subsidiary of the Company that are secured by a lien on any property of the Company or any subsidiary of the Company. "Subordinated Indebtedness" is defined as indebtedness of the Company subordinated in right of payment to the obligations of the Company and its subsidiaries under the New Bank Credit Agreement and certain other related documents. The New Bank Credit Agreement will contain additional covenants which, among other things, require the Company: (i) to maintain the properties of the Company and its subsidiaries, together with insurance thereon; (ii) to enter into interest rate agreements with respect to a certain portion of the New Bank Credit Agreement; (iii) to provide certain reports to the Banks and permit inspections by the Banks; (iv) with certain exceptions, to cause subsidiaries accounting for more than 10% of consolidated assets or consolidated revenues of the Company (each a "Material Subsidiary") to provide a guarantee of the Company's obligations under the New Bank Credit Agreement and to secure the same with a pledge of inventory and receivables and (v) with certain exceptions, to pledge the stock of certain Material Subsidiaries. The New Bank Credit Agreement will also contain covenants which, among other things (in each case, subject to certain exceptions): (i) limit the ability of the Company and its subsidiaries to incur additional indebtedness and contingent obligations or grant liens or additional negative pledges in respect of their assets; (ii) limit the investments and capital expenditures which may be made by the Company and its subsidiaries; (iii) limit the ability of the Company and its subsidiaries to make prepayments of subordinated debt and limit the ability of the Company to pay dividends or make other distributions on account of any shares of any class of its capital stock (other than dividends payable solely in other shares of such class of capital stock and cash dividends up to certain specified amounts); (iv) limit the ability of the Company and its subsidiaries to incur obligations under leases or to enter into sale and leaseback transactions; (v) limit the ability of the Company and its subsidiaries to enter into certain transactions or arrangements with certain affiliates of the Company or any holder of 5% or more of any class of its equity securities or affiliates of such holders; (vi) restrict the ability of the Company and its subsidiaries to make fundamental changes and to enter into new lines of business and (vii) limit the ability of the Company or its subsidiaries to dispose of their respective assets. 76 The New Bank Credit Agreement will contain certain events of default which permit the Banks to cease making loans and to declare all amounts outstanding under the New Term Loans and the 1995 Revolving Credit Facility to be due and payable. These events will include, among other things: (i) failure to pay any installment of principal under the New Bank Credit Agreement when due; (ii) failure to pay for five days after the due date any interest or any other amount due under the New Bank Credit Agreement; (iii) default in or relating to other indebtedness of the Company or any of its subsidiaries in a principal amount of $15 million or more individually or $30 million or more in the aggregate; (iv) breach of certain covenants contained in the New Bank Credit Agreement; (v) any representation or warranty contained in the New Bank Credit Agreement or certain other related documents proving to have been false in any material respect when made; (vi) default in the performance of any other terms contained in the New Bank Credit Agreement or certain other related documents without being remedied or waived within 30 days after receipt of notice from the administrative agent or any Bank of such default; (vii) bankruptcy or dissolution of the Company or any of its Material Subsidiaries; (viii) a judgment or attachment involving an amount in excess of $10 million individually or $20 million in the aggregate shall be entered or filed against the Company or any of its Material Subsidiaries which is not discharged within a specified period; (ix) certain ERISA defaults; (x) the invalidity of any guarantee given by a subsidiary of the Company in connection with the New Bank Credit Agreement; (xi) failure to maintain the validity and perfection of any security interest (to the extent required under the New Bank Credit Agreement) with respect to collateral with a fair market value or book value (whichever is greater) of more than $20 million in the aggregate and (xii) a Change in Control. A "Change in Control" under the New Bank Credit Agreement is deemed to have occurred if (i) any person or group other than (x) MSLEF II, Morgan Stanley Group, Fort Howard Equity Investors, Fort Howard Equity Investors II and their respective general or limited partners and affiliates or (y) any employee benefit plan of the Company or any of its affiliates, shall become the beneficial owner of shares representing 25% or more of any outstanding class of capital stock having ordinary voting power in the election of directors of the Company, or (ii) there shall occur during any period after the date of the closing of the Offering a change in the Board of Directors of the Company pursuant to which the individuals who constituted the Board of Directors of the Company at the beginning of such period (together with any other director whose election by the Board of Directors of the Company (or whose nomination by the Board of Directors for election by the shareholders of the Company) was approved by a vote of at least a majority of the directors then in office who either were directors at the beginning of such period or whose election was previously so approved or by a duly authorized committee of the Board of Directors (which committee was designated by at least a majority of directors then in office who either were directors at the beginning of such period or whose election was previously so approved)) cease to constitute 75% of the Board of Directors of the Company at the end of such period. Fees and Expenses. A commitment fee of 0.5% per annum, subject to adjustment based on the ratings by S&P or Moody's of the Company's long-term senior unsecured debt and/or certain operating performance measures, on the unused portion of each Bank's commitment under the 1995 Revolving Credit Facility and the 1995 Term Loan A will be payable to the Banks quarterly in arrears. In addition, an annual agent's commission of $500,000 will be payable to Bankers Trust. Additional facility and syndication fees will be payable to certain of the lenders in connection with the initial funding under the New Bank Credit Agreement in an aggregate amount of $45,750,000. It is contemplated that the Company will agree to pay certain of the Banks' expenses incurred in connection with the New Bank Credit Agreement and to provide the Banks and their respective directors, officers, employees and affiliates with customary indemnification. 1995 RECEIVABLES FACILITY Pursuant to the terms of the Commitment Letter, the Company anticipates that on or prior to the date of the Offering, the Company will enter into the 1995 Receivables Facility with Bankers Trust, Chemical Bank and Bank of America National Trust and Savings Association (collectively, the 77 "Receivables Lenders"). Indebtedness under the 1995 Receivables Facility will be secured solely by a first priority security interest in favor of the Receivables Lenders in all trade receivables of the Company and its U.S. subsidiaries, subject to customary eligibility standards (the "Eligible Receivables"). A second priority security interest in the Receivables will be granted in favor of the Banks to secure the indebtedness of the Company under the New Bank Credit Agreement. The 1995 Receivables Facility will, unless sooner refinanced with the proceeds of the A/R Securitization (defined below), mature on the seventh anniversary of the date of the Offering, and will bear interest at the same rate as the 1995 Term Loan A. The 1995 Receivables Facility will contain covenants and events of default substantially identical to those set forth in the New Bank Credit Agreement. No amortization payments in respect of the 1995 Receivables Facility will be due prior to maturity. To the extent the Eligible Receivables of the Company and its subsidiaries are inadequate to secure the 1995 Receivables Facility, the 1995 Receivables Facility will be cash collateralized. The Company will be required to prepay indebtedness under the New Bank Credit Agreement with any proceeds from the sale of Eligible Receivables in excess of $60 million. Although there is no contractual obligation to do so, subject to favorable market conditions, the Company intends to refinance the 1995 Receivables Facility as soon as practicable after completion of the Offering with the proceeds of a securitized accounts receivables financing (the "A/R Securitization") which will be on terms that are acceptable to the Company and the Banks. PASS THROUGH CERTIFICATES, SERIES 1991 The Pass Through Certificates were issued pursuant to the Amended and Restated Pass Through Trust Agreement dated as of December 13, 1991 between the Company and Wilmington Trust Company, as trustee. The Pass Through Certificates bear interest at 11% per annum and have a final distribution date of January 2, 2002. The Pass Through Certificates represent fractional undivided interests in a pass through trust (the "Pass Through Trust") holding the Pass Through Secured Notes issued on a nonrecourse basis by an owner trustee (the "Owner Trustee") in connection with leveraged lease transactions to finance or refinance not more than 85% of the cost to the Owner Trustee of acquiring the Company's interest in a paper manufacturing facility, power plant and certain equipment related thereto located at the Company's Savannah mill (the "Pass Through Assets"). Simultaneously with the acquisition of the Pass Through Assets by the Owner Trustee, it leased the Pass Through Assets back to the Company pursuant to the Pass Through Certificate Leases. Amounts payable under the Pass Through Certificate Leases will be at least sufficient to pay in full when due all payments of principal and interest on the Pass Through Secured Notes. However, neither the Pass Through Certificates nor the Pass Through Secured Notes are direct obligations of, or guaranteed by, the Company. Prior to December 20, 1998, the Pass Through Certificates may not be redeemed except in connection with an event of loss to a Pass Through Asset, or in certain cases of obsolescence of any Pass Through Asset and during the continuance of any lease event of default with respect to a Pass Through Asset. On or after December 20, 1998, the Pass Through Certificates may be redeemed at any time. Unless earlier redeemed, 74.20% (or $62,041,625) of the principal amount of the Pass Through Certificates will be distributed to the holders thereof on the final distribution date. The Company's obligations under the Pass Through Certificate Leases, which are treated as capital leases, rank pari passu in right of payment with all other general obligations of the Company and are secured by a security interest in all of the Pass Through Assets. The Company's obligations under the New Bank Credit Agreement are secured by essentially all of the Company's assets, including the Company's leasehold interest in the Pass Through Assets. The holders of such indebtedness will be entitled to payment of their indebtedness out of the proceeds of such collateral prior to the holders of any general unsecured obligations of the Company, including the 8 1/4% Notes and the 9% Notes. 78 At December 31, 1994, $84.4 million under the Pass Through Certificate Leases was outstanding. 8 1/4% NOTES The 8 1/4% Notes were issued under an Indenture, dated as of February 1, 1994 (the "8 1/4% Note Indenture"), between the Company and Norwest Bank Wisconsin, N.A. ("Norwest"), as Trustee. The 8 1/4% Notes are senior unsecured obligations of the Company, and rank pari passu in right of payment with other senior indebtedness of the Company and are senior to all existing and future subordinated indebtedness of the Company. The 8 1/4% Notes mature on February 1, 2002, and bear interest at a rate of 8 1/4% per annum. The 8 1/4% Notes currently have a face amount outstanding of $100 million and may not be redeemed prior to maturity. The New Bank Credit Agreement contains a provision prohibiting the optional redemption of the 8 1/4% Notes without the consent of a specified percentage in interest of lenders under the New Bank Credit Agreement. The 8 1/4% Note Indenture also contains a covenant limiting the optional redemption of the 9% Notes. The 8 1/4% Note Indenture contains certain restrictive covenants which impose limitations on the Company and certain of its subsidiaries' ability to, among other things: (i) incur additional indebtedness; (ii) pay dividends and make certain other payments and distributions; (iii) create liens and (iv) merge or consolidate or sell substantially all of the Company's assets. At December 31, 1994, $100 million of aggregate principal amount of 8 1/4% Notes was outstanding. 9 1/4% NOTES The 9 1/4% Notes were issued under an Indenture, dated as of March 15, 1993 (the "9 1/4% Note Indenture"), between the Company and Norwest, as Trustee. The 9 1/4% Notes constitute senior unsecured obligations of the Company, limited to $450 million aggregate principal amount, and will mature on March 15, 2001. The 9 1/4% Notes bear interest at the rate of 9 1/4% per annum. The 9 1/4% Notes are not redeemable prior to maturity. The 9 1/4% Notes rank pari passu with the 8 1/4% Notes and constitute senior indebtedness with respect to the 9% Notes. The New Bank Credit Agreement contains a provision prohibiting the optional redemption of the 9 1/4% Notes without the consent of a specified percentage in interest of lenders under the New Bank Credit Agreement. The 9 1/4% Note Indenture contains certain restrictive covenants which impose limitations on the Company and certain of its subsidiaries' ability to, among other things: (i) incur additional indebtedness; (ii) pay dividends and make other distributions; (iii) create liens and (iv) merge or consolidate or transfer substantially all of the Company's assets. At December 31, 1994, $450 million of aggregate principal amount of 9 1/4% Notes was outstanding. 9% NOTES The 9% Notes were issued under an Indenture, dated as of February 1, 1994 (the "9% Note Indenture"), between the Company and the Bank of New York, as Trustee. The 9% Notes are unsecured senior subordinated obligations of the Company. The 9% Notes mature on February 1, 2006, and bear interest at a rate of 9% per annum. The 9% Notes currently have 79 a face amount outstanding of $650 million, and may be redeemed at the option of the Company, in whole or in part, at any time on or after February 1, 1999, initially at 104.5% of their principal amount and declining to 100% of their principal amount on or after February 1, 2001, in all cases plus accrued interest to the redemption date. In addition, at the option of the Company at any time prior to February 1, 1997, up to $227.5 million aggregate principal amount of 9% Notes are redeemable, at 109% plus accrued interest, from the proceeds of a public equity offering. The New Bank Credit Agreement contains a provision prohibiting the optional redemption of the 9% Notes without the consent of a specified percentage in interest of lenders under the New Bank Credit Agreement. The 9% Note Indenture contains certain restrictive covenants which impose limitations on the Company and certain of its subsidiaries' ability to, among other things: (i) incur additional indebtedness; (ii) pay dividends and make certain other payments and distributions; (iii) create liens and (iv) merge or consolidate or sell substantially all of the Company's assets. At December 31, 1994, $650 million of aggregate principal amount of 9% Notes was outstanding. 10% NOTES The 10% Notes were issued under an Indenture, dated as of March 15, 1993 (the "10% Note Indenture"), between the Company and United States Trust Company of New York ("U.S. Trust"), as Trustee. The 10% Notes constitute unsecured subordinated obligations of the Company, limited to $300 million aggregate principal amount, and will mature on March 15, 2003. The 10% Notes bear interest at the rate of 10% per annum. The 10% Notes are redeemable at any time on or after March 15, 1998 at 105.0% of the principal amount thereof, on or after March 15, 1999 at 103.75% of the principal amount thereof, on or after March 15, 2000 at 102.50% of the principal amount thereof, on or after March 15, 2001 at 101.25% of the principal amount thereof, and after March 15, 2002, at 100% of the principal amount thereof, in each case together with accrued and unpaid interest to the redemption date. In addition, at any time prior to March 15, 1995, the Company may redeem up to $75 million aggregate principal amount of 10% Notes with the proceeds of one or more public equity offerings following which there is a public market, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 110%, plus accrued interest to the redemption date. The 10% Notes are subordinated to the 8 1/4% Notes and the 9% Notes. The New Bank Credit Agreement contains a provision prohibiting the optional redemption of the 10% Notes without the consent of a specified percentage in interest of lenders under the New Bank Credit Agreement. The 9 1/4% Note Indenture also contains a covenant limiting the optional redemption of the 10% Notes. At December 31, 1994, $300 million of aggregate principal amount of 10% Notes was outstanding. SENIOR SECURED NOTES The Senior Secured Notes were issued pursuant to the Senior Secured Note Purchase Agreement, dated as of September 11, 1991 (the "Senior Secured Note Agreement"). The Senior Secured Notes are limited to $300 million aggregate principal amount and have been issued in five series, Series A, B, C1, C2 and D, maturing in years 1997 through 2000. Series A, B, C1, C2 and D of the Senior Secured Notes bear interest at three-month LIBOR plus 275 basis points, 300 basis points, 325 basis points, 300 basis points, and 350 basis points, respectively. 80 The Senior Secured Notes contain certain restrictive and financial covenants and events of default that are substantially similar to those contained in the 1988 Bank Credit Agreement. At December 31, 1994, $300 million of aggregate principal amount Senior Secured Notes was outstanding. The Senior Secured Notes will be redeemed in whole in connection with the Recapitalization. See "Use of Proceeds." 12 5/8% DEBENTURES The 12 5/8% Debentures were issued under an Indenture dated as of November 1, 1988 (the "12 5/8% Debenture Indenture"), between the Company and U.S. Trust, as Trustee. The 12 5/8% Debentures constitute unsecured subordinated obligations of the Company, and will mature on November 1, 2000, respectively. The 12 5/8% Debentures bear interest at a rate of 12 5/8% per annum. The 12 5/8% Debentures are subordinated in right of payment to the 8 1/4% Notes and 9 1/4% Notes and rank pari passu with the 10% Notes. The 12 5/8% Debentures are redeemable at the option of the Company at 102.5% of the principal amount thereof on or after November 1, 1994, and decreasing to 100% of the principal amount after October 31, 1995, in each case together with accrued and unpaid interest to the redemption date. The 12 5/8% Debenture Indenture contains certain restrictive covenants similar to those contained in the 8 1/4% Note Indenture and the 9% Note Indenture. At December 31, 1994, $145.8 million of aggregate principal amount of 12 5/8% Debentures was outstanding. All outstanding 12 5/8% Debentures will be redeemed in connection with the Recapitalization. See "Use of Proceeds." 14 1/8% DEBENTURES The 14 1/8% Debentures were issued under an Indenture dated as of November 1, 1988 (the "14 1/8% Debenture Indenture"), between the Company and Society National Bank, as Trustee. The 14 1/8% Debentures constitute unsecured subordinated obligations of the Company. The 14 1/8% Debentures currently have a face amount outstanding of approximately $567 million and will mature on November 1, 2004. No interest is payable on the 14 1/8% Debentures prior to May 1, 1995. From and after November 1, 1994, interest on the 14 1/8% Debentures accrues at a rate of 14 1/8% per annum. The 14 1/8% Debentures are subordinated to the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes, the 10% Notes and the 12 5/8% Debentures until redeemed as described herein. The 14 1/8% Debentures are redeemable at any time at the option of the Company at a redemption price equal to 100% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. The 14 1/8% Debenture Indenture contains certain limited covenants which restrict the Company's ability to pay dividends on or repurchase or retire Common Stock prior to November 1, 1994 or to merge or consolidate or transfer substantially all of its assets. At December 31, 1994, $566.9 million of aggregate principal amount of 14 1/8% Debentures was outstanding. The 14 1/8% Debentures will be redeemed in whole in connection with the Recapitalization. See "Use of Proceeds." OTHER DEBT OF THE COMPANY In addition to borrowings under the 1988 Bank Credit Agreement, the 1993 Term Loan Agreements, the Senior Secured Note Agreement, the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes, the 10% Notes, the 12 5/8% Debentures, the 14 1/8% Debentures and the Pass Through Certificates at December 31, 1994, the Company and its subsidiaries had outstanding approximately $187.7 million of other long-term debt (including the current portion thereof). 81 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company will consist of 100,000,000 shares of Common Stock, par value $.01 per share and 50,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The following summary does not purport to be complete and is subject to the detailed provisions of, and qualified in its entirety by reference to, the Certificate of Incorporation and By-laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part, and to the applicable provisions of the General Corporation Law of the State of Delaware (the "DGCL"). COMMON STOCK Upon completion of the Offering, the Company will have 60,101,239 shares of Common Stock outstanding, assuming no exercise of any options granted by the Company. Voting Rights. Each share of Common Stock entitles the holder thereof to one vote in elections of directors and all other matters submitted to a vote of shareholders. Dividends. Each share of Common Stock has an equal and ratable right to receive dividends to be paid from the Company's assets legally available therefor when, as and if declared by the Board of Directors. Since the Acquisition, the Company has not declared or paid any cash dividends on any class of its capital stock, and currently does not intend to pay dividends on the Common Stock. The New Bank Credit Agreement, 1995 Receivables Facility and the indentures governing the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes and the 10% Notes limit, in each case with certain exceptions, the ability of the Company to pay dividends on the Common Stock. Delaware law generally requires that dividends are payable only out of a company's surplus or current net profits in accordance with the DGCL. The Company would be permitted under Delaware law to pay dividends out of its current net profits, despite its shareholders' deficit. See "Dividend Policy." Liquidation. Subject to the rights of any holders of Preferred Stock outstanding, upon the dissolution, liquidation or winding up of the Company, the holders of Common Stock are entitled to share equally and ratably in the assets available for distribution after payments are made to the Company's creditors. Other. The holders of shares of Common Stock offered hereby have no preemptive, subscription, redemption or conversion rights and are not liable for further call or assessment. All of the outstanding shares of Common Stock are, and the Common Stock offered hereby will be, fully paid and nonassessable. Since the Acquisition, there has been no public market for the Common Stock. Although the Common Stock has been approved for listing on the Nasdaq National Market, there can be no assurance that an active trading market will develop for the Common Stock. Following consummation of the Offering, MS&Co will be prohibited by the rules of the New York Stock Exchange from making a market in the Common Stock. The initial public offering price for the Common Stock will be determined by negotiations among the Company and the representatives of the Underwriters in accordance with the recommendation of CS First Boston, the "qualified independent underwriter," as required by the by-laws of the NASD, and may not be indicative of the market price for the Common Stock after the Offering. See "Certain Risk Factors--Absence of Prior Public Market." PREFERRED STOCK The Board of Directors of the Company is authorized, without further shareholder action, to divide any or all shares of authorized Preferred Stock into one or more series and to fix and determine the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereon, of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion or exchange privileges. As of the date of this 82 Prospectus, the Board of Directors of the Company has not authorized any series of Preferred Stock and there are no plans, agreements or understandings for the issuance of any shares of Preferred Stock. RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS Shareholders' rights and related matters are governed by the DGCL, the Certificate of Incorporation and By-laws. Certain provisions of the Certificate of Incorporation and the By-laws, which are summarized below, may discourage or make more difficult a takeover attempt that a shareholder might consider in its best interest. Such provisions may also adversely affect prevailing market prices for the Common Stock. See "Certain Risk Factors--Anti-Takeover Effects of Provisions of the Restated Certificate of Incorporation and By-laws." Classified Board of Directors and Related Provisions. The Certificate of Incorporation will provide that the Board of Directors of the Company be divided into three classes of directors serving staggered three-year terms. The classes of directors will be as nearly equal in number as possible. Accordingly, approximately one-third of the Company's Board of Directors will be elected each year. See "Management--Directors." The classified board provision will prevent a party who acquires control of a majority of the outstanding voting stock of the Company from obtaining control of the Board of Directors until the second annual shareholders meeting following the date such party obtains the controlling interest. The provisions of the Certificate of Incorporation relating to the classified nature of the Company's Board of Directors may not be amended without the affirmative vote of the holders of at least 80% of the Company's outstanding voting stock. The Certificate of Incorporation will provide that the number of directors will be no greater than fifteen or less than three. The Certificate of Incorporation will provide that directors may not be removed without cause and that any vacancies on the Board of Directors may only be filled by the remaining directors and not by the shareholders. These provisions will preclude shareholders from removing incumbent directors without cause and filling the resulting vacancies with their own nominees. No Shareholder Action by Written Consent; Special Meeting. The Certificate of Incorporation will prohibit shareholders from taking action by written consent in lieu of an annual or special meeting, and thus shareholders may only take action at an annual or special meeting called in accordance with the By-laws. The Certificate of Incorporation and By-laws will provide that special meetings of shareholders may only be called by the Chief Executive Officer or a majority of the Board of Directors. Special meetings may not be called by the shareholders. Advance Notice Requirements for Shareholder Proposals and Director Nominations. The Certificate of Incorporation and By-laws will establish advance notice procedures with regard to shareholder proposals and the nomination, other than by or at the direction of the Board of Directors or a committee thereof, of candidates for election as directors. These procedures provide that the notice of shareholder proposals and shareholder nominations for the election of directors at an annual meeting must be in writing and received by the Secretary of the Company not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the shareholder in order to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. The notice of shareholder nominations must set forth certain information with respect to the shareholder giving the notice and with respect to each nominee. Indemnification. The Certificate of Incorporation and By-laws will provide that the Company shall advance expenses to and indemnify each director and officer of the Company to the fullest extent permitted by law. Amendments. Shareholders may adopt, alter, amend or repeal provisions of the By-laws only by vote of the holders of 80% or more of the outstanding Common Stock and any other voting securities. In addition, the affirmative vote of the holders of 80% or more of the outstanding Common Stock and any 83 other voting securities is required to amend certain provisions of the Certificate of Incorporation, including the provisions referred to above relating to the classification of the Company's Board of Directors, filling vacancies on the Board of Directors, removal of directors only for cause, prohibiting shareholder action by written consent, prohibiting the calling of special meetings by shareholders and approval of amendments to the By-laws. LIMITATIONS ON DIRECTORS' LIABILITY The Certificate of Incorporation will provide that no director of the Company shall be personally liable to the Company or its shareholders for monetary damages for any breach of fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Company or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) in respect of certain unlawful dividend payments or stock redemptions or purchases or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions will be to eliminate the rights of the Company and its shareholders (through shareholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. These provisions will not limit the liability of directors under federal securities laws and will not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Section 203 of DGCL prohibits certain transactions between a Delaware corporation and an "interested shareholder," which is defined as a person who, together with any affiliates and/or associates of such person, beneficially owns, directly or indirectly, 15 percent or more of the outstanding voting shares of a Delaware corporation. This provision prohibits certain business combinations (defined broadly to include mergers, consolidations, sales or other dispositions of assets having an aggregate value of 10 percent or more of the consolidated assets of the corporation, and certain transactions that would increase the interested shareholder's proportionate share ownership in the corporation) between an interested shareholder and a corporation for a period of three years after the date the interested shareholder acquired its stock, unless: (i) the business combination is approved by the corporation's board of directors prior to the date the interested shareholder acquired shares; (ii) the interested shareholder acquired at least 85 percent of the voting stock of the corporation in the transaction in which it became an interested shareholder or (iii) the business combination is approved by a majority of the board of directors and by the affirmative vote of two-thirds of the outstanding voting stock owned by disinterested shareholders at an annual or special meeting. A Delaware corporation, pursuant to a provision in its certificate of incorporation or by-laws, may elect not to be governed by Section 203 of the DGCL. The Company will not make such an election and, as a result, the Company will be subject to the provisions of Section 203 of the DGCL upon consummation of the Offering. REGISTER AND TRANSFER AGENT Chemical Bank will act as Registrar and Transfer Agent for the Common Stock. 84 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of the Offering, the Company will have 60,101,239 shares of common stock outstanding, assuming no exercise of any options granted by the Company. Of these shares, the 22,000,000 shares of Common Stock issued in the Offering will be tradeable without restriction or further registration under the Securities Act, except for any of such shares held by "affiliates" (as defined under the Securities Act) of the Company. The remaining 38,101,239 shares of common stock will be deemed "restricted" securities within the meaning of Rule 144. Neither shares held by an affiliate nor restricted securities may be publicly sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Of such shares of common stock which are deemed to be restricted securities as described above, approximately 13,771,051 shares may be freely tradeable under Rule 144 by the holders thereof (subject, in certain cases, to certain transfer restrictions contained in the Stockholders Agreement) and, if certain partnerships (including MSLEF II) which currently own such restricted shares of common stock distribute to their respective partners all of their current holdings, approximately up to an additional 20,889,290 shares could become freely tradeable under Rule 144(k) by the partners of such partnerships. Generally, Rule 144 provides that a person who has owned restricted securities for at least two years, or who may be deemed an "affiliate" of the Company, is entitled to sell, within any three-month period, up to the number of restricted securities that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock or (ii) the average weekly trading volume during the four calendar weeks preceding the date on which notice of sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are subject to certain restrictions relating to manner of sale, volume of sales and the availability of current public information about the Company. In addition, restricted securities that have been held for at least three years by a person who has not been an "affiliate" of the Company during the preceding three months may be sold under Rule 144(k) without regard to the volume limitations or current public information or manner of sale requirements of Rule 144. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through the use of one or more intermediaries, controls, or is controlled by, or is under the common control with, such issuer. Pursuant to the Underwriting Agreement the Company has agreed, and pursuant to the Stockholders Agreement all current shareholders of the Company are subject to an agreement, with certain limited exceptions, not to offer, pledge, sell, contract to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period beginning 7 days before and ending 180 days after the effective date of the Registration Statement in the case of current and former officers and other key employees of the Company (who beneficially own an aggregate of 791,358 shares of Common Stock), and ending one year after the effective date of the Registration Statement in the case of the remaining shareholders (who beneficially own an aggregate of 37,309,881 shares of Common Stock), without the prior written consent of certain of the representatives of the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See "Underwriters." Pursuant to the terms of the Stockholders Agreement, holders of specified percentages of Common Stock are entitled to certain demand registration rights with respect to shares of Common Stock held by them provided, however, that the Company (or purchasers designated by the Company) has the right to purchase at fair market value the shares which are the subject of Demand Rights in lieu of registering such shares of Common Stock. In addition to the Demand Rights, holders are entitled, subject to certain limitations, to register shares of Common Stock in connection with a registration statement prepared by the Company to register its equity securities. 85 Subject to the one year lock-up period described above, Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II may choose to dispose of the Common Stock owned by them. The timing of such sales or other dispositions by such shareholders (which could include distributions to MSLEF II's, Fort Howard Equity Investors' and Fort Howard Equity Investors II's partners) will depend on market and other conditions, but could occur relatively soon after the one year lock-up period, including pursuant to the exercise of their registration rights. MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II are unable to predict the timing of sales by any of their limited partners in the event of a distribution to them. Such dispositions could be privately negotiated transactions or public sales. Prior to the Offering, there has been no public market for the Common Stock. Trading of the Common Stock is expected to commence following the completion of the Offering. There can be no assurance that an active trading market will develop or continue after the completion of the Offering or that the market price of the Common Stock will not decline below the initial public offering price. Following consummation of the Offering, MS&Co will be prohibited by the rules of the New York Stock Exchange from making a market in the Common Stock. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Stock (including shares issued upon the exercise of stock options) in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock or the ability of the Company to raise capital through a public offering of its equity securities. See "Certain Risk Factors--Absence of Prior Public Market." CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK The following is a general discussion of certain United States federal income and estate tax consequences of the ownership and disposition of Common Stock by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is an individual or entity other than: (i) a citizen or resident of the United States; (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state or (iii) an estate or trust, the income of which is includible in gross income for United States federal income tax purposes regardless of its source. The term "Non-U.S. Holder" does not include individuals who were United States citizens within the ten-year period immediately preceding the date of this Prospectus and whose loss of United States citizenship had as one of its principal purposes the avoidance of United States taxes. This discussion is based on current law, which is subject to change and is for general information only. There are a number of proposed changes to existing law under President Clinton's 1996 Tax Proposals that affect the taxation of income earned by foreign trusts and their beneficiaries, and the taxation of citizens or residents of the U.S. who abandon their U.S. citizenship or residence. It is not clear whether these proposals will ultimately be enacted, but holders should consult with their tax advisors concerning the possible effect of such proposed legislation. This discussion does not address aspects of United States federal taxation other than income and estate taxation and does not address all aspects of income and estate taxation, nor does it consider any specific facts or circumstances that may apply to a particular Non-U.S. Holder. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK. DIVIDENDS In general, dividends paid to a Non-U.S. Holder will be subject to United States withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty) unless the dividends are either (i) effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or (ii) if certain income tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder. Dividends effectively connected with such a United States trade or business or attributable to such a United States permanent establishment generally will not be subject to withholding tax (if the Non-U.S. Holder files certain forms, including IRS Form 4224, 86 with the payor of the dividend) and generally will be subject to United States federal tax on a net income basis, in the same manner as if the Non-U.S. Holder were resident of the United States. In the case of a Non-U.S. Holder that is a corporation, dividend income so connected or attributable may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the repatriation from the United States of its effectively connected earnings and profits subject to certain adjustments) at a 30% rate (or a lower rate prescribed by an applicable income tax treaty). For purposes of determining whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by an applicable tax treaty, the Company ordinarily will presume that dividends paid to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. However, under United States Treasury regulations proposed in 1984 that have not been finally adopted, to claim the benefits of an applicable tax treaty, a Non-U.S. Holder of Common Stock would be required to file certain information forms with the payor of the dividends. A Non-U.S. Holder that is eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the IRS. SALE OF COMMON STOCK In general, a Non-U.S. Holder will not be subject to United States federal income tax on any gain recognized upon the disposition of Common Stock unless: (i) the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or, alternatively, if certain tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder (and in either such case, the branch profits tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual and holds shares of stock as a capital asset, such individual is present in the United States for 183 days or more in the taxable year of disposition, and either (a) such individual has a "tax home" (as defined for United States federal income tax purposes) in the United States, or (b) the gain is attributable to an office or other fixed place of business maintained by such individual in the United States; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of United States tax law applicable to certain United States expatriates; or (iv) the Company is or has been a United States real property holding corporation (a "USRPHC") for United States federal income tax purposes (which the Company does not believe that it is or is likely to become) at any time within the shorter of the five-year period preceding such disposition or such Non-U.S. Holder's holding period. If the Company were or were to become a USRPHC, gains realized upon a disposition of Common Stock by a Non-U.S. Holder which did not directly or indirectly own more than 5% of the Common Stock during the shorter of the periods described above generally would not be subject to United States federal income tax so long as the Common Stock is "regularly traded" on an established securities market. ESTATE TAX Common Stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States federal estate tax. BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS The Company must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or 87 agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established. United States backup withholding (which generally is imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) and information reporting generally will not apply to dividends paid on Common Stock to a Non-U.S. Holder at an address outside the United States. The payment of proceeds from the disposition of Common Stock to or through a United States office of a broker will be subject to information reporting and backup withholding unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Holder, or otherwise establishes an exemption. The payment of proceeds from the disposition of Common Stock to or through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from the disposition of Common Stock paid to or through a non-United States office of a broker that is: (i) a United States person; (ii) a "controlled foreign corporation" for United States federal income tax purposes or (iii) a foreign person 50% or more of whose gross income from certain periods is effectively connected with a United States trade or business, (a) backup withholding will not apply unless such broker has actual knowledge that the owner is not a Non-U.S. Holder, and (b) information reporting will apply unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder (and the broker has no actual knowledge to the contrary). Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's United States federal income tax liability, if any, provided that the required information is furnished to the IRS. 88 UNDERWRITERS Under the terms and subject to the conditions in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters named below, for whom MS&Co, CS First Boston and Salomon Brothers Inc are serving as U.S. Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, and the International Underwriters named below, for whom MS&Co International, CS First Boston Limited, Salomon Brothers International Limited and S.G.Warburg Securities Limited are serving as International Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, the respective number of shares of the Common Stock set forth opposite the names of such Underwriters below:
NAME NUMBER OF SHARES - ----------------------------------------------------------- ---------------- U.S. Underwriters: Morgan Stanley & Co. Incorporated........................ CS First Boston Corporation.............................. Salomon Brothers Inc..................................... ---------------- Subtotal............................................. 17,600,000 ---------------- International Underwriters: Morgan Stanley & Co. International Limited............... CS First Boston Limited.................................. Salomon Brothers International Limited................... S.G.Warburg Securities Limited........................... ---------------- Subtotal............................................. 4,400,000 ---------------- Total...................................................... 22,000,000 ---------------- ----------------
The U.S. Underwriters and the International Underwriters are collectively referred to as the "Underwriters," and the U.S. Representatives and the International Representatives are collectively referred to as the "Representatives." The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby if any such shares are taken. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any U.S. Shares (as defined below) for the account of anyone other than a United States or Canadian Person (as defined below) and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any International Shares (as defined below) for the account of 89 any United States or Canadian Person and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters are referred to herein as the "U.S. Shares" and the "International Shares," respectively. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price of any shares sold shall be the Price to Public set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares of Common Stock, directly or indirectly, in any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any shares of Common Stock a notice stating in substance that, by purchasing such Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Common Stock in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and that such dealer will deliver to any other dealer to whom it sells any of such Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that: (i) it has not offered or sold and will not offer or sell any shares of Common Stock in the United Kingdom by means of any document (other than in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of Common Stock offered hereby in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the shares of Common Stock, other than any document which consists of, or is a part of, listing particulars, supplementary listing particulars or any other document required or permitted to be published by listing rules under Part IV of the Financial Services Act 1986, if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988. The Underwriters initially propose to offer part of the Common Stock directly to the public at the Price to Public set forth on the cover page hereof and part to certain dealers at a price which represents a concession not in excess of $ per share under the Price to Public. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or 90 to certain dealers. After the initial offering of the Common Stock the offering price and other selling terms may from time to time be varied by the Representatives. Pursuant to the Underwriting Agreement, the Company has granted to the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to 3,300,000 additional shares of Common Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, made in connection with the Offering. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered by the U.S. Underwriters hereby. The Common Stock has been approved for listing on the Nasdaq National Market under the symbol "FORT." Pursuant to the Underwriting Agreement, the Company has agreed that, without the prior written consent of the U.S. Representatives, it will not register for sale or offer, pledge, sell, contract to sell or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, for a period beginning 7 days before and ending 180 days after the effective date of the Registration Statement, other than: (i) the shares of Common Stock offered hereby; (ii) any shares of Common Stock issued upon the exercise of an option or warrant or the conversion of a security outstanding on the date of the Underwriting Agreement and (iii) any shares of Common Stock issued pursuant to existing employee benefit plans of the Company. Pursuant to the Stockholders Agreement, all current shareholders of the Company are subject to an agreement, with certain limited exceptions, not to offer, pledge, sell, contract to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period beginning 7 days before and ending 180 days after the effective date of the Registration Statement in the case of current and former officers and other key employees of the Company (who beneficially own an aggregate of 791,358 shares of Common Stock), and ending one year after the effective date of the Registration Statement in the case of the remaining shareholders (who beneficially own an aggregate of 37,309,881 shares of Common Stock), without the prior written consent of certain of the representatives of the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case of the remaining shareholders. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Upon consummation of the Offering, affiliates of MS&Co will own approximately 39.8% of the outstanding shares of Common Stock (37.7% if the Underwriters' over-allotment option is exercised in full). See "Ownership of Common Stock." For a description of certain transactions between the Company, MSLEF II, MS&Co and affiliates of MS&Co, see "Certain Transactions." The provisions of Schedule E ("Schedule E") to the by-laws of the NASD apply to the Offering. Accordingly, the public offering price can be no higher than that recommended by a "qualified independent underwriter." The NASD requires that the "qualified independent underwriter" (i) be an NASD member experienced in the securities or investment banking business and (ii) not be an affiliate of the issuer of the securities and (iii) agree to undertake the responsibilities and liabilities of an underwriter under the Securities Act. In accordance with this requirement, CS First Boston is serving in such role, and the initial public offering price of the Common Stock offered hereby is not higher than CS First Boston's recommended initial public offering price. CS First Boston also participated in the preparation of the Registration Statement of which this Prospectus is a part and has performed due diligence with respect thereto. The Company has agreed to indemnify CS First Boston against certain liabilities, including liabilities under the Securities Act. 91 Pursuant to the provisions of Schedule E, NASD members may not execute transactions in Common Stock offered hereby to any accounts over which they exercise discretionary authority without prior written approval of the customer. The Company has reserved up to 1,100,000 shares of Common Stock, representing approximately 5% of the shares of Common Stock to be sold in the Offering, for sale to certain of its directors, officers and other employees. If such shares are not so sold to directors, officers and other employees of the Company, they will be sold to the public. From time to time MS&Co has provided, and continues to provide, investment banking services to the Company and its affiliates. See "Certain Transactions." PRICING OF THE OFFERING Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined by negotiations among the Company and the Representatives in accordance with the recommendation of CS First Boston, the "qualified independent underwriter," as is required by the by-laws of the NASD. Among the factors which were considered in determining the initial public offering price were the sales, earnings and certain other financial and operating information of the Company in recent periods, the future prospects of the Company and its industry in general, and certain ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. LEGAL MATTERS The validity of the Common Stock and certain other legal matters relating to the Offering have been passed upon for the Company by Shearman & Sterling, New York, New York. Certain legal matters have been passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. Shearman & Sterling regularly represents Morgan Stanley Group and MSLEF II on a variety of legal matters. Davis Polk & Wardwell is currently representing the Company in connection with the CID issued by the U.S. Department of Justice, Antitrust Division and the Company's anticipated appeal of the U.S. Tax Court decision discussed under "Business--Legal Proceedings." Shortly after the Acquisition, certain partners of Davis Polk & Wardwell, acting through a general partnership, acquired shares of Common Stock of the Company from Morgan Stanley Group which, in the aggregate, amount to less than 1% of the outstanding shares. EXPERTS The consolidated financial statements and schedules of the Company included in this Prospectus and elsewhere in this Registration Statement for the years ended December 31, 1994, 1993 and 1992 have been audited by Arthur Andersen LLP, independent public accountants, as indicated by their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 92 ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement (which term shall encompass any amendment thereto) on Form S-1 under the Securities Act, with respect to the shares of Common Stock offered hereby. 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. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Upon completion of the Offering, the Company will be subject to the informational requirements of the Exchange Act, and in accordance therewith will file reports and other information with the Commission. The Registration Statement and the exhibits and schedules thereto, as well as all such reports and other information filed with the Commission, may be inspected at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and are also available for inspection and copying at prescribed rates at the regional offices of the Commission located at 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and at the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. 93 FORT HOWARD CORPORATION INDEX TO FINANCIAL STATEMENTS
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS OF FORT HOWARD CORPORATION Report of Independent Public Accountants........................................... F-2 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992............................................................................. F-3 Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992......................................................................... F-5 Notes to Consolidated Financial Statements......................................... F-6
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of FORT HOWARD CORPORATION: We have audited the accompanying consolidated balance sheets of Fort Howard Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income and cash flows for the years ended December 31, 1994, 1993 and 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fort Howard Corporation and subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 10 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for postretirement benefits other than pensions. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, January 31, 1995 F-2 FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1994 1993 1992 ---------- ----------- ---------- Net sales............................................. $1,274,445 $ 1,187,387 $1,151,351 Cost of sales......................................... 867,357 784,054 726,356 ---------- ----------- ---------- Gross income.......................................... 407,088 403,333 424,995 Selling, general and administrative................... 110,285 96,966 97,620 Amortization of goodwill.............................. -- 42,576 56,700 Goodwill write-off.................................... -- 1,980,427 -- Environmental charge.................................. 20,000 -- -- ---------- ----------- ---------- Operating income (loss)............................... 276,803 (1,716,636) 270,675 Interest expense...................................... 337,701 342,792 338,374 Other (income) expense, net........................... 118 (2,996) 2,101 ---------- ----------- ---------- Loss before taxes..................................... (61,016) (2,056,432) (69,800) Income taxes (credit)................................. (18,891) (16,314) (398) ---------- ----------- ---------- Loss before extraordinary items and adjustment for accounting change..................................... (42,125) (2,040,118) (69,402) Extraordinary items--losses on debt repurchases (net of income taxes of $14,731 in 1994 and $7,333 in 1993)............................................... (28,170) (11,964) -- Adjustment for adoption of SFAS No. 106 (net of income taxes of $6,489).................................... -- -- (10,587) ---------- ----------- ---------- Net loss.............................................. $ (70,295) $(2,052,082) $ (79,989) ---------- ----------- ---------- ---------- ----------- ---------- Loss per share: Net loss before extraordinary items and adjustment for accounting change............................. $ (1.11) $ (53.54) $ (1.82) Extraordinary items................................. (0.74) (0.31) -- Adjustment for adoption of SFAS No. 106............. -- -- (0.28) ---------- ----------- ---------- Net loss............................................ $ (1.85) $ (53.85) $ (2.10) ---------- ----------- ---------- ---------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements. F-3 FORT HOWARD CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, -------------------------- 1994 1993 ----------- ----------- ASSETS Current assets: Cash and cash equivalents....................................... $ 422 $ 227 Receivables, less allowances of $1,589 in 1994 and $2,366 in 1993.......................................................... 123,150 105,834 Inventories..................................................... 130,843 118,269 Deferred income taxes........................................... 20,000 14,000 Income taxes receivable......................................... 5,200 9,500 ----------- ----------- Total current assets........................................ 279,615 247,830 Property, plant and equipment..................................... 1,932,713 1,845,052 Less: Accumulated depreciation.................................. 611,762 516,938 ----------- ----------- Net property, plant and equipment........................... 1,320,951 1,328,114 Other assets...................................................... 80,332 73,843 ----------- ----------- Total assets................................................ $ 1,680,898 $ 1,649,787 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable................................................ $ 100,981 $ 101,665 Interest payable................................................ 84,273 54,854 Income taxes payable............................................ 224 122 Other current liabilities....................................... 75,450 70,138 Current portion of long-term debt............................... 116,203 112,750 ----------- ----------- Total current liabilities................................... 377,131 339,529 Long-term debt.................................................... 3,189,644 3,109,838 Deferred and other long-term income taxes......................... 209,697 243,437 Other liabilities................................................. 41,162 26,088 Common Stock with put right....................................... 11,711 11,820 Shareholders' deficit: Common Stock.................................................... 600,471 600,459 Cumulative translation adjustment............................... (2,330) (5,091) Retained deficit................................................ (2,746,588) (2,676,293) ----------- ----------- Total shareholders' deficit................................. (2,148,447) (2,080,925) ----------- ----------- Total liabilities and shareholders' deficit................. $ 1,680,898 $ 1,649,787 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-4 FORT HOWARD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 -------- ----------- -------- Cash provided from (used for) operations: Net loss............................................... $(70,295) $(2,052,082) $(79,989) Depreciation and amortization.......................... 95,727 130,671 137,977 Goodwill write-off..................................... -- 1,980,427 -- Non-cash interest expense.............................. 74,238 100,844 139,700 Deferred income taxes (credit)......................... (33,832) (17,874) (17,799) Environmental charge................................... 20,000 -- -- Employee stock compensation............................ -- (7,832) 1,120 Pre-tax loss on debt repurchases....................... 42,901 19,297 -- Pre-tax adjustment for adoption of SFAS No. 106........ -- -- 17,076 Increase in receivables................................ (17,316) (2,343) (5,284) Increase in inventories................................ (12,574) (17,294) (1,215) (Increase) decrease in income taxes receivable......... 4,300 (7,000) (2,500) Increase (decrease) in accounts payable................ (684) (2,740) 13,572 Increase (decrease) in interest payable................ 29,419 21,797 (298) Increase (decrease) in income taxes payable............ 102 (1,670) (5,094) All other, net......................................... (6,896) 6,848 12,684 -------- ----------- -------- Net cash provided from operations.................. 125,090 151,049 209,950 Cash used for investment activities: Additions to property, plant and equipment............. (83,559) (165,539) (232,844) Acquisition of Stuart Edgar Limited, net of acquired cash of $749......................................... -- -- (8,302) -------- ----------- -------- Net cash used for investment activities............ (83,559) (165,539) (241,146) Cash provided from (used for) financing activities: Proceeds from long-term borrowings..................... 750,000 887,088 189,518 Repayment of long-term borrowings...................... (759,202) (841,399) (167,731) Debt issuance costs.................................... (32,134) (31,160) -- -------- ----------- -------- Net cash provided from (used for) financing activities....................................... (41,336) 14,529 21,787 -------- ----------- -------- Increase (decrease) in cash.............................. 195 39 (9,409) Cash, beginning of year.................................. 227 188 9,597 -------- ----------- -------- Cash, end of year.................................. $ 422 $ 227 $ 188 -------- ----------- -------- -------- ----------- -------- Supplemental Cash Flow Disclosures: Interest paid.......................................... $237,650 $ 228,360 $208,051 Income taxes paid, net................................. $ 2,483 $ 4,432 $ 9,997
The accompanying notes are an integral part of these consolidated financial statements. F-5 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 1. SIGNIFICANT ACCOUNTING POLICIES (A) Principles of Consolidation--The consolidated financial statements include the accounts of Fort Howard Corporation and all domestic and foreign subsidiaries. Assets and liabilities of foreign subsidiaries are translated at the rates of exchange in effect at the balance sheet date. Income amounts are translated at the average of the monthly exchange rates. The cumulative effect of translation adjustments is deferred and classified as a cumulative translation adjustment in the consolidated balance sheet. The Company does not hedge its translation exposure. The Company does not engage in material hedging activity with respect to foreign currency transaction risks. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to conform prior years' data to the current format. On September 4, 1992, Fort Sterling Limited ("Fort Sterling"), the Company's United Kingdom tissue operations, acquired for $25 million, including debt assumed of $17 million, Stuart Edgar Limited ("Stuart Edgar"), a converter of consumer tissue products with annual net sales approximating $43 million. The operating results of Stuart Edgar are included in the consolidated financial statements since September 4, 1992. (B) Cash and Cash Equivalents--The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of cash equivalents approximates fair value due to the short maturity of the investments. (C) Inventories--Inventories are carried at the lower of cost or market, with cost principally determined on a first-in, first-out basis (see Note 2). (D) Property, Plant and Equipment--Prior to August 9, 1988, property, plant and equipment were stated at original cost and depreciated using the straight-line method. Effective with the Acquisition (as defined below), properties were adjusted to their estimated fair values and are being depreciated on a straight-line basis over useful lives of 30 to 50 years for buildings and 2 to 25 years for equipment. Assets under capital leases principally arose in connection with sale and leaseback transactions as described in Note 9 and are stated at the present value of future minimum lease payments. These assets are amortized over the respective periods of the leases which range from 15 to 25 years. Amortization of assets under capital leases is included in depreciation expense. The Company follows the policy of capitalizing interest incurred in conjunction with major capital expenditure projects. The amounts capitalized in 1994, 1993 and 1992 were $4,230,000, $8,369,000 and $11,047,000, respectively. (E) Revenue Recognition--Sales of the Company's paper products are recorded upon shipment of products. (F) Environmental Expenditures--Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when material environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Recoveries of environmental remediation costs from other potentially responsible parties and recoveries from insurance carriers are not recorded as assets until such time as their receipt is deemed probable and the amounts are reasonably estimable. F-6 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (G) Goodwill--In 1988, FH Acquisition Corp., a company organized on behalf of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), acquired the Company in a leveraged buyout and was subsequently merged with and into the Company (the "Acquisition"). Goodwill (the acquisition costs in excess of the fair value of net assets of acquired businesses) acquired in connection with the Acquisition and the purchases of other businesses was amortized on a straight-line basis over 40 years through the third quarter of 1993 when the Company wrote off its remaining goodwill balance (see Note 4). The Company evaluates the carrying value of goodwill for possible impairment using a methodology which assesses whether forecasted cumulative net income before goodwill amortization is adequate to recover the future amortization of the Company's goodwill balance over the remaining amortization period of the goodwill. (H) Employee Benefit Plans--A substantial majority of the Company's employees are covered under defined contribution plans. The Company's annual contributions to defined contribution plans are based on pre-tax income, subject to percentage limitations on participants' earnings and a minimum return on shareholders' equity. In recent years, the Company made discretionary contributions as permitted under the plans. Participants may also contribute a certain percentage of their wages to the plans. Costs charged to operations for defined contributions plans were approximately $12,716,000, $12,725,000 and $11,716,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Employees retiring prior to February 1, 1990 from the Company's U.S. tissue operations who had met certain eligibility requirements are entitled to postretirement health care benefit coverage. These benefits are subject to deductibles, copayment provisions, a lifetime maximum benefit and other limitations. In addition, employees who retire after January 31, 1990 at age 55 or older with ten years of service may purchase health care benefit coverage from the Company up to age 65. The Company has reserved the right to change or terminate this benefit for active employees at any time. As of January 1, 1992, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The standard requires that the expected cost of postretirement health care benefits be charged to expense during the years that employees render service (see Note 10). Prior to 1992, the annual cost of these benefits had been expensed as claims and premiums were paid. Employees of the Company's U.K. tissue operations are not entitled to Company-provided postretirement benefit coverage. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This new standard requires that the expected cost of benefits to be provided to former or inactive employees after employment but before retirement be charged to expense during the years that the employees render service. In the fourth quarter of 1992, the Company retroactively adopted the new standard effective January 1, 1992. Adoption of the new accounting standard had no effect on the Company's 1992 consolidated statement of income. (I) Interest Rate Cap and Swap Agreements--The cost of interest rate cap agreements is amortized over the respective lives of the agreements. The differential to be paid or received in connection with interest rate swap agreements is accrued as interest rates change and is recognized over the lives of the agreements. (J) Income Taxes--The Company follows SFAS No. 109, "Accounting for Income Taxes." As a result, deferred income taxes are provided to recognize temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities using enacted tax rates in effect F-7 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) in the years in which the differences are expected to reverse. The principal difference relates to depreciation expense. Deferred income tax expense represents the change in the deferred income tax asset and liability balances, excluding the deferred tax benefit related to extraordinary losses. (K) On January 31, 1995, the Company's shareholders approved an increase in the number of authorized shares of voting Common Stock to 99,400,000 shares and approved a 6.5-for-one stock split of the Common Stock, effective January 31, 1995. All share and per share amounts included in the consolidated financial statements and notes thereto have been restated to give effect to the increase in authorized shares and the stock split. (L) Loss Per Share--Loss per share has been computed on the basis of the average number of common shares outstanding during the years. The average number of shares used in the computation was 38,103,215, 38,107,154 and 38,107,453 for the years ended December 31, 1994, 1993 and 1992, respectively. The assumed exercise of all outstanding stock options has been excluded from the computation of loss per share in 1994, 1993 and 1992 because the result was antidilutive. (M) Segment Information--The Company operates in one industry segment as a manufacturer, converter and marketer of a diversified line of single-use paper products for the home and away-from-home markets. 2. INVENTORIES Inventories are summarized as follows:
DECEMBER 31, -------------------- 1994 1993 -------- -------- (IN THOUSANDS) Components Raw materials and supplies.......................... $ 63,721 $ 61,285 Finished and partly-finished products............... 67,122 56,984 -------- -------- $130,843 $118,269 -------- -------- -------- -------- Value at lower of cost or market: First-in, first-out (FIFO).......................... $107,493 $ 94,436 Average cost by specific lot........................ 23,350 23,833 -------- -------- $130,843 $118,269 -------- -------- -------- --------
F-8 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 3. PROPERTY, PLANT AND EQUIPMENT The Company's major classes of property, plant and equipment are:
DECEMBER 31, ------------------------ 1994 1993 ---------- ---------- (IN THOUSANDS) Land.............................................. $ 44,422 $ 44,429 Buildings......................................... 325,395 318,955 Machinery and equipment........................... 1,527,865 1,367,839 Construction in progress.......................... 35,031 113,829 ---------- ---------- $1,932,713 $1,845,052 ---------- ---------- ---------- ----------
Included in the property, plant and equipment totals above are assets under capital leases, as follows:
DECEMBER 31, ------------------------ 1994 1993 ---------- ---------- (IN THOUSANDS) Buildings......................................... $ 4,012 $ 3,989 Machinery and equipment........................... 186,281 185,624 ---------- ---------- Total assets under capital leases............. $ 190,293 $ 189,613 ---------- ---------- ---------- ----------
4. GOODWILL Changes in the Company's goodwill are summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1993 1992 ----------- ---------- (IN THOUSANDS) Balance, beginning of year........................ $ 2,023,416 $2,075,525 Acquisition of Stuart Edgar....................... -- 6,043 Amortization of goodwill.......................... (42,576) (56,700) Effects of foreign currency translation........... (413) (1,452) Goodwill write-off................................ (1,980,427) -- ----------- ---------- Balance, end of year.............................. $ -- $2,023,416 ----------- ---------- ----------- ----------
Low industry operating rates and aggressive competitive activity among tissue producers resulting from the recession, additions to capacity and other factors adversely affected tissue industry operating conditions and the Company's operating results from 1991 through September 30, 1993. Accordingly, the Company revised its projections and determined that its projected results would not support the future amortization of the Company's remaining goodwill balance of approximately $1.98 billion at September 30, 1993. The methodology employed to assess the recoverability of the Company's goodwill first involved the projection in September 1993 of operating results forward 35 years, which approximated the remaining amortization period of the goodwill as of October 1, 1993. The Company then evaluated the recoverability of goodwill on the basis of this forecast of future operations as of September 30, 1993. Based on such forecast, the cumulative net income before goodwill amortization of approximately $100 million F-9 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 4. GOODWILL--(CONTINUED) over the remaining 35-year amortization period was insufficient to recover the goodwill balance. Accordingly, the Company wrote off its remaining goodwill balance of $1.98 billion in the third quarter of 1993. The Company's forecast as of September 30, 1993 assumed that sales volume increases would be limited to production from a new paper machine then under construction at the Company's Muskogee mill which was subsequently started-up in 1994 and that further capacity expansion was not justifiable given the Company's high leverage and adverse tissue industry operating conditions. Such projections assumed that net selling price and cost increases would approximate 1% per year, based on the Company's annual historical price increase trend for the years 1984 through 1993 and management's estimates of future performance. Through the year 2001, the Company's projections as of September 30, 1993 indicated that interest expense would exceed operating income, which is determined after deducting annual depreciation expense. However, projected operating income before depreciation was adequate to cover projected interest expense. Inflation and interest rates were assumed to remain low at 1993 levels during the projected period. Each of the Company's then outstanding higher yielding debt securities, the 12 3/8% Senior Subordinated Notes due 1997 (the "12 3/8% Notes"), the 12 5/8% Subordinated Debentures due 2000 (the "12 5/8% Debentures") and the 14 1/8% Junior Subordinated Discount Debentures due 2004 (the "14 1/8% Debentures"), were further assumed to be refinanced at lower interest rates. Total capital expenditures were projected to approximate $55-$80 million annually over the ten years ending December 31, 2003 plus $32 million in 1994 to complete the Muskogee mill expansion and another $32 million over 1994 and 1995 for a new coal-fired boiler under construction at the Company's Savannah mill. Management believed that the projected future results based on these assumptions were the most likely scenario at the time given the Company's high leverage and adverse tissue industry operating conditions experienced for the period 1991 through September 30, 1993. 5. OTHER ASSETS The components of other assets are as follows:
DECEMBER 31, ------------------ 1994 1993 ------- ------- (IN THOUSANDS) Deferred loan costs, net of accumulated amortization.... $76,640 $71,459 Prepayments and other................................... 3,692 2,384 ------- ------- $80,332 $73,843 ------- ------- ------- -------
Amortization of deferred loan costs for the years ended December 31, 1994, 1993 and 1992 totaling $13,466,000, $13,488,000 and $14,910,000, respectively, is reported as non-cash interest expense. During 1994, $14,195,000 of deferred loan costs were written off in conjunction with the retirement of long-term debt, $21,584,000 of deferred loan costs were incurred for the issuance of the 8 1/4% Senior Notes due 2002 (the "8 1/4% Notes") and the 9% Senior Subordinated Notes due 2006 (the "9% Notes"), and $10,550,000 of deferred loan costs were incurred for the purchase of interest rate cap agreements. During 1993, $19,297,000 of deferred loan costs were written off in conjunction with the retirement of long-term debt and $31,160,000 of deferred loan costs were incurred for the issuance of a new bank term loan (the "1993 Term Loan"), the 9 1/4% Senior Unsecured Notes due 2001 (the "9 1/4% F-10 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 5. OTHER ASSETS--(CONTINUED) Notes") and the 10% Subordinated Notes due 2003 (the "10% Notes") and for the purchase of an interest rate cap agreement (see Note 8). 6. OTHER CURRENT LIABILITIES The components of other current liabilities are as follows:
DECEMBER 31, ------------------ 1994 1993 ------- ------- (IN THOUSANDS) Salaries and wages...................................... $41,959 $38,152 Contributions to employee benefit plans................. 12,816 12,805 Taxes other than income taxes........................... 5,615 5,492 Other accrued expenses.................................. 15,060 13,689 ------- ------- $75,450 $70,138 ------- ------- ------- -------
7. INCOME TAXES The income tax provision (credit) includes the following components:
YEAR ENDED DECEMBER 31, --------------------------------- 1994 1993 1992 --------- -------- -------- (IN THOUSANDS) Current Federal.................................. $ 1,800 $ (6,012) $ 10,501 State.................................... 509 465 411 Foreign.................................. (2,099) (225) -- --------- -------- -------- Total current........................ 210 (5,772) 10,912 Deferred Federal.................................. (18,826) (7,731) (13,678) State.................................... (2,793) (2,956) (2,380) Foreign.................................. 2,518 145 4,748 --------- -------- -------- Total deferred....................... (19,101) (10,542) (11,310) --------- -------- -------- $ (18,891) $(16,314) $ (398) --------- -------- -------- --------- -------- --------
The effective tax rate varied from the U.S. federal tax rate as a result of the following:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1993 1992 ----- ----- ----- U.S. federal tax rate............................ (34.0)% (34.0)% (34.0)% Amortization of intangibles...................... -- 33.4 27.6 State income taxes net of U.S. tax benefit....... (4.1) (0.1) (3.0) Interest on long-term income taxes............... 3.3 -- 5.7 Permanent differences related to accruals........ 3.3 -- -- Other, net....................................... 0.5 (0.1) 3.1 ----- ----- ----- Effective tax rate............................... (31.0)% (0.8)% (0.6)% ----- ----- ----- ----- ----- -----
F-11 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 7. INCOME TAXES--(CONTINUED) The domestic and foreign components of loss before income taxes are as follows:
YEAR ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 -------- ----------- -------- (IN THOUSANDS) Domestic................................. $(62,711) $(2,048,746) $(85,597) Foreign.................................. 1,695 (7,686) 15,797 -------- ----------- -------- $(61,016) $(2,056,432) $(69,800) -------- ----------- -------- -------- ----------- --------
The net deferred income tax liability at December 31, 1994 includes $232 million related to property, plant and equipment. All other components of the gross deferred income tax assets and gross deferred income tax liabilities are individually not significant. The Company has not recorded a valuation allowance with respect to any deferred income tax asset. In 1992, the Internal Revenue Service (the "IRS") issued a statutory notice of deficiency (the "Notice") to the Company for additional income tax due for the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988 tax year for fees and expenses, other than interest, related to the 1988 debt financing and refinancing transactions. In disallowing these deductions, the IRS relied on Section 162(k) of the Internal Revenue Code (the "Code") (which denies deductions for otherwise deductible amounts paid or incurred in connection with stock redemptions). The Company had deducted a portion of the disallowed fees and expenses in 1988 and has been deducting the balance of the fees and expenses over the terms of the 1988 long-term debt financing and refinancing. Following receipt of the Notice, the Company filed a petition in the U.S. Tax Court contesting the deficiency. In August 1994, the U.S. Tax Court issued its opinion in which it essentially adopted the interpretation of Code Section 162(k) advanced by the IRS and disallowed the deductions claimed by the Company. At present, the U.S. Tax Court is preparing an order in which it will determine the amount of the tax deficiency owed by the Company as a result of the court's decision. The Company intends to appeal the U.S. Tax Court decision to the U.S. Court of Appeals for the Seventh Circuit. In anticipation of its appeal, the Company has paid to the IRS tax of approximately $5 million potentially due for its 1988 tax year pursuant to the U.S. Tax Court opinion along with $4 million for the interest accrued on such tax. If the decision of the U.S. Tax Court is ultimately sustained, the Company estimates that the potential amount of additional taxes due on account of such disallowance for the period 1989 through 1994 would be approximately $34 million and for the period after 1994 (assuming current statutory tax rates) would be approximately $4 million, in each case exclusive of interest. While the Company is unable to predict the final result of its appeal of the U.S. Tax Court decision with certainty, it has accrued for the potential tax liability as well as for the interest charges thereon for the period 1989 through 1994 and thus the Company believes that the ultimate resolution of this case will not have a material adverse effect on the Company's financial condition or on its results of operations. Assuming a favorable resolution of the U.S. Tax Court appeal, the Company will have approximately $131 million of net operating loss carryforwards as of December 31, 1994 for federal income tax purposes which expire as follows: $11 million in 2007, $47 million in 2008 and $73 million in 2009. The aggregate amount of net operating loss carryforwards available to the Company as of December 31, 1994 could be reduced to approximately $71 million if the U.S. Tax Court decision is affirmed. During 1994, the Company reclassified $11 million from the liability for other long-term income taxes to the liability for current income taxes principally to reflect the payments totaling $9 million made to the IRS with respect to the 1988 tax year. F-12 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 8. LONG-TERM DEBT Long-term debt and capital lease obligations, including amounts payable within one year, are summarized as follows:
DECEMBER 31, ------------------------ 1994 1993 ---------- ---------- (IN THOUSANDS) 1988 Term Loan, at prime plus 1.50% or, subject to certain limitations, at a reserve adjusted Eurodollar rate plus 2.25% subject to downward adjustment if certain financial criteria are met (at a weighted average rate of 8.19% at December 31, 1994), due in varying annual repayments with a final maturity of December 31, 1996................................................ $ 224,534 $ 331,753 1988 Revolving Credit Facility, at prime plus 1.50% or, subject to certain limitations, at a reserve adjusted Eurodollar rate plus 2.25% subject to downward adjustment if certain financial criteria are met (at a weighted average rate of 8.66% at December 31, 1994), due December 31, 1996................................. 196,500 243,700 1993 Term Loan, at prime plus 1.75% or, subject to certain limitations, at a reserve adjusted Eurodollar rate plus 3.0% (8.57% at December 31, 1994), due May 1, 1997.................... 100,000 100,000 Senior Secured Notes, at three month LIBOR plus 2.75% to 3.50% (9.13% to 9.88% at December 31, 1994), due in varying amounts between 1996 and 2000............................................ 300,000 300,000 Senior Unsecured Notes, 9 1/4%, due March 15, 2001................. 450,000 450,000 Senior Unsecured Notes, 8 1/4%, due February 1, 2002............... 100,000 -- Senior Subordinated Notes, 12 3/8%, repurchased in 1994............ -- 333,910 Senior Subordinated Notes, 9%, due February 1, 2006................ 650,000 -- Subordinated Debentures, 12 5/8%, due November 1, 2000............. 145,815 383,910 Subordinated Notes, 10%, due March 15, 2003........................ 300,000 300,000 Junior Subordinated Discount Debentures, 14 1/8%, due November 1, 2004............................................................. 566,869 506,186 Capital lease obligations, at interest rates approximating 10.9%... 182,936 184,023 Pollution Control Revenue Refunding Bonds, 7.90%, due October 1, 2005............................................................. 42,000 42,000 Debt of foreign subsidiaries, at rates ranging from 7.00% to 8.36%, due in varying annual installments through March 2001............ 47,193 47,106 ---------- ---------- 3,305,847 3,222,588 Less: Current portion of long-term debt............................ 116,203 112,750 ---------- ---------- $3,189,644 $3,109,838 ---------- ---------- ---------- ----------
The aggregate fair values of the Company's long-term debt and capital lease obligations approximated $3,152 million and $3,276 million compared to aggregate carrying values of $3,306 million and $3,223 million at December 31, 1994 and 1993, respectively. The fair values of the Term Loan, Revolving Credit Facility and 1993 Term Loan are estimated based on secondary market transactions in such securities. Fair values for the Senior Secured Notes, the 9 1/4% Notes, the 8 1/4% Notes, the 9% Notes, the 12 5/8% Debentures, the 10% Notes, the 14 1/8% Debentures and the Pollution Control Revenue Refunding Bonds were estimated based on trading activity in such securities. Of the capital lease obligations, the fair values of 1991 Series Pass Through Certificates were estimated based on trading F-13 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 8. LONG-TERM DEBT--(CONTINUED) activity in such securities. The fair values of other capital lease obligations were estimated based on interest rates implicit in the valuation of the 1991 Series Pass Through Certificates. The fair value of debt of foreign subsidiaries is deemed to approximate its carrying amount. The 14 1/8% Debentures did not accrue interest in cash until November 1, 1994, and were issued at a discount to yield a 14 1/8% effective annual rate. The 14 1/8% Debentures require payments of interest in cash commencing on May 1, 1995. Interest incurred in 1994 through October and for the years ended December 31, 1993 and 1992 related to these debentures was added to the balance due. On February 9, 1994, the Company sold $100 million principal amount of 8 1/4% Notes and $650 million principal amount of 9% Notes in a registered public offering (collectively, the "1994 Notes"). Net proceeds from the sale of the 1994 Notes were applied to the repurchase of all the remaining 12 3/8% Notes at the redemption price of 105% of the principal amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the redemption price of 105% of the principal amount thereof, to the prepayment of $100 million of the 1988 Term Loan, to the repayment of a portion of the Company's indebtedness under the 1988 Revolving Credit Facility and to the payment of fees and expenses. The 8 1/4% Notes are senior unsecured obligations of the Company, rank equally in right of payment with the other senior indebtedness of the Company and are senior to all existing and future subordinated indebtedness of the Company. The 9% Notes are subordinated in right of payment to all existing and future senior indebtedness of the Company, and constitute senior indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures. In connection with the sale of the 1994 Notes, the Company amended the Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note Agreement. Among other changes, the amendments reduced the required ratio of earnings before non-cash charges, interest and taxes to cash interest for the four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to 1.00. The Company incurred an extraordinary loss of $28 million (net of income taxes of $15 million) in the first quarter of 1994 representing the redemption premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures, and the write-off of deferred loan costs associated with the prepayment of $100 million of the 1988 Term Loan and the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures. On March 22, 1993, the Company sold $450 million principal amount of 9 1/4% Notes and $300 million principal amount of 10% Notes in a registered public offering. On April 21, 1993, the Company borrowed $100 million pursuant to the 1993 Term Loan. Proceeds from the sale of the 9 1/4% Notes and the 10% Notes and from the 1993 Term Loan were applied to the prepayment of $250 million of the 1988 Term Loan, to the repayment of a portion of the Company's indebtedness under the 1988 Revolving Credit Facility, to the repurchase of all the Company's outstanding Junior Subordinated Debentures due 2004 (the "14 5/8% Debentures") and to the payment of fees and expenses. As a result of the repayment of $250 million of the 1988 Term Loan and the repurchases of the 14 5/8% Debentures, the Company incurred an extraordinary loss of $10 million (net of income taxes of $6 million) representing the write-off of unamortized deferred loan costs. The 9 1/4% Notes are senior unsecured obligations of the Company, rank equally in right of payment with the other senior indebtedness of the Company and are senior to all existing and future subordinated indebtedness of the Company. The 10% Notes are subordinated in right of payment to all existing and F-14 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 8. LONG-TERM DEBT--(CONTINUED) future senior indebtedness of the Company, including the 9% Notes, rank equally with the 12 5/8% Debentures and constitute senior indebtedness with respect to the 14 1/8% Debentures. The 1993 Term Loan constitutes senior secured indebtedness of the Company. The Company redeemed $50 million of its 12 3/8% Notes at the redemption price of 105% of the principal amount thereof on November 1, 1993, the first date that such notes were redeemable. The redemption was funded principally from excess funds from the sale of the 9 1/4% Notes and the 10% Notes. In connection with the redemption, the Company incurred an extraordinary loss of $2 million (net of income taxes of $1 million), representing the redemption premium and unamortized deferred loan costs. Debt of foreign subsidiaries bears interest at floating rates and is secured by certain assets of Fort Sterling and Stuart Edgar but is nonrecourse to the Company. Obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Notes and debt of foreign subsidiaries bear interest at floating rates. The Company's policy is to enter into interest rate cap and swap agreements as a hedge to effectively fix or limit its exposure to floating interest rates to, at a minimum, comply with the terms of its senior secured debt agreements. The Company is a party to LIBOR-based interest rate cap agreements which limit the interest cost to the Company with respect to $500 million of floating rate obligations to 6% plus the Company's borrowing margin until June 1, 1996 and to 8% plus the Company's borrowing margin from June 1, 1996 until June 1, 1999. At current market rates at December 31, 1994, the fair value of the Company's interest rate cap agreements is $23 million. The counterparties to the Company's interest rate cap agreements consist of major financial institutions. While the Company is exposed to credit risk to the extent of nonperformance by these counterparties, management monitors the risk of default by the counterparties and believes that the risk of incurring losses due to nonperformance is remote. In addition to the scheduled mandatory annual repayments, the Bank Credit Agreement provides for mandatory repayments from proceeds of any significant asset sales (except for proceeds from certain foreign asset sales which are redeployed outside the U.S.), from proceeds of sale and leaseback transactions, and annually an amount equal to 50% of excess cash flow for the prior calendar year, as defined. Among other restrictions, the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement, the debt of foreign subsidiaries and the Company's indentures: (1) restrict payments of dividends, repayments of subordinated debt, purchases of the Company's Common Stock, additional borrowings and acquisition of property, plant and equipment; (2) require that the ratios of current assets to current liabilities, senior debt to adjusted net worth plus subordinated debt and earnings before non-cash charges, interest and taxes to cash interest be maintained at prescribed levels; (3) restrict the ability of the Company to make fundamental changes and to enter into new lines of business, the pledging of the Company's assets and guarantees of indebtedness of others and (4) limit dispositions of assets, the ability of the Company to enter lease and sale and leaseback transactions, and investments which might be made by the Company. The Company believes that such limitations should not impair its plans for continued maintenance and modernization of facilities or other operating activities. F-15 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 8. LONG-TERM DEBT--(CONTINUED) On October 14, 1994, the Company entered into an amendment of its Bank Credit Agreement, 1993 Term Loan Agreement and Senior Secured Note Agreement. Among other things, this amendment adjusted certain financial covenants, including the reduction of the required ratio of earnings before non-cash charges, interest and taxes to cash interest to 1.25 to 1.00 from 1.50 to 1.00 and the increase of the maximum ratio of senior debt to adjusted net worth plus subordinated debt to 0.85 to 1.00 from 0.80 to 1.00 effective for the rolling four quarters ended December 31, 1994 through December 31, 1995. The ratios were adjusted to give effect to the Company's higher aggregate cash interest expense which results from the Company's 14 1/8% Debentures accruing interest in cash commencing on November 1, 1994, with payments of interest in cash commencing on May 1, 1995. At December 31, 1994, receivables totaling $114 million, inventories totaling $131 million and property, plant and equipment with a net book value of $1,313 million were pledged as collateral under the terms of the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement, the debt of foreign subsidiaries and under the indentures for sale and leaseback transactions. The Company is charged a 0.5% fee with respect to any unused balance available under its $350 million 1988 Revolving Credit Facility, and a 2% fee with respect to any letters of credit issued under the 1988 Revolving Credit Facility. At December 31, 1994, $197 million of borrowings reduced available capacity under the 1988 Revolving Credit Facility to $153 million. The aggregate annual maturities of long-term debt and capital lease obligations at December 31, 1994, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - -------------------------------------------------------------- -------------- (IN THOUSANDS) 1995.......................................................... $ 116,203 1996.......................................................... 331,307 1997.......................................................... 207,793 1998.......................................................... 87,804 1999.......................................................... 81,551 2000 and thereafter........................................... 2,481,189 -------------- $3,305,847 -------------- --------------
9. SALE AND LEASEBACK TRANSACTIONS Buildings and machinery and equipment related to various capital additions at the Company's tissue mills were sold and leased back from various financial institutions (the "sale and leaseback transactions") for periods from 15 to 25 years. The terms of the sale and leaseback transactions contain restrictions which are less restrictive than the covenants of the Bank Credit Agreement described in Note 8. F-16 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 9. SALE AND LEASEBACK TRANSACTIONS--(CONTINUED) These leases are treated as capital leases in the accompanying consolidated financial statements. Future minimum lease payments at December 31, 1994, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - -------------------------------------------------------------- -------------- (IN THOUSANDS) 1995.......................................................... $ 23,449 1996.......................................................... 24,541 1997.......................................................... 24,541 1998.......................................................... 24,330 1999.......................................................... 24,005 2000 and thereafter........................................... 362,839 -------------- Total payments................................................ 483,705 Less imputed interest at rates approximating 10.9%............ 300,769 -------------- Present value of capital lease obligations.................... $182,936 -------------- --------------
10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS As of January 1, 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The cumulative effect on years prior to 1992 of adopting SFAS No. 106 is stated separately in the Company's consolidated statement of income for 1992 as a one-time after-tax charge of $10.6 million. This change in accounting principle, excluding the cumulative effect, decreased operating income by $1.2 million in 1992. Net periodic postretirement benefit cost included the following components:
YEAR ENDED DECEMBER 31, -------------------------- 1994 1993 1992 ------ ------ ------ (IN THOUSANDS) Service cost...................................... $1,138 $1,140 $ 902 Interest cost..................................... 1,719 1,800 1,366 Other............................................. 85 99 -- ------ ------ ------ Net periodic postretirement benefit cost........ $2,942 $3,039 $2,268 ------ ------ ------ ------ ------ ------
F-17 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS--(CONTINUED) The following table sets forth the components of the plan's unfunded accumulated postretirement benefit obligation:
DECEMBER 31, -------------------- 1994 1993 -------- -------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees............................................ $ 7,068 $ 7,504 Fully eligible active plan participants............. 3,411 4,401 Other active plan participants...................... 11,505 12,037 -------- -------- 21,984 23,942 Unrecognized actuarial gains (losses)................. 457 (3,517) -------- -------- Accrued postretirement benefit cost................... $ 22,441 $ 20,425 -------- -------- -------- --------
The medical trend rate assumed in the determination of the accumulated postretirement benefit obligation at December 31, 1994 begins at 11.5% in 1995, decreases 1% per year to 6.5% for 2000 and remains at that level thereafter. Increasing the assumed medical trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $3.2 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost by $0.5 million. The medical trend rate assumed in the determination of the accumulated postretirement benefit obligation as of December 31, 1993 began at 12% in 1994, decreasing 1% per year to 6% for 2000 and remained at that level thereafter. The discount rate used in determining the accumulated postretirement benefit obligation was 8% and 7% compounded annually with respect to the 1994 and 1993 valuations, respectively. 11. SHAREHOLDERS' DEFICIT The Company is authorized to issue up to 99,400,000 shares of $.01 par value voting Common Stock. At December 31, 1994, 38,107,778 shares were issued and 38,101,239 shares were outstanding. At December 31, 1993, 38,107,778 shares were issued and 38,107,128 shares were outstanding. In addition, 600,000 shares of $.01 par value nonvoting Common Stock have been authorized, of which none were issued or outstanding at both December 31, 1994 and 1993. F-18 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 11. SHAREHOLDERS' DEFICIT--(CONTINUED) Changes in the Company's shareholders' deficit accounts for the years ended December 31, 1994, 1993 and 1992, are as follows:
CUMULATIVE COMMON TRANSLATION RETAINED STOCK ADJUSTMENT DEFICIT ------ ----------- -------- (IN MILLIONS) Balance, December 31, 1991.................................... $601 $ 7 $ (545) Net loss...................................................... -- -- (80) Amortization of the increase in fair market value of Common Stock with put right........................................ -- -- (1) Foreign currency translation adjustment....................... -- (11) -- ------ ----- -------- Balance, December 31, 1992.................................... 601 (4) (626) Net loss...................................................... -- -- (2,052) Decrease in fair market value of Common Stock with put right....................................................... -- -- 2 Foreign currency translation adjustment....................... -- (1) -- ------ ----- -------- Balance, December 31, 1993.................................... 601 (5) (2,676) Net loss...................................................... -- -- (71) Foreign currency translation adjustment....................... -- 3 -- ------ ----- -------- Balance, December 31, 1994.................................... $601 $ (2) $ (2,747) ------ ----- -------- ------ ----- --------
The aggregate par value of the Common Stock reported in the amounts above at December 31, 1994 was $381,012. 12. COMMON STOCK WITH PUT RIGHT All Common Stock acquired by management investors, including shares acquired by the Company's former chairman and chief executive officer, are collectively referred to as the "Putable Shares." Beginning with the fifth anniversary of the respective dates of purchase of certain of the Putable Shares to the date on which 15% or more of the Company's Common Stock has been sold in one or more public offerings, specified percentages of the shares may be put to the Company at the option of the holders thereof, with certain limitations, at their fair market value. Subject to certain exceptions and prior to the date on which 15% or more of the Company's Common Stock has been sold in one or more public offerings, management investors who terminate their employment with the Company shall sell their shares of Common Stock and vested options to the Company or its designee. All the Putable Shares owned by the Company's former chairman and chief executive officer became putable to the Company at the time of his resignation. During 1993, the Company decreased the estimated fair market valuation of its Common Stock as a result of the effects of adverse tissue industry operating conditions on its long-term earnings forecast and, as a result, reduced the carrying amount of its Common Stock with put right to its original cost. The effect of the adjustment was to reduce both the Common Stock with put right and the retained deficit by approximately $1.4 million. F-19 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 12. COMMON STOCK WITH PUT RIGHT--(CONTINUED) Changes in the Company's Common Stock with put right are as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Balance, beginning of year.................... $11,820 $13,219 $12,963 Amortization of the increase (decrease) in fair market value and increased vested portion of Putable Shares................... -- (1,399) 256 Repurchased into Treasury..................... (109) -- -- ------- ------- ------- Balance, end of year.......................... $11,711 $11,820 $13,219 ------- ------- ------- ------- ------- -------
13. STOCK OPTIONS Pursuant to the Management Equity Participation Agreement and the Management Equity Plan, 5,253,463 shares of Common Stock are reserved for sale to officers and key employees as stock options as of December 31, 1994. The exercisability of such options is subject to certain conditions. Such options must be exercised within ten years of the date of grant. All such options and shares to be issued under the terms of these plans are restricted as to transferability. Under certain conditions, the Company has the right or obligation to redeem shares issued under terms of the options at a price equal to their fair market value. Changes in stock options outstanding are summarized as follows:
EXERCISE NUMBER OF PRICE OPTIONS PER OPTION --------- --------------- Balance, December 31, 1991..................... 3,663,803 $15.38 to 18.46 Options Granted.............................. 80,600 18.46 Options Cancelled............................ (6,890) 15.38 to 18.46 --------- --------------- Balance, December 31, 1992..................... 3,737,513 15.38 to 18.46 Options Granted.............................. 98,800 18.46 Options Cancelled............................ (10,660) 15.38 to 18.46 --------- --------------- Balance, December 31, 1993..................... 3,825,653 15.38 to 18.46 Options Cancelled............................ (82,888) 15.38 to 18.46 --------- --------------- Balance, December 31, 1994..................... 3,742,765 $15.38 to 18.46 --------- --------------- --------- --------------- Exercisable at December 31, 1994............... 3,358,537 $15.38 to 18.46 --------- --------------- --------- --------------- Shares available for future grant at December 31, 1994..................................... 1,510,698 --------- ---------
On January 31, 1995, the Company's shareholders approved the 1995 Stock Incentive Plan under which a total of 3,359,662 shares of Common Stock are reserved for awards to officers and key employees as stock options, stock appreciation rights, restricted stock, performance shares, stock equivalents and dividend equivalents and approved the Non-Employee Director Plan under which a total of 80,000 shares of Common Stock are reserved for grant to non-employee directors. Following adoption of such plans, no additional shares will be available for future grant under the Management F-20 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 13. STOCK OPTIONS--(CONTINUED) Equity Participation Agreement or Management Equity Plan. As a result, the total number of shares available for future grant will be 3,439,662 shares as of January 31, 1995. Any options to be issued subject to the 1995 Stock Incentive Plan will expire not later than ten years after the date on which they are granted. The vesting schedule and exercisability of stock options will generally be based on length of service or attainment of performance goals. On December 19, 1994, the Company's Board of Directors approved the full vesting and exercisability of all unvested options outstanding effective just prior to an initial public offering of Common Stock. If such an offering proceeds, the number of exercisable options would increase to 3,741,465 as of January 31, 1995. Until such date on which 15% or more of the Company's Common Stock has been sold in one or more public offerings, the Company amortizes the excess of the fair market value of its Common Stock over the strike price of options granted to employees over the periods the options vest. After such date, no amortization will be required because the options will not be putable to the Company. There was no employee stock compensation expense in 1994. Due to the effects of adverse tissue industry operating conditions on its long-term earnings forecast as of September 30, 1993, the Company decreased the estimated fair market valuation of its Common Stock and, as a result, reversed all previously accrued employee stock compensation expense in 1993. The reversal of the accrued employee stock compensation expense resulted in a credit to operations of $7,832,000 for 1993. Employee stock compensation expense was $1,120,000 for 1992. 14. RELATED PARTY TRANSACTIONS Morgan Stanley Group Inc. ("Morgan Stanley Group") and an affiliate acquired a substantial majority equity interest in the Company to effect the Acquisition. At December 31, 1994, Morgan Stanley Group and its affiliates controlled 57% (on a fully diluted basis) of the Company's Common Stock. Pursuant to an agreement terminated effective December 31, 1994, Morgan Stanley & Co. Incorporated ("MS&Co") provided financial advisory services to the Company in consideration for which the Company paid MS&Co an annual fee of $1 million. MS&Co was also entitled to reimbursement for all reasonable expenses incurred in the performance of the foregoing services. The Company paid MS&Co $1,023,000, $1,046,000 and $1,096,000 for these and other miscellaneous services in 1994, 1993 and 1992, respectively. The Company is a party to several interest rate cap agreements (see Note 8) including one such agreement with MS&Co which was purchased in 1994 for $2.1 million. In connection with the sale of the 1994 Notes, MS&Co received approximately $20.4 million in underwriting fees in 1994. In 1993, MS&Co received approximately $19.5 million related to the underwriting of the issuance of the 1993 Notes. In 1992, MS&Co received approximately $0.7 million related to the underwriting of the reissuance of the Company's Pollution Control Revenue Refunding Bonds. MS&Co served as lead underwriter for the initial offering of the Company's subordinated debt securities and since the Acquisition has been a market maker with respect to those securities. 15. COMMITMENTS AND CONTINGENCIES In 1994, the Company commenced construction of a new coal-fired boiler at its Savannah mill. Total expenditures for the new boiler are projected to be $35 million. As of December 31, 1994, expenditures on the project had totaled $19 million. F-21 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 15. COMMITMENTS AND CONTINGENCIES--(CONTINUED) The Company is subject to substantial regulation by various federal, state and local authorities in the U.S. and national and local authorities in the U.K. concerned with the impact of the environment on human health, the limitation and control of emissions and discharges to the air and waters, the quality of ambient air and bodies of water and the handling, use and disposal of specified substances and solid wastes. Financial responsibility for the clean-up or other remediation of contaminated property or for natural resource damages can extend to previously owned or used properties, waterways and properties owned by third parties as well as to prior owners. The Company is involved in a voluntary investigation and potential clean-up of the Lower Fox River in Wisconsin and has been named as a potentially responsible party for alleged natural resource damages related to the Lower Fox River and Green Bay system. In addition, the Company makes capital expenditures and incurs operating expenses for clean-up obligations and other environmental matters arising in its on-going operations. Based upon currently available information and analysis, the Company recorded a $20 million charge in the fourth quarter of 1994 for estimated or anticipated liabilities and legal and consulting costs relating to environmental matters arising from past operations. The Company expects these costs to be incurred over an extended number of years. The Company and its subsidiaries are parties to other lawsuits and state and federal administrative proceedings in connection with their businesses. Although the final results in all such suits and proceedings cannot be predicted with certainty, the Company currently believes that the ultimate resolution of all of such lawsuits and proceedings, after taking into account the liabilities accrued with respect to such matters, will not have a material adverse effect on the Company's financial condition or on its result of operations. 16. GEOGRAPHIC INFORMATION A summary of the Company's operations by geographic area as of December 31, 1994, 1993 and 1992, and for the years then ended is presented below:
UNITED UNITED STATES KINGDOM CONSOLIDATED ----------- -------- ------------ (IN THOUSANDS) 1994 Net sales........................................... $ 1,143,205 $131,240 $ 1,274,445 Operating income.................................... 268,620 8,183 276,803 Identifiable operating assets....................... 1,517,992 162,906 1,680,898 1993 Net sales........................................... $ 1,044,174 $143,213 $ 1,187,387 Operating loss...................................... (1,715,777) (859) (1,716,636) Identifiable operating assets....................... 1,486,166 163,621 1,649,787 1992 Net sales........................................... $ 1,008,129 $143,222 $ 1,151,351 Operating income.................................... 253,437 17,238 270,675 Identifiable operating assets....................... 3,411,833 162,734 3,574,567
Intercompany sales and charges between geographic areas and export sales are not material. In 1993, the Company determined that its projected results would not support the future amortization of the Company's remaining goodwill balance. Accordingly, the Company wrote off its remaining F-22 FORT HOWARD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 16. GEOGRAPHIC INFORMATION--(CONTINUED) goodwill balance of $1,980 million in the third quarter of 1993, resulting in charges of $1,968 million and $12 million to the operating income of the United States and United Kingdom operations, respectively. 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) A summary of the quarterly results of operations for 1994 and 1993 follows (in millions, except per share data):
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------- 1994 Net sales...................................... $ 275 $ 315 $ 340 $ 344 $ 1,274 Gross income................................... 87 107 113 100 407 Operating income............................... 60 79 85 53 277 Net income (loss) before extraordinary item.... (15) (2) -- (25) (42) Extraordinary item-loss on debt repurchases.... (28) -- -- -- (28) Net income (loss).............................. (43) (2) -- (25) (70) Earnings (loss) per share: Net income (loss) before extraordinary item....................................... (0.40) (0.05) 0.01 (0.65) (1.11) Extraordinary item-loss on debt repurchases................................ (0.74) -- -- -- (0.74) Net income (loss) per share.................. (1.14) (0.05) 0.01 (0.65) (1.85) Dividends per share............................ -- -- -- -- -- 1993 Net sales...................................... $ 285 $ 302 $ 309 $ 291 $ 1,187 Gross income................................... 96 101 109 97 403 Operating income (loss)........................ 56 61 (1,905) 71 (1,717) Net loss before extraordinary items............ (26) (24) (1,986) (4) (2,040) Extraordinary items--losses on debt repurchases.................................. (10) -- -- (2) (12) Net loss....................................... (36) (24) (1,986) (6) (2,052) Loss per share: Net loss before extraordinary items.......... (0.69) (0.62) (52.12) (0.10) (53.54) Extraordinary items--losses on debt repurchases................................ (0.25) -- -- (0.06) (0.31) Net loss per share........................... (0.94) (0.62) (52.12) (0.16) (53.85) Dividends per share............................ -- -- -- -- --
F-23 PHOTOS FOR INSIDE BACK COVER TO S-1/A TOP LEFT-HAND CORNER ENVIRONMENTAL PROTECTION AGENCY AWARD Fort Howard was the first large corporation to receive the U.S. Environmental Protection Agency's "Administrator's Award" for national recycling leadership. MIDDLE LEFT-HAND SIDE ENVISION TISSUE PRODUCTS Fort Howard believes its Envision line of products is the market leader in the rapidly growing environmental segment of the commercial market. BOTTOM LEFT-HAND CORNER LARGE ROLL OF TISSUE Fort Howard employs approximately 5,800 persons in the United States, and 1,000 in the United Kingdom. Employees have participated in a successful "Total Quality" effort since 1989. [BACK COVER LOGO] [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] PROSPECTUS (Subject to Completion) Issued March 7, 1995 22,000,000 Shares Fort Howard Corporation COMMON STOCK ------------------- ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE 22,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 17,600,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14.00 AND $16.00 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. ------------------- THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "FORT". ------------------- SEE "CERTAIN RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------- 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. ------------------- PRICE $ A SHARE -------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) --------- --------------- ----------- Per Share............................................ $ $ $ Total(3)............................................. $ $ $
- --------- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting expenses payable by the Company estimated at $1,600,000. (3) The Company has granted the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 3,300,000 additional shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ---------------------- The Shares of Common Stock are offered, subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1995, at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in New York funds. ------------------- MORGAN STANLEY & CO. International CS FIRST BOSTON SALOMON BROTHERS INTERNATIONAL LIMITED S.G.WARBURG SECURITIES , 1995 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 STATE. PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is an estimate (except for the Commission registration fee and the Nasdaq National Market listing fee) of the fees and expenses payable by the Company in connection with the distribution of the Common Stock: Securities and Exchange Commission registration fee............ $ 139,587 Nasdaq National Market listing fee............................. 50,000 NASD filing fee................................................ 30,500 Printing and engraving costs................................... 250,000 Legal fees..................................................... 650,000 Accountants' fees.............................................. 100,000 Blue Sky qualification fees and expenses....................... 20,000 Transfer Agent and Registrar fees.............................. 10,000 Miscellaneous.................................................. 349,913 ---------- Total.................................................... $1,600,000 ---------- ----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides, in summary, that directors and officers of Delaware corporations are entitled, under certain circumstances, to be indemnified against all expenses and liabilities (including attorney's fees) incurred by them as a result of suits brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful; provided that no indemnification may be made against expenses in respect of any claim, issue or matter as to which they shall have been adjudged to be liable to the Company, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, they are fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Any such indemnification may be made by the Company only as authorized in each specific case upon a determination by the shareholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. The Certificate of Incorporation and By-laws of the Company provide for indemnification of its directors and officers to the fullest extent permitted by Delaware law, as the same may be amended from time to time. Reference is made to Article VII of the Underwriting Agreement contained in Exhibit 1.1 hereto, which provides certain indemnification rights to the directors and officers of the Company. The Company has entered into indemnification agreements ("Agreement") with certain of its directors and officers (the "Indemnitee"). Each Agreement provides that the Company will hold harmless and indemnify the Indemnitee against all liabilities and will advance all expenses (as defined) incurred by reason of the fact that the Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company or for its benefit as a director, officer, employee or agent of another enterprise, but only if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The right of indemnification and to receive advancement of expenses pursuant to each Agreement is not exclusive of any other rights to which the Indemnitee may at any time be entitled to under applicable law, the Company's Certificate of Incorporation or By-Laws, any agreement, a vote of II-1 shareholders, a resolution of the Company's Board of Directors or otherwise. Each Agreement further provides that, to the extent that the Company maintains a policy or policies providing directors' and officers' liability insurance, the Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available. The Company is not liable to pay any amounts otherwise indemnifiable under an Agreement to the extent that the Indemnitee has actually received payment under any insurance policy, contract, agreement or otherwise; and, except as provided in the Agreement, an Indemnitee is not entitled to indemnification or advancement of expenses with respect to any proceeding or claim brought or made by such Indemnitee against the Company. Each Agreement terminates upon the later to occur of: (i) ten years after the date that the Indemnitee ceases to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise which the Indemnitee served at the request or for the benefit of the Company and (ii) the final termination of all pending proceedings in which the Indemnitee is granted rights of indemnification under such Agreement. In addition, the Company maintains directors' and officers' liability insurance. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES None ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------- *1.1 --Form of Underwriting Agreement. +3.1 --Form of Restated Certificate of Incorporation of the Registrant. +3.2 --Form of Restated By-laws of the Registrant. +4.0 --Specimen Certificate of Common Stock. 4.1 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of New York, as Trustee, relating to 8 1/4% Senior Notes due 2002 (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No. 33-51557, and incorporated herein by reference). 4.2 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of New York, as Trustee, relating to 9% Senior Subordinated Notes due 2006 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, No. 33-51557, and incorporated herein by reference). 4.3 --Indenture dated as of March 22, 1993 between the Registrant and Norwest Bank, N.A., as Trustee, relating to 9 1/4% Senior Unsecured Notes due 2001 (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No. 33-51876, and incorporated herein by reference). 4.4 --Indenture dated as of March 22, 1993 between the Registrant and United States Trust Company of New York, as Trustee, relating to 10% Subordinated Notes due 2003 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, No. 33-51876, and incorporated herein by reference). 4.5 --Amended and Restated Credit Agreement dated as of October 24, 1988, among the Registrant, FH Acquisition and Bankers Trust, as agent for the bank parties thereto, with respect to the Bank Bridge Loan, the Term Loan and the Revolving Credit Facility (filed as Exhibit No. 4.5 to Amendment No. 2 to the Registrant's Registration Statement on Form S-1, No. 33-23826, and incorporated herein by reference). 4.5(A) --Amendment No. 1 dated February 21, 1989 to the Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.E-1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, File No. 1-6901, and incorporated herein by reference).
II-2
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------- 4.5(B) --Amendment No. 2 dated October 20, 1989 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed with the Registrant's September 30, 1989 Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated herein by reference). 4.5(C) --Amendment No. 3 dated as of November 14, 1989 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed with the Registrant's September 30, 1989 Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated herein by reference). 4.5(D) --Amendment No. 4 dated as of November 9, 1990 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.J to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, File No. 1-6901, and incorporated herein by reference). 4.5(E) --Amendment No. 5 dated as of December 19, 1990 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.K to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 4.5(F) --Amendment No. 6 dated as of September 11, 1991 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.A to the Registrant's Current Report on Form 8-K on September 13, 1991, File No. 1-6901, and incorporated herein by reference). 4.5(G) --Amendment No. 7 dated as of December 2, 1991 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit No. 4.N to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, File No. 1-6901, and incorporated herein by reference). 4.5(H) --Amendment No. 8 dated as of October 7, 1992 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.0 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, File No. 1-6901, and incorporated herein by reference). 4.5(I) --Amended and Restated Amendment No. 8 dated as of November 12, 1992, to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.P to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, File No. 1-6901, and incorporated herein by reference). 4.5(J) --Form of Second Amended and Restated Amendment No. 8 dated as of March 4, 1993, to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.3(J) to the Registrant's Registration Statement on Form S-2, No. 33-51876, and incorporated herein by reference). 4.5(K) --Amendment No. 9 dated as of December 31, 1993 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4.4(L) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-6901, and incorporated herein by reference). 4.5(L) --Amendment No. 10 dated as of October 14, 1994 to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-6901, and incorporated herein by reference). *4.6 --Form of Credit Agreement dated as of March [8], 1995 among the Registrant, the lenders named therein, and Bankers' Trust Company, Bank of America National Trust and Savings Association and Chemical Bank, as arrangers, and Bankers' Trust Company, as administrative agent. *4.7 --Form of Receivables Credit Agreement dated as of March 8, 1995 among the Registrant, the lenders named therein, and Bankers Trust Company, as administrative agent. +5.1 --Opinion of Shearman & Sterling. *10.1 --Form of Amended and Restated Stockholders Agreement dated as of March 1, 1995, among the Registrant, Morgan Stanley Group, MSLEF II, certain institutional investors and the Management Investors which amends and restates the Stockholders Agreement dated as of December 7, 1990, as amended. +10.2 --Management Incentive Plan as amended and restated as of December 19, 1994. 10.3 --Supplemental Retirement Plan (filed as Exhibit No. 10.7 to Amendment No. 2 to the Registrant's Registration Statement on Form S-1, No. 33-23826, and incorporated herein by reference).
II-3
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------- 10.3(A) --Amendment No. 1 to the Supplemental Retirement Plan dated December 21, 1988 (filed as Exhibit 10.P to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 1-6901, and incorporated herein by reference). 10.4 --Form of Supplemental Retirement Agreement for Mr. DeMeuse, as amended (filed as Exhibit 10.M to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 1-6901, and incorporated herein by reference). 10.5 --Supplemental Retirement Agreements for certain directors and officers (filed as Exhibit 10.T to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989, File No. 1-6901, and incorporated herein by reference). 10.5(A) --Form of Amendment No. 1 to Supplemental Retirement Agreements for certain directors and officers (filed as Exhibit 10.U to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.6 --Employment Agreements dated October 15, 1993, with the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (filed as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, File No. 1-6901, and incorporated herein by reference). +10.6(A) --Amendments dated January 1, 1995 to Employment Agreements dated October 15, 1993, with the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. 10.7 --Amended and Restated Management Equity Participation Agreement dated as of August 8, 1988, among Holdings, Morgan Stanley, MSLEF II and the Management Investors (filed as Exhibit 10.9 to Amendment No. 2 to the Registrant's Registration Statement on Form S-1, No. 33-23826, and incorporated herein by reference). 10.7(A) --Form of Letter Agreement dated June 27, 1990, among the Registrant and Management Investors, which modifies Amended and Restated Management Equity Participation Agreement (filed as Exhibit 10.V to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.7(B) --Letter Agreement dated as of July 31, 1990, among the Company and the Principal Management Investors which amends Amended and Restated Management Equity Participation Agreement (filed as Exhibit 10.W to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.7(C) --Letter Agreement dated as of July 31, 1990, between the Company and the Management Investor Committee which amends Amended and Restated Management Equity Participation Agreement (filed as Exhibit 10.X to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.7(D) --Letter Agreement dated February 7, 1991, between the Company and the Management Investors Committee which amends the Amended and Restated Management Equity Participation Agreement (filed as Exhibit 10.GG to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.7(E) --Form of Letter Agreement dated February 7, 1991 among the Company, the Management Investors Committee and Management Investors which cancels certain stock options, grants new stock options and amends the Amended and Restated Management Equity Participation Agreement (filed as Exhibit 10.HH to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). *10.7(F) --Form of Letter Agreement dated March 1, 1995, between the Company and the Management Investors Committee which amends the Amended and Restated Management Equity Participation Agreement. 10.8 --Agreement dated as of July 31, 1990, among the Company and its former Chief Executive Officer (filed as Exhibit 10.Y to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------- 10.8(A) --Modification dated December 11, 1990 to Agreement dated as of July 31, 1990, among the Company and its former Chief Executive Officer (filed as Exhibit 10.Z to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.8(B) --Letter Agreement dated February 7, 1991, among the Company, its former Chief Executive Officer and his spouse which cancels stock options, grants new stock options and amends the Agreement dated as of July 31, 1990, among the Company, its former Chief Executive Officer and his spouse (filed as Exhibit 10.II to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.9 --Subscription Agreement dated as of December 7, 1990, among the Company, Mellon Bank, N.A., Trustee for First Plaza Group Trust and Leeway & Co. (filed as Exhibit 10.DD to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.10 --Subscription Agreement dated as of March 12, 1991, between the Company and Fort Howard Equity Investors II, L.P. (filed as Exhibit 10.EE to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and incorporated herein by reference). 10.11 --Management Equity Plan (filed as Exhibit 10.23 to the Registrant's Registration Statement on Form S-2, No. 33-51557, and incorporated herein by reference). *10.11(A) --Form of Amendment dated March 1, 1995 to the Management Equity Plan. 10.12 --Form of Management Equity Agreement dated as of April 30, 1991, between the Registrant and Management Investors (filed as Exhibit 10.24 to the Registrant's Registration Statement on Form S-2, No. 33-51557, and incorporated herein by reference). 10.13 --Employment Agreements with certain executive officers of the Company (filed as Exhibit No. 10.13 to the Registrant's Registration Statement on Form S-2, No. 33-51557, and incorporated herein by reference). +10.13(A) --Amendments to Employment Agreements with certain executive officers of the Company. +10.14 --Deferred Compensation Plan for Non-Employee Directors. +10.15 --1995 Stock Incentive Plan. +10.16 --1995 Stock Plan for Non-Employee Directors. 10.17 --Form of Indemnification Agreement dated April 22, 1987 between the Company and certain of its directors and executive officers (filed as Exhibit 10 to the Registrant's Current Report on Form 8-K dated April 22, 1987, and incorporated herein by reference). +12.1 --Computation of Deficiency of Earnings Available to Cover Fixed Charges. *12.2 --Computation of Pro Forma Deficiency of Earnings Available to Cover Fixed Charges. 21 --Subsidiaries of Fort Howard Corporation (filed as Exhibit 22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-6901, and incorporated herein by reference). *23.1 --Consent of Arthur Andersen LLP. +23.2 --Consent of Shearman & Sterling (included in its opinion delivered under Exhibit No. 5.1). +24 --Powers of Attorney. 99 --Stock Transfer Agreement dated November 2, 1989 between the Company and Sweetheart Holdings Inc., a Delaware corporation (filed as Exhibit 28 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, File No. 1-6901, and incorporated herein by reference).
- ------------ * Filed herewith. + Previously filed. II-5 ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes that: 1. For the purposes of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. 2. For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (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 provisions described under Item 15 above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The Registrant hereby further undertakes to provide the Underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Green Bay, State of Wisconsin on the 7th day of March, 1995. FORT HOWARD CORPORATION By /s/ JAMES W. NELLEN II ................................... James W. Nellen II Vice President and Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------ --------------- * Chairman of the Board of Directors March 7, 1995 .................................. and Chief Executive Officer Donald H. DeMeuse (principal executive officer) * Director, Vice Chairman and Chief March 7, 1995 .................................. Financial Officer (principal Kathleen J. Hempel financial officer) * Director, President and Chief March 7, 1995 .................................. Operating Officer Michael T. Riordan * Director March 7, 1995 .................................. Donald Patrick Brennan * Director March 7, 1995 .................................. Frank V. Sica * Director March 7, 1995 .................................. Robert H. Niehaus * Vice President and Controller March 7, 1995 .................................. (principal accounting officer) Charles L. Szews * /s/ JAMES W. NELLEN II Attorney-in-Fact March 7, 1995 .................................. James W. Nellen II
II-7 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Fort Howard Corporation included in this Registration Statement and have issued our report thereon dated January 31, 1995. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, January 31, 1995 S-1 SCHEDULE II FORT HOWARD CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1994 1993 1992 ------ ------ ------ Allowance for Doubtful Accounts: Balance at beginning of year.................................... $2,366 $1,376 $1,379 Charges (credits) to earnings................................... (92) 1,633 792 Charges for purpose for which reserve was created............... (685) (643) (795) ------ ------ ------ Balance at end of year.......................................... $1,589 $2,366 $1,376 ------ ------ ------ ------ ------ ------
S-2 EX-1.1 2 EXHIBIT 1.1 22,000,000 Shares FORT HOWARD CORPORATION COMMON STOCK, PAR VALUE $.01 PER SHARE UNDERWRITING AGREEMENT March , 1995 -- March , 1995 -- Morgan Stanley & Co. Incorporated CS First Boston Corporation Salomon Brothers Inc c/o Morgan Stanley & Co. Incorporated 1251 Avenue of the Americas New York, New York 10020 Morgan Stanley & Co. International Limited CS First Boston Limited Salomon Brothers International Limited S.G. Warburg Securities Limited c/o Morgan Stanley & Co. International Limited 25 Cabot Street Canary Wharf London E14 4QA England Dear Sirs: FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters (as defined below) 22,000,000 shares of its Common Stock, par value $.01 per share (the "Firm Shares"). It is understood that, subject to the conditions hereinafter stated, 17,600,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection with the offering and sale of such U.S. Firm Shares in the United States and Canada to United States and Canadian Persons (as such terms are defined in the Agreement Between U.S. and International Underwriters of even date herewith), and 4,400,000 Firm Shares (the "International Shares") will be sold to the several International Underwriters named in Schedule II hereto (the "International Underwriters") in connection with the offering and sale of such International Shares outside the United States and Canada to persons other than United States and Canadian Persons. Morgan Stanley & Co. Incorporated, CS First Boston Corporation and Salomon Brothers Inc shall act as representatives (the "U.S. Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co. International Limited, CS First Boston Limited, Salomon Brothers International Limited and S.G. Warburg Securities Limited shall act as representatives (the "International Representatives") of the several International Underwriters. The U.S. Underwriters and the International Underwriters are hereinafter collectively referred to as the Underwriters. The Company has reserved up to 1,100,000 shares of its Common Stock for sale to certain of its employees and other persons pursuant to a directed share program, up to [ ] of which shares will be reserved for sale to certain of its employees resident in the United Kingdom (the "U.K. Directed Share Program"). These Shares of Common Stock will be sold to the employees and other individuals by the Underwriters pursuant to this Agreement. The Company also proposes to issue and sell to the several U.S. Underwriters not more than an additional 3,300,000 shares of its Common Stock, par value $.01 per share (the "Additional Shares") if and to the extent that the U.S. Representatives shall have determined to exercise, on behalf of the U.S. Underwriters, the right to purchase such shares of common stock granted to the U.S. Underwriters in Article II hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the Shares. The shares of Common Stock, par value $.01 per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the Common Stock. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. 33-56573) relating to the Shares. The registration statement contains two prospectuses to be used in connection with the offering and sale of the Shares: the U.S. prospectus, to be used in connection with the offering and sale of Shares in the United States and Canada to United States and Canadian Persons, and the international prospectus, to be used in connection with the offering and sale of Shares outside the United States and Canada to persons other than United States and Canadian Persons. The international prospectus is identical to the U.S. prospectus except for the outside front cover page. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter referred to as the Registration Statement; the U.S. prospectus and the international prospectus in the respective forms first used to confirm sales of Shares are hereinafter collectively referred to as the Prospectus. 2 I. The Company represents and warrants to each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission. (b) When the Registration Statement became effective and at all times subsequent thereto up to and including the Closing Date referred to below, the Registration Statement and Prospectus, and any amendments or supplements thereto, will in all material respects conform to the requirements of the Securities Act and the rules and regulations of the Commission thereunder (the "Rules and Regulations"), and the Registration Statement and any amendment or supplement thereto at their respective effective dates will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus at the time the Registration Statement became effective or the Prospectus together with any supplement thereto at their respective issue dates and at the Closing Date referred to below, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished in writing by such Underwriter through you expressly for use in connection with the Registration Statement or Prospectus or any amendment or supplement thereto. (c) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to carry on its business as presently conducted, as described in the Prospectus. The Company has not failed to qualify to do business in any jurisdiction where failure so to qualify could reasonably be expected to materially adversely affect 3 its financial condition, business, operations, or its ability to perform any of its obligations under this Agreement. (d) Each of Fort Sterling Limited ("Fort Sterling") and Harmon Assoc., Corp. ("Harmon") 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 to carry on its business as presently conducted, as described in the Prospectus. Fort Sterling and Harmon have not failed to qualify to do business in any jurisdiction where failure so to qualify could reasonably be expected to materially adversely affect each of their respective financial condition, business or operations. (e) The authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus. (f) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable. (g) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (h) This Agreement has been duly authorized, executed and delivered by the Company. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not (i) contravene any provision of applicable law, (ii) violate or be inconsistent with the certificate of incorporation or by-laws of the Company, (iii) contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which the Company is a party or by which it or any of its property is bound except for such contraventions or defaults which would not materially adversely affect the business, properties, prospects, assets, liabilities, operations or conditions (financial or otherwise) of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"), (iv) contravene any judgment, order or decree applicable to the Company 4 or any of its subsidiaries of any governmental body, agency or court having jurisdiction over the Company or any subsidiary noncompliance with which would have a Material Adverse Effect, and (v) no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (j) Each of the Company and its subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all Federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to carry on its business as presently conducted, as described in the Prospectus (except for those which, if not obtained or made, would not have a Material Adverse Effect). (k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus. (l) There are no legal or governmental proceedings pending or, to the best knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (m) The Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (n) The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, 5 pollutants or contaminants ("Environmental Laws"), (ii) have received or applied for all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive or apply for required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a Material Adverse Effect. (o) In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business and operations of the Company and its subsidiaries, as a result of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to regulatory authorities). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect other than associated costs and liabilities disclosed in the Prospectus. (p) On the Closing Date the Company will have entered into an amendment and restatement of the Stockholders Agreement dated as of December 7, 1990 (as so amended the "Stockholders Agreement"). The provisions of Section 4.3(c) of the Stockholders Agreement which prohibit the sale of shares of Common Stock of the Company or of securities convertible into or exercisable or exchangeable for such Common Stock by any of the parties to the Stockholders Agreement (other than the Company) for a period begining seven days before and ending 180 days after the effective date of the Registration Statement are in full force and effect and are binding on each of the parties to the Stockholders Agreement (other than the Company). (q) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act 6 and the rules and regulations of the Commission thereunder. (r) The Company has complied with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida) related to doing business with the Government of Cuba or with any person or affiliate located in Cuba. (s) The U.K. Directed Share Program complies with applicable laws in the United Kingdom and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the consummation of the U.K. Directed Share Program. II. The Company hereby agrees to sell to the several Underwriters, and the Underwriters, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agree, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedules I and II hereto opposite their names at $_____ a share -- the purchase price. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall have a one-time right to purchase, severally and not jointly, up to 3,300,000 Additional Shares at the purchase price. Additional Shares may be purchased as provided in Article IV hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the U.S. Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of such U.S. Underwriter bears to the total number of U.S. Firm Shares. The Additional Shares to be purchased by the U.S. Underwriters hereunder and the U.S. Firm Shares are hereinafter collectively referred to as the U.S. Shares. 7 The Company hereby agrees that, without the prior written consent of the U.S. Representatives on behalf of the Underwriters, it will not, during the period beginning seven days before and ending 180 days after the effective date of the Registration Statement, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company, including, without limitation, the Company's 1995 Stock Incentive Plan or (D) any shares of Common Stock issued pursuant to the Company's Non-Employee Director Stock Plan. III. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at U.S.$_____ a share (the "public offering price") and to certain dealers selected by you at a price that represents a concession not in excess of U.S.$____ a share under the public offering price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of U.S.$____ a share, to any Underwriter or to certain other dealers. Each U.S. Underwriter hereby makes to and with the Company the representations and agreements of such U.S. Underwriter contained in the fifth paragraph of Article III of the Agreement Between U.S. and International Underwriters of even date herewith. Each International Underwriter hereby makes to and with the Company the representations and agreements of such International Underwriter contained in 8 the seventh, eighth and ninth paragraphs of Article III of such Agreement. IV. Payment for the Firm Shares shall be made by certified or official bank check or checks payable to the order of the Company in New York Clearing House funds at the office of Shearman & Sterling, 599 Lexington Avenue, New York, New York at 10:00 A.M., local time, on March , 1995, -- or at such other time on the same or such other date, not later than March , 1995, as shall be designated in writing -- by you. The time and date of such payment are hereinafter referred to as the Closing Date. Payment for any Additional Shares shall be made by certified or official bank check or checks payable to the order of the Company in New York Clearing House funds at the office of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at 10:00 A.M., local time, on such date (which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor later than ten business days after the giving of the notice hereinafter referred to) as shall be designated in a written notice from the U.S. Representatives to the Company of their determination, on behalf of the U.S. Underwriters, to purchase a number, specified in said notice, of Additional Shares, or on such other date, in any event not later than _______, 1995, as shall be designated in writing by the U.S. Representatives. The time and date of such payment are hereinafter referred to as the Option Closing Date. The notice of the determination to exercise the option to purchase Additional Shares and of the Option Closing Date may be given at any time within 30 days after the date of this Agreement. Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than two full business days prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the purchase price therefor. 9 V. The obligations of the Company and the several obligations of the Underwriters hereunder are subject to the condition that the Registration Statement shall have become effective not later than the date hereof. The several obligations of the Underwriters hereunder are subject to the following further conditions: (a) No stop order suspending the effectiveness of the Registration Statement shall have been issued under the Securities Act and no proceedings therefor shall have been instituted or threatened by the Commission. (b) There shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus, that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (c) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed on behalf of the Company by an authorized officer of the Company, to the effect set forth in clauses (a), (j), (k), (l) and (m) of this Article V, and to the effect that: (x) to the best knowledge of such officer, after due inquiry, the representations and warranties of the Company contained herein are true and correct in all respects as of the Closing Date, (y) the Company has performed in all material respects all of the obligations to be performed hereunder on or before the Closing Date and (z) there has not occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus. (d) You shall have received on the Closing Date an opinion of James W. Nellen II, Esq., General Counsel for the Company, in form and substance satisfactory to you and your counsel, dated the Closing Date, to the effect that: 10 (i) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is in good standing under the laws of the States of Georgia, Oklahoma and Wisconsin and has the corporate power and authority to carry on its business as described in the Prospectus, to own or hold under lease its properties, and to enter into and perform its obligations under this Agreement; (ii) the execution, delivery and performance by the Company of this Agreement and the issuance of the Shares has been duly authorized by all necessary corporate action on the part of the Company and do not and will not require the consent or approval of any shareholder of the Company or any trustee or holder of any indebtedness or other obligation of the Company, except for such as have been obtained on or prior to the date hereof; (iii) this Agreement has been duly executed and delivered by the Company; (iv) neither the execution and delivery by the Company, nor the fulfillment of or compliance by the Company with the provisions of this Agreement or the Shares, nor the consummation of the transactions contemplated in the Prospectus conflicts with, or results in a breach of the terms, conditions or provisions of, or constitutes a default under, or results in a violation of, its certificate of incorporation or by-laws, any statute, law, rule, code, ordinance or regulation or, to such counsel's knowledge after due inquiry, any judgment, order or decree, in each case applicable to it or its properties which is material to the issuance and sale of the Shares, this Agreement or the transactions contemplated in the Prospectus under the captions "Prospectus Summary -- The Proposed Recapitalization" and "Use of Proceeds," or any indenture, mortgage, contract or other instrument to which the Company is a party or by which it or any of its property is bound (except for such breaches, defaults, and violations which 11 would not have a Material Adverse Effect) or result in the creation or the imposition of any material lien, charge or encumbrance upon any property or assets of the Company; (v) no consent, approval, authorization or order of, or qualification with, any Wisconsin governmental body or agency is required for the valid authorization, execution, delivery and performance by the Company of this Agreement, or for the valid authorization, issuance, sale and delivery of the Shares, or for the consummation by the Company of the transactions contemplated in the Prospectus under the captions "Prospectus Summary -- The Proposed Recapitalization" and "Use of Proceeds," or this Agreement, except (x) for those which if not obtained would not have a Material Adverse Effect and (y) such as may be required by the securities or blue sky laws of Wisconsin in connection with the offer and sale of the Shares; (vi) each of the Company and its subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all Federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus (except for those which, if not obtained or made, would not have a Material Adverse Effect); and (vii) except as disclosed in the Prospectus, there is no action, suit or proceeding pending or, to the best of such counsel's knowledge after due inquiry, threatened against the Company or its properties before any governmental body or agency which, individually or in the aggregate (so far as the Company now can reasonably foresee), is reasonably likely materially and adversely to affect the ability of the Company to consummate any of the transactions contemplated by the Prospectus or this Agreement. 12 Such opinion shall also state that such counsel has participated in the preparation of the Registration Statement and the Prospectus and no facts have come to the attention of such counsel which have led such counsel to believe (A) that the Registration Statement (except for the financial statements and other financial or statistical data included or incorporated by reference therein or omitted therefrom as to which such counsel need express no opinion), at the time the Registration Statement became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (B) that the Prospectus (except for the financial statements and other financial or statistical data included or incorporated by reference therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectus was issued or at the Closing Date, contained or contains any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Such opinion shall cover the matters referred to in subparagraphs (i) through (vii) above with respect to the General Corporation Law of the State of Delaware (with respect to the due organization, authorization, execution and delivery, valid existence and good standing of the Company), federal law and solely with respect to paragraphs (iv), (v) and (vi), Wisconsin law. (e) You shall have received on the Closing Date an opinion of Shearman & Sterling, counsel for the Company, dated the Closing Date, to the effect that (i) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has the corporate power and authority to carry on its business and to own or hold under lease its properties as described in the Prospectus; (ii) Harmon is a corporation duly incorporated and in good standing under the laws of the State of New York and has the corporate power and authority to carry on its business as presently conducted as described in the Prospectus. 13 (iii) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (iv) the shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable; (v) the Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights; (vi) this Agreement has been duly authorized, executed and delivered by the Company; (vii) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of the laws of the State of New York, the General Corporation Law of the State of Delaware or the Federal laws of the United States or the certificate of incorporation or by-laws of the Company or, to the best of such counsel's knowledge, any material agreement or other material instrument binding upon the Company or any of its properties, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of or qualification with any governmental body or agency or court of the State of New York or United States is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares by the U.S. Underwriters; (viii) the statements (1) in the Prospectus under the captions "Management -- Employment Agreements," "-- Management Incentive Plan," "-- Supplemental Retirement Plan," "-- 1995 Stock Incentive Plan," "-- Management Equity Plan," and "-- Management Equity Participation Agreement," "Certain Transactions -- Stockholders Agreement," "Description of Certain Indebtedness," 14 "Description of Capital Stock" and "Underwriters" and (2) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present in all material respects the information called for with respect to such legal matters, documents and proceedings and fairly summarize in all material respects the matters referred to therein; (ix) after due inquiry, such counsel does not know of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (x) the Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; and (xi) the Registration Statement and Prospectus (except for financial statements and other financial and statistical data included or incorporated by reference therein as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the rules and regulations of the Commission thereunder. Such opinion shall also state that such counsel has participated in the preparation of the Registration Statement and the Prospectus and no facts have come to the attention of such counsel which have led such counsel to believe (A) that the Registration Statement, (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion) at the time the Registration Statement became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (B) that the Prospectus (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectus was issued or at the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light 15 of the circumstances under which they were made, not misleading. (f) You shall have received on the Closing Date an opinion of Pannone & Partners, United Kingdom counsel to the Company, dated the Closing Date, to the effect that Fort Sterling is a private limited company duly incorporated in England under Registered number 445297 which has been in continuous existence since the date of its incorporation, and no action is currently being taken by the Registrar of Companies for striking Fort Sterling off the Register or dissolving it as defunct, and it is not in liquidation or subject to an administration order, and no receiver or manager of its property has been appointed and that Fort Sterling has the corporate power and authority to carry on its business as presently conducted. (g) You shall have received on the Closing Date an opinion of Linklaters & Paines, special United Kingdom counsel to the Company, dated the Closing Date, to the effect that (i) the U.K. Directed Share Program complies with applicable law in the United Kingdom and (ii) no consent, approval, authorization or order of, or qualification with any United Kingdom governmental body or agency is required for the consummation of the U.K. Directed Share Program. (h) You shall have received on the Closing Date an opinion of Davis Polk & Wardwell, special counsel for the Underwriters, dated the Closing Date, covering the matters referred to in subparagraphs (v), (vi), (viii) (but only as to the statements in the Prospectus under "Description of Capital Stock" and "Underwriters"), (xi) and the paragraph following subparagraph (xi) of paragraph (e) above. With respect to the last paragraph of paragraph (e) above, Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. The opinions of Shearman & Sterling, Pannone & Partners, and Linklaters & Paines described in paragraphs (e), (f) and (g) above shall be rendered to you at the request of the Company and shall so state therein. 16 (i) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Arthur Andersen LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (j) The provisions of the Stockholders Agreement which prohibit the sale of shares of Common Stock of the Company or of securities convertible into or exercisable or exchangeable for such Common Stock by any of the parties to the Stockholders Agreement for a period beginning seven days before and ending 180 days after the effective date of the Registration Statement hereof are in full force and effect on the Closing Date. (k) The Shares have been approved for quotation on the Nasdaq National Market, subject only to official notice of issuance. (l) On or prior to the Closing Date, notices of redemption shall have been delivered to the relevant trustees with respect to the 14 1/8% Debentures and the 12 5/8% Debentures (as such terms are defined in the Prospectus), subject only to the closing of the offering of the Shares. (m) On or prior to the Closing Date, all conditions precedent to the effectiveness of the New Bank Credit Agreement and the 1995 Receivables Facility (as each such term is defined in the Prospectus) have been satisfied, other than the closing of the offering of the Shares, and substantially contemporaneous with the closing of the offering of the Shares, the Company has borrowed under the New Bank Credit Agreement and the 1995 Receivables Facility the amounts described as being borrowed on the Closing Date under "Prospectus Summary -- The Proposed Recapitalization" in the Prospectus. The several obligations of the U.S. Underwriters to purchase Additional Shares hereunder are subject to the delivery to the U.S. Representatives on the Option Closing Date of such documents as they may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and 17 other matters set forth in this Article V related to the issuance of the Additional Shares. VI. In further consideration of the agreements of the Underwriters herein contained, the Company covenants as follows: (a) To furnish to you, without charge, four signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and, during the period mentioned in paragraph (c) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and to file no such proposed amendment or supplement to which you reasonably object. (c) If, during such period after the first date of the public offering of the Shares as in the opinion of your counsel the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of your counsel, it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. 18 (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request and to pay all expenses (including fees and disbursements of counsel) in connection with such qualification and in connection with any review of the offering of the Shares by the National Association of Securities Dealers, Inc. (the "NASD"), including, without limitation, expenses (including fees and disbursements of counsel) incurred by CS First Boston Corporation ("CS First Boston") in its capacity as a "qualified independent underwriter" within the meaning of Section 1 of Article III of the Rules of Fair Practice of the NASD; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is now so subject. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve-month period ending March 31, 1996 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) To pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation and filing of the Registration Statement and the Prospectus and all amendments and supplements thereto, (ii) the preparation, issuance and delivery of the Shares, including any transfer taxes payable in connection with the transfer of the Shares to the Underwriters, (iii) the fees and disbursements of the Company's counsel and accountants, (iv) the qualification of the Shares under state securities or Blue Sky laws in accordance with the provisions of paragraph (d) of Article VI, including filing fees and the reasonable fees and disbursements of U.S. counsel for the Underwriters in connection therewith and in connection with the preparation of any Blue Sky Memoranda, (v) the filing of trade reports in the provinces of Canada, if any, including filing fees and fees and disbursements of Canadian counsel to the Underwriters in connection therewith, (vi) the printing and delivery to the Underwriters, in quantities as hereinabove stated, of copies of the Registration Statement and all amendments thereto and of each preliminary prospectus and the Prospectus and any amendments or supplements thereto, (vii) the printing and delivery to the Underwriters of 19 copies of any Blue Sky Memoranda, (viii) the filing fees and expenses if any, incurred with respect to any filing with the NASD, made in connection with the offering of the Shares, (ix) any transportation, accommodation and meal expenses incurred by the Company in connection with a "road show" presentation to potential investors, (x) fees and disbursements of foreign counsel to the Company in connection with the U.K. Directed Share Program and (xi) the approval for quotation of the Common Stock on the Nasdaq National Market. (g) The Company will apply the net proceeds from the sale of the Shares as set forth under "Use of Proceeds" in the Prospectus. (h) The Company hereby agrees that it will ensure that any and all Shares sold to employees of the Company pursuant to the U.K. Directed Share Program will be restricted from sale, transfer, assignment, pledge or hypothecation for a period of thirty days following the Closing Date. Specifically, the Company will place a restrictive legend on the face of such securities stating that the securities may not be sold, transferred, assigned, pledged or hypothecated for a period of thirty days following the Closing Date and direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. VII. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Underwriter or any such controlling person in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except 20 insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement -------- ------- with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities and (ii) arising out of the Company's U.K. Directed Share Program. The Company also agrees to indemnify and hold harmless CS First Boston and each person, if any, who controls CS First Boston within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments incurred as a result of CS First Boston's participation as a "qualified independent underwriter" within the meaning of Section 1 of Article III of the Rules of Fair Practice of the NASD in connection with the offering of the Shares, except for any losses, claims, damages, liabilities and judgments resulting from CS First Boston's, or its controlling person's, gross negligence or willful misconduct. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to any of 21 the three preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such reasonable fees and expenses shall be reimbursed as they are incurred and billed. In the case of any such separate firm for the Underwriters and such control persons of Underwriters, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the second paragraph of this Article VII in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm for CS First Boston in its capacity as a "qualified independent underwriter" and all persons, if any, who control CS First Boston within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act if representation of CS First Boston in such capacity and the other indemnified parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a 22 final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first or second paragraph of this Article VII is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in 23 the table on the cover of the Prospectus, bear to the aggregate public offering price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Article VII are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Article VII were determined by pro rata allocation --- ---- (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article VII, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Article VII are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution provisions contained in this Article VII and the representations and warranties of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the 24 Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. VIII. This Agreement shall be subject to termination in your absolute discretion by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event singly or together with any other such event makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. IX. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement by the Commission. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I or Schedule II bears to the 25 aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in -------- no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to Article II be increased pursuant to this Article IX by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date or the Option Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date or the Option Closing Date, as the case may be, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason not attributable to your actions or your failure to take actions reasonably contemplated by this Agreement, the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 26 This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Very truly yours, FORT HOWARD CORPORATION By________________________ Accepted, March , 1995 -- MORGAN STANLEY & CO. INCORPORATED CS FIRST BOSTON CORPORATION SALOMON BROTHERS INC Acting severally on behalf of themselves and the several U.S. Underwriters named in Schedule I hereto. By Morgan Stanley & Co. Incorporated By ___________________________ MORGAN STANLEY & CO. INTERNATIONAL LIMITED CS FIRST BOSTON LIMITED SALOMON BROTHERS INTERNATIONAL LIMITED S.G. WARBURG SECURITIES LIMITED Acting severally on behalf of themselves and the several International Underwriters named in Schedule II hereto. By Morgan Stanley & Co. International Limited By ____________________________ 27 Schedule I U.S. Underwriters ----------------- Number of Firm Shares Underwriter To Be Purchased ----------- --------------- Morgan Stanley & Co. Incorporated CS First Boston Corporation Salomon Brothers Inc [NAMES OF OTHER U.S. UNDERWRITERS] _______________ Total U.S. Firm Shares .............. 17,600,000 =============== 28 Schedule II International Underwriters -------------------------- Number of Firm Shares Underwriter To Be Purchased ----------- --------------- Morgan Stanley & Co. International Limited CS First Boston Limited Salomon Brothers International Limited S.G. Warburg Securities Limited [NAMES OF OTHER INTERNATIONAL UNDERWRITERS] _______________ Total International Firm Shares ...... 4,400,000 =============== 29 EX-4.6 3 Exhibit 4.6 $1,440,000,000 CREDIT AGREEMENT Dated as of March __, 1995, among FORT HOWARD CORPORATION, THE LENDERS IDENTIFIED HEREIN and BANKERS TRUST COMPANY, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and CHEMICAL BANK, as Arrangers, and BANKERS TRUST COMPANY, as Administrative Agent FORT HOWARD CORPORATION CREDIT AGREEMENT dated as of March __, 1995 TABLE OF CONTENTS Heading Page INTRODUCTION................................ 1 RECITALS.................................... 1 ARTICLE I DEFINITIONS................................. 2 Section 1.1 Certain Defined Terms....................... 2 Section 1.2 Accounting Terms............................ 62 Section 1.3 Other Definitional Provisions; Anniversaries 62 Section 1.4 Adjustment for Special Reserve.............. 62 Section 1.5 Currency Equivalent Generally............... 62 ARTICLE II COMMITMENTS AND LOANS; NOTES................ 63 Section 2.1 Term Loans and Term Notes................... 63 2.1.1 Term Loan Commitments....................... 63 2.1.2 Notice of Borrowing......................... 64 2.1.3 Disbursement of Funds....................... 64 2.1.4 Term Notes.................................. 66 2.1.5 Scheduled Payments of Term Loans............ 66 Section 2.2 Letters of Credit........................... 66 2.2.1 Letters of Credit........................... 66 2.2.2 Request for Issuance........................ 68 2.2.3 Determination of Fronting Bank.............. 69 2.2.4 Payment of Amounts Drawn Under Letters of Credit................................ 70 2.2.5 Payment by the Lenders...................... 71 2.2.6 Compensation................................ 72 2.2.7 Obligations Absolute........................ 73 2.2.8 Additional Payments......................... 74 2.2.9 Indemnification; Nature of Fronting Bank's Duties................................... 76 2.2.10 Computation of Interest..................... 77 -i- Section 2.3 Revolving Loans and Revolving Notes......... 78 2.3.1 Revolving Loan Commitments.................. 78 2.3.2 Notice of Borrowing......................... 79 2.3.3 Disbursement of Funds....................... 80 2.3.4 Revolving Notes............................. 81 Section 2.4 Total Loan Commitments; Limitations on Outstanding Loan Amounts................. 81 Section 2.5 Interest on the Loans....................... 81 2.5.1 Rate of Interest............................ 81 2.5.2 Interest Periods............................ 84 2.5.3 Interest Payments........................... 86 2.5.4 Conversion or Continuation.................. 86 2.5.5 Post-Maturity Interest...................... 87 2.5.6 Computation of Interest..................... 88 Section 2.6 Commissions................................. 88 2.6.1 Commitment Commissions...................... 88 2.6.2 Bankers and Arrangers Commissions........... 88 2.6.3 No Refund of Fees........................... 88 Section 2.7 Prepayments and Payments; Reductions in Commitments.............................. 89 2.7.1 Voluntary Prepayments....................... 89 2.7.2 Mandatory Prepayments....................... 89 2.7.3 Company's Mandatory Prepayment Obligation; Application of Prepayments... 92 2.7.4 Manner and Time of Payment.................. 95 2.7.5 Apportionment of Payments................... 95 2.7.6 Payments on Non-Business Days............... 96 2.7.7 Payment Accounts; Notation of Payment....... 96 2.7.8 Voluntary Reductions of Swing Line Commitment and Revolving Loan Commitments.............................. 97 2.7.9 Mandatory Reductions of Revolving Loan Commitments and Swing Line Commitment............................... 97 Section 2.8 Use of Proceeds............................. 98 2.8.1 Term Loans.................................. 98 2.8.2 Revolving Loans............................. 98 2.8.3 Swing Line Loans............................ 98 2.8.4 Margin Regulations.......................... 99 Section 2.9 Special Provisions Governing Adjusted LIBOR Loans.............................. 99 2.9.1 Determination of Interest Rate.............. 99 2.9.2 Increased Costs............................. 99 2.9.3 Required Termination and Prepayment......... 101 2.9.4 Options of Company.......................... 101 2.9.5 Compensation................................ 102 2.9.6 Quotation of LIBOR.......................... 102 2.9.7 Taxes....................................... 103 2.9.8 Booking of Adjusted LIBOR Loans............. 107 -ii- 2.9.9 Assumptions Concerning Funding of Adjusted LIBOR Loans..................... 107 2.9.10 Adjusted LIBOR Loans After an Event of Default.................................. 107 2.9.11 Affected Lender's Obligation to Mitigate.... 108 Section 2.10 Capital Requirements........................ 108 Section 2.11 Replacement Rights of Company............... 109 Section 2.12 Swing Line Loans and Swing Line Notes....... 109 2.12.1 Swing Line Loans............................ 109 2.12.2 Notice of Borrowing......................... 110 2.12.3 Disbursement of Funds....................... 111 2.12.4 Swing Line Note............................. 111 2.12.5 Purchase of Swing Line Loans................ 111 ARTICLE III CONDITIONS TO LOANS AND LETTERS OF CREDIT.................................... 112 Section 3.1 Conditions to Loans Made on the Closing Date..................................... 112 3.1.1 ............................................ 112 3.1.2 ............................................ 112 3.1.3 ............................................ 113 3.1.4 ............................................ 114 3.1.5 ............................................ 116 3.1.6 ............................................ 117 3.1.7 ............................................ 117 3.1.8 ............................................ 117 3.1.9 ............................................ 117 3.1.10 ............................................ 118 3.1.11 ............................................ 118 3.1.12 ............................................ 118 3.1.13 ............................................ 118 Section 3.2 Conditions to Loans......................... 118 3.2.1 ............................................ 119 3.2.2 ............................................ 119 3.2.3 ............................................ 120 Section 3.3 Conditions to Tranche A Term Loans and Certain Revolving Loans on the Deferred Funding Date............................. 120 3.3.1 ............................................ 120 3.3.2 ............................................ 121 3.3.3 ............................................ 121 Section 3.4 Conditions to Initial Revolving Loans and Swing Line Loans......................... 121 3.4.1 ............................................ 121 3.4.2 ............................................ 121 3.4.3 ............................................ 121 -iii- Section 3.5 Conditions to All Letters of Credit......... 121 3.5.1 ............................................ 121 3.5.2 ............................................ 122 3.5.3 ............................................ 122 ARTICLE IV REPRESENTATIONS AND WARRANTIES.............. 122 Section 4.1 Organization, Powers, Good Standing, Business and Subsidiaries................ 122 4.1.1 Organization and Powers..................... 122 4.1.2 Good Standing............................... 122 4.1.3 Conduct of Business......................... 123 4.1.4 Subsidiaries................................ 123 Section 4.2 Authorization of Borrowing, etc............. 123 4.2.1 Authorization of Borrowing.................. 123 4.2.2 No Conflict................................. 123 4.2.3 Governmental Consents....................... 124 4.2.4 Binding Obligation.......................... 124 4.2.5 Valid Issuance of Common Stock.............. 124 Section 4.3 Financial Condition......................... 125 Section 4.4 No Adverse Material Change; No Stock Payments................................. 125 Section 4.5 Title to Properties; Liens.................. 125 Section 4.6 Litigation; Adverse Facts................... 126 Section 4.7 Payment of Taxes............................ 126 Section 4.8 Performance of Agreements................... 127 Section 4.9 Governmental Regulation..................... 127 Section 4.10 Securities Activities....................... 127 Section 4.11 Employee Benefit Plans...................... 127 4.11.1 ............................................ 127 4.11.2 ............................................ 128 4.11.3 ............................................ 128 4.11.4 ............................................ 128 4.11.5 ............................................ 128 4.11.6 ............................................ 128 Section 4.12 Certain Fees................................ 128 Section 4.13 Disclosure.................................. 129 Section 4.14 Patents, Trademarks, etc.................... 130 Section 4.15 Environmental Protection.................... 130 4.15.1 ............................................ 130 4.15.2 ............................................ 131 4.15.3 ............................................ 131 4.15.4 ............................................ 131 Section 4.16 Security Interests.......................... 131 Section 4.17 IDA and Certain Documents................... 132 Section 4.18 Solvency.................................... 132 4.18.1 ............................................ 132 -iv- 4.18.2 ............................................ 133 ARTICLE V AFFIRMATIVE COVENANTS....................... 133 Section 5.1 Financial Statements and Other Reports...... 133 Section 5.2 Corporate Existence, etc.................... 140 Section 5.3 Payment of Taxes and Claims; Tax Consolidation............................ 140 5.3.1 ............................................ 140 5.3.2 ............................................ 140 Section 5.4 Maintenance of Properties; Insurance........ 140 Section 5.5 Inspection.................................. 141 Section 5.6 No Further Negative Pledges................. 141 Section 5.7 Compliance with Laws, etc................... 142 Section 5.8 Interest Rate Agreements.................... 142 Section 5.9 Lender Meeting.............................. 143 Section 5.10 Security Interests.......................... 143 5.10.1 ............................................ 143 5.10.2 ............................................ 143 Section 5.11 Future Guarantor Subsidiaries and Additional Pledge Agreements; Certain Future Acquisitions of Material Assets.......... 143 5.11.1 ............................................ 143 5.11.2 Grant of Security Interest in Material Assets..144 5.11.3 Limitations on Pledging of Shares and other Assets of Certain Foreign Subsidiaries and Delivery of Certain Guarantees........... 146 5.11.4 ............................................ 147 5.11.5 ............................................ 147 5.11.6 ............................................ 148 Section 5.12 Expansion Projects.......................... 148 5.12.1 Mill Expansion Transactions................. 148 5.12.2 Greenfield Expansion Projects............... 152 Section 5.13 Certain Dispositions of Collateral.......... 154 Section 5.14 Georgia Mill Lease and Mortgage............. 156 5.14.1 ............................................ 156 5.14.2 ............................................ 157 5.14.3 ............................................ 157 5.14.4 ............................................ 157 Section 5.15 Transfer of Permits and Licenses............ 157 Section 5.16 Recapitalization............................ 157 Section 5.17 Green Bay Sludge Boiler..................... 158 5.17.1 ............................................ 158 5.17.2 ............................................ 158 -v- ARTICLE VI NEGATIVE COVENANTS.......................... 158 Section 6.1 Indebtedness................................ 158 Section 6.2 Liens....................................... 162 Section 6.3 Investments; Joint Ventures................. 164 Section 6.4 Contingent Obligations...................... 168 Section 6.5 Restricted Junior Payments.................. 170 Section 6.6 Financial Covenants......................... 172 6.6.1 Interest Coverage Ratio..................... 172 6.6.2 Maximum Leverage Ratio...................... 172 Section 6.7 Restriction on Fundamental Changes.......... 172 6.7.1 ............................................ 173 6.7.2 ............................................ 173 6.7.3 ............................................ 174 6.7.4 ............................................ 174 6.7.5 ............................................ 174 6.7.6 ............................................ 174 6.7.7 ............................................ 175 Section 6.8 ERISA....................................... 175 6.8.1 ............................................ 175 6.8.2 ............................................ 175 6.8.3 ............................................ 175 6.8.4 ............................................ 175 Section 6.9 Restriction on Leases....................... 175 Section 6.10 Sales and Leasebacks........................ 176 Section 6.11 Sale or Discount of Receivables; Receivables Transactions............................. 177 6.11.1 ............................................ 177 6.11.2 ............................................ 177 6.11.3 ............................................ 177 Section 6.12 Transactions with Shareholders and Affiliates............................... 177 Section 6.13 Disposal of Subsidiary Stock................ 178 6.13.1 ............................................ 178 6.13.2 ............................................ 178 Section 6.14 Limitation on Capital Expenditures.......... 178 6.14.1 ............................................ 178 6.14.2 ............................................ 178 6.14.3 ............................................ 179 6.14.4 ............................................ 179 6.14.5 ............................................ 180 6.14.6 ............................................ 180 Section 6.15 Conduct of Business......................... 180 Section 6.16 Amendments or Waivers of Certain Documents; Prepayments of Indebtedness... 181 6.16.1 ............................................ 181 6.16.2 ............................................ 181 6.16.3 ............................................ 182 -vi- 6.16.4 ............................................ 182 6.16.5 ............................................ 182 6.16.6 ............................................ 182 6.16.7 ............................................ 183 6.16.8 ............................................ 183 Section 6.17 Payment of Cash Interest on Subordinated Debt..................................... 184 ARTICLE VII EVENTS OF DEFAULT........................... 184 Section 7.1 Failure To Make Payments When Due........... 184 Section 7.2 Default in Other Agreements................. 184 Section 7.3 Breach of Certain Covenants................. 185 Section 7.4 Breach of Warranty.......................... 185 Section 7.5 Other Defaults Under Agreement or Loan Document................................. 185 Section 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc............................ 185 7.6.1 ............................................ 185 7.6.2 ............................................ 185 Section 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc............................ 186 Section 7.8 Judgments and Attachments................... 186 Section 7.9 Dissolution................................. 187 Section 7.10 Unfunded ERISA Liabilities.................. 187 7.10.1 ............................................ 187 7.10.2 ............................................ 187 7.10.3 ............................................ 187 7.10.4 ............................................ 187 7.10.5 ............................................ 187 Section 7.11 Withdrawal Liability Under Multiemployer Plan..................................... 187 Section 7.12 Invalidity of Guarantees.................... 188 Section 7.13 Failure of Security......................... 188 Section 7.14 Change in Control........................... 188 ARTICLE VIII THE ADMINISTRATIVE AGENT.................... 190 Section 8.1 Appointment................................. 190 Section 8.2 Powers; General Immunity.................... 190 8.2.1 Duties Specified............................ 190 8.2.2 No Responsibility for Certain Matters....... 191 8.2.3 Exculpatory Provisions...................... 191 8.2.4 Administrative Agent Entitled to Act as Lender................................... 192 -vii- Section 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness......................... 192 Section 8.4 Right to Indemnity.......................... 193 Section 8.5 Registered Holder of Note Treated as Owner.. 193 Section 8.6 Resignation by Administrative Agent......... 193 8.6.1 ............................................ 193 8.6.2 ............................................ 193 8.6.3 ............................................ 194 8.6.4 ............................................ 194 Section 8.7 Guarantor Subsidiary Guarantee and Collateral Documents..................... 194 Section 8.8 Successor Administrative Agent.............. 195 ARTICLE IX MISCELLANEOUS............................... 195 Section 9.1 Successors and Assigns; Participations...... 195 9.1.1 ............................................ 195 9.1.2 ............................................ 195 9.1.3 ............................................ 197 9.1.4 ............................................ 199 9.1.5 ............................................ 199 Section 9.2 Expenses.................................... 200 Section 9.3 Indemnity................................... 201 Section 9.4 Set Off..................................... 202 Section 9.5 Ratable Sharing............................. 202 9.5.1 ............................................ 202 9.5.2 ............................................ 203 Section 9.6 Amendments and Waivers...................... 204 Section 9.7 Independence of Covenants................... 205 Section 9.8 Change in Accounting Principles; Fiscal Year or Tax Laws......................... 205 Section 9.9 Notices..................................... 206 Section 9.10 Survival of Warranties and Certain Agreements............................... 206 Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative............................... 206 Section 9.12 Severability................................ 206 Section 9.13 Obligations Several; Independent Nature of the Lenders' Rights...................... 207 Section 9.14 Headings.................................... 207 Section 9.15 Applicable Law.............................. 207 Section 9.16 Consent to Jurisdiction and Service of Process.................................. 207 Section 9.17 Confidentiality............................. 208 Section 9.18 Counterparts; Effectiveness................. 208 -viii- Section 9.19 Determinations Pursuant to Collateral Documents................................ 209 Section 9.20 Certain Obligations of Company.............. 209 Section 9.21 Waiver of Jury Trial........................ 209 Section 9.22 Defaulting Lenders.......................... 210 9.22.1 ............................................ 210 9.22.2 ............................................ 210 9.22.3 ............................................ 211 Section 9.23 Lenders' ERISA Matters...................... 211 9.23.1 Lenders' Representations and Warranties..... 211 9.23.2 General Account Assets...................... 212 9.23.3 Representations of Transferees.............. 212 9.23.4 Additional ERISA Representations............ 213 SIGNATURE PAGES..................................................... 214 SCHEDULES A LOAN PARTIES AND SUBSIDIARIES B LENDERS' COMMITMENTS, PRO RATA SHARES AND FUNDING PERCENTAGES C EXISTING INDEBTEDNESS D EXISTING LIENS E EXISTING INVESTMENTS F CREDIT FACILITIES TO BE TERMINATED ON THE CLOSING DATE G CONTINGENT OBLIGATIONS H LEASEHOLD MORTGAGEE PROVISIONS EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF TRANCHE A TERM NOTE IV FORM OF REVOLVING NOTE V FORM OF TRANCHE B TERM NOTE VI FORM OF COMPLIANCE CERTIFICATE VII FORM OF SWING LINE NOTE VIII FORM OF OPINION OF SHEARMAN & STERLING, COUNSEL TO FORT HOWARD IX-A FORM OF OPINION OF JAMES W. NELLEN, II, ESQ., COUNSEL TO FORT HOWARD IX-B FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD (REAL PROPERTY) IX-C FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD (PERSONAL PROPERTY) -ix- IX-D FORM OF OPINION OF MICHAEL, BEST & FRIEDRICH (INTELLECTUAL PROPERTY) X FORM OF OPINION OF CAHILL GORDON & REINDEL XI FORM OF OFFICER'S CLOSING CERTIFICATE XII FORM OF IDA ESTOPPEL XIII FORM OF GUARANTOR SUBSIDIARY GUARANTEE XIV-A FORM OF COMPANY RECEIVABLE/INVENTORY PLEDGE AGREEMENT XIV-B FORM OF GUARANTOR SUBSIDIARY RECEIVABLE/INVENTORY PLEDGE AGREEMENT XV FORM OF COMPANY STOCK PLEDGE AGREEMENT XVI FORM OF SPECIAL FUNDING PROCEDURES LETTER XVII FORM OF INTELLECTUAL PROPERTY PLEDGE AGREEMENT XVIII FORM OF REGISTERED TRANSFER SUPPLEMENT XIX-A(i) FORM OF MORTGAGE - WISCONSIN XIX-A(ii) FORM OF MILL MORTGAGE - WISCONSIN XIX-B(i) FORM OF MILL MORTGAGE - OKLAHOMA XIX-B(ii) FORM OF MORTGAGE - OKLAHOMA XIX-C(i) FORM OF GEORGIA MILL DEED TO SECURE DEBT XIX-C(ii) FORM OF GEORGIA DEED TO SECURE DEBT XX FORM OF LETTER ESCROW AND SECURITY AGREEMENT XXI FORM OF OFFICER'S FUNDING DATE CERTIFICATE XXII FORM OF OFFICER'S SECTION 5.1(iv) CERTIFICATE XXIII FORM OF OFFICER'S SECTION 5.1(xiv) CERTIFICATE XXIV FORM OF EXPANSION INTERCREDITOR AGREEMENT XXV NONDISTURBANCE, CURE RIGHTS AND PURCHASE OPTION AGREEMENT, DATED AS OF OCTOBER 20, 1989 XXVI CURE RIGHTS AND PURCHASE OPTION AGREEMENT, DATED AS OF OCTOBER 20, 1989 XXVII RECEIVABLES PROGRAM TERM SHEET XXVIII FORM OF STATUS CERTIFICATE XXIX FORM OF COLLATERAL TRUST AGREEMENT XXX FAIR VALUE DETERMINATION PROCEDURES -x- CREDIT AGREEMENT CREDIT AGREEMENT, dated as of March __, 1995, by and among FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), THE PARTIES IDENTIFIED AS LENDERS ON THE SIGNATURE PAGES HEREOF (each, together with its successors and assigns, a "Lender"), BANKERS TRUST COMPANY ("Bankers"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOA") and CHEMICAL BANK, as Arrangers (each (exclusive of any assignee or successor), an "Arranger"), and BANKERS TRUST COMPANY, as administrative agent for the Lenders (in such capacity and together with its successors in such capacity, the "Administrative Agent"). R E C I T A L S : A. The parties hereto desire to provide for, among other things,(i) the Company to borrow on a term basis Tranche A Term Loans (as hereinafter defined; other capitalized terms used in these Recitals having the meanings set forth in Section 1.1 hereof) in an aggregate principal amount not to exceed $840,000,000, (ii) the Company to borrow on a term basis Tranche B Term Loans in an aggregate principal amount not to exceed $300,000,000, (iii) the Company to borrow on a revolving basis Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $25,000,000, (iv) one or more Fronting Banks to issue letters of credit, on the terms and subject to the conditions set forth in this Agreement, in an aggregate face amount at any time outstanding not in excess of $50,000,000 and (v) the Company to borrow on a revolving basis, at any time and from time to time prior to the Revolving Credit Maturity Date Revolving Loans, in an aggregate principal amount at any time outstanding not to exceed $300,000,000 minus the sum of the aggregate principal amount of the Swing Line Loans outstanding at such time and the Letters of Credit Usage at such time. B. The Lenders desire that the Obligations be secured by (i) a security interest in certain Inventory and a junior security interest in certain Receivables in each case owned by the Company and certain of its Subsidiaries, (ii) a security interest in certain Intellectual Property owned by the Company, (iii) a security interest in stock of certain Subsidiaries of the Company, and (iv) a Mortgage of each of the Existing Mills and certain other property. C. From time to time hereafter, one or more of the Lenders and the Company may be parties to a Qualified Interest Rate Agreement or a Qualified Currency Agreement and the parties hereto intend that the obligations of the Company pursuant thereto (to the extent not in excess of $200,000,000) be secured on an equal and ratable basis with the Obligations. A G R E E M E N T : The Company, the Lenders, the Administrative Agent and the Arrangers agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "ABR Borrowing" means a Borrowing comprised of ABR Loans. "ABR Loan" means any ABR Term Loan or ABR Revolving Loan. "ABR Revolving Borrowing" means a Borrowing comprised of ABR Revolving Loans. "ABR Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of subsection 2.5.1. "ABR Spread" means (A) with respect to Tranche A Term Loans and Revolving Loans, the percent per annum from time to time in effect pursuant to paragraph (d) of subsection 2.5.1, and (B) with respect to Tranche B Term Loans, 2% per annum. "ABR Term Borrowing" means a Borrowing comprised of ABR Term Loans. "ABR Term Loan" means any Term Loan bearing interest at a rate determined by reference to ABR in accordance with the provisions of subsection 2.5.1. "Accepting Tranche B Lenders" has the meaning assigned to that term in paragraph (c) of subsection 2.7.3. "A Credit Exposure Amount" has the meaning assigned to that term in the definition of "Credit Exposure Amount." "Additional Collateral Documents" has the meaning assigned to that term in paragraph (a) of subsection 5.11.2. "Additional Georgia Mortgage" has the meaning assigned to that term in subsection 5.14.1. "Adjusted Consolidated Net Income" means, for any period, Consolidated Net Income during such period, plus (minus) the amount of depreciation, depletion, amortization of intangibles, deferred taxes, accreted and zero coupon bond interest and other non-cash expenses (income), losses (gains) or charges (credits) that, pursuant to GAAP, were deducted (added) in determining such Consolidated Net Income. "Adjusted LIBOR" means, for any Interest Rate Determination Date, the rate per annum (rounded upward to the next higher one hundredth of one percent) obtained by dividing (A) LIBOR for such Interest Rate Determination Date by (B) a percentage equal to 100% minus the stated maximum rate, as of such Interest Rate Determination Date, of all reserves required to be maintained against "Eurocurrency Liabilities" as specified in Regulation D (or against any other category of liabilities specified in Regulation D which includes deposits by reference to which the interest rate on Adjusted LIBOR Loans is determined or any category of extensions of credit or other assets specified in Regulation D which includes loans by a non-United States office of any Lender to United States residents). "Adjusted LIBOR Borrowing" means a Borrowing comprised of Adjusted LIBOR Loans. "Adjusted LIBOR Loan" means any Adjusted LIBOR Term Loan or Adjusted LIBOR Revolving Loan. "Adjusted LIBOR Loans" means Loans bearing interest at rates determined by reference to Adjusted LIBOR as provided in subsection 2.5.1. "Adjusted LIBOR Revolving Borrowing" means a Borrowing comprised of Adjusted LIBOR Revolving Loans. "Adjusted LIBOR Revolving Loan" means any Revolving Loan bearing interest at a rate determined by reference to Adjusted LIBOR in accordance with the provisions of subsection 2.5.1. "Adjusted LIBOR Term Borrowing" means a Borrowing comprised of Adjusted LIBOR Term Loans. "Adjusted LIBOR Term Loan" means any Term Loan bearing interest at a rate determined by reference to Adjusted LIBOR in accordance with the provisions of subsection 2.5.1. "Adjusted Revolving Loan Commitments" means at any time the aggregate of the Revolving Loan Commitments of all Lenders less the sum of the Defaulting Lender Deduction Amounts of all Defaulting Lenders. "Adjusted Revolving Loan Percentage" means (A) at a time when no Lender Default exists, for each Lender its percentage determined by dividing such Lender's Revolving Loan Commitment at such time by the aggregate amount of all Revolving Loan Commitments at such time and (B) at a time when a Lender Default exists (1) for each Lender that is a Defaulting Lender, zero and (2) for each Lender that is a Non-Defaulting Lender, the percentage determined by dividing such Lender's Revolving Loan Commitment at such time by the aggregate Revolving Loan Commitments of all Lenders that are not Defaulting Lenders at such time, it being understood that all references herein to Revolving Loan Commitments at a time when the Total Revolving Loan Commitment has been terminated shall be references to the Revolving Loan Commitments in effect immediately prior to such termination; provided, that (x) no Lender's Adjusted Revolving Loan Percentage shall change upon the occurrence of a Lender Default from that in effect immediately prior to such Lender Default if, after giving effect to such Lender Default, and any repayment of Revolving Loans and Swing Line Loans at such time pursuant to paragraph (c) of subsection 2.7.2 or otherwise, the Total Utilization of Revolving Loan Commitments exceeds the Adjusted Revolving Loan Commitments (after giving effect to such Lender Default), and (y) the changes to the Adjusted Revolving Loan Percentage that would have become effective upon the occurrence of a Lender Default but that did not become effective as a result of the preceding subclause (x) shall become effective on the first date after the occurrence of the relevant Lender Default on which the Total Utilization of Revolving Loan Commitments is equal to or less than the Adjusted Revolving Loan Commitments (after giving effect to such Lender Default). "Adjusted Working Capital" means, at any time, Consolidated Current Assets minus Consolidated Current Liabilities at such time. "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement. "Affected Interest Period" has the meaning assigned to that term in subsection 2.9.2. "Affected Lender" means any Lender affected by any of the events described in subsection 2.9.2 or subsection 2.9.3. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. No Lender or parent or Subsidiary of any Lender shall be treated as an Affiliate of the Company solely by virtue of its being a Lender or a parent or Subsidiary of a Lender. "Agreement" has the meaning assigned to that term in the introduction to this Agreement. "ALTA Survey" means a survey of any Real Property (and all improvements thereon): (A) prepared by a surveyor or engineer licensed to perform surveys in the state where such Real Property is located, (B) dated (or redated) not earlier than six months prior to the date of delivery thereof (unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such Real Property, in which event such survey shall be dated (or redated) after the completion of such construction or if such construction shall not have been completed as of such date of delivery, not earlier than 20 days prior to such date of delivery, (C) certified by the surveyor (in a manner reasonably acceptable to the Requisite Lenders) to the Administrative Agent, as agent for the Lenders, and (D) complying in all respects with the minimum detail requirements of the American Land Title Association as such requirements are in effect on the later of the date of preparation of such survey or the date such survey is redated. "Alternate Base Rate" or "ABR" means, 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, the term "Base CD Rate" means, the sum of (A) the product of (1) the Three-Month Secondary CD Rate multiplied by (2) Statutory Reserves and (B) the Assessment Rate. The term "Three-Month Secondary CD Rate" means, 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 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 Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. The term "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by the Federal funds broker, 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 Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (B) or (C), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Alternative Existing Mill Expansion Conditions" has the meaning assigned to that term in subsection 5.12.1. "Annual Prepayment" has the meaning assigned to that term in paragraph (b) of subsection 2.7.2. "Annual Voluntary Prepayment Adjustment Amount" means (A) in each fiscal year of the Company in which Excess Cash Flow is a positive amount or zero, zero and (B) in each fiscal year in which Excess Cash Flow is less than zero, the lesser of (1) the amount of voluntary prepayments which constitute Discretionary Voluntary Prepayments of Term Loans pursuant to Section 2.7.1 in respect of such fiscal year and (2) the amount of additional Net Cash Provided From Operations which would have been required in respect of such fiscal year to result in Excess Cash Flow for such fiscal year being zero. "Applicable Category" means, at any date of determination thereof, the category in the table appearing in paragraph (d) of subsection 2.5.1 having the lowest spreads and which, as of the last day of the fiscal quarter of the Company immediately preceding such date of determination, is applicable to the Company based upon both Ratio 1 and Ratio 2 for the period of four consecutive fiscal quarters of the Company ending on such last day. "A/R Eligible Receivables" means those Receivables of the Company pledged under the 1995 A/R Bridge. "Arranger" has the meaning assigned to that term in the introduction to this Agreement. "Assessment Rate" means for any date the annual rate most recently estimated by Bankers as the then-current net annual assessment rate that will be employed in determining amounts payable by Bankers to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in Dollars at Bankers' domestic offices. "Asset Sale" means the sale, transfer or other disposition after the Closing Date (in a single transaction or a series of related transactions) by the Company or any of its Subsidiaries to any Person (other than the Company or any of its Subsidiaries) of (A) any of the stock of any of the Company's Subsidiaries, (B) substantially all of the assets of any geographic or other division or line of business of the Company or any of its Subsidiaries, or (C) any Real Property or a portion of any Real Property or any other asset or assets (including, without limitation, any assets which do not constitute substantially all of the assets of any geographic or other division or line of business but excluding any assets manufactured, constructed or otherwise produced or purchased for sale to others in the ordinary course of business) of the Company or any of its Subsidiaries having a Fair Value in excess of $2,000,000 (it being understood that if the Fair Value thereof exceeds $2,000,000, the entire amount and not just the portion in excess of $2,000,000 shall be subject to paragraph (a) of subsection 2.7.2); provided that any asset sale described in clause (C) above shall not be deemed to be an "Asset Sale" unless and until the aggregate amount of the Fair Values of the proceeds of all such sales after the Closing Date by the Company and its Subsidiaries occurring in any fiscal year of the Company equals or exceeds $10,000,000 (it being understood that any such amounts less than $10,000,000 in any fiscal year of the Company shall not be included in the calculation of "Asset Sales" in any subsequent fiscal year of the Company); and provided, further, that "Asset Sales" shall not include (1) sales of Cash and Cash Equivalents in the ordinary course of business, (2) sales or other transfers of Program Receivables pursuant to a Receivables Transaction or so long as the 1995 A/R Bridge shall be in effect, any other transaction to the extent that net proceeds of such transaction are required to be applied as a prepayment under the 1995 A/R Bridge, (3) sales of assets effected pursuant to a Sale/Leaseback Transaction that is subject to the provisions of Section 5.12, and (4) dispositions of plants or facilities of the Company, or of a Subsidiary of the Company, located outside the United States of America, its territories and its possessions, but only to the extent that the Company or a Subsidiary of the Company prior to, simultaneously with or within six months following each such disposition, uses or irrevocably commits to use the proceeds of such disposition to build or purchase another facility in the same jurisdiction or to invest in other assets located outside the United States of America, its territories and its possessions; and provided, further, that (i) the greater of the aggregate book value or Fair Value of all assets subject to dispositions referred to in clause (4) in the proviso above during the term of this Agreement shall not exceed $30,000,000 and (ii) the Administrative Agent shall have been provided with (a) upon the Company's determination to make any disposition referred to in clause (4) in the proviso above, a certificate of the chief financial officer of the Company describing in reasonable detail such disposition, the anticipated proceeds of such disposition, the anticipated use of such proceeds and a description of the facility to be so built or acquired or the investment in such other assets to be made, and (b) if there is any material change in the matters set forth in such certificate, a certificate of the chief financial officer of the Company describing such material change(s), to be delivered upon receipt of the proceeds of such disposition. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination thereof, the quotient obtained by dividing (A) the sum of the products of (1) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (2) the amount of each such principal payment by (B) the sum of all such principal payments. "Bankers" means Bankers Trust Company, in its individual capacity. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Annual Capex Amount" has the meaning assigned to that term in subsection 6.14.3. "B Credit Exposure Amount" has the meaning assigned to that term in the definition of "Credit Exposure Amount." "Benefited Subsidiary" means, with respect to any Letter of Credit, the Person for whose benefit such Letter of Credit was issued, which shall be either the Company or one of its Subsidiaries, as specified by the Company in the request for issuance of such Letter of Credit made pursuant to paragraph (a) of subsection 2.2.1. "Borrowing" means the borrowing of any Loan or group of Loans occurring on the same date and having the same maturity and bearing interest computed on the same basis. "Business Day" means (A) for all purposes other than as covered by clause (B) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such State are authorized or required by law or other governmental action to close and (B) with respect to all notices, determinations, fundings and payments in connection with LIBOR, any day which is a Business Day described in clause (A) and which is also a day for trading by and between banks in Dollar deposits in the applicable London interbank market. "Capex Carryover Amount" has the meaning assigned to that term in subsection 6.14.5. "Capital Expenditures" means, in respect of any Person, (A) expenditures (whether paid in cash or accrued as a liability and including, without limitation, interest which is required to be capitalized under GAAP) by such Person which, in conformity with GAAP, are required to be included in "additions to property, plant or equipment" or similar items reflected in a statement of changes in financial position of such Person and (B) to the extent not included in clause (A) above, any Indebtedness (whether or not recourse to such Person and whether or not assumed or guaranteed by such Person) secured by any asset acquired by such Person pursuant to any expenditure of the type described in clause (A) above, or owing by any entity acquired by such Person pursuant to any expenditure of the type described in clause (A) above (it being understood that each item covered in this clause (B) shall be deemed incurred as of the date of the applicable acquisition), provided that any Indebtedness referred to in this clause (B) owing by an entity acquired by such Person that is not a Wholly-Owned Subsidiary of such Person shall only be included in an amount equal to the product of (1) such Person's direct or indirect percentage of equity ownership in such entity at the time such Indebtedness is incurred or deemed incurred and (2) the amount of such Indebtedness. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Cash" means money, currency or a credit balance in a Deposit Account. "Cash Equivalents" means (A) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof, (B) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (C) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (D) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000, (E) Eurodollar time deposits having a maturity of less than one year purchased from any Lender directly (whether such deposit is with such Lender or any other Lender hereunder) and (F) repurchase agreements and reverse repurchase agreements with any Lender or any primary dealer of United States government securities relating to marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Institutions Examination Council Supervisory Policy--Repurchase Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985 (the "Supervisory Policy") and, in the case of a repurchase agreement with a primary dealer, the Company or a Subsidiary of the Company shall take possession of the obligations subject to such arrangement. "Cash Proceeds" means, with respect to any Asset Sale, cash payments (including any cash received by way of deferred payment pursuant to a note receivable or otherwise (other than the portion of such deferred payment constituting interest which shall be deemed not to constitute Cash Proceeds), but only as and when so received) received from such Asset Sale. "CG&R" means Cahill Gordon & Reindel, as counsel for the Lenders in connection with this Agreement and the transactions contemplated hereby, and any successor counsel thereto. A "Change in Control" shall be deemed to have occurred if (A) any person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Act of 1934, as in effect on the date hereof) other than (1) The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), Morgan Stanley Group Inc. ("MS Group"), Fort Howard Equity Investors L.P., Fort Howard Equity Investors II, L.P. and their respective general or limited partners and/or Affiliates or (2) any employee benefit plan of the Company or of any of its Affiliates shall become the beneficial owner of shares representing 25% or more of any outstanding class of capital stock having ordinary voting power in the election of directors of the Company or (B) there shall occur during any period after the Closing Date a change in the Board of Directors of the Company pursuant to which the individuals who constituted the Board of Directors of the Company at the beginning of such period (together with any other director whose election by the Board of Directors of the Company (or whose nomination by the Board of Directors for election by the stockholders of the Company) was approved by a vote of at least a majority of the directors then in office who either were directors at the beginning of such period or whose election was previously so approved or by a duly authorized committee of the Board of Directors (which committee was designated by at least a majority of directors then in office who either were directors at the beginning of such period or whose election was previously so approved)) cease to constitute 75% of the Directors of the Company at the end of such period. "Closing Date" means the date of the initial funding of the Term Loans. "Closing Date Excess Equity Proceeds Amount" means the amount of net cash proceeds derived from the Common Stock Offering in excess of the difference between (A) $300,000,000 and (B) the amount of Transaction Costs reasonably estimated by the Company to be attributable to the issuance of common stock in the Common Stock Offering assuming it provides gross proceeds to the Company equal to $300,000,000. "Closing Date Tranche A Funding Amount" means that portion of the aggregate amount of the Tranche A Commitments that is equal to the difference between (A) the sum of the principal amount of all loans outstanding as of the Closing Date pursuant to the Existing Credit Facilities, together with all interest accrued thereon and other amounts then due and payable pursuant to the Existing Credit Facilities, plus the principal amount of all Senior Secured Notes outstanding as of the Closing Date, together with all interest accrued thereon and other amounts then due in respect thereof, plus the amount reasonably estimated by the Company to be due and payable on and as of the Closing Date in respect of Transaction Costs and (B) the gross proceeds received by the Company on the Closing Date from the issuance of Common Stock in the Common Stock Offering, plus the aggregate principal amount of the Tranche B Term Loans made on the Closing Date. "Collateral" means, as of any date of determination, the Inventory and Receivables (other than any Program Receivables), the Intellectual Property, the Real Properties, the interest of the Company in and to the Project Agreement, the Escrow Agreement, the Georgia Mill Lease, the capital stock of or other evidence of the ownership interest in each Receivables Subsidiary (except as otherwise provided in the definition of Receivables Subsidiary), the capital stock of or other evidence of the ownership interest in each Subsidiary, but only to the extent such capital stock or other evidence has been pledged to the Administrative Agent on or prior to such date pursuant to the provisions of Section 5.11, and all the other property described in the Collateral Documents (including, without limitation, all Material Assets which shall have on or prior to such date become Collateral pursuant to Section 5.11). "Collateral Documents" means the Mortgages, the Collateral Trust Agreement, the Pledge Agreements and all other instruments or documents delivered by the Company or any Subsidiary thereof in order to grant Liens on any Collateral (including, without limitation, any Additional Collateral Document delivered pursuant to Section 5.11), as amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Collateral Trust Agreement" means the Collateral Trust Agreement, substantially in the form annexed as Exhibit XXIX between the Company and the Collateral Trustee, as amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Collateral Trustee" means the Administrative Agent or such other Person that is the collateral trustee pursuant to the Collateral Trust Agreement. "Commercial Letter of Credit" means any letter of credit or similar instrument issued for the account of the Company for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by the Company or any of its Subsidiaries in the ordinary course of business of the Company or such Subsidiary. "Commitment Fee Letters" means, collectively, the fee letter agreement dated November 2, 1994 among the Company and the Arrangers and the three supplementary fee letter agreements of the Company dated November 2, 1994, in each case as such agreements are in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time. "Commitment Percentage" means (A) during the one year period following the Closing Date, .50% and (B) at all times after the first anniversary of the Closing Date, (1) .50%, when the LIBOR Spread is 1.50% or greater, (2) .375%, when the LIBOR Spread is 1.25% or 1.00%, (3) .25%, when the LIBOR Spread is .75% and (4) .1875%, when the LIBOR Spread is .625%. "Commitments" means the commitments of the Lenders as set forth in subsections 2.1.1, 2.2.1, 2.3.1 and 2.12.1. "Commodities Agreement" means any forward contract, option, futures contract, futures option, or similar agreement or arrangement entered into by the Company designed to protect the Company or any of its Subsidiaries from fluctuations in the price of commodities. "Common Stock" means the common stock of the Company, par value $.01 per share. "Common Stock Offering" means the initial public offering by the Company on the Closing Date of shares of newly issued Common Stock, on the terms and subject to the conditions described in the Prospectus (including, without limitation, any shares sold pursuant to any over-allotment option granted in connection therewith). "Company" has the meaning assigned to that term in the introduction to this Agreement. "Company Stock Pledge Agreement" means the Company Stock Pledge Agreement, in substantially the form annexed hereto as Exhibit XV, made by the Company, HAC Holding Corp., Harmon Assoc. Corp., and Fort Howard Holding, Inc., on the Closing Date, as it may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Company's Portion of Excess Cash Flow" means, at any date of determination thereof, the cumulative amount of Excess Cash Flow for each full fiscal year of the Company (other than a fiscal year for which Excess Cash Flow shall be less than zero) commencing on or after January 1, 1995, and ending prior to such date of determination that was not or is not required to be applied to the prepayment of Loans or the reduction of Commitments, in each case as described in paragraph (b) of subsection 2.7.2 or subsection 2.7.9. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit VI delivered to the Lenders by the Company pursuant to clause (B) of subparagraph (iv) of Section 5.1. "Consolidated Capital Expenditures" means, for any period, the sum of (A) the aggregate of all Capital Expenditures by the Company and its Subsidiaries during such period, plus (B) to the extent not covered by clause (A) hereof, the aggregate of all expenditures by the Company and its Subsidiaries to acquire by purchase or otherwise any business, property or fixed assets of, or stock or other evidence of beneficial ownership of or interest in, any Person, including, without limitation, the amount of any Indebtedness of any such acquired Person existing at the date of or by reason of such purchase or acquisition, whether or not such Indebtedness is assumed or guaranteed by the Company or any Subsidiary of the Company (other than any such expenditures of the type permitted under clause (x) or clause (xi) of Section 6.3), it being understood that each item covered by this clause (B) shall be deemed incurred as of the date of the applicable acquisition; provided that any Indebtedness referred to in this clause (B) of any acquired Person that is not a Wholly-Owned Subsidiary of the Company shall only be included in an amount equal to the product of (1) the Company's direct or indirect percentage of equity ownership in such acquired Person at the time such Indebtedness is incurred or deemed incurred and (2) the amount of such Indebtedness. "Consolidated Current Assets" means, at any time, the consolidated current assets (other than Cash and Cash Equivalents) of the Company and its Subsidiaries (whether or not consolidated with the Company pursuant to GAAP for financial reporting purposes and including, without limitation, all Receivables Subsidiaries) at such time. "Consolidated Current Liabilities" means, at any time, the consolidated current liabilities of the Company and its Subsidiaries (whether or not consolidated with the Company pursuant to GAAP for financial reporting purposes and including, without limitation, all Receivables Subsidiaries) at such time, but excluding the current portion of any long-term Indebtedness which would otherwise be included therein and any Indebtedness with a maturity which may, by the terms of the instrument evidencing or governing such Indebtedness, be extended, renewed or reborrowed (whether conditionally or unconditionally) by the Company or any of its Subsidiaries to a date that is later than one year after such time. "Consolidated Domestic Capital Expenditures" means, for any period, the sum of (A) the aggregate of all Capital Expenditures by the Company and its Domestic Subsidiaries during such period, plus (B) to the extent not covered by clause (A) hereof, the aggregate of all expenditures by the Company and its Domestic Subsidiaries to acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, including, without limitation, the amount of any Indebtedness of any such acquired Person, whether or not such Indebtedness is assumed or guaranteed by the Company or any Subsidiary of the Company (other than any such expenditures of the type permitted under clause (x) or clause (xi) of Section 6.3), it being understood that each item covered by this clause (B) shall be deemed incurred as of the date of the applicable acquisition; provided that any Indebtedness referred to in this clause (B) of any acquired Person that is not a Wholly-Owned Subsidiary of the Company shall only be included in an amount equal to the product of (1) the Company's direct or indirect percentage of equity ownership in such acquired Person at the time such Indebtedness is incurred or deemed incurred and (2) the amount of such Indebtedness. "Consolidated EBITDA" means, without duplication, for any period, the total of the amounts for such period of (A) Consolidated Net Income, plus (B) provision for taxes based on income, plus (C) total interest expense (including that attributable to Capital Leases and including, without limitation, to the extent not otherwise included in this clause (C), all interest expense or expenses in the nature of interest expense incurred by any Receivables Subsidiary), plus (D) depreciation expense, plus (E) amortization expense, plus (F) other non-cash items reducing or deducted in calculating Consolidated Net Income, minus (G) other non-cash items increasing Consolidated Net Income, minus (H) charges against the Special Reserve, all as determined on a consolidated basis for the Company and its Subsidiaries for such period taken as a single accounting period determined (other than in the case of clause (H)) in conformity with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, (A) total interest expense for such period (including that attributable to Capital Leases) of the Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Company and its Subsidiaries including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing (and excluding capitalized interest, to the extent such capitalized interest constitutes a Capital Expenditure or a Consolidated Domestic Capital Expenditure) and (B) net costs under Interest Rate Agreements for such period, and (C) to the extent not otherwise included above, all interest expense or expenses in the nature of interest expense incurred by any Receivables Subsidiary but excluding, however, in the case of clause (A), interest expense not payable in cash (including amortization of discount), any amounts referred to in Section 2.6 payable to the Administrative Agent and the Lenders on or before the Closing Date and Transaction Costs relating to the Recapitalization, all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Consolidated Net Income" for any period, means the net income (or loss) of the Company and its Subsidiaries (whether or not consolidated with the Company pursuant to GAAP for financial reporting purposes and including, without limitation, all Receivables Subsidiaries) on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (A) the income (or loss) of any Person (other than a Subsidiary of the Company) in which any other Person (other than the Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Subsidiaries by such Person during such period, (B) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with any of the Company's Subsidiaries or that Person's assets are acquired by the Company or any of its Subsidiaries, (C) the income of any Subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, and (D) any after-tax cash gains or losses attributable to Asset Sales. "Consolidated Rental Payments" means, for any period, the aggregate amount of all amounts paid or payable or accrued or accruable during such period under all Capital Leases and Operating Leases of the Company and its Subsidiaries (net of sublease income), all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Construction Cost" means, in respect of the cost of any assets purchased or constructed in connection with any Expansion Project, the total cost of all labor and materials and professional and permitting fees to acquire and construct such assets, including, without limitation, all capitalized interest in respect thereof and other items which, in accordance with GAAP, would be required to be reflected in the financial statements of the Company as additions to plant, property and equipment. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (A) with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (B) under any letter of credit issued for the account of that Person or for which that Person is otherwise liable for reimbursement thereof, or (C) under Currency Agreements or Interest Rate Agreements. Contingent Obligations shall include, without limitation, (A) the direct or indirect guarantee, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, and (B) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (1) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (2) to maintain the solvency or any balance sheet item, level of income or financial condition of another, or (3) to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, if in the case of any such agreement the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to in the case of a Contingent Obligation described in clause (A) in the first sentence of this definition, the amount of the obligation so guaranteed or otherwise supported, in the case of a Contingent Obligation described in clause (B) in the first sentence of this definition, the amount available to be drawn under the relevant letter of credit and in the case of a Contingent Obligation described in clause (C) in the first sentence of this definition, the relevant Termination Value. "Contractual Obligation", as applied to any Person, means any provision of any security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Controlled Foreign Corporation" means any direct or indirect Subsidiary of the Company which is a controlled foreign corporation, as defined in section 957(a) (or successor provision) of the Internal Revenue Code. "Corresponding Debt Instrument" means, (A) in respect of any Secured Expansion Financing, the Loan Documents, as the same may be amended, supplemented or otherwise modified from time to time, (B) in respect of any Sale/ Leaseback Financing, the leases, indentures and related instruments (as in effect on the Closing Date) comprising (1) the Sale/Leaseback Transaction of the Company's "Phase III" expansion at its Savannah, Georgia, Mill or (2) the Sale/Leaseback Transaction of the Company's "Phase IV" expansion at its Savannah, Georgia, Mill, (C) in respect of any Unsecured Expansion Financing that constitutes Subordinated Debt, the instruments (as in effect on the Closing Date) evidencing or governing the Subordinated Notes and (D) in respect of any Unsecured Expansion Financing that is not Subordinated Indebtedness, the instruments (as in effect on the Closing Date) evidencing or governing the Senior Unsecured Notes. "Credit Exposure Amount" of any Lender means, as of any date of determination, an amount equal to the sum of (A) the aggregate amount of such Lender's unused Term Loan Commitments, if any, then in effect (it being understood that the amount of such unused Term Loan Commitment of a Defaulting Lender shall be deemed to be zero), increased by the aggregate principal amount of such Lender's Term Loans then outstanding, plus (B) such Lender's Revolving Loan Commitment (whether used or unused) in effect on such date, reduced by such Lender's Defaulting Lender Deduction Amount, if any, then in effect. The "A Credit Exposure Amount" of any Lender means the "Credit Exposure Amount" of such Lender adjusted so that each of such Lender's Tranche B Commitment and Tranche B Term Loans are deemed to equal zero. The "B Credit Exposure Amount" of any Lender means the "Credit Exposure Amount" of such Lender adjusted so that each of such Lender's Tranche A Commitment, Tranche A Term Loans and Revolving Loan Commitment are deemed to equal zero. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by the Company designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. "Current Maturities of Funded Debt" means, as applied to any Person as at any date of determination, all payments of principal due under the terms of any Funded Debt of such Person within 12 calendar months after that date. "Defaulting Lender" means any Lender as to which a Lender Default has occurred. "Defaulting Lender Deduction Amount" means, as to each Defaulting Lender at any date, the sum of (A) the aggregate amount of participations of such Lender in respect of drawn but unreimbursed Letters of Credit and all undrawn Letters of Credit as of such date, plus (B) any amount owing by such Defaulting Lender to Bankers pursuant to subsection 2.12.5 as of such date, plus (C) the unutilized portion of the Revolving Loan Commitment of such Lender as of such date. "Deferred Funding Date" means a Business Day selected by the Company and identified in a Notice of Borrowing delivered in accordance with subsection 2.1.2 for the funding by the Lenders having Tranche A Commitments of the Deferred Tranche A Commitment Amount, which Business Day shall not be later than 45 days after the Closing Date. "Deferred Tranche A Funding Amount" means the difference, if any, between the aggregate amount of the Tranche A Commitments and the Closing Date Tranche A Funding Amount. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Destruction" has the meaning assigned to that term in the Mortgages. "DGCL" means the Delaware General Corporation Law. "Discretionary Equity Proceeds Balance" means, as at any date of determination thereof, the sum (which shall not be less than zero) of the Closing Date Excess Equity Proceeds Amount, plus the aggregate amount of net cash proceeds received by the Company or any of its Subsidiaries after the Closing Date and on or prior to such date of determination of all Equity Offerings after the Closing Date, minus the sum of (1) the aggregate of all such amounts applied by the Company, on or prior to such date of determination, (A) as a voluntary prepayment pursuant to subsection 2.7.1 which constitutes a Discretionary Voluntary Prepayment, (B) to the making of Consolidated Domestic Capital Expenditures pursuant to the provisions of subsection 6.14.5, (C) to the making of Investments pursuant to the provisions of clause (C) of subparagraph (x) of Section 6.3 or clause (B) of subparagraph (xvi) of Section 6.3 and (D) to the making of Restricted Junior Payments pursuant to the provisions of clause (G) of Section 6.5 and (2) the sum of the Discretionary Equity Proceeds Deduction Amounts in respect of each fiscal year of the Company (commencing with fiscal year 1995) which has ended prior to the March 31st immediately preceding such date of determination. "Discretionary Equity Proceeds Deduction Amount" means, in respect of each fiscal year of the Company, the portion of the Discretionary Equity/Cash Flow Proceeds Deduction Amount (as defined below) in respect of such fiscal year that the Company shall have elected to allocate (in accordance with the following sentence) to the Discretionary Equity Proceeds Balance in respect of such fiscal year. For purposes of this definition and the definition of "Discretionary Excess Cash Flow Deduction Amount", the Company shall allocate the Discretionary Equity/Cash Flow Proceeds Deduction Amount in respect of any fiscal year to the Discretionary Equity Proceeds Balance or the Discretionary Excess Cash Flow Balance in respect of such fiscal year, or to both, as the Company shall elect in its sole discretion; provided that, all such Discretionary Equity/Cash Flow Proceeds Deduction Amounts shall be allocated as aforesaid and no such allocation shall reduce such Discretionary Equity Proceeds Balance or such Discretionary Excess Cash Flow Balance below zero. As used herein, "Discretionary Equity/Cash Flow Proceeds Deduction Amount" means, in respect of any fiscal year, the lesser of (i) the Annual Voluntary Prepayment Adjustment Amount in respect of such fiscal year and (ii) the sum of the Discretionary Equity Proceeds Balance and the Discretionary Excess Cash Flow Balance, in each case under this clause (ii), as of the March 31st immediately following the end of such fiscal year. "Discretionary Excess Cash Flow Balance" means, as at any date of determination thereof, the sum (which shall not be less than zero) of the aggregate amount of the Company's Portion of Excess Cash Flow for all fiscal years of the Company (commencing with fiscal year 1995) which have ended prior to the March 31st immediately preceding such date of determination, minus the sum of (1) the aggregate of all such amounts applied by the Company on or prior to such date of determination (A) as a voluntary prepayment pursuant to subsection 2.7.1 which constitutes a Discretionary Voluntary Prepayment, (B) to the making of Consolidated Domestic Capital Expenditures pursuant to the provisions of subsection 6.14.5, (C) to the making of Investments pursuant to the provisions of clause (C) of subparagraph (x) of Section 6.3 or clause (B) of subparagraph (xvi) of Section 6.3 and (D) to the making of Restricted Junior Payments pursuant to the provisions of clause (C) of Section 6.5, clause (H) of Section 6.5 and (2) the sum of the Discretionary Excess Cash Flow Deduction Amounts in respect of each fiscal year of the Company (commencing with fiscal year 1995) which has ended prior to the March 31st immediately preceding such date of determination. "Discretionary Excess Cash Flow Deduction Amount" means, in respect of each fiscal year of the Company, the portion of the Discretionary Equity/Cash Flow Proceeds Deduction Amount (as defined in the definition of "Discretionary Equity Proceeds Deduction Amount") in respect of such fiscal year that the Company shall have elected to allocate (in accordance with the second sentence of the definition of "Discretionary Equity Proceeds Deduction Amount") to the Discretionary Excess Cash Flow Balance in respect of such fiscal year. "Discretionary Voluntary Prepayment" means a prepayment made by the Company pursuant to subsection 2.7.1 which is elected by the Company to be charged against the Discretionary Excess Cash Flow Balance or the Discretionary Equity Proceeds Balance. "Dollars" or the sign "$" means the lawful money of the United States of America. "Domestic Capex Maximum" has the meaning assigned to such term in subsection 6.14.4. "Domestic Subsidiary" means, at any date of determination, any Subsidiary of the Company other than a Foreign Subsidiary. "8-1/4% Unsecured Note Obligations" means all obligations of every nature of the Company and its Subsidiaries from time to time in respect of the 8-1/4% Unsecured Notes and under the indenture relating thereto. "8-1/4% Unsecured Notes" means the Company's 8-1/4% Senior Notes due February 1, 2002, issued and outstanding pursuant to a certain indenture, dated as of February 1, 1994 between the Company and Norwest Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Environmental Laws" means federal, state, local and foreign law or regulations, codes, orders, decrees, judgments, permits, authorizations, agreements, or injunctions issued, promulgated, approved or entered thereunder relating to pollution or protection of the environment, including, without limitation, laws relating to occupational safety and health and other laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. "Equity Offering" means any issuance or sale by the Company or any Subsidiary of the Company whether pursuant to a registered public offering, private placement or otherwise of any shares of capital stock or other equity securities of the Company or any Subsidiary of the Company, or any obligations convertible into or exchangeable for, or giving any Person a right, option or warrant to acquire, such securities or such convertible or exchangeable obligations, other than issuances or sales of Common Stock pursuant to the Common Stock Offering and other than issuances and sales of shares of capital stock or other equity securities of a Subsidiary of the Company to the Company or a Subsidiary of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA Affiliate", as applied to any Person, means any trade or business (whether or not incorporated) which is under common control with that Person within the meaning of Section 4001(b) of ERISA and the regulations promulgated thereunder or that would be treated as a single employer with that Person (A) under Section 414(b) or (c) of the Internal Revenue Code or (B) solely for purposes of any section or sections of the Internal Revenue Code or ERISA to which such section or sections apply, under Section 414(m) or (o) of the Internal Revenue Code. "Escrow Agreement" has the meaning assigned to that term in the Georgia Mill Mortgage. "Escrow Letter" means a letter agreement of the Company substantially in the form of Exhibit XX annexed hereto. "Estimated Net Cash Proceeds" means, with respect to any Asset Sale, an amount equal to 90% of the amount estimated in good faith by the Company to be the Net Cash Proceeds of Sale of such Asset Sale. "Event of Default" means each of the events set forth in ARTICLE VII. "Excepted Agreements" means each of those Contractual Obligations (other than any indenture or debt instrument) of the Company or any Subsidiary identified in a writing delivered by the Lenders on the Closing Date, such Contractual Obligations having reasonably been determined by the Lenders to be of such a nature that any breach thereof or conflict therewith occurring by reason of the Recapitalization or the other transaction herein contemplated would not involve any material risk of liability to the Lenders or any material adverse effect on the Company and its Subsidiaries taken as a whole. "Excess Cash Flow" means, in respect of any fiscal year of the Company and its Subsidiaries, (A) the Net Cash Provided From Operations in respect of such fiscal year, reduced by (B) the sum, without duplication, of each of the following amounts paid during such fiscal year (but only to the extent that the Company shall not have elected to charge the payment of such amounts against the Discretionary Equity Proceeds Balance or the Discretionary Excess Cash Flow Balance): (1) the amount of Scheduled Term Loans Principal Payments paid by the Company, plus (2) payments by the Company or any of its Subsidiaries with respect to the principal portion of Indebtedness constituting Capital Leases, plus (3) mandatory prepayments of Loans pursuant to clause (c) of subsection 2.7.2 (but only to the extent by the terms of this Agreement, as in effect on the date of determination of such Excess Cash Flow, such prepaid amount could not be reborrowed) or clause (d) of subsection 2.7.2, plus (4) voluntary prepayments of Term Loans in accordance with subsection 2.7.1, plus (5) scheduled, mandatory or voluntary payments or prepayments by the Company or any of its Subsidiaries of the principal of any Indebtedness permitted to be incurred or outstanding pursuant to any provision of this Agreement (other than (w) Intercompany Indebtedness, (x) Loans, (y) amounts which, by the terms of the instruments evidencing or governing such Indebtedness, may be reborrowed and (z) Indebtedness of the type specified in clause (D) of the definition of Indebtedness), plus (6) payments by the Company or any of its Subsidiaries which constitute Consolidated Domestic Capital Expenditures, plus (7) payments by the Company or any of its Subsidiaries which constitute Consolidated Capital Expenditures (other than Consolidated Domestic Capital Expenditures) but only to the extent not financed with the proceeds of Indebtedness (excluding Intercompany Indebtedness) incurred by a Foreign Subsidiary, plus, (8) Restricted Junior Payments made pursuant to clause (A), (B) or (D)(2) of Section 6.5, plus (9) Investments of Cash and Cash Equivalents pursuant to (a) clause (vi) of Section 6.3 or pursuant to clause (x)(A) or (x)(B) of Section 6.3 (but only to the extent that the Person in which such Investment is made does not constitute a Subsidiary of the Company and does not become a Subsidiary of the Company by virtue of such Investment) or (b) clause (xvi)(A) of Section 6.3 (but only to the extent that each such Investment is of a type and relates to a Person such that it would be permitted to be deducted from Net Cash Provided From Operations pursuant to clause (9)(a) above, without giving effect (for purposes of this clause (b)) to the limitations set forth in clause (vi), (x)(A) or (x)(B) of Section 6.3, as applicable). "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Excluded New Indebtedness" means Refinancing Senior Unsecured Debt, Refinancing Foreign Debt, Indebtedness constituting Permitted Expansion Construction Financing and Indebtedness incurred pursuant to clause (i), (iii), (vi), (viii), (ix), (xiii) or (xiv) of Section 6.1. "Existing Credit Facilities" means the 1988 Credit Agreement and the 1992 Credit Agreement, together with, in each case, all notes, mortgages, security instruments and other ancillary or related documentation. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries listed in Schedule C annexed hereto. "Existing Mill" and "Existing Mills" mean, respectively, (A)(1) the Mill leased by the Company in Effingham County, Georgia, (2) the Company's Muskogee, Oklahoma Mill and (3) the Company's Green Bay, Wisconsin Mill, in each case as more particularly described in the Mill Mortgage applicable thereto, including, in each case, all leasehold estates, real estate and improvements thereon, and all equipment used in the operations thereof owned by the Company or a Subsidiary of the Company and (B) any one of such Mills. "Existing Mill Expansion Conditions" has the meaning assigned to that term in subsection 5.12.1. "Existing Mill Expansion Documents" means, with respect to any Existing Mill Expansion Transaction, an Expansion Easement, an Expansion Lease, a Recognition Instrument or Expansion Intercreditor Agreement and such other instruments in form and substance reasonably satisfactory to the Requisite Lenders as may reasonably be required to consummate such Existing Mill Expansion Transaction. "Existing Mill Expansion Easement" means an instrument in form and substance reasonably satisfactory to the Requisite Lenders pursuant to which an Expansion Lessor is granted an easement (or, in the case of an Existing Mill Expansion Transaction involving Land subject to the Georgia Mill Lease, a sublease) to construct and maintain upon any Land any Existing Mill Expansion Equipment, which instrument shall provide for (A) rights of access to and egress from such Existing Mill Expansion Equipment and (B) rights to utility lines and structures necessary for the use and enjoyment of such Existing Mill Expansion Equipment; provided that no Existing Mill Expansion Easement shall provide rights which conflict in any material respect with the rights of the Company in and to a Mill or which impair in any material respect the value, legality or utility of such Mill (determined without regard to the installation or construction of any Existing Mill Expansion Equipment). "Existing Mill Expansion Equipment" means those structures, equipment, facilities, apparatus and other property which are not necessary for the proper and efficient operation of a Mill (as constituted on the Closing Date or, in the case of a Mill acquired or constructed after the Closing Date, as constituted on the date such Mill becomes Collateral) or for the compliance by any such Mill (as constituted on the Closing Date or, in the case of a Mill acquired or constructed after the Closing Date, as constituted on the date such Mill becomes Collateral) with any applicable law, code or ordinance, including, without limitation, any Environmental Law, all of which property, structures, equipment, facilities and apparatus shall be subject to the provisions of Article 4 of the applicable Mill Mortgage. "Existing Mill Expansion Lease" means (A) any lease, sublease, license or similar instrument pursuant to which the Company is granted the use and enjoyment of Existing Mill Expansion Equipment and (B) any and all rights of reversion relating to Existing Mill Expansion Equipment and any purchase options or similar rights to acquire such Existing Mill Expansion Equipment. "Existing Mill Expansion Lessor" means the Person named as lessor, licensor or grantor in any Existing Mill Expansion Lease. "Existing Mill Expansion Transaction" has the meaning assigned to that term in paragraph (a) of subsection 5.12.1. "Existing Subordinated Debt" means the 12-5/8% Subordinated Debentures and the 14-1/8% Discount Debentures, together with, in each case, all obligations of the Company set forth in the indentures relating thereto. "Expansion Conditions" has the meaning assigned to that term in subsection 5.12.1. "Expansion Intercreditor Agreement" has the meaning assigned to that term in subsection 5.12.1. "Expansion Lease" means any Preexisting Expansion Lease or any Existing Mill Expansion Lease. "Expansion Project" means the acquisition or construction of Existing Mill Expansion Equipment or a Greenfield Expansion Project; provided that neither (A) the Green Bay Sludge Boiler nor (B) the Savannah Boiler shall constitute an Expansion Project. "Facing Fee" has the meaning assigned to that term in paragraph (c) of subsection 2.2.6. "Fair Value" means, with respect to any asset or property (including intangibles or instruments), the fair market value thereof as determined by the Board of Directors of the Company or a committee thereof (or, if authorized to do so by the Board of Directors of the Company or a committee thereof, by the Chief Financial Officer or the Chief Accounting Officer of the Company) in each case pursuant to standards, assumptions and procedures set forth in Exhibit XXX. "First Tier Foreign Subsidiary" means, at any date of determination, a Foreign Subsidiary of the Company (A)(i) which is organized under the laws of a jurisdiction other than the United States or any State thereof and (ii) as to which the Company and/or one or more Subsidiaries organized under the laws of the United States of America or any State thereof hold directly shares of stock or other equity interests having more than 50% of the total voting power of shares of the capital stock or other equity interests therein (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof or (B) which is organized under the laws of the United States of America or any State therein and which does not have any Subsidiaries other than Domestic Subsidiaries. "Foreign Subsidiary" means each of the following: (A) each Subsidiary or Joint Venture of the Company identified as such on Schedule A annexed hereto, (B) each Subsidiary or Joint Venture of the Company which is organized under the laws of a jurisdiction other than the United States of America or any State thereof and (C) each Subsidiary or Joint Venture of the Company which is organized under the laws of the United States of America or any State thereof more than 80% of the sales, earnings or assets (determined on a consolidated basis) of which are located or derived from operations in territories of the United States of America and jurisdictions outside the United States of America. "Fort Howard Holding, Inc." means Fort Howard Holding, Inc., a Delaware corporation and a Wholly Owned Subsidiary of the Company. "Fort Sterling" means Fort Sterling Limited, an English limited liability company and a Foreign Subsidiary of the Company. "14-1/8% Discount Debentures" means the Company's 14-1/8% Junior Subordinated Discount Debentures due November 1, 2004, issued and outstanding pursuant to a certain indenture, dated as of November 1, 1988 between the Company and Society National Bank as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Fronting Bank" means, as the context may require, (A) (1) Bankers, with respect to Letters of Credit issued by Bankers, and (2) with respect to each Letter of Credit issued by an Arranger other than Bankers, the issuer thereof, or (B) collectively, all of the foregoing. "Funded Debt", as applied to any Person, means all Indebtedness of that Person which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly renewable or extendable at the option of the debtor to a date more than one year from (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more from) the date of the creation thereof. "Funding Date" means the date of the borrowing of one or more Loans, including, without limitation, the Closing Date and the Deferred Funding Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination; provided that compliance by the Company with the financial covenants set forth in Section 6.6 shall be calculated in accordance with GAAP as in effect on the Closing Date. "General Account Assets" means the assets allocated to the general account of an insurance company subject to state regulation. "Georgia Mill Lease" has the meaning assigned to that term in the Georgia Mill Mortgage. "Georgia Mill Mortgage" means the Mill Mortgage to be executed and delivered by the Company in respect of the Georgia Mill Lease and other property relating to the Company's Effingham County, Georgia Mill as it may be amended, supplemented or otherwise modified from time to time. "Government Acts" has the meaning assigned to that term in paragraph (a) of subsection 2.2.9. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Green Bay Dry Form Machine" means the third air-laid (dry form) paper machine installed at the Company's Green Bay, Wisconsin Mill, together with related ancillary improvements or equipment. "Green Bay Sludge Boiler" means the industrial boiler installed in the vicinity or as a part of the Company's Green Bay, Wisconsin Mill following the date of this Agreement which is designed to burn, among other things, sludge generated by the Company's wastepaper recycling operations. "Greenfield Expansion Assets" means those parcels of land, leasehold estates, easements or other realty interests in the United States and those structures, equipment, facilities, apparatus and other property acquired or constructed by the Company in connection with the consummation of any Greenfield Expansion Project. "Greenfield Expansion Financing Conditions" has the meaning assigned to that term in subsection 5.12.2. "Greenfield Expansion Lease" means (A) any lease, sublease, license or similar instrument pursuant to which the Company or any Domestic Subsidiary of the Company is granted the use and enjoyment of Greenfield Expansion Assets and (B) any and all rights of reversion relating to Greenfield Expansion Assets and any purchase options or similar rights to acquire such Greenfield Expansion Equipment. "Greenfield Expansion Project" means the acquisition or construction by the Company or any Domestic Subsidiary of the Company of any assets consisting of land or interests (including, without limitation, easement or leasehold interests) in land in the United States or improvements not, at the time of acquisition or construction thereof, adjacent, contiguous to or located on any land comprising a portion of any Mill (including any facility in the general area of a Mill that is used in connection with such Mill) existing at the Closing Date, which land or improvements are intended to be utilized by the Company or any Domestic Subsidiary of the Company, upon the completion and placing into service thereof, as a Mill. "Guarantor Subsidiary" means, after any Material Subsidiary has executed a counterpart of the Guarantor Subsidiary Guarantee pursuant to subsection 5.11.1, such Material Subsidiary. "Guarantor Subsidiary Guarantee" means the guarantee agreement executed and delivered by each Guarantor Subsidiary pursuant to subparagraph (v) of subsection 3.1.2 or subsection 5.11.1, which shall be substantially in the form of Exhibit XIII annexed hereto, with appropriate modifications as consented to by the Requisite Lenders, as such guarantee agreement may hereafter be amended, supplemented or otherwise modified from time to time. "HAC Holding Corp." means HAC Holding Corp., a Delaware corporation and a Wholly Owned Subsidiary of the Company. "Harmon Assoc. Corp." means Harmon Assoc. Corp., a New York corporation and a Wholly Owned Subsidiary of the Company. "IDA" means the Effingham County Industrial Development Authority and its successors and assigns. "IDA Estoppel" means a certificate substantially in the form of Exhibit XII annexed hereto executed by an officer of the IDA certifying as to certain matters relating to the Georgia Mill Lease. "Improvements" has the meaning assigned to that term in the Mortgages. "Indebtedness", as applied to any Person, means (A) all indebtedness for borrowed money, (B) that portion of obligations with respect to Capital Leases which is properly classified as a liability on a balance sheet in conformity with GAAP, (C) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (D) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (1) due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services in respect thereof, or (2) evidenced by a note or similar written instrument and (E) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. "Indemnities" has the meaning assigned to that term in Section 9.3. "Information Package" means, collectively, the Memorandum dated November 1994 delivered by the Administrative Agent to the Lenders, the Registration Statement and any Supplementary Letter delivered by the Company to the Administrative Agent, in each case as it may be supplemented on or prior to the date of the signing of this Agreement. "Initial Cash Proceeds Payment" has the meaning assigned to that term in paragraph (a) of subsection 2.7.2. "Initial Major Expansion Project" means the first Expansion Project to be commenced by the Company or any of its Subsidiaries after the Closing Date that involves or will involve Capital Expenditures by the Company and its Subsidiaries in respect thereof in an aggregate amount estimated by the Company in its reasonable judgment to be $100,000,000 or more to complete and put in service. "Intellectual Property" has the meaning assigned to that term in the Intellectual Property Pledge Agreement. "Intellectual Property Pledge Agreement" means the Intellectual Property Pledge Agreement substantially in the form of Exhibit XVII annexed hereto executed and delivered by the Company, as the same may be amended, supplemented or otherwise modified from time to time. "Intercompany Indebtedness" means any Indebtedness of the Company or any Subsidiary of the Company which, in the case of the Company, is owing to any Subsidiary or which, in the case of any such Subsidiary, is owing to the Company or any other Subsidiary of the Company. "Interest Coverage Ratio" means, for any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Expense for such period. "Interest Payment Date" means, with respect to any Adjusted LIBOR Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of six or more months, "Interest Payment Date" shall also include each Interest Period Anniversary Date for such Interest Period. "Interest Period" means any interest period applicable to a Loan as determined pursuant to subsection 2.5.2. "Interest Period Anniversary Date" means, for each Interest Period which is six or more months, each three-month anniversary of the commencement of such Interest Period. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement entered into by the Company designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates. "Interest Rate Determination Date" means, for each Interest Period, the second Business Day prior to the first day of the related Interest Period for an Adjusted LIBOR Loan. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time hereafter and any successor statute. "Inventory" means, inclusively, all inventory of the Company and each Guarantor Subsidiary, wherever located in the United States of America, its territories or possessions, and whether now existing or hereafter acquired, including, without limitation, all raw materials, work in process, supplies, returned goods, finished goods, samples, and consigned goods to the extent of the consignee's interest therein. "Investment", as applied to any Person (the "Investor"), means any direct or indirect purchase or other acquisition by the Investor of, or a beneficial interest in, stock or other Securities of any other Person other than (A) in the case of each Investor that is a Foreign Subsidiary, a direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the case of each Investor that is the Company or a Domestic Subsidiary, a Subsidiary that is not a Foreign Subsidiary or a Receivables Subsidiary, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by the Investor to any other Person other than (A) in the case of each Investor that is a Foreign Subsidiary, a direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the case of each Investor that is the Company or a Domestic Subsidiary, a Subsidiary that is not a Foreign Subsidiary or a Receivables Subsidiary, including all indebtedness and accounts receivable owing to the Investor from such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of the Investor's business (other than Royalty or Management Fees). The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. A Contingent Obligation of the Company or any of its Subsidiaries in respect of the obligations of a Foreign Subsidiary shall constitute an Investment in such Foreign Subsidiary to the extent of such Contingent Obligation. The amount of such Investment shall be equal to the amount of the Contingent Obligation as determined by the last sentence of the definition of Contingent Obligation. Any renewals, extensions or replacements of an existing Contingent Obligation or other Indebtedness which constitutes an Investment hereunder shall not constitute a new Investment at the time of such renewal, extension or replacement except to the extent such renewal, extension or replacement increases the amount of such Contingent Obligation or other Indebtedness and then only to the extent of such increase. "Investment Grade Ratings" has the meaning assigned to that term in subsection 2.5.1. "Investor" has the meaning assigned to that term in the definition of Investment. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that, as to any such arrangement in corporate form, such corporation shall not, as to any Person of which such corporation is a Subsidiary, be considered to be a Joint Venture to which such Person is a party. "Land" has the meaning assigned to that term in the Mortgages. "Landfill Area" has the meaning assigned to that term in the form of Mortgage attached hereto as Exhibit XIX-A(i). "Lender" has the meaning assigned to that term in the introduction to this Agreement and includes Bankers, BOA and Chemical Bank, in their individual capacities. "Lender Default" means (A) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing or to fund its portion of any drawing under a Letter of Credit or to pay any amount owing to Bankers pursuant to subsection 2.12.5 or (B) a Lender having refused to comply, or having notified in writing (which notification has not been retracted) the Administrative Agent that it does not intend to comply, with its obligations under Section 2.1, 2.2, 2.3 or 2.12. "Letter of Credit" means (A) a Standby Letter of Credit or (B) a Commercial Letter of Credit, in each case, issued or to be issued by a Fronting Bank for the account of the Company pursuant to Section 2.2. "Letters of Credit Usage" means, as at any date of determination, the sum of (A) the maximum aggregate amount which is, or, with respect to any Letter of Credit that by its terms provides for increases over time in the maximum amount available to be drawn thereunder, may become at any given time, available under all Letters of Credit then outstanding plus (B) the aggregate amount of all drawings under Letters of Credit honored by one or more Fronting Banks and not theretofore reimbursed by the Company or any Benefited Subsidiary; provided that the Letters of Credit Usage of a Fronting Bank shall be deemed to be only such portion of the Letters of Credit Usage of such Fronting Bank which the Lenders have not bought by participation pursuant to paragraph (b) of subsection 2.2.1. "Leverage Ratio" means, for any period, the ratio of the principal amount of Senior Secured Indebtedness outstanding at the last day of such period to Consolidated EBITDA for such period. "Leveraged Swap" means any Currency Agreement or Interest Rate Agreement pursuant to which any party shall be entitled to receive from the counterparty thereto, in respect of each notional Dollar or other applicable unit that is the subject thereof, any payment or credit in excess of the amount necessary to compensate such party for the actual and direct cost or deemed cost to such party of any fluctuation in interest rates or currency exchange rates in respect of such Dollar or other unit of currency. "LIBOR" means, in respect of any Adjusted LIBOR Borrowing for any Interest Period, the rate per annum at which dollar deposits approximately equal in principal amount to the Administrative Agent's portion of such Adjusted LIBOR Borrowing and for a maturity comparable to such Interest Period are offered to the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m. (London time) on the Interest Rate Determination Date for such Interest Period. "LIBOR Spread" means (A) with respect to Tranche A Term Loans and Revolving Loans, the percent per annum from time to time in effect pursuant to paragraph (d) of subsection 2.5.1, and (B) with respect to Tranche B Term Loans, 3% per annum. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" or "Loans" means one or more of the Revolving Loans, the Swing Line Loans or the Term Loans or any combination thereof. "Loan Documents" means this Agreement, the Notes, the Guarantor Subsidiary Guarantees and the Collateral Documents. "Loan Parties" means the Company, Fort Howard Holding, Inc., HAC Holding Corp., Harmon Assoc. Corp. and the Guarantor Subsidiaries. "Lower Tier Foreign Subsidiary" means, as at any date of determination, a Foreign Subsidiary of the Company other than (A) a First Tier Foreign Subsidiary or (B) any other Foreign Subsidiary which is organized under the laws of the United States of America or any State thereof. "Management Agreements" means (A) the Management Equity Participation Agreements between the Company and certain officers and directors and holders of stock (or options on stock), (B) the Fort Howard Corporation Management Equity Plan (the "Plan") effective as of April 29, 1991, and the Agreements (as defined in the Plan) related thereto, (C) the Fort Howard Corporation 1995 Stock Incentive Plan (the "1995 Plan") effective as of January 15, 1995, and the Award Agreements (as defined in the 1995 Plan) related thereto, and (D) any equity-based plan (a "Broad-Based Plan") adopted by the Company for its employees generally (provided that any such Broad-Based Plan may not cause the Company to exceed (i) the limitation on Investments set forth in subparagraph (xiv) of Section 6.3 or (ii) the limitation on repurchases or redemptions of Common Stock set forth in subclause (D)(2) of Section 6.5), as such Management Equity Participation Agreements, the Plan, the Agreements, the 1995 Plan and the Award Agreements and any Broad-Based Plan are in effect on ___________, 1995 (or the date of adoption in the case of any Broad-Based Plan) and as they may have been and hereafter may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System of the United States as in effect from time to time. "Material Asset" means (A) any asset or group of related assets (other than equity interests or other securities in Foreign Subsidiaries) acquired (whether by purchase, lease, grant of contract rights or otherwise) after the Closing Date or constructed (whether contemporaneously or pursuant to a series of related transactions) after the Closing Date by the Company or any Domestic Subsidiary of the Company having a Fair Value (for any such asset, individually or, for any such group in the aggregate) at the date of its acquisition or construction (or, in the case of related acquisitions or constructions, as of the date of the last of such acquisitions or constructions) in excess of $15,000,000 other than (1) assets acquired or constructed as part of any Greenfield Expansion Project or (2) any Existing Mill Expansion Transaction and (B) the equity interests or other securities owned by the Company or any Domestic Subsidiary of the Company in any Foreign Subsidiary of the Company in respect of which the total of the Fair Values of all Investments (measured as of the date of each Investment) of the Company and its Domestic Subsidiaries after the Closing Date exceeds at any time the Dollar equivalent of $10,000,000 (it being understood that any Investment by the Company or any Domestic Subsidiary of the Company in a Subsidiary of a First Tier Foreign Subsidiary shall be deemed to be an Investment in an equal amount in such First Tier Foreign Subsidiary); provided that the term "Material Asset" shall not include acquisitions of inventory, Receivables and other assets (including Cash and Cash Equivalents) in the ordinary course of business (other than any such assets of the character described in clause (A) of the definition of "Capital Expenditures"). "Material Subsidiary" means each Subsidiary of the Company or its successors now existing or hereafter acquired or formed by the Company or such successors (other than any Receivables Subsidiary) which (A) for the most recent fiscal year of the Company or such successors accounted for more than 10% of the consolidated revenues of the Company or such successors, or (B) as at the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company or such successors as shown on the consolidated financial statements of the Company or such successors, as the case may be, for such fiscal year. "Mill" means any Existing Mill or any completed and operational facility (other than a warehouse) located in the United States acquired or constructed by the Company or any Subsidiary of the Company after the Closing Date (whether pursuant to a Greenfield Expansion Project or otherwise) for the purpose of expanding the Company's capacity to produce and/or convert tissue or paper products. "Mill Lot" has the meaning assigned to that term in subsection 5.14.1. "Mill Mortgage" means any Mortgage affecting a Mill. "Moody's" means Moody's Investors Service, Inc., together with any successor thereto that issues ratings of corporate securities. "Mortgage" and "Mortgages" mean each of the mortgage instruments required to be delivered by the Company under this Agreement with respect to Real Properties (including, without limitation, any such instrument required to be delivered pursuant to Section 5.11), which shall be substantially in the form of Exhibit XIX-A, XIX-B or XIX-C, as applicable, and containing such schedules and including such additional provisions and other deviations from each such Exhibit as shall not be inconsistent with the provisions of subsection 3.1.4 or shall be necessary to conform such Exhibit to applicable law and which shall be dated the date of delivery thereof and made by the Company for the benefit of the Administrative Agent, as agent for the Lenders, as mortgagee or grantee, assignee and secured party, as the same may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Mortgaged Property" means those items of property from time to time subject to any Mortgage. "MS Group" means Morgan Stanley Group Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "Muskogee/Oklahoma Mortgage Recording Taxes" means any mortgage recording taxes arising from the recording of the Mortgage relating to the Mill located in Muskogee, Oklahoma. "Net Award" has the meaning assigned to that term in the Mortgages. "Net Cash Proceeds of Sale" means cash payments (including any cash received by way of deferred payment pursuant to a note receivable or otherwise (other than the portion of such deferred payment constituting interest, which shall be deemed not to constitute Net Cash Proceeds of Sale), but only as and when so received) received from an Asset Sale, net of costs of sale (including payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness other than Loans or other Obligations required to be repaid under the terms thereof as a result of such Asset Sale) and taxes paid or payable by the Company or any of its Subsidiaries as a result thereof or directly as a result of distributions by the Company or any of its Subsidiaries of such payments. "Net Cash Provided From Operations" means, in respect of any period, the Adjusted Consolidated Net Income for such period, minus (plus) the increase (decrease), if any, in Adjusted Working Capital from the opening of business on the first day to the close of business on the last day of such period. "Net Proceeds" has the meaning assigned to that term in the Mortgages. "9% Senior Subordinated Notes" means the Company's 9% Senior Subordinated Notes due February 1, 2006, issued and outstanding pursuant to a certain indenture, as amended, dated as of February 1, 1994 between the Company and The Bank of New York, as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "9-1/4% Unsecured Notes" means the Company's 9-1/4% Senior Notes due March 15, 2001, issued and outstanding pursuant to a certain indenture, dated as of March 15, 1993 between the Company and Norwest Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "1988 Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of October 24, 1988, among FH Acquisition Corp. and the lenders party thereto and Bankers Trust Company, Bank of America National Trust and Savings Association, The Bank of Nova Scotia, Chemical Bank, The Industrial Bank of Japan, Limited, New York Branch and Wells Fargo, N.A., as Lead Managers and Bankers Trust Company, as agent, as amended to the Closing Date. "1988 Revenue Bond Indenture" means the indenture pursuant to which the 1988 Revenue Bonds were issued. "1988 Revenue Bonds" means the Development Authority of Effingham County Pollution Control Revenue Bonds (Fort Howard Corporation Project) Series 1988, issued by the Development Authority of Effingham County to refund the 1985 Revenue Bonds. "1995 A/R Bridge" means the $[60,000,000] receivables facility provided pursuant to that certain Receivables Credit Agreement, dated as of the date hereof, by and among the Company and the Arrangers. "1992 Credit Agreement" means that certain Credit Agreement, dated as of March 22, 1993, among Fort Howard Corporation, the lenders party thereto and Bankers Trust Company, as agent, as amended to the Closing Date. "Non-Defaulting Lender" means and includes each Lender other than a Defaulting Lender. "Non-U.S. Person" has the meaning assigned to that term in paragraph (f) of subsection 2.9.7. "Notes" means one or more of the Term Notes, the Swing Line Notes, the Revolving Notes or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto with respect to a proposed Borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto with respect to a proposed conversion or continuation. "Obligations" means all obligations of every nature of the Company, each of the Guarantor Subsidiaries and the respective Subsidiaries of the Company and such Guarantor Subsidiaries from time to time owed to the Administrative Agent or the Lenders or any of them under the Loan Documents. "Officers' Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its Chairman of the Board (if an officer) or its President or one of its Vice Presidents and by its Chief Financial Officer or its Treasurer; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (A) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (B) a statement that, in the opinion of the signer or signers, he or they have made or have caused to be made such examination or investigation as is necessary to enable him or them to express an informed opinion as to whether or not such condition has been complied with, and (C) a statement as to whether, in the opinion of the signer or signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any property (whether real, personal or mixed) under which that Person is a lessee and which is not a Capital Lease. "Other Taxes" has the meaning assigned to that term in paragraph (b) of subsection 2.9.7. "Participants" has the meaning assigned to that term in subsection 9.1.2. "Pension Plan" means any employee plan which is subject to the provisions of Title IV of ERISA and which is maintained for employees of the Company or any ERISA Affiliate of the Company, other than a Multiemployer Plan. "Permitted After Acquired Collateral Liens" means, in respect of any Material Asset, (A) Liens of the type described in clause (i) or (vi) of the definition of Permitted Encumbrances, (B) Preexisting Assumed Liens and (C) Liens which, pursuant to the provisions of the applicable form of Additional Collateral Document to be used to encumber such Material Asset, are or may be superior to the Lien created by such Additional Collateral Document. "Permitted Encumbrances" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by Section 5.3; (ii) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Any attachment or judgment Lien not in excess of $20,000,000 (exclusive of any amount adequately covered by insurance as to which the insurance company has acknowledged coverage) and any other attachment or judgment lien unless the judgment it secures shall, within 60 days after the entry thereof, not have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (v) Leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its Subsidiaries; (vi) Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Subsidiaries; (vii) Any interest or title of a lessor under any lease permitted by Section 6.9; (viii) Liens arising from UCC financing statements regarding leases permitted by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) Liens securing surety bonds in an amount not to exceed individually or in the aggregate $5,000,000 at any time outstanding; and (xi) Liens securing appeal bonds, which Liens do not cover assets having a value in excess of $20,000,000 individually or in the aggregate at any time and which assets are valued at the greater of (A) fair market value and (B) book value. "Permitted Expansion Construction Financing" means a conventional short term construction loan facility in respect of the construction of the Initial Major Expansion Project or any Greenfield Expansion Project which (A) is secured only by the applicable assets constituting the Initial Major Expansion Project or the applicable Greenfield Expansion Assets, (B) provides for interest at market rates for such type of financing as of the date of incurrence thereof, (C) matures not later than one year after the applicable assets constituting all or a substantial part of the Initial Major Expansion Project or the applicable Greenfield Expansion Assets are first placed in service, (D) provides for disbursements as construction progresses and (E) in the case of any such facility that is utilized in connection with the Initial Major Expansion Project, meets the requirements of paragraphs (c) and (d) of subsection 5.12.1 (assuming such subsection were applicable to the Initial Major Expansion Project). "Permitted Expansion Financing" means (A) in respect of any Existing Mill Expansion Transaction, (1) a Sale/Leaseback Financing, (2) a Secured Expansion Financing or (3) an Unsecured Expansion Financing, in each case, consummated in accordance with the provisions of subsection 5.12.1 and (B) in respect of any Greenfield Expansion Transaction, (1) a Sale/Leaseback Financing, (2) a Secured Expansion Financing or (3) an Unsecured Expansion Financing, in each case consummated in accordance with the provisions of subsection 5.12.2. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Plan" shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Section 406 of ERISA and a plan (as defined in Section 4975 of the Code) which is subject to Section 4975 of the Code. "Pledge Agreements" means the Intellectual Property Pledge Agreement, the Receivable/Inventory Pledge Agreements and the Stock Pledge Agreements. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or waived within any applicable grace or cure period. "Preexisting Assumed Lien" means any Lien securing Indebtedness (A) of any Person that becomes a Foreign Subsidiary (or a Subsidiary of such Person) at the time such Person becomes a Foreign Subsidiary, which Indebtedness was not incurred in connection with the acquisition of such Person or an interest therein by the Company or any Subsidiary of the Company and which Indebtedness and Lien are not prohibited under Section 6.1 or Section 6.2 hereof, or (B) incurred by the Company or a Subsidiary of the Company specifically to finance the acquisition of assets (which acquisition is not prohibited hereunder) and which Indebtedness and Lien are (1) as of the date of such acquisition, held by the seller of such assets, (2) not prohibited under the provisions of Section 6.1 or 6.2 of this Agreement and (3) evidenced by an instrument or instruments which (i) neither prohibit or restrict the granting of a junior Lien on the encumbered assets in favor of the Lenders nor limit any rights or remedies of the Lenders in respect of any such junior Lien and (ii) contain a warranty by the applicable seller that, as of the date of such acquisition, such seller has no present intention or plan to transfer for value or pledge such Indebtedness and Lien to any other Person. "Preexisting Expansion Lease" means any of (A) the documents entitled Facility Lease Agreement and Facilities Agreement, each dated as of October 20, 1989, by and between the Company and The Connecticut National Bank, as owner trustee, (B) the documents entitled Power Installation Lease and Power Installation Facilities Agreement, each dated as of October 20, 1989, by and between the Company and The Connecticut National Bank, as owner trustee, (C) the document entitled Equipment Lease Agreement, dated as of October 20, 1989, by and between the Company and The Connecticut National Bank, as owner trustee, (D) the document entitled Dry Former Lease Agreement, dated as of October 20, 1989, by and between the Company and The Connecticut National Bank, as owner trustee, (E) the document entitled Equipment Lease Agreement, dated as of October 20, 1989, by and between the Company and The Connecticut National Bank, as owner trustee, (F) the documents entitled Facility Lease Agreement, Facility Site Lease and Easement Agreement and Facilities Agreement, each dated as of December 19, 1991, by and between the Company and The Connecticut National Bank, as owner trustee, (G) the documents entitled Power Plant Lease Agreement, Power Plant Site Lease and Easement Agreement and Power Plant Facilities Agreement, each dated as of December 19, 1991, by and between the Company and The Connecticut National Bank, as owner trustee, (H) the document entitled Amended and Restated Equipment Lease Agreement [1990], dated as of December 19, 1991, by and between the Company and The Connecticut National Bank, as owner trustee, (I) the document entitled Equipment Lease Agreement [1991], dated as of December 19, 1991, by and between the Company and The Connecticut National Bank, as owner trustee, (J) the document entitled Amended and Restated Participation Agreement, dated as of October 21, 1991, as amended by the First Amendment thereto, in each case by and among the Company, as lessee, Bell Atlantic TriCon Leasing Corporation, as owner participant, the initial loan participant described therein, Wilmington Trust Company, as pass through trustee and loan participant, The Connecticut National Bank, as owner trustee, and Wilmington Trust Company, as indenture trustee, (K) the document entitled Pass Through Trust Agreement, dated as of October 21, 1991, as amended by the Amended and Restated Pass Through Trust Agreement, dated as of December 13, 1991, in each case by and between the Company and Wilmington Trust Company, as pass through trustee, and (L) the document entitled Amended and Restated Tax Indemnification Agreement, dated as of December 19, 1991, by and between the Company and Bell Atlantic TriCon Leasing Corporation, as owner participant). "Premises" has the meaning assigned to that term in the Mortgages. "Prime Rate" means the rate which Bankers announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bankers may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Prior Liens" means, in respect of the Collateral described in any Collateral Document, the Liens described in Schedule B annexed to such Collateral Document (if any) and any other Liens which, pursuant to the provisions of such Collateral Document, are or may be superior to the Lien of such Collateral Document. "Prior Property Documents" means, in respect of any Real Property (including any Mill), any leases, overleases, easement agreements, covenants or other instruments of record relating to such Real Property, which instruments have a priority superior to the priority of the Lien of the Mortgage relating to such Real Property, including, without limitation, the Georgia Mill Lease. "Proceeds Adjustment" has the meaning assigned to that term in paragraph (a) of subsection 2.7.2. "Proceeds Payment Date" has the meaning assigned to that term in paragraph (a) of subsection 2.7.2. "Program Receivables" means all trade receivables and related contract and other rights and property (including all general intangibles, collections and other proceeds relating thereto, all security therefor and any goods that have been repossessed in connection with any thereof) sold or contributed by the Company to a Receivables Subsidiary to consummate a Receivables Transaction pursuant to the Receivables Program Documents. "Project Agreement" has the meaning assigned to that term in the Georgia Mill Mortgage. "Projections" has the meaning assigned to such term in subsection 3.1.12. "Prospectus" means the prospectus of the Company dated February 8, 1995, relating to the Common Stock Offering, as amended and supplemented on or prior to the date of the signing of this Agreement. "Purchasing Lenders" has the meaning assigned to that term in subsection 9.1.3. "Qualified Currency Agreement" means a Currency Agreement (other than a Leveraged Swap) which meets the requirements set forth in the Collateral Documents for the obligations of the Company therewith to be secured by the Collateral. "Qualified Interest Rate Agreement" means an Interest Rate Agreement (other than a Leveraged Swap) which meets the requirements set forth in the Collateral Documents for the obligations of the Company thereunder to be secured by the Collateral. "Ratio 1" means, for each period of four consecutive fiscal quarters of the Company (treated as a single accounting period), the Interest Coverage Ratio for such period. "Ratio 2" means, for each period of four consecutive fiscal quarters of the Company (treated as a single accounting period), the Leverage Ratio, as of the last day of such period. "Real Properties" means, whether now owned or leased or hereafter acquired or leased, the Mills and each parcel of realty constituting a Material Asset. "Recapitalization" means, collectively, (A) the Common Stock Offering, (B) the repayment in full of all loans outstanding, and other amounts due, under the Existing Credit Facilities and the Senior Secured Notes, (C) the redemption and retirement of the Existing Subordinated Debt, (D) the execution and delivery of the documents evidencing the 1995 A/R Bridge and (E) the execution and delivery of this Agreement and the Loan Documents and the consummation of the transactions contemplated hereunder and thereunder. "Receivable/Inventory Pledge Agreement" means each of (A) the Company Receivable/Inventory Pledge Agreement substantially in the form of Exhibit XIV-A annexed hereto executed and delivered by the Company and (B) any Receivable/Inventory Pledge Agreement entered into pursuant to Section 5.11 hereof, as each such agreement may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Receivables" means, with respect to the Company and each Guarantor Subsidiary, all of such Person's rights to payment for goods sold or leased or services performed by such Person or any other party for or to any Person (other than a Foreign Subsidiary of the Company that is a Controlled Foreign Corporation), whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (1) all security pledged, assigned, hypothecated or granted to or held by such Person to secure the foregoing, (2) general intangibles arising out of such Person's rights in any goods, the sale of which gave rise thereto, (3) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (4) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, and (5) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers. "Receivables Program" means a receivables securitization program to be instituted and conducted by the Company and other Sellers (as defined in the Receivables Term Sheet) after the Closing Date in accordance with the provisions of Section 6.11 and the Receivables Term Sheet. "Receivables Program Documents" means the documents giving effect to the Receivables Program, as such documents may be amended, modified or supplemented from time to time in accordance herewith and therewith. "Receivables Subsidiary" means any Subsidiary (regardless of the form thereof) of the Company which has been formed for the specific purpose of effecting a Receivables Transaction, all of the stock or other equity interests in which have been pledged to the Administrative Agent pursuant to an instrument in form and substance reasonably satisfactory to the Administrative Agent and which (A) is a Wholly Owned Subsidiary, (B) contains provisions in its charter or other governing documents which satisfy the requirements set forth in the Receivables Term Sheet as applicable to such Subsidiary, (C) does not engage in any business or have any assets or liabilities other than those directly related to the Receivables Program and (D) is not and will not at any time be a Benefited Subsidiary; provided that if a Subsidiary of a Receivables Subsidiary is formed for the specific purpose of effecting a Receivables Transaction, the stock or equity interests of such second Receivables Subsidiary (1) need not be wholly-owned to the extent contemplated by the Receivables Term Sheet and (2) need not be pledged to the Administrative Agent and equity interests in such Subsidiary (other than the residuary interest) may be sold to investors in respect of such Receivables Transaction but such Subsidiary shall otherwise constitute a Receivables Subsidiary. "Receivables Term Sheet" means one or more of the Receivables Term Sheets annexed hereto as Exhibit XXVII. "Receivables Transaction" means any transaction (other than the 1995 A/R Bridge) meeting the requirements of Section 6.11 and the Receivables Term Sheet. "Recognition Instrument" means, with respect to any Existing Mill Expansion Lease (A) relating to Land or Improvements subject to the Georgia Mill Lease, an instrument in form and substance reasonably satisfactory to the Requisite Lenders, pursuant to which the Administrative Agent agrees that if the Administrative Agent or any purchaser in foreclosure shall succeed to the Company's interest in such Mill, the Existing Mill Expansion Lease described in such instrument shall remain in full force and effect so long as no default shall occur and continue thereunder (it being understood that an instrument in form and substance substantially similar to that certain Nondisturbance, Cure Rights and Purchase Option Agreement, dated as of October 20, 1989, a copy of which is attached hereto as Exhibit XXV, in respect of an Existing Mill Expansion Transaction relating to Land and Improvements located in Effingham County, Georgia (with such changes as shall be reasonably satisfactory to the Administrative Agent), shall qualify as an instrument reasonably satisfactory to Requisite Lenders) and (B) relating to Land or Improvements other than any subject to the Georgia Mill Lease, an instrument, in form and substance reasonably satisfactory to the Requisite Lenders, subordinating the Lien of the Mill Mortgage relating thereto to the interest of an Expansion Lessor under an Existing Mill Expansion Easement (it being understood that an instrument in form and substance substantially similar to that certain Cure Rights and Purchase Option Agreement, dated as of October 20, 1989, a copy of which is attached hereto as Exhibit XXVI, in respect of an Existing Mill Expansion Transaction relating to Land and Improvements located in Brown County, Wisconsin (with such changes as shall be reasonably satisfactory to the Administrative Agent) shall qualify as an instrument reasonably satisfactory to the Requisite Lenders). "Refinancing Foreign Debt" means any Indebtedness of a Foreign Subsidiary of the Company, incurred in accordance with the provisions of subparagraph (iv) of Section 6.1, all the net cash proceeds of which are used to refinance the Indebtedness identified in Schedule C as "Foreign Indebtedness" or any previously incurred Refinancing Foreign Debt of such Subsidiary. "Refinancing Senior Unsecured Debt" or "Refinancing Senior Unsecured Indebtedness" means any unsecured Indebtedness of the Company, incurred in accordance with the provisions of subparagraph (ii) of Section 6.1, all of the net cash proceeds of which are used to refinance Senior Unsecured Notes or any previously incurred Refinancing Senior Unsecured Debt. "Register" has the meaning assigned to that term in subsection 9.1.5. "Registered Transfer Supplement" has the meaning assigned to that term in subsection 9.1.3. "Registration Statement" means the Registration Statement No. 33-56573, filed by the Company on February 8, 1995 with the Securities and Exchange Commission in connection with the Common Stock Offering, as it may be amended or supplemented on or prior to the date of the signing of this Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System of the United States as in effect from time to time. "Release" has the meaning assigned to that term in Section 5.13. "Release Condition" has the meaning assigned to that term in Section 5.13. "Release Notice" has the meaning assigned to that term in Section 5.13. "Release Transaction" has the meaning assigned to that term in Section 5.13. "Replaced Lender" has the meaning assigned to that term in subsection 9.22.1. "Replacement Lender" has the meaning assigned to that term in subsection 9.22.1. "Required A Lenders" means, as of any date of determination, one or more Tranche A Lenders having an aggregate A Credit Exposure Percentage as of such date greater than 50%. As used herein, the "A Credit Exposure Percentage" of one or more Lenders as of any date is a fraction, expressed as a percentage, of which (A) the numerator is the A Credit Exposure Amounts of such Lenders as of such date and (B) the denominator is the Total A Credit Exposure Amount as of such date. "Required B Lenders" means, as of any date of determination, one or more Tranche B Lenders having an aggregate B Credit Exposure Percentage as of such date greater than 50%. As used herein, the "B Credit Exposure Percentage" of one or more Lenders as of any date is a fraction, expressed as a percentage, the numerator of which is the B Credit Exposure Amounts of such Lenders as of such date and the denominator is the Total B Credit Exposure Amount as of such date. "Requisite Lenders" means, as of any date of determination, one or more Lenders having an aggregate Credit Exposure Percentage as of such date greater than 50%. As used herein, the "Credit Exposure Percentage" of one or more Lenders as of any date is a fraction, expressed as a percentage, of which (A) the numerator is the Credit Exposure Amounts of such Lenders as of such date and (B) the denominator is the Total Credit Exposure Amount as of such date. "Restoration" has the meaning assigned to that term in the Mortgages. "Restricted Junior Payment" means (A) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Company, now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (B) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Company now or hereafter outstanding, (C) whether in cash or additional securities, any payment or prepayment of principal of, premium, if any, or interest on, or any redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness and (D) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Company (other than Common Stock of the Company or options or rights to acquire Common Stock of the Company) now or hereafter outstanding. "Revolving Credit Maturity Date" means the date which is the seventh anniversary of the Closing Date. "Revolving Loan Commitment" means the aggregate amount of the commitment (whether used or unused) of a Lender to make Revolving Loans and issue or purchase participations in Letters of Credit and make or purchase participations in Swing Line Loans, which may be reduced from time to time pursuant to the provisions of this Agreement or by virtue of assignments effected pursuant to a Registered Transfer Supplement. As of the Closing Date, the Revolving Loan Commitment of each Lender is the amount set forth opposite such Lender's name in Schedule B annexed hereto under the heading "Revolving Loan Commitment." "Revolving Loan Deduction Amount" means, as of any date of determination thereof, the aggregate amount of Indebtedness then outstanding which constitutes Permitted Expansion Construction Financing. "Revolving Loans" means the Loans made by the Lenders to the Company pursuant to subsection 2.3.1. "Revolving Notes" means the promissory notes of the Company issued in registered form pursuant to subsection 2.3.4 or issued as replacement notes in connection with an assignment made pursuant to this Agreement and, in each case, substantially in the form of Exhibit IV annexed hereto, as the same may be modified, endorsed or amended from time to time. "Royalty or Management Fees" means those amounts owed or owing from time to time by a Foreign Subsidiary of the Company to the Company or any of its Domestic Subsidiaries pursuant to agreements which provide for the provision of management or technical services or advice or the licensing of patents, trademarks, trade secrets, know-how or proprietary information; provided that such amounts for any period in respect of the services or advice so provided or such licenses, as the case may be, shall not exceed the fees that would be charged by a third party for such services, advice or licenses. "Sale/Leaseback Financing" means a Sale/Leaseback Transaction involving Existing Mill Expansion Equipment or Greenfield Expansion Assets; provided that the principal amount of Indebtedness incurred by the Company or any Subsidiary of the Company in connection with such transaction is (A) not less than 50% of the Construction Cost to the Company or such Subsidiary to acquire or construct such Existing Mill Expansion Equipment or the assets constituting such Greenfield Expansion Project, as applicable, (B) not more than 100% of the Construction Cost to the Company or such Subsidiary to acquire or construct such Existing Mill Expansion Equipment or the assets constituting such Greenfield Expansion Project, as applicable, and (C) contains no representation and warranty, covenant or event of default that (i) is in addition to the representations and warranties, covenants and events of default that are currently set forth in one or more of the Corresponding Debt Instruments or (ii) is more burdensome (to the Company) than the most burdensome (to the Company) corresponding representation and warranty, covenant or event of default set forth in any of the Corresponding Debt Instruments. "Sale/Leaseback Transaction" means an arrangement with any bank, insurance company or other lender or investor or to which any such lender or investor is a party, providing for the leasing by the Company or a Subsidiary of the Company of any property, whether now owned or hereafter acquired, which has been or is to be sold or transferred by the Company or any Subsidiary of the Company to such lender or investor. "Savannah Boiler" means the next industrial boiler installed at the Company's Effingham County, Georgia Mill following the date of this Agreement. "Savannah Project" means the acquisition and construction of the next tissue paper manufacturing machine to be constructed or acquired after the Closing Date at the Company's Effingham County, Georgia Mill, together with related manufacturing, converting and ancillary equipment, improvements and facilities. "Scheduled Term Loans Principal Payment" means, with respect to the principal payments on Term Loans pursuant to subsection 2.1.5, for each six-month period following the Closing Date set forth below, the correlative amount set forth opposite thereto (as such amount may from time to time be reduced by virtue of prepayments made under this Agreement): 6-Month Tranche A Tranche B Period Term Loans Term Loans 1st $ -0- $ -0- 2nd -0- -0- 3rd 45,000,000 1,875,000 4th 45,000,000 1,875,000 5th 57,500,000 1,875,000 6th 57,500,000 1,875,000 7th 70,000,000 1,875,000 8th 70,000,000 1,875,000 9th 70,000,000 1,875,000 10th 70,000,000 1,875,000 11th 82,500,000 1,500,000 12th 82,500,000 1,500,000 13th 95,000,000 41,000,000 14th 95,000,000 41,000,000 15th -0- 100,000,000 16th -0- 100,000,000 "Second Expansion Project" has the meaning assigned to that term in subsection 6.14.4. "Secured Expansion Financing" means the incurrence by the Company or any Domestic Subsidiary of the Company of Indebtedness which is secured by assets comprising Existing Mill Expansion Equipment or Greenfield Expansion Assets and which (A) is in an amount not less than 50% of the Construction Cost to the Company or such Domestic Subsidiary to acquire or construct the applicable Existing Mill Expansion Equipment or Greenfield Expansion Assets and not more than 100% of the Construction Cost to the Company or such Domestic Subsidiary to acquire or construct the applicable Existing Mill Expansion Equipment or Greenfield Expansion Assets, (B) has a final scheduled maturity date that is subsequent to the date on which the final Scheduled Term Loans Principal Payment in respect of Tranche B Term Loans is due hereunder, (C) has an Average Life to Stated Maturity that is greater than the remaining Average Life to Stated Maturity of the Tranche B Term Loans on the date such Indebtedness is incurred, (D) is nonrecourse to the Company or any Subsidiary of the Company or any assets of the Company or any Subsidiary of the Company except the assets comprising such Existing Mill Expansion Equipment or Greenfield Expansion Assets, as the case may be, and (E) contains no representation and warranty, covenant or event of default that (i) is in addition to the representations and warranties, covenants and events of default that are currently set forth in one or more of the Corresponding Debt Instruments in respect thereof or (ii) is more burdensome (to the Company) than the most burdensome (to the Company) corresponding representation and warranty, covenant or event of default set forth in any of the Corresponding Debt Instruments in respect thereof. "Securities" means any stock, shares, voting trust certificates, bonds, debentures, options, warrants, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Seller" has the meaning assigned to that term in the Receivables Term Sheet. "Senior Note Purchase Agreement" means that certain Note Purchase Agreement, dated as of September 11, 1991, as amended, by and among the Company and the other persons listed on the signature pages thereto, relating to the Senior Secured Notes. "Senior Secured Indebtedness" means the following obligations of the Company and/or any of its Subsidiaries: (A) the amount of any Indebtedness incurred by the Company or any Subsidiary of the Company (including, without limitation, any Receivables Subsidiary) in connection with the 1995 A/R Bridge or any Receivables Transaction, (B) Indebtedness of the type described in clause (B) of the definition of Indebtedness, (C) the Indebtedness described in subparagraph (vii) and subparagraph (x) of Section 6.1, (D) any other Indebtedness of the Company or any Subsidiary of the Company that is not Subordinated Indebtedness and is secured by any Lien on any property of the Company or any Subsidiary of the Company and (E) the full amount of the obligations of the Company or any Subsidiary of the Company under any Letter of Credit issued for the account of the Company or any Subsidiary of the Company that are secured by a Lien on any property of the Company or any Subsidiary of the Company. In calculating the amount of Senior Secured Indebtedness, there shall be excluded in the case of any revolving loan facility or Letter of Credit commitment issued in favor of the Company or any Subsidiary of the Company, the then unutilized portion of such facility or commitment and, except as specified in clause (E) of the preceding sentence, any Contingent Obligation. "Senior Secured Notes" means the Series A Senior Secured Floating Rate Notes due 1997, the Series B Senior Secured Floating Rate Notes due 1998, the Series C-1 Senior Secured Floating Rate Notes due 1999, the Series C-2 Senior Secured Floating Rate Notes due 1999 and the Series D Senior Secured Floating Rate Notes due 2000, each as issued, and as amended from time to time, pursuant to the Senior Note Purchase Agreement. "Senior Unsecured Notes" means the 9-1/4% Unsecured Notes and the 8-1/4% Unsecured Notes. "Sensitive Information" has the meaning assigned to that term in Section 5.5. "Severed Parcel" has the meaning assigned to that term in subsection 5.14.1. "SIL Company" means SIL Company, a California corporation that is Wholly Owned by Fort Howard Holdings Inc. and which owns indirectly 100% of the outstanding equity securities of Fort Sterling. "Sludge Boiler Land" has the meaning assigned to that term in subsection 5.17.1. "S&P" means Standard & Poor's Corporation, together with any successor that issues ratings of corporate securities. "Special Funding Procedures Letter" means a letter agreement among the Company, the Administrative Agent and each Lender, substantially in the form of Exhibit XVI annexed hereto with appropriate insertions, pursuant to which special procedures are established with respect to the Loans to be made on the Closing Date. "Special Reserve" means the special reserve, in the amount of $20,000,000, established as of December 31, 1994 by the Company in respect of certain environmental matters. "Standby Letter of Credit" means any standby letter of credit or similar instrument issued for the purpose of supporting (A) workers' compensation liabilities of the Company or any of its Subsidiaries, (B) the obligations of third party insurers of the Company or any of its Subsidiaries arising by virtue of the laws of any jurisdiction requiring third party insurers to obtain such letters of credit, (C) Indebtedness of the Company or any of its Subsidiaries in respect of industrial revenue or development bonds or financings, (D) obligations with respect to Capital or Operating Leases of the Company or any of its Subsidiaries, or (E) performance, payment, deposit or surety obligations of the Company or any of its Subsidiaries if required by law or governmental rule or regulation or in accordance with custom and practice in the industry. "Statutory Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum applicable reserve percentages, including, without limitation, any marginal, special, emergency or supplemental reserves (expressed as a decimal) established by the Board of Governors of the Federal Reserve System of the United States and any other banking authority to which the Administrative Agent is subject, with respect to the Base CD Rate (as such term is used in the definition of the term "Alternate Base Rate") for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Sterling International Limited" means Sterling International Limited, an English limited liability company and a Foreign Subsidiary of the Company. "Stock Pledge Agreement" means the Company Stock Pledge Agreement or any Stock Pledge Agreement entered into pursuant to subsection 5.11.1 hereof. "Stockholders Agreement" means one or more Stockholders Agreements dated as of ___________, 1995, in the form delivered to the Lenders, as the same may be amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Subordinated Indebtedness" means the Indebtedness of the Company subordinated in right of payment to the Obligations, including, without limitation, the Subordinated Notes and the Existing Subordinated Debt. "Subordinated Notes" means the 9% Senior Subordinated Notes and the 10% Subordinated Notes. "Subsidiary" of any Person means any corporation, association or other Person of which more than 50% of the total voting power of shares of stock or other equity interests therein 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. Unless otherwise indicated, "Subsidiary" means a Subsidiary of the Company. "Swing Line Borrowing" means a Borrowing comprised of Swing Line Loans. "Swing Line Commitment" has the meaning assigned to that term in paragraph (a) of subsection 2.12.1. "Swing Line Loans" means the Loans made by Bankers to the Company pursuant to subsection 2.12.1. "Swing Line Note" means the promissory note of the Company issued in registered form pursuant to subsection 2.12.4 and in substantially the form of Exhibit VI annexed hereto, as the same may be modified, endorsed or amended from time to time in accordance herewith or therewith. "Taking" has the meaning assigned to that term in the Mortgages. "Taxes" has the meaning assigned to that term in paragraph (a) of subsection 2.9.7. "10% Subordinated Notes" means the Company's 10% Subordinated Notes due March 15, 2003, issued pursuant to a certain indenture dated as of March 15, 1993 between the Company and United States Trust Company of New York, as Trustee, as such notes and indenture shall be in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Term Borrowing" means a Borrowing comprised of Tranche A Term Loans or Tranche B Term Loans. "Term Loan Commitment" or "Term Loan Commitments" means the commitment or commitments of a Lender or the Lenders to make Term Loans as set forth in subsection 2.1.1. "Term Loans" means the Tranche A Term Loans and Tranche B Term Loans. "Term Notes" means the promissory notes of the Company issued in registered form in respect of Tranche A Term Loans or Tranche B Term Loans pursuant to subsection 2.1.4 or issued as replacement notes in connection with an assignment made pursuant to this Agreement and, in each case, substantially in the form of Exhibit III or Exhibit V annexed hereto, as the same may be modified, endorsed or amended from time to time in accordance herewith or therewith. "Termination Event" means (A) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation or any successor thereof under such regulations), or (B) the withdrawal of the Company or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (C) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (D) the filing by the Pension Benefit Guaranty Corporation (or any successor thereof) of a notice of its intent to terminate a Pension Plan, or (E) the receipt by the Company or any ERISA Affiliate of notice of the termination or reorganization of any Multiemployer Plan or (F) the occurrence of any other event or condition that might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; provided that, for the purposes of Section 4.11 only, the termination of any Pension Plan or termination or reorganization of any Multiemployer Plan and any action taken with respect to any such termination or reorganization shall not be a Termination Event if the Company and its ERISA Affiliates shall not incur net liabilities aggregating more than $25,000,000 (such liabilities to include, without limitation, any liability to the Pension Benefit Guaranty Corporation (or any successor thereof), or to any other party under ERISA or the Internal Revenue Code) resulting from all such terminations or reorganizations. "Termination Value" of an Interest Rate Agreement or Currency Agreement at any time means the amount that would be payable by the Company to the counterparty thereto if such agreement was terminated at such time because of default of the Company thereunder. "Title Company" means First American Title Insurance Company of New York or such other title insurance or abstract company as shall be designated by the Requisite Lenders. "Total Credit Exposure Amount" means, as of any date of determination, an amount equal to the sum of the Credit Exposure Amounts of all Lenders as of such date. "Total A Credit Exposure Amount" means, as of any date of determination, an amount equal to the sum of the A Credit Exposure Amounts of all Lenders as of such date. "Total B Credit Exposure Amount" means, as of any date of determination, an amount equal to the sum of the B Credit Exposure Amounts of all Lenders as of such date. "Total Loan Commitment" and "Total Loan Commitments" have the meanings assigned to those terms in Section 2.4. "Total Revolving Loan Commitment" means, at any time, an amount equal to the maximum aggregate amount of the Adjusted Revolving Loan Commitments of all Lenders then in effect less the then effective Revolving Loan Deduction Amount. "Total Utilization of Revolving Loan Commitments" means, at any date of determination, the sum of (A) the aggregate principal amount of all outstanding Revolving Loans and Swing Line Loans plus (B) the Letters of Credit Usage. "Tranche" means the distinction among the Tranche A Term Loans, the Tranche B Term Loans and the Revolving Loans. "Tranche A Commitment" means, with respect to each Lender, the aggregate amount of the commitment of such Lender to make Tranche A Term Loans hereunder pursuant to subsection 2.1.1, which may be reduced from time to time pursuant to the provisions of this Agreement or by virtue of assignments effected pursuant to a Registered Transfer Supplement. As of the Closing Date, the Tranche A Commitment of each Lender is the amount set forth opposite such Lender's name in Schedule B annexed hereto under the heading "Tranche A Commitment". "Tranche A Funding Percentage" means, with respect to each Lender having a Tranche A Commitment, the percentage designated as such Lender's Tranche A Funding Percentage on Schedule B annexed hereto under the heading "Tranche A Funding Percentage". "Tranche A Lenders" means the Lenders having outstanding Tranche A Term Loans. "Tranche A Term Borrowing" means a Borrowing comprised of Tranche A Term Loans. "Tranche A Term Loans" means the term loans made by the Lenders to the Company pursuant to subsection 2.1.1. Each Tranche A Term Loan shall be either an Adjusted LIBOR Term Loan or an ABR Term Loan. "Tranche A Term Maturity Date" has the meaning assigned to that term in subsection 2.1.5. "Tranche B Commitment" means, with respect to each Lender, the aggregate amount of the commitment of such Lender to make Tranche B Term Loans hereunder pursuant to subsection 2.1.1, which may be reduced from time to time pursuant to the provisions of this Agreement or by virtue of assignments effected pursuant to a Registered Transfer Supplement. As of the Closing Date, the Tranche B Commitment of each Lender is the amount set forth opposite such Lender's name in Schedule B annexed hereto under the heading "Tranche B Commitment". "Tranche B Escrow Account" has the meaning assigned to that term in paragraph (c) of subsection 2.7.3. "Tranche B Funding Percentage" means, with respect to each Lender having a Tranche B Commitment, the percentage designated as such Lender's Tranche B Funding Percentage on Schedule B annexed hereto under the heading "Tranche B Funding Percentage". "Tranche B Lender" means each Lender having outstanding a Tranche B Term Loan. "Tranche B Mandatory Prepayment Date" has the meaning assigned to that term in paragraph (c) of subsection 2.7.3. "Tranche B Term Maturity Date" has the meaning assigned to that term in subsection 2.1.5. "Tranche B Prepayment Amount" has the meaning assigned to that term in paragraph (c) of subsection 2.7.3. "Tranche B Prepayment Option Notice" has the meaning assigned to that term in paragraph (c) of subsection 2.7.3. "Tranche B Term Borrowing" means a Borrowing comprised of Tranche B Term Loans. "Tranche B Term Loans" means the term loans made by the Lenders to the Company pursuant to subsection 2.1.1. "Tranche B Term Notes" means the promissory notes of the Company issued in respect of Tranche B Term Loans pursuant to subsection 2.1.4 or issued as replacement notes in connection with an assignment made pursuant to this Agreement and substantially in the form of Exhibit V annexed hereto, as the same may be modified, endorsed or amended from time to time in accordance herewith or therewith. "Transaction Costs" means the fees, costs and expenses payable by the Company pursuant hereto and other fees, costs and expenses payable by the Company or a Subsidiary thereof in connection with the Recapitalization (other than interest expense). "Transferee" has the meaning assigned to that term in subsection 9.1.4. "12-5/8% Subordinated Debentures" means the Company's 12-5/8% Subordinated Debentures due November 1, 2000, issued and outstanding pursuant to a certain indenture, dated as of November 1, 1988 between the Company and United States Trust Company of New York, as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "UCC" means the Uniform Commercial Code, as in effect in the applicable jurisdiction. "Unsecured Expansion Financing" means, in respect of any Existing Mill Expansion Equipment or Greenfield Expansion Assets, the incurrence by the Company or any Subsidiary of the Company of Indebtedness which is not secured by a Lien on any property or assets of the Company or any Subsidiary of the Company, which Indebtedness (A) is in an amount that does not exceed 100% of the Construction Cost to the Company or such Subsidiary to acquire or construct such Existing Mill Expansion Equipment or Greenfield Expansion Assets, (B) provides for interest at rates which do not exceed the market rates in respect of similar types of financing prevailing at the time such Indebtedness is incurred, (C) has a final scheduled maturity date that is subsequent to the date on which the final Scheduled Term Loans Principal Payment in respect of Tranche B Term Loans is due hereunder, (D) has an Average Life to Stated Maturity that is greater than the remaining Average Life to Stated Maturity of the Tranche B Term Loans on the date such Indebtedness is incurred, (E) contains no representation and warranty, covenant or event of default that (i) is in addition to the representations and warranties, covenants and events of default that are currently set forth in one or more of the Corresponding Debt Instruments applicable thereto or (ii) is more burdensome (to the Company) than the most burdensome (to the Company) corresponding representation and warranty, covenant or event of default set forth in any of the Corresponding Debt Instruments applicable thereto and (F) if such Indebtedness is Subordinated Indebtedness, contains subordination provisions no less favorable to the Lenders than the least favorable subordination provisions (to the Lenders) in the Existing Subordinated Debt. "Wholly-Owned Subsidiary" of any Person means any Subsidiary all of the shares of capital stock of which (except directors' qualifying shares) are at the time directly or indirectly owned by such Person. Section 1.2 Accounting Terms. For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Section 1.3 Other Definitional Provisions; Anniversaries. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. For purposes of this Agreement, a monthly anniversary of the Closing Date shall occur on the same day of the applicable month as the day of the month on which the Closing Date occurred; provided that if the applicable month has no such day (i.e., 29, 30 or 31), the monthly anniversary shall be deemed to occur on the last day of the applicable month. Section 1.4 Adjustment for Special Reserve. For purposes of calculating the Leverage Ratio in respect of periods which include fiscal quarters ending on or prior to December 31, 1994, Consolidated EBITDA shall be determined without taking into account the establishment of the Special Reserve. Section 1.5 Currency Equivalent Generally. For all purposes of this Agreement, (A) the equivalent in Dollars of any amount in any other currency shall be determined at the rate of exchange quoted by the Administrative Agent in New York City at 9:00 A.M. (New York City time) on the date of determination to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of such other currency with Dollars and (B) the equivalent in any currency (other than Dollars) of any amount in Dollars shall be determined at the rate of exchange quoted by the Administrative Agent in New York City at 9:00 A.M. (New York City time) on the date of determination to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with such other currency. In determining compliance with the covenants and other terms of this Agreement that require amounts of another currency to be converted into Dollars or amounts of Dollars to be converted into another currency, as the case may be, such amounts shall be converted pursuant to the first sentence of this Section 1.5 on the date that (A) Indebtedness is incurred, (B) an Investment is made, (C) a transfer of assets occurs or (D) any other relevant transaction occurs, as the case may be. ARTICLE II COMMITMENTS AND LOANS; NOTES Section 2.1 Term Loans and Term Notes. 2.1.1. Term Loan Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Loan Parties set forth herein and in each of the other Loan Documents, (A) on the Closing Date, (1) each Lender having a Tranche A Commitment hereby severally agrees to lend the Company an aggregate amount not exceeding its Tranche A Funding Percentage of the Closing Date Tranche A Funding Amount and (2) each Lender having a Tranche B Commitment hereby severally agrees to lend the Company an aggregate amount not exceeding its Tranche B Funding Percentage of the aggregate Tranche B Commitments and (B) on the Deferred Funding Date, each Lender having a Tranche A Commitment severally agrees to lend the Company an aggregate amount not exceeding its Tranche A Funding Percentage of the Deferred Tranche A Funding Amount. The aggregate amount of the Tranche A Commitments is $840,000,000. Each Lender's Tranche A Commitment shall expire on the Deferred Funding Date (immediately following any funding made on such date) but, in any event, not later than 5:00 P.M. (New York time) on the date 45 days after the Closing Date; provided that the Tranche A Commitment of any Lender that is a Defaulting Lender by reason of the failure to advance its Tranche A Funding Percentage of the Deferred Tranche A Funding Amount on the Deferred Funding Date shall not so terminate until such Lender (or its assignee) shall have so funded such Tranche A Funding Percentage. The aggregate amount of the Tranche B Commitments is $300,000,000. Each Lender's Tranche B Commitment shall expire on the Closing Date (immediately following the funding of the Tranche B Term Loans). All Tranche A Term Loans under this Agreement shall be made by the Lenders having a Tranche A Commitment simultaneously and proportionately to their Tranche A Funding Percentages and all Tranche B Term Loans under this Agreement shall be made by the Lenders having a Tranche B Commitment simultaneously and proportionately to their Tranche B Funding Percentages, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Term Loan hereunder nor shall the Tranche A Commitment or Tranche B Commitment, as the case may be, of any Lender be increased or decreased as a result of the default by any other Lender in such other Lender's obligation to make a Term Loan hereunder. Term Loans made on any Funding Date shall be made in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount. 2.1.2. Notice of Borrowing. The Company shall deliver to the Administrative Agent a Notice of Borrowing substantially in the form of Exhibit I annexed hereto in respect of the Borrowings to be made on the Closing Date or the Deferred Funding Date as follows: (A) to the extent such Borrowings will consist of an Adjusted LIBOR Term Borrowing, such Notice of Borrowing shall be received by the Administrative Agent no later than 11:00 a.m. (New York time), at least three Business Days in advance of the Closing Date or the Deferred Funding Date, as the case may be, and (B) to the extent such Borrowings will consist of an ABR Term Borrowing, such Notice of Borrowing shall be received by the Administrative Agent no later than 11:00 a.m. (New York time), at least one Business Day in advance of the Closing Date or the Deferred Funding Date, as the case may be; provided that the Notice of Borrowing delivered by the Company in respect of the Tranche A Term Loans to be borrowed on the Deferred Funding Date shall in any event be delivered to the Administrative Agent at least three days prior to the Deferred Funding Date. Each such Notice of Borrowing shall be irrevocable and shall specify (A) the date on which Term Loans are to be made (which shall be a Business Day), (B) whether such Term Loans are Tranche A Term Loans or Tranche B Term Loans and the total amount of such Term Loans, (C) in the case of Borrowings to be made on the Closing Date, a computation, in reasonable detail, of the Closing Date Tranche A Funding Amount, and (D) whether the Term Loans will be based on Adjusted LIBOR or ABR; and provided, further, in the case of any such Loans borrowed on or prior to the 90th day following the Closing Date, such Loans may consist only of Adjusted LIBOR Loans having a one month Interest Period or ABR Loans. 2.1.3. Disbursement of Funds. (a) Promptly after receipt of a Notice of Borrowing pursuant to subsection 2.l.2, the Administrative Agent shall notify each applicable Lender of the proposed Borrowing. Arrangements may be made satisfactory to the Company, the Administrative Agent and each Lender whereby an amount up to the aggregate amount of Term Loans to be borrowed on the Closing Date may be placed in escrow to facilitate the making of such Loans on the Closing Date; provided that in any event each Lender shall have made arrangements satisfactory to the Company, the Administrative Agent and such Lender (pursuant to the Special Funding Procedures Letter or otherwise) whereby the funds for the Term Loans to be made on the Closing Date shall be made available by the Lenders to the Administrative Agent, as escrow agent under the Special Funding Procedures Letter, not later than 1:00 P.M. (New York time) on the Closing Date. It is understood and agreed that the Term Loans to be made on the Closing Date shall not be considered to have been made for any purposes of this Agreement, and the Company shall have no interest in such funds, until the escrow agent delivers such funds to the Administrative Agent pursuant to [paragraph 4] of the Special Funding Procedures Letter. Upon satisfaction or waiver of the conditions precedent specified in Sections 3.2 and 3.3, and, in the case of Term Loans made on the Closing Date, Section 3.1, the Administrative Agent shall make the proceeds of the Term Loans available to the Company on the relevant Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Administrative Agent at its office located at One Bankers Trust Plaza, New York, New York to be credited to the account of the Company at such office of the Administrative Agent. The parties hereto acknowledge and agree that all Term Loans will be borrowed in New York, New York, and that no Term Loans will be made other than in New York, New York. (b) Unless the Administrative Agent shall have been notified by any Lender prior to the date of borrowing of Term Loans that such Lender does not intend to make available to the Administrative Agent the amount of funds necessary to satisfy such Lender's obligations under subsection 2.1.1 on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date and the Administrative Agent in its sole discretion may, but shall not be obligated to, make available to the Company a corresponding amount on such date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the date of borrowing of Term Loans until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at ABR. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company and the Company shall immediately pay such corresponding amount to the Administrative Agent. Nothing in this subsection 2.l.3 shall be deemed to relieve any Lender from its obligation to fulfill its Tranche A Commitment and/or Tranche B Commitment, as the case may be, hereunder or to prejudice any rights which the Company may have against any Lender as a result of any default by such Lender hereunder. 2.1.4. Term Notes. As of the Closing Date or, in the case of Tranche A Term Borrowings made after the Closing Date, the Deferred Funding Date, the Company has executed and delivered to each Lender, as applicable (or to the Administrative Agent for that Lender), a Tranche A Term Note substantially in the form of Exhibit III or a Tranche B Term Note substantially in the form of Exhibit V, each as annexed hereto, to evidence such Lender's Term Loan(s), in the principal amount of such Lender's Tranche A Commitment and/or Tranche B Commitment, as the case may be, with other appropriate insertions. 2.1.5. Scheduled Payments of Term Loans. For each six-month period after the Closing Date, the Company shall make a principal payment in respect of Tranche A Term Loans and Tranche B Term Loans in the amount of the Scheduled Term Loans Principal Payment applicable to such Term Loans for such period. Each Scheduled Term Loans Principal Payment shall be due and payable on the last day of the relevant six-month period identified in the definition of Scheduled Term Loans Principal Payment, except that the principal payment for the 16th such six-month period shall be made on December 31, 2002 (the "Tranche B Term Maturity Date"). Any payment or prepayment of the Term Loans may not be reborrowed. The Tranche A Term Loans and all other amounts owed hereunder with respect to Tranche A Term Loans shall be paid in full no later than the date which is the seventh anniversary of the Closing Date (such seventh anniversary, the "Tranche A Term Maturity Date"). The Tranche B Term Loans and all other amounts owed hereunder with respect to the Tranche B Term Loans shall be paid in full no later than the Tranche B Term Maturity Date. Section 2.2 Letters of Credit. 2.2.1. Letters of Credit. (a) In addition to requesting that the Lenders make Revolving Loans pursuant to Section 2.3, the Company may request, in accordance with the provisions of this subsection 2.2.1, that on and after the Closing Date and prior to the date that is thirty Business Days preceding the Revolving Credit Maturity Date one or more Fronting Banks issue, subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Loan Parties set forth herein and in each of the other Loan Documents, Letters of Credit for the Company's account; provided that (A) the Company shall not request that any Fronting Bank issue any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Total Revolving Loan Commitment then in effect, (B) in no event shall any Fronting Bank issue (1) any Letter of Credit having an expiration date later than the Revolving Credit Maturity Date or (2) subject to the foregoing subclause (1), any Commercial Letter of Credit having an expiration date more than 270 days after its date of issuance or any Standby Letter of Credit having an expiration date more than one year after its date of issuance, provided that, subject to the foregoing subclause (1), this subclause (2) shall not prevent any Fronting Bank from agreeing that a Standby Letter of Credit will automatically be renewed annually for a period not to exceed one year if such Fronting Bank does not cancel such renewal, and (C) the Company shall not request that any Fronting Bank issue any Letter of Credit if, after giving effect to such issuance, the Letters of Credit Usage in respect of Letters of Credit would exceed $50,000,000. The issuance of any Letter of Credit in accordance with the provisions of this subsection 2.2.1 shall be given effect in the calculation of the Total Utilization of Revolving Loan Commitments and shall require the satisfaction of each condition set forth in Sections 3.2 and 3.5. (b) Immediately upon the issuance of each Letter of Credit, each Lender having an Adjusted Revolving Loan Percentage greater than zero shall be deemed to, and hereby agrees to, have irrevocably purchased from the Fronting Bank a participation in such Letter of Credit and all drawings thereunder in an amount equal to such Lender's Adjusted Revolving Loan Percentage of the maximum amount which is or at any time may become available to be drawn thereunder. Upon any change in the Revolving Loan Commitments or Adjusted Revolving Loan Percentages of the Lenders pursuant to Section 9.22 or 9.1 or as a result of the occurrence of a Lender Default or the cure by any Defaulting Lender of a Lender Default, with respect to all outstanding Letters of Credit and all then unreimbursed drawings under any Letters of Credit, there shall be an automatic adjustment to the participations pursuant to this subsection 2.2.1 to reflect the new Adjusted Revolving Loan Percentages of the Lenders; provided that no such adjustment shall relieve any Defaulting Lender of its obligations under this Agreement to the Company or, in the circumstances contemplated in the proviso to the definition of Adjusted Revolving Loan Percentage, to the other Lenders and the Fronting Bank or Fronting Banks. (c) Each Letter of Credit may provide that the applicable Fronting Bank may (but shall not be required to) pay the beneficiary thereof, upon the occurrence of an Event of Default or, if payment is not then due to the beneficiary, provide for the deposit of funds in an account to secure payment to the beneficiary and that any funds so deposited shall be paid to the beneficiary of the Letter of Credit if conditions to such payment are satisfied or returned to the Administrative Agent for ratable distribution to the Lenders (or, if all Obligations then due shall have been indefeasibly paid in full, to the Company) if no payment to the beneficiary has been made and the final date available for drawings under such Letter of Credit has passed. Each payment or deposit of funds by a Fronting Bank as provided in this paragraph shall be treated for all purposes of this Agreement as a drawing duly honored by such Fronting Bank under the related Letter of Credit. 2.2.2. Request for Issuance. Whenever the Company desires the issuance of a Letter of Credit, it shall deliver to the Administrative Agent a written notice no later than 1:00 P.M. (New York time) at least ten Business Days (in the case of Standby Letters of Credit), or five Business Days (in the case of Commercial Letters of Credit), or, in each such case, such shorter period as may be agreed to by any Fronting Bank in any particular instance, in advance of the proposed date of issuance. Such notice shall specify (A) the proposed date of issuance (which shall be a business day under the laws of the jurisdiction of the applicable Fronting Bank), (B) the face amount and type of the Letter of Credit requested, (C) the expiration date of the Letter of Credit requested, (D) the name and address of the beneficiary thereof and (E) the Benefited Subsidiary or Benefited Subsidiaries, if any, with respect to such Letter of Credit and the amount inuring to the benefit of each such Benefited Subsidiary. As soon as practicable after delivery of such notice, the Fronting Bank for such Letter of Credit shall be determined as provided in subsection 2.2.3. Prior to the date of issuance of any Letter of Credit, the Company shall specify a precise description of the form of such Letter of Credit and documents and the verbatim text of any certificate to be presented by the beneficiary of such Letter of Credit which, if presented by such beneficiary prior to the expiration date of such Letter of Credit, would require the applicable Fronting Bank to make payment under such Letter of Credit; provided that the Fronting Bank, in its sole reasonable judgment, may prior to the date of issuance require changes in the form of such Letter of Credit and any such documents and certificates; and provided, further, that no Letter of Credit shall require payment against a conforming draft to be made thereunder on the same business day (under the laws of the jurisdiction of the Fronting Bank) that such draft is presented if such presentation is made after 1:00 p.m. (in the time zone of the jurisdiction of the Fronting Bank) on such business day. Promptly after receipt of a request for issuance of a Letter of Credit and the determination of the Fronting Bank therefor, the Administrative Agent shall notify each Lender having a Revolving Loan Commitment of the proposed issuance, the identity of the Fronting Bank and the amount of each such other Lender's respective participation therein, determined in accordance with subsection 2.2.1. 2.2.3. Determination of Fronting Bank. (a) Upon receipt by the Administrative Agent of a notice from the Company pursuant to subsection 2.2.2 requesting the issuance of a Letter of Credit, in the event Bankers elects to issue such Letter of Credit, the Administrative Agent shall so notify the Company and Bankers shall be the Fronting Bank with respect thereto. In the event that Bankers, in its sole discretion, elects not to issue such Letter of Credit, Bankers shall promptly so notify the Company and the Company may request any other Arranger to issue such Letter of Credit. Each such Arranger so requested to issue such Letter of Credit shall promptly notify the Company and the Administrative Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and any such Arranger which so elects to issue such Letter of Credit shall be the Fronting Bank with respect thereto. In the event that all Arrangers shall have declined to issue such Letter of Credit, notwithstanding the prior election of each Arranger not to issue such Letter of Credit, each Arranger shall be obligated to issue a Letter of Credit in a maximum aggregate amount available for drawing equal to such Arranger's proportionate share (based upon the relative Adjusted Revolving Loan Percentages of the Arrangers) of the Letter of Credit requested by the Company and each Arranger shall be a Fronting Bank with respect to the Letter of Credit issued by it. (b) Each Fronting Bank which elects to issue a Letter of Credit shall promptly give written notice to the Administrative Agent and each other Lender having an Adjusted Revolving Loan Percentage greater than zero of the information required under clauses (A) through (E) of the second sentence of subsection 2.2.2 relating to such Letter of Credit and shall deliver a copy of such Letter of Credit, and any amendment thereto, to the Administrative Agent. 2.2.4. Payment of Amounts Drawn Under Letters of Credit. (a) In determining whether to pay under any Letter of Credit, the Fronting Bank with respect thereto shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. (b) In the event of any drawing under any Letter of Credit by the beneficiary thereof, the Fronting Bank shall notify the Company and the Administrative Agent on or before 11:00 a.m. (New York time) on the Business Day on which such Fronting Bank intends to honor such drawing, and if notified on or before such time, the Company shall reimburse such Fronting Bank on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing; provided that, if the Fronting Bank notifies the Company and the Administrative Agent after 11:00 a.m. (New York time) on the Business Day on which such Fronting Bank intends to honor such drawing, the Company shall reimburse such Fronting Bank on the Business Day immediately following the day on which it receives notice that such drawing was honored in an amount in same day funds equal to the amount of such drawing plus accrued interest on such amount at, notwithstanding the provisions of subparagraph (a)(ii) of subsection 2.2.6, the rate payable under this Agreement for ABR Loans; and provided, further, that, anything contained in this Agreement to the contrary notwithstanding, (A) unless the Company shall have notified the Administrative Agent and such Fronting Bank prior to 11:00 a.m. (New York time) on the Business Day immediately prior to the second Business Day after the date on which the Fronting Bank has notified the Company of its intent to honor such drawing that the Company intends to reimburse such Fronting Bank for the amount of such drawing with funds other than the proceeds of Revolving Loans or unless the Company shall have previously given to the Administrative Agent a timely Notice of Borrowing for Revolving Loans that are Adjusted LIBOR Loans in an amount at least equal to the amount of such drawing, the Company shall be deemed to have timely given a Notice of Borrowing to the Administrative Agent requesting the Lenders having Revolving Loan Commitments to make Revolving Loans which are ABR Loans on the date on which the Company is obligated to reimburse the Fronting Bank in an amount equal to the amount of such drawing, and (B) subject to satisfaction or waiver of the conditions specified in Section 3.2, such Lenders shall, on the date on which the Company is obligated to reimburse the applicable Fronting Bank, make Revolving Loans which are Adjusted LIBOR Loans or ABR Loans, as the case may be, in the amount of such drawing, the proceeds of which shall be applied directly by the Administrative Agent to reimburse such Fronting Bank for the amount of such drawing; and provided, further, that if, for any reason, proceeds of Revolving Loans are not received by such Fronting Bank on such date in an amount equal to the amount of such drawing the Company shall reimburse such Fronting Bank, on the business day (under the laws of the jurisdiction of such Fronting Bank) immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Revolving Loans, if any, which are so received, plus accrued interest on such amount at the rate set forth in subparagraph (a)(ii) of subsection 2.2.6; and provided, further, that, if proceeds of any Revolving Loan are not received by the Fronting Bank as a result of the failure of a Lender to fund such Revolving Loan when required to do so by the terms of this Agreement, then the accrued interest on the amount so reimbursed shall be at the rate set forth in subsection 2.5.1 which would have applied to such Revolving Loan. (c) The Fronting Bank shall, to the fullest extent permitted by applicable law, apply all reimbursement funds received by it from the Company pursuant to subsection 2.2.4(b) in the following order of priority: first, to the Fronting Bank for any amount then due and payable to such Fronting Bank in connection with such Letter of Credit, second, to all other Lenders (other than Defaulting Lenders) ratably (according to the respective amounts paid by such other Lenders in connection with such Letter of Credit pursuant to subsection 2.2.5) for any amounts then due and payable to such other Lenders in connection with such Letter of Credit, and third, to all Defaulting Lenders ratably (according to the respective amounts paid by such Lenders in connection with such Letter of Credit pursuant to Section 2.2.5) for any amounts then due and payable to such Lenders in connection with such Letter of Credit. 2.2.5. Payment by the Lenders. In the event that the Company shall fail to reimburse a Fronting Bank as provided in subsection 2.2.4 in an amount equal to the amount of any drawing honored by such Fronting Bank under a Letter of Credit issued by it, such Fronting Bank shall promptly notify each Lender of the unreimbursed amount of such drawing, plus accrued interest thereon, and of such Lender's respective participation therein. Each Lender shall make available to such Fronting Bank an amount equal to its respective participation in same day funds, at the office of such Fronting Bank specified in such notice, not later than 1:00 P.M. (New York time) on the business day (under the laws of the jurisdiction of such Fronting Bank) after the date notified by such Fronting Bank. In the event that any Lender fails to make available to such Fronting Bank the amount of such Lender's participation in such Letter of Credit as provided in this subsection 2.2.5, such Fronting Bank shall be entitled to recover such amount on demand from such Lender together with interest at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at ABR. Nothing in this subsection 2.2.5 shall be deemed to prejudice the right of any Lender to recover from such Fronting Bank any amounts made available by such Lender to such Fronting Bank pursuant to this subsection 2.2.5 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Fronting Bank in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Fronting Bank. Each Fronting Bank shall distribute to each other Lender which has paid all amounts payable by it under this subsection 2.2.5 with respect to any Letter of Credit issued by such Fronting Bank such other Lender's Adjusted Revolving Loan Percentage of all payments received by such Fronting Bank from the Company in reimbursement of drawings honored by such Fronting Bank under such Letter of Credit when such payments are received. 2.2.6. Compensation. (a) The Company agrees to pay the following amounts to each Fronting Bank with respect to each Letter of Credit issued by it: (i) with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with such Fronting Bank's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be; and (ii) except as otherwise provided in subsection 2.2.4, with respect to drawings made under any Letter of Credit, interest, payable on demand, on the amount paid by such Fronting Bank in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by the Company (including any such reimbursement out of the proceeds of Revolving Loans or Swing Line Loans, as the case may be, pursuant to subsection 2.2.4) at a rate which is at all times equal to 2.0% per annum in excess of the rate of interest otherwise payable under this Agreement for ABR Loans. (b) The Company agrees to pay to the Administrative Agent for distribution to each Lender having a Revolving Loan Commitment in respect of all Letters of Credit outstanding such Lender's Adjusted Revolving Loan Percentage of a commission on the maximum amount available from time to time to be drawn under such outstanding Letters of Credit at a rate per annum equal to the LIBOR Spread then applicable to Adjusted LIBOR Revolving Loans, payable in arrears on and through the last day of each fiscal quarter of the Company (or the first date on which the Revolving Loan Commitment shall have expired or been terminated and there shall be no outstanding Letters of Credit, if earlier) and calculated on the basis of a 360-day year and the actual number of days elapsed. (c) The Company agrees to pay to each Fronting Bank in respect of all Letters of Credit outstanding issued by such Fronting Bank a facing fee (the "Facing Fee") equal to .25% per annum of the maximum amount available from time to time to be drawn under such outstanding Letters of Credit, payable in arrears on and through the last day of each fiscal quarter of the Company (or the first date on which the Revolving Loan Commitments shall have expired or been terminated and there shall be no outstanding Letters of Credit, if earlier) and calculated on the basis of a 360-day year and the actual number of days elapsed, provided that in no event shall the annual Facing Fee with respect to each Letter of Credit be less than $500, it being agreed that, on the date of issuance of any Letter of Credit and on each anniversary thereof prior to the expiration or termination of such Letter of Credit, if $500 will exceed the amount of Facing Fees that will accrue with respect to such Letter of Credit for the immediately succeeding 12-month period, the full $500 shall be payable on the date of issuance of such Letter of Credit and on each such anniversary thereof prior to the expiration or termination of such Letter of Credit. (d) Promptly upon receipt by the Administrative Agent or any Fronting Bank of any amount described in subparagraph (a)(ii) or paragraph (b) of this subsection 2.2.6, the Administrative Agent on behalf of such Fronting Bank, or such Fronting Bank, as applicable, shall distribute to each Lender its Adjusted Revolving Loan Percentage of such amount. Amounts payable under subparagraph (a)(i) and paragraph (c) of this subsection 2.2.6 shall be paid directly to the applicable Fronting Bank. (e) Once paid, any commissions or fees described in this subsection shall not be refundable or creditable in any circumstances. 2.2.7. Obligations Absolute. The obligation of the Company to reimburse each Fronting Bank for drawings made under the Letters of Credit issued by it and the obligations of the Lenders under subsection 2.2.5 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which the Company or any Affiliate of the Company may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or transferee may be acting), such Fronting Bank, any Lender or any other Person, whether in connection with this Agreement, the 1988 Credit Agreement, the transactions contemplated herein or therein or any unrelated transaction (including any underlying transaction between the Company or one of its Subsidiaries and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect other than solely as the result of gross negligence or willful misconduct of the applicable Fronting Bank; (iv) payment by such Fronting Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit other than if said payment is solely the result of the gross negligence or willful misconduct of such Fronting Bank; (v) any other circumstance or happening whatsoever, which is similar to any of the foregoing; (vi) the fact that an Event of Default or a Potential Event of Default shall have occurred and is continuing; or (vii) any Lender Default. 2.2.8. Additional Payments. Without duplication of payments under subsection 2.9.7, if by reason of (A) after the date of this Agreement any change in applicable law, regulation, rule, decree or regulatory requirement or any change in the interpretation or application by any judicial or regulatory authority of any applicable law, regulation, rule, decree or regulatory requirement or (B) compliance by any Fronting Bank or any Lender with any direction, request or requirement (whether or not having the force of law) of any governmental or monetary authority including, without limitation, Regulation D: (i) such Fronting Bank or any Lender shall be subject to any tax, levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations in respect of Letters of Credit or participations therein under this Section 2.2 (except for changes in the rate of tax on the overall net income of such Fronting Bank or Lender or its applicable lending office imposed by the jurisdiction in which such Fronting Bank's or Lender's principal executive office or applicable lending office is located), whether directly or by such tax, levy, charge or withholding being imposed on payments in respect of Letters of Credit or participations therein made to such Fronting Bank or any Lender; (ii) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letter of Credit issued by such Fronting Bank or participations therein purchased by any Lender; or (iii) there shall be imposed on such Fronting Bank or any Lender any other condition regarding this Section 2.2, any Letter of Credit or any participation therein; and the result of any of the foregoing is directly or indirectly to increase the cost to such Fronting Bank or any Lender of issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation between a Lender and the Fronting Bank in any Letter of Credit, or to reduce the amount receivable in respect thereof by such Fronting Bank or any Lender, then and in any such case such Fronting Bank or such Lender may, from time to time after obtaining actual knowledge that the additional cost was incurred or the amount received was reduced, notify the Company and the Company shall, within 5 days of receipt of the request therefor, pay such amounts as such Fronting Bank or such Lender may specify to be necessary to compensate such Fronting Bank or such Lender for such additional cost or reduced receipt, together with interest on such amount from the date demanded until payment in full thereof at a rate per annum equal at all times to the rate applicable to ABR Loans; provided that the Company shall have no obligation to such Fronting Bank or such Lender under this subsection 2.2.8 if (A) such Fronting Bank or such Lender shall not have notified the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such request and (2) the date such Fronting Bank or such Lender shall have become aware of such event or (B) the obligation to pay additional amounts on account of taxes, levies, charges or withholdings would not have arisen but for (1) the failure of such Fronting Bank or such Lender to provide any applicable forms or other documents requested by the Company which such Fronting Bank or Lender is otherwise required to provide under this Agreement that would establish the entitlement of such Fronting Bank or such Lender to a reduced rate of, or an exemption from, such tax, levy, charge, withholding or similar item or (2) any representation or warranty made by such Fronting Bank or such Lender with respect to an exemption (partial or complete) from taxes, levies, charges or withholdings proving to have been incorrect, false or misleading in any material respect when so made. The determination by such Fronting Bank or any Lender, as the case may be, of any amount due pursuant to this subsection 2.2.8 as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. 2.2.9. Indemnification; Nature of Fronting Bank's Duties. (a) In addition to amounts payable as elsewhere provided in this Section 2.2, without duplication, the Company hereby agrees to protect, indemnify, pay and save each Fronting Bank, upon its demand and as incurred, harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees and reasonable allocated costs of internal counsel) which such Fronting Bank may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of the Letters of Credit, other than such claims, demands, liabilities, damages, losses, costs, changes and expenses as result from the gross negligence or willful misconduct of such Fronting Bank or (B) the failure of such Fronting Bank to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority or court (all such acts or omissions, "Government Acts"). (b) As between the Company, on the one hand, and each Fronting Bank, on the other hand, the Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Fronting Bank by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Fronting Bank shall not be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged, (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (C) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit, (D) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telephone, facsimile or otherwise, whether or not they be in cipher, (E) for errors in interpretation of technical terms, (F) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof, (G) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit and (H) for any consequences arising from causes beyond the control of such Fronting Bank, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of any of such Fronting Bank's rights or powers hereunder. (c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Fronting Bank under or in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith, shall not put such Fronting Bank under any resulting liability to the Company. (d) Notwithstanding anything to the contrary contained in this subsection 2.2.9, the Company shall not have any obligation to indemnify any Fronting Bank in respect of any liability incurred by such Fronting Bank which (A) results from the gross negligence or willful misconduct of such Fronting Bank or (B) arises out of the wrongful dishonor by such Fronting Bank of proper demand for payment made under any Letter of Credit issued by it. 2.2.10. Computation of Interest. Interest payable pursuant to this Section 2.2 shall be computed on the basis of a 360-day year (except for interest payable in respect of ABR Loans based on the Prime Rate, which shall be computed on the basis of a 365/66 day year) and the actual number of days elapsed in the period during which it accrues. Section 2.3 Revolving Loans and Revolving Notes. 2.3.1. (a) Revolving Loan Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Loan Parties set forth herein and in each of the other Loan Documents, each Lender having a Revolving Loan Commitment hereby severally agrees to lend to the Company, from time to time during the period from and including the Closing Date to but excluding the Revolving Credit Maturity Date, its Adjusted Revolving Loan Percentage of Revolving Loans which may from time to time be borrowed by the Company hereunder to be used for the purposes identified in subsection 2.8.2. Each Lender's Revolving Loan Commitment shall expire on the Revolving Credit Maturity Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans shall be paid in full no later than the Revolving Credit Maturity Date. In no event shall the aggregate principal amount of the Revolving Loans from and Letters of Credit Usage of any Lender outstanding at any time exceed its Revolving Loan Commitment then in effect less such Lender's Adjusted Revolving Loan Percentage of the Revolving Loan Deduction Amount and such Lender's Adjusted Revolving Loan Percentage of the amount of any Swing Line Loans then outstanding, and in no event shall the Total Utilization of Revolving Loan Commitments exceed the Total Revolving Loan Commitment. (b) Subject to subsection 2.9.4, all Revolving Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Adjusted Revolving Loan Percentages, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make Revolving Loans hereunder nor shall the amount of the Revolving Loan Commitment of any Lender be increased or decreased as a result of the default by any other Lender in such other Lender's obligation to make Revolving Loans hereunder. Amounts borrowed by the Company under this subsection 2.3.1 may, subject to the limitations set forth in subsection 2.7.1, be repaid and, subject to the other limitations set forth in this Agreement, to but excluding the Revolving Credit Maturity Date, be reborrowed. Revolving Loans made on any Funding Date shall, except as provided in Section 2.9 and subsection 2.11.1, be made in an aggregate minimum amount of $10,000,000 and integral multiples of $1,000,000 in excess of that amount or, if less, the unutilized amount of the Total Revolving Loan Commitment. 2.3.2. Notice of Borrowing. (a) Whenever the Company desires to borrow under this Section 2.3, it shall deliver to the Administrative Agent a Notice of Borrowing substantially in the form of Exhibit I annexed hereto (A) to the extent such Borrowings will consist of ABR Revolving Borrowings, no later than 2:00 P.M. (New York time) at least one Business Day in advance of the proposed Funding Date or (B) to the extent such Borrowings consist of Adjusted LIBOR Revolving Borrowings, no later than 2:00 P.M. (New York time) at least three Business Days in advance of the proposed Funding Date. The Notice of Borrowing shall specify (A) the proposed Funding Date (which shall be a Business Day), (B) the amount of the proposed Revolving Loans, (C) whether such Revolving Loans are initially to consist of ABR Loans or Adjusted LIBOR Loans or a combination thereof, and (D) if such Revolving Loans, or any portion thereof, are initially to be Adjusted LIBOR Loans, the amount thereof and the initial Interest Periods therefor; provided that the minimum amount of Adjusted LIBOR Loans with a particular Interest Period included as a portion of any such combination, if any, shall be $25,000,000 and integral multiples of $1,000,000 in excess of that amount; and provided, further, in the case of any such Loans borrowed on or prior to the 90th day following the Closing Date, such Loans may consist only of Adjusted LIBOR Loans having a one month Interest Period or ABR Loans. Revolving Loans may be continued as or converted into ABR Loans or Adjusted LIBOR Loans in the manner provided in subsection 2.5.4. In lieu of delivering the above-described Notice of Borrowing, the Company may give the Administrative Agent telephonic notice by the required time of any proposed borrowing under this Section 2.3; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to the Administrative Agent on or prior to the Funding Date of the requested Revolving Loans. (b) Neither the Administrative Agent nor any Lender shall incur any liability to the Company in acting upon any telephonic notice referred to above which the Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Company or for otherwise acting in good faith under this subsection 2.3.2 and, upon the making of Revolving Loans by the Lenders in accordance with this Agreement pursuant to any telephonic notice, the Company shall have borrowed Revolving Loans hereunder. (c) Except as provided in subsection 2.9.4, a Notice of Borrowing for an Adjusted LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Company shall be bound to make a Borrowing in accordance therewith. 2.3.3. Disbursement of Funds. (a) Promptly after receipt of a Notice of Borrowing pursuant to subsection 2.3.2 (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender having an Adjusted Revolving Loan Percentage greater than zero of the proposed Borrowing. Each such Lender shall make the amount of its Revolving Loan available to the Administrative Agent, in same day funds, at the office of the Administrative Agent located at One Bankers Trust Plaza, New York, New York not later than 12:00 Noon (New York time) on the applicable Funding Date. Upon satisfaction or waiver of the conditions precedent specified in Sections 3.1, 3.2 and 3.4, the Administrative Agent shall make the proceeds of such Loans available to the Company on the applicable Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Administrative Agent at its office located at One Bankers Trust Plaza, New York, New York, to be credited to the account of the Company at such office of the Administrative Agent. The parties hereto acknowledge and agree that all Revolving Loans will be borrowed in New York, New York, and that no Revolving Loans will be made other than in New York, New York. (b) Unless the Administrative Agent shall have been notified by any Lender having a Revolving Loan Commitment prior to any Funding Date in respect of any Revolving Loans that such Lender does not intend to make available to the Administrative Agent such Lender's Revolving Loan on such Funding Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Funding Date and the Administrative Agent in its sole discretion may, but shall not be obligated to, make available to the Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender, together with interest thereon, for each day from such Funding Date until the date such amount is paid to the Administrative Agent at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at ABR. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company and the Company shall immediately pay such corresponding amount to the Administrative Agent. Nothing in this subsection 2.3.3 shall be deemed to relieve any Lender having a Revolving Loan Commitment from its obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice any rights which the Company may have against any such Lender as a result of any default by such Lender hereunder. 2.3.4. Revolving Notes. The Company shall execute and deliver to each Lender having a Revolving Loan Commitment (or to the Administrative Agent for such Lender) a Revolving Note substantially in the form of Exhibit IV annexed hereto to evidence such Lender's Revolving Loans, in the principal amount of such Lender's Revolving Loan Commitment. Section 2.4 Total Loan Commitments; Limitations on Outstanding Loan Amounts. The aggregate amount of the Tranche A Commitment, the Tranche B Commitment and the Revolving Loan Commitment of each Lender hereunder, as in effect at any time, is called its "Total Loan Commitment"; and the aggregate amount of the Tranche A Commitments, Tranche B Commitments and Adjusted Revolving Loan Commitments of all the Lenders hereunder as in effect at any time is herein called the "Total Loan Commitments" at such time. The Total Loan Commitment as of the Closing Date is $1,440,000,000. Anything contained in this Agreement to the contrary notwithstanding, (A) in no event shall the sum of (1) the aggregate principal amount of all Loans made by a Lender and (2) the amount of Letters of Credit Usage of such Lender outstanding at any time exceed its Total Loan Commitment less such Lender's Adjusted Revolving Loan Percentage of the Revolving Loan Deduction Amount and such Lender's Adjusted Revolving Loan Percentage of the amount of any Swing Line Loans then outstanding, and (B) in no event shall the sum of (1) the aggregate principal amount of all Loans made by all the Lenders and (2) the amount of Letters of Credit Usage of all the Lenders outstanding exceed the Total Loan Commitments less the Revolving Loan Deduction Amount and the amount of any portion of the Deferred Tranche A Funding Amount that was not funded on the Deferred Funding Date (because of a Lender Default). Section 2.5 Interest on the Loans. 2.5.1. Rate of Interest. (a) The Loans shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to ABR or Adjusted LIBOR. The applicable basis for determining the rate of interest with respect to Term Loans and Revolving Loans shall be selected by the Company at the time a Notice of Borrowing is given pursuant to subsection 2.1.2 or 2.3.2. If on any day a Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for that day that Term Loan or Revolving Loan shall bear interest determined by reference to ABR. (b) Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when ABR is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to ABR (as ABR changes from time to time) plus the ABR Spread in effect at such time with respect to such Loans. Swing Line Loans shall bear interest at the rate applicable to ABR Revolving Loans. (c) Loans comprising each Adjusted LIBOR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to Adjusted LIBOR for the Interest Period in effect for such Borrowing plus the LIBOR Spread in effect at such time with respect to such Loans. (d) The ABR Spread and LIBOR Spread per annum in respect of Tranche A Term Loans and Revolving Loans (but not Tranche B Term Loans) shall initially be as specified in "Category 1" in the table set forth below and shall be subject to adjustment from time to time after the Closing Date as provided in this paragraph. If, as of the last day of any fiscal quarter of the Company, the results of Ratio 1 and Ratio 2, as set forth in a Compliance Certificate delivered pursuant to subparagraph (iv) of Section 5.1, are such as to cause to be applicable any Applicable Category other than the Category in the table below which was applicable on the date of delivery of such Compliance Certificate, the ABR Spread and the LIBOR Spread shall automatically be adjusted (effective as of the times set forth in the next succeeding sentence) to equal the amounts set forth as ABR Spread and LIBOR Spread, respectively, in such new Applicable Category and the spreads set forth in such new Applicable Category shall continue to be the ABR Spread and the LIBOR Spread until such time as there shall be delivered a Compliance Certificate indicating results of Ratio 1 and Ratio 2 which cause to be applicable a different Applicable Category. Each adjustment of the ABR Spread and the LIBOR Spread pursuant to this paragraph (d) shall take effect (A) in the case of the ABR Spread, with respect to all ABR Loans outstanding on and after the date that is five Business Days following the date of delivery to the Administrative Agent of a Compliance Certificate pursuant to subparagraph (iv) of Section 5.1 relating to the immediately preceding fiscal quarter and (B) in the case of the LIBOR Spread, with respect to all Interest Periods commencing on and after the date that is five Business Days following the date of delivery to the Administrative Agent of such Compliance Certificate. Interest Rate Step-Downs for Tranche A Loans and Revolving Loans Category 1 ABR Spread LIBOR Spread When none of the Categories below is applicable 1.50% 2.50% Category 2 Ratio 1: 2.00 to 1 or higher 1.25% 2.25% Ratio 2: 3.00 to 1 or lower Category 3 Ratio 1: 2.25 to 1 or higher 1.00% 2.00% Ratio 2: 2.75 to 1 or lower Category 4 Ratio 1: 2.50 to 1 or higher 0.75% 1.75% Ratio 2: 2.50 to 1 or lower Category 5 Ratio 1: 2.75 to 1 or higher 0.50% 1.50% Ratio 2: 2.25 to 1 or lower Category 6 Ratio 1: 3.00 to 1 or higher 0.25% 1.25% Ratio 2: 2.00 to 1 or lower Category 7 Ratio 1: 3.25 to 1 or higher 0.00% 1.00% Ratio 2: 1.50 to 1 or lower Notwithstanding the foregoing provisions of this paragraph (d), (i) there shall not be any adjustment to the ABR Spread or the LIBOR Spread, as provided above, until the first anniversary of the Closing Date (except if an Event of Default shall have occurred and is continuing) and (ii) at any time during which the Company has failed to deliver a Compliance Certificate described in subparagraph (iv) of Section 5.1 with respect to a fiscal quarter in accordance with the provisions thereof, or at any time that an Event of Default shall have occurred and shall be continuing, as of the date such Compliance Certificate is due or as of the date such Event of Default shall have occurred, as the case may be, the ABR Spread shall be reset, if necessary, to be 1-1/2% and the LIBOR Spread shall be reset, if necessary, to be 2-1/2% until such time as the Company shall deliver such certificate in accordance with the provisions of subparagraph (iv) of Section 5.1 or such Event of Default shall be cured or waived or shall otherwise no longer be continuing. (e) Notwithstanding the foregoing and except where an Event of Default shall have occurred and be continuing, if any senior unsecured debt obligations of the Company receive a rating from S&P of at least BBB-, or from Moody's of at least Baa3, from the date that is the fifth Business Day of the fiscal quarter of the Company following the fiscal quarter containing the first date that either such rating is announced and for so long as such rating shall remain in effect the LIBOR Spread and the ABR Spread, respectively, with respect to Tranche A Term Loans and Revolving Loans (but not Tranche B Term Loans) shall be 0.75% and 0.00% and if any senior unsecured debt obligations of the Company receive ratings from both S&P and Moody's of at least BBB- and Baa3, respectively (such ratings, the "Investment Grade Ratings"), from the date that is the fifth Business Day of the fiscal quarter of the Company following the fiscal quarter containing the first date that both the Investment Grade Ratings shall be effective and for so long as both such ratings shall remain in effect the LIBOR Spread and the ABR Spread, respectively, shall be 0.625% and 0.00%. (f) The applicable ABR Spread or LIBOR Spread for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be presumptively correct absent manifest error. 2.5.2. Interest Periods. In connection with each Adjusted LIBOR Loan, the Company shall elect an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be either a one, two, three or six month period or, if permitted under subparagraph (viii) of this subsection 2.5.2, a twelve-month period; provided that: (i) subject to subparagraph (vi) below, the Interest Period for any Adjusted LIBOR Loan shall commence on the date of such Loan and each Interest Period occurring thereafter in respect of such Adjusted LIBOR Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (ii) if an Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) if an Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if such Business Day occurs in a different month, such Interest Period shall expire on the Business Day next preceding such day; (iv) no Interest Period with respect to any Revolving Loan, any Tranche A Term Loan or any Tranche B Term Loan shall extend beyond the Revolving Credit Maturity Date, the Tranche A Term Maturity Date or the Tranche B Term Maturity Date, respectively; (v) no Interest Period may extend beyond a date on which the Company is required to make a scheduled payment of principal of such Loan; (vi) the initial Interest Period for a Loan which is converted pursuant to subsection 2.9.4 shall commence on the date of such conversion and shall expire on the date on which the Interest Periods for the Loans of the other Lenders which were not converted expire; (vii) there shall be no more than 20 Interest Periods relating to Loans outstanding at any time (it being understood that Interest Periods for Adjusted LIBOR Loans that are part of the same Tranche and which are scheduled to end on the same date shall constitute one Interest Period for purposes of this clause vii); and (viii) no Tranche B Term Loan may have an Interest Period longer than six months; and no Tranche A Term Loan or Revolving Loan may have an Interest Period of twelve months unless the Administrative Agent, after consultation with the Lenders, has determined in good faith based on prevailing conditions in the London interbank market on any date of determination that U.S. dollar deposits are generally offered by the Lenders to first class banks in the London interbank market for a comparable maturity. 2.5.3. Interest Payments. Subject to subsection 2.5.5, interest shall be payable on the Loans as follows: (i) interest on each ABR Loan shall be payable in arrears on and to each September 30, December 30, March 30 and June 30 of each year, commencing on the first of such dates to occur after the Closing Date, upon any prepayment of any such Loan (to the extent accrued on the principal amount being prepaid) and at maturity of such ABR Loan; and (ii) interest on each Adjusted LIBOR Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the principal amount being prepaid) and at maturity of such Adjusted LIBOR Loan. 2.5.4. Conversion or Continuation. (a) Subject to the provisions of Section 2.9, the Company shall have the option (A) to convert at any time all or any part of its outstanding ABR Loans equal to $10,000,000 principal amount and integral multiples of $1,000,000 in excess of that amount to Adjusted LIBOR Loans; provided that, after giving effect to each such conversion, there shall not exist any Adjusted LIBOR Loan with a particular Interest Period that has a principal amount less than $25,000,000 (it being understood that Interest Periods for Adjusted Libor Loans that are part of the same Tranche and which are scheduled to end on the same date shall constitute one Interest Period for this purpose) or (B) upon the expiration of any Interest Period applicable to an Adjusted LIBOR Loan, to continue all or any portion of such Loan equal to $25,000,000 principal amount and integral multiples of $1,000,000 in excess of that amount as an Adjusted LIBOR Loan and the succeeding Interest Period(s) of such continued Loan shall commence on the last day of the Interest Period of the Loan to be continued; provided that an Adjusted LIBOR Loan may only be converted into an ABR Loan on the expiration date of an Interest Period applicable thereto; and provided, further, that no outstanding Loan may be continued as, or be converted into, an Adjusted LIBOR Loan when any Event of Default or Potential Event of Default has occurred and is continuing. (b) The Company shall deliver a Notice of Conversion/Continuation substantially in the form of Exhibit II annexed hereto to the Administrative Agent no later than 1:00 P.M. (New York time) at least three Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (A) the proposed conversion/continuation date (which shall be a Business Day), (B) the amount of the Loan to be converted/continued and whether such Loan is a Tranche A Term Loan, a Tranche B Term Loan or a Revolving Loan, (C) the nature of the proposed conversion/continuation and (D) the requested Interest Period. In lieu of delivering the above-described Notice of Conversion/Continuation, the Company may give the Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.5.4; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Administrative Agent on or before the proposed conversion/continuation date. If the Company has failed timely to deliver a Notice of Conversion/Continuation or give such telephonic notice with respect to an Adjusted LIBOR Loan, the Company shall be deemed to have delivered to the Administrative Agent a Notice of Conversion/Continuation to convert such Adjusted LIBOR Loan into an ABR Loan. (c) Neither the Administrative Agent nor any Lender shall incur liability to the Company in acting upon any telephonic notice referred to above which the Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of the Company or for otherwise acting in good faith under this subsection 2.5.4 and upon conversion/ continuation by the Administrative Agent in accordance with this Agreement pursuant to any telephonic notice, the Company shall have continued or converted, as the case may be, Loans hereunder. (d) Except as provided in subsection 2.9.4, a Notice of Conversion/ Continuation for conversion to, or continuation of, an Adjusted LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Company shall be bound to convert or continue in accordance therewith. 2.5.5. Post-Maturity Interest. Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payment on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for ABR Loans. 2.5.6. Computation of Interest. Interest on the Loans shall be computed on the basis of a 360-day year (except for interest payable in respect of ABR Loans based on the Prime Rate, which shall be computed on the basis of a 365/66 day year) and the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment or, in the case of Adjusted LIBOR Loans, the Interest Payment Date, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on such Loan. Section 2.6 Commissions. 2.6.1. Commitment Commissions. The Company agrees to pay to the Administrative Agent for distribution to each Non-Defaulting Lender having a Revolving Loan Commitment and/or a Tranche A Commitment commitment commissions with respect to the unused portion of the Adjusted Revolving Loan Commitments and/or the Tranche A Commitments for the period from and including the Closing Date to and excluding the date such Commitments expire or terminate, at an annual rate equal to the Commitment Percentage applicable from time to time. Such annual rate shall be applied on a daily basis to the aggregate of the daily unused portion of the Adjusted Revolving Loan Commitments and the Tranche A Commitments from time to time. Such commitment commissions shall be payable in arrears on September 30, December 30, March 30 and June 30 of each year, commencing on the first such date to occur after the Closing Date, and the date such Commitments expire or terminate, calculated, in all cases, on the basis of a 360-day year and the actual number of days elapsed. Letters of Credit Usage and Swing Line Loans shall constitute usage of the Revolving Loan Commitments for all purposes of this Agreement. 2.6.2. Bankers and Arrangers Commissions. The Company agrees to pay to Bankers and the other Arrangers the commissions and other amounts at such times or upon the happening of such events as are set forth in the Commitment Fee Letters. Nothing herein set forth shall limit the rights of Bankers or the other Arrangers to receive the fees and other amounts payable under the Commitment Fee Letters. 2.6.3. No Refund of Fees. Once paid, all fees and commissions payable pursuant to this Section 2.6 shall not be refundable under any circumstances. Section 2.7 Prepayments and Payments; Reductions in Commitments. 2.7.1. Voluntary Prepayments. The Company may, upon not less than two Business Days' (same Business Day's in the case of Swing Line Loans) prior written or telephonic notice confirmed in writing to the Administrative Agent (which notice the Administrative Agent will promptly transmit by telegram, telex or telephone to each Lender), at any time and from time to time, prepay Term Loans, Revolving Loans or Swing Line Loans in whole or in part at any time, without penalty or premium, in an aggregate minimum amount of (A) in the case of any Loan other than Swing Line Loans, $5,000,000 and integral multiples of $1,000,000 in excess of that amount or (B) in the case of Swing Line Loans, $100,000 and integral multiples of $100,000 in excess of such amount or, if less, the outstanding principal amount thereof. Voluntary prepayments of Term Loans made by the Company out of (A) the Company's Portion of Excess Cash Flow or (B) the net cash proceeds of any Equity Offering shall be allocated between (x) the then outstanding Tranche A Term Loans and (y) the then outstanding Tranche B Term Loans in a manner determined at the discretion of the Company. In the case of such prepayments elected by the Company to be applied to (A) the Tranche A Term Loans, all such prepayments shall be applied to such Scheduled Term Loans Principal Payments as shall be elected by the Company and (B) the Tranche B Term Loans, all such prepayments shall be applied pro rata to all then remaining Scheduled Term Loans Principal Payments in respect of Tranche B Term Loans. All other voluntary prepayments of Term Loans shall be applied in the amounts and manner applicable to mandatory prepayments as set forth in paragraph (b) of subsection 2.7.3. At the Company's election in connection with any prepayment pursuant to this subsection 2.7.1, amounts prepaid in respect of Revolving Loans shall not be applied to any Revolving Loan of a Defaulting Lender until all Revolving Loans of all Non-Defaulting Lenders have been paid in full. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date. Amounts of Term Loans that are so prepaid may not be reborrowed. 2.7.2. Mandatory Prepayments. Subject to the provisions of the last sentence of this subsection 2.7.2, the Company shall upon the occurrences set forth below make prepayments of Loans in the amounts and manner set forth below. (a) Prepayments from Asset Sales. Upon the later of (A) the first date on which, in accordance with the definition of "Asset Sale," any sale, transfer or other disposition of assets or properties becomes an "Asset Sale" and (B) the date of the initial receipt by the Company or any Subsidiary of the Company of Cash Proceeds of such Asset Sale (such later date being a "Proceeds Payment Date"), the Company shall prepay the Loans in an amount equal to the lesser of (x) the Net Cash Proceeds of Sale then received in respect of such Asset Sale and (y) Estimated Net Cash Proceeds of such Asset Sale (such lesser amount being the "Initial Cash Proceeds Payment"). On or before the sixtieth day after the Proceeds Payment Date with respect to an Asset Sale, and at or before the end of each thirty-day period thereafter, the Company shall prepay the Loans in an amount equal to the excess ("Proceeds Adjustment"), if any, of (A) Net Cash Proceeds of Sale of such Asset Sale theretofore received over (B) the amount previously paid with respect to such Asset Sale hereunder; provided that the Company shall not be required to apply any Initial Cash Proceeds Payment or Proceeds Adjustments of an Asset Sale to the prepayment of the Loans to the extent that the assets transferred pursuant to such Asset Sale are located in a jurisdiction outside the United States, the laws of such jurisdiction prohibit the transfer of the proceeds of such Asset Sale to the United States, such proceeds have not been transferred to the United States and the Company is using its reasonable best efforts to transfer such funds on a basis that complies with applicable law (and has informed the Administrative Agent in writing of such efforts). Concurrently with the making of any prepayment pursuant to this paragraph (a) of subsection 2.7.2, the Company shall deliver to the Administrative Agent an Officers' Certificate demonstrating the derivation of Net Cash Proceeds of Sale from the gross sales price of the related Asset Sale. (b) Prepayments Due to Excess Cash Flow. On or before the last day of March in each year, commencing March 31, 1996 and ending on but including March 31, 2002, the Company shall make a mandatory prepayment (each such prepayment, an "Annual Prepayment") in an amount equal to 50% of Excess Cash Flow for the twelve-month period commencing on January 1 (the first such period to commence January 1, 1995) and ending on December 31 immediately preceding such March 31. Concurrently with the making of any prepayment pursuant to this paragraph (b) of subsection 2.7.2, the Company shall deliver to the Administrative Agent an Officers' Certificate demonstrating the derivation of Excess Cash Flow. (c) Prepayments Due to Other Reductions of Revolving Loan Commitments. The Company shall make prepayments of Swing Line Loans and Revolving Loans, and the Company shall cash collateralize (pursuant to customary documentation and arrangements determined in the reasonable discretion of the Administrative Agent) Letters of Credit then outstanding, to the extent necessary so that the Total Utilization of Revolving Loan Commitments at any time does not exceed the aggregate amount of the Revolving Loan Commitments of all Lenders reduced by the sum of (A) the Revolving Loan Deduction Amount then in effect, plus (B) the aggregate of amounts described in clauses (A) and (B) of the definition of Defaulting Lender Deduction Amount in respect of all Lenders that are Defaulting Lenders. (d) Prepayments Due to Casualty or Condemnation. In the event there shall occur any Taking or Destruction of any Real Property and, pursuant to the provisions of the applicable Mortgage, amounts payable with respect thereto are to be applied to the Obligations in accordance with the terms of such Mortgage, the Company shall prepay Loans in such amount. (e) Prepayments from Proceeds of Expansion Transactions. On each date on which the Company or any Subsidiary of the Company receives any net cash proceeds of a Sale/Leaseback Transaction that is subject to the provisions of Section 5.12, the Company shall prepay Loans in the amount rounded to the nearest thousand Dollars of such net cash proceeds (reduced by the actual expenditures of the Company or any Subsidiary for customary and reasonable transaction costs incurred in connection therewith). (f) Prepayments from Proceeds of Receivables Transactions. On the first date (on or immediately following the termination of the A/R Bridge) on which the Company or any Subsidiary of the Company (other than a Receivables Subsidiary) receives proceeds of a Receivables Transaction, the Company shall prepay Loans in the amount of such proceeds (reduced by the actual expenditures of the Company or any Subsidiary for customary and reasonable transaction costs incurred in connection therewith); provided that no such prepayment shall be due under this subparagraph (f) in respect of any Receivables Transaction to the extent that the net proceeds thereof are used to pay amounts owing pursuant to the 1995 A/R Bridge or to refinance any other Receivables Transaction. (g) Prepayments with Proceeds of Indebtedness. In the event that the Company or any Subsidiary of the Company shall incur any Indebtedness after the date hereof (including, without limitation, all Indebtedness constituting Permitted Expansion Financings but excluding (A) Indebtedness the proceeds of which are required to be used to prepay Loans pursuant to the provisions of paragraphs (e) or (f) above and (B) Excluded New Indebtedness), the Company shall, on the date of receipt of the net cash proceeds of such Indebtedness, prepay Loans in an amount equal to such net cash proceeds. The provisions of this Section shall not in any manner affect or limit the obligations of the Company pursuant to Section 6.1 hereof nor be construed as a consent by the Lenders to any noncompliance with such Section. Notwithstanding the foregoing provisions of this subsection 2.7.2, the Company shall not be required to make any mandatory prepayments (other than by reason of paragraph (c) above) under this Section 2.7.2 so long as there shall be in effect in respect of the senior unsecured debt obligations of the Company the Investment Grade Ratings. 2.7.3. Company's Mandatory Prepayment Obligation; Application of Prepayments. (a) All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of accrued and unpaid interest on the principal amount being prepaid before application to principal. Subject to compliance with subsection 2.7.3(b), when Term Loans, Swing Line Loans and Revolving Loans are being prepaid separately, any mandatory prepayment shall be applied first to ABR Loans to the full extent thereof before application to Adjusted LIBOR Loans as determined by the Administrative Agent; provided that in lieu of application of any such prepayment to Adjusted LIBOR Loans prior to the expiration of the Interest Period with respect thereto, the Company may execute an Escrow Letter substantially in the form of Exhibit XX annexed hereto with respect to the principal and interest due in respect of such prepayment and deposit with the Administrative Agent funds equal to such amount for application to Loans in accordance with the terms of the Escrow Letter. (b) Mandatory prepayments made by the Company pursuant to subsection 2.7.2 above shall be applied first to the prepayment of Term Loans then to the prepayment of Swing Line Loans and then to the prepayment of Revolving Loans; provided that all prepayments that are to be applied to Revolving Loans shall be applied first, to all Lenders (other than Defaulting Lenders) ratably (according to the respective amounts of Revolving Loans then held by such Lenders) for the amounts then due and payable to such Lenders in connection with such prepayment and, second, to all Defaulting Lenders ratably (according to the respective amounts of Revolving Loans then held by such Defaulting Lenders) for any amount then due and payable to such Lenders in connection with such prepayment. Except as otherwise provided in paragraph (c) below, all prepayments of Term Loans shall be allocated pro rata between (A) the then outstanding Tranche A Term Loans and (B) the then outstanding Tranche B Term Loans, with the amount so allocated in clause (A) above to be applied, first, in direct order of maturity until such application results in the prepayment in whole of all Scheduled Term Loans Principal Payments scheduled to become due in respect of Tranche A Term Loans in the twelve-month period immediately following such date of prepayment, and then pro rata to the remaining such Scheduled Term Loans Principal Payments, and with the amount so allocated in clause (B) above to be applied pro rata against the remaining Scheduled Term Loans Principal Payments due in respect of Tranche B Term Loans under Section 2.1. (c) Notwithstanding the provisions of paragraph (b) above, 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 Company may, in lieu of applying such amount to the prepayment of Tranche B Term Loans as provided in such paragraph, at least one Business Day prior to the date specified therein for such prepayment, (A) deposit in the Tranche B Escrow Account the Tranche B Prepayment Amount and (B) 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 2.7.3 and shall (1) 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 paragraph, (2) offer to prepay on a specified date (each such date, 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 Prepayment Option Notice, the Tranche B Term Loans of such Tranche B Lender by 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, (3) request such Tranche B Lender to notify the Company and the Administrative 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 (in each case, in whole and not in part) of such offer of prepayment and (4) 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 Section 9.9. On the Tranche B Mandatory Prepayment Date, the Administrative Agent shall withdraw from the Tranche B Escrow Account the aggregate amount necessary to prepay that portion of the Tranche B Prepayment Amount in respect of which 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 Company pro rata (based on the respective principal amounts thereof) against the remaining installments of principal due in respect of the Tranche B Term Loans of the Accepting Tranche B Lenders under subsection 2.1.5. The amount remaining in the Tranche B Escrow Account after the payment described in the immediately preceding sentence (exclusive of any interest or profits credited to the Tranche B Escrow Account) shall be allocated pro rata (based on the respective principal amounts thereof) between (x) the then outstanding Tranche A Term Loans and (y) the then outstanding Tranche B Term Loans of the Accepting Tranche B Lenders, and applied against the remaining Scheduled Term Loans Principal Payments due (i) in respect of Tranche A Term Loans, in the manner specified in clause (A) of paragraph 2.7.3(b) above and (ii) in respect of the Tranche B Term Loans of the Accepting Tranche B Lenders, on a pro rata basis (based on the respective principal amounts thereof). The term "Tranche B Escrow Account" means an account established by the Company with the Administrative Agent and over which the Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this paragraph. The Administrative Agent will, at the request of the Company, 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 (X) the Administrative Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Administrative Agent to be in, or would result in any, violation of any law, statute, rule or regulation and (Y) the Administrative Agent shall have no obligation to invest amounts on deposit in the Tranche B Escrow Account if a Potential Event of Default or Event of Default shall have occurred and be continuing. The Company shall indemnify the Administrative 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 pursuant to this paragraph. 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 paid to the Company at the latest date of and after giving effect to the disbursements contemplated in clauses (x) and (y) above. If the maturity of the Loans has been accelerated pursuant to ARTICLE VII, the Administrative Agent may, in its sole discretion, apply all amounts on deposit in the Tranche B Escrow Account to satisfy any of the Obligations. The Company hereby grants to the Administrative Agent, for its benefit and the benefit of any Fronting Bank, the Swing Line Lender and the Lenders, a security interest in the Tranche B Escrow Account to secure the Obligations. 2.7.4. Manner and Time of Payment. All payments of principal, interest and fees hereunder and under the Notes by the Company shall be made without defense, setoff or counterclaim and in same day funds and delivered to the Administrative Agent not later than 12:00 Noon (New York time) on the date due at its office located at One Bankers Trust Plaza, New York, New York for the account of the applicable Lenders; funds received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day. The Company hereby authorizes the Administrative Agent to charge its account with Bankers in order to cause timely payment to be made to the Administrative Agent of all principal, interest and fees due hereunder (subject to sufficient funds being available in its account for such purpose). 2.7.5. Apportionment of Payments. Aggregate principal and interest payments in respect of Loans and payments in respect of Letters of Credit and commitment commissions shall be apportioned among all outstanding Loans and Letters of Credit to which such payments relate, proportionately to the applicable Lenders' respective interests in such Loans and Letters of Credit, except that in the case of Swing Line Loans, payments will only be made to Bankers and except that the rights of Defaulting Lenders to receive pro rata payments in respect of principal amounts of Revolving Loans and reimbursements of drawings under Letters of Credit (together with accrued interest in respect of each thereof) shall be limited as set forth in Section 2.7.3(b). The Administrative Agent shall promptly distribute to each Lender at its primary address set forth below its name on the appropriate signature page hereof, or at such other address as any Lender may request, its share of all such payments received by the Administrative Agent and the commitment commissions and Letter of Credit commissions, if any, payable to such Lender when received by the Administrative Agent pursuant to subsections 2.6.1, 2.6.2, 2.2.6 and 2.2.7, respectively. 2.7.6. Payments on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Notes or of the commitment and other commissions or fees hereunder, as the case may be; provided that in the event that the day on which payment relating to an Adjusted LIBOR Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day. 2.7.7. Payment Accounts; Notation of Payment. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from each Loan, from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (b) The Administrative Agent shall maintain accounts in which it will record (A) the amount of each Loan made hereunder, whether such Loans consist of ABR Loans or Adjusted LIBOR Loans, and the Interest Period applicable thereto, (B) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (C) the amount of any sum received by the Administrative Agent hereunder from the Company and each Lender's share thereof. (c) The entries made in the accounts maintained pursuant to paragraphs (a) and (b) of this subsection 2.7.7 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations therein recorded; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Company to repay the Loans in accordance with their terms. (d) Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), such Lender will make a notation thereon of all Loans and principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under any such Note shall not limit or otherwise affect the obligation of the Company hereunder or under such Note with respect to any Loan and payments of principal or interest on any such Note. 2.7.8. Voluntary Reductions of Swing Line Commitment and Revolving Loan Commitments. (a) The Company shall have the right, at any time after the Closing Date and from time to time, to terminate in whole or permanently reduce in part, without premium or penalty, the Swing Line Commitment or the Total Revolving Loan Commitment. No such reduction of the Total Revolving Loan Commitment shall reduce the amount of the Total Revolving Loan Commitment to an aggregate amount less than an amount equal to the Total Utilization of Revolving Loan Commitments then in effect. (b) The Company shall give not less than three Business Days' prior written notice to the Administrative Agent designating the date (which shall be a Business Day) of such termination or reduction, the amount of any partial reduction and, promptly after receipt of a notice of such termination or partial reduction, the Administrative Agent shall notify each Lender of the proposed termination or partial reduction. Such termination or partial reduction of the Swing Line Commitment or the Total Revolving Loan Commitment shall be effective on the date specified in the notice delivered by the Company and shall reduce the Revolving Loan Commitment of each Lender having an Adjusted Revolving Loan Percentage greater than zero proportionately to its Adjusted Revolving Loan Percentage and the Swing Line Commitment of Bankers by 100% of such reduction. Any such partial reduction of the Swing Line Commitment or the Total Revolving Loan Commitment shall be in an aggregate minimum amount of $5,000,000, and integral multiples of $1,000,000 in excess of that amount. 2.7.9. Mandatory Reductions of Revolving Loan Commitments and Swing Line Commitment. In the event and on each occasion that a prepayment of Term Loans would be required under subsection 2.7.2 in a principal amount greater than the principal amount of Term Loans then outstanding, then the Total Revolving Loan Commitment shall be automatically and permanently reduced at the time and in the amount of the difference between (A) the prepayment that would have been required and (B) the principal amount of Term Loans then outstanding; provided that the Total Revolving Loan Commitment shall not be reduced at any time to an amount less than the Total Utilization of Revolving Loan Commitments. Section 2.8 Use of Proceeds. 2.8.1. Term Loans. The proceeds of the portion of the Tranche A Term Loans made by the Lenders to the Company on the Closing Date (in the amount of the Closing Date Tranche A Funding Amount), together with the entire amount of the proceeds of the Tranche B Term Loans made by the Lenders to the Company on the Closing Date and the net cash proceeds of the Common Stock Offering, shall be applied by the Company on the Closing Date to (A) the payment of Transaction Costs, (B) the repayment in full of the principal of all loans outstanding and all other amounts due, if any, under the Existing Credit Facilities and (C) after the payment or repayment in full of all amounts referred to in clause (B) above, the prepayment in full, in accordance with their terms, of 100% of the outstanding Senior Secured Notes, including, without limitation, the payment of accrued and unpaid interest thereon, and all other amounts, if any, then due and payable with respect thereto. The proceeds of the remaining portion of the Tranche A Term Loans (in the amount equal to the Deferred Tranche A Funding Amount) made by the Lenders to the Company on the Deferred Funding Date shall be applied, together with the proceeds of the loans made pursuant to the 1995 A/R Bridge, as soon as reasonably practicable, to (A) redeem in full, in accordance with its terms, 100% of the outstanding principal amount of the Existing Subordinated Debt and pay accrued interest and premiums, if any, with respect thereto and (B) pay the fees and expenses payable in connection with the redemption pursuant to clause (A) of this sentence above. 2.8.2. Revolving Loans. The proceeds of the Revolving Loans from and after the Closing Date may be applied by the Company (A) to refinance Indebtedness constituting Permitted Expansion Construction Financing, (B) for the purposes applicable to the proceeds of Term Loans, as specified in the second sentence of subsection 2.8.1, (C) for the purpose specified in clause (B) of subsection 6.16.8, (D) for working capital and (E) for other general corporate purposes (including, without limitation, all purposes which would cause a decrease in the Discretionary Excess Equity Proceeds Balance or the Discretionary Excess Cash Flow Balance). 2.8.3. Swing Line Loans. The proceeds of up to an aggregate of $25,000,000 principal amount at any time outstanding of Swing Line Loans made by Bankers to the Company from and after the Closing Date may be applied by the Company for working capital and other general corporate purposes. 2.8.4. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company in any manner which might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T, or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of the Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. Section 2.9 Special Provisions Governing Adjusted LIBOR Loans. Notwithstanding other provisions of this Agreement, the following provisions shall govern with respect to Adjusted LIBOR Loans as to the matters covered: 2.9.1. Determination of Interest Rate. As soon as practicable after 11:00 a.m. (New York time) on an Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate which shall apply to the Adjusted LIBOR Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Company and to each Lender having an interest in or bound hereunder to make any of such Adjusted LIBOR Loans. 2.9.2. Increased Costs. Without duplication of payments under subsection 2.9.7, if, by reason of (A) after the date of this Agreement, the introduction of or any change in or in the interpretation of any law or regulation, or (B) the compliance with any guideline or request after the date of this Agreement from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Lender (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans (except for changes in the rate of tax on the overall net income of such Lender or its applicable lending office imposed by the jurisdiction in which such Lender's principal executive office or applicable lending office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System to the extent not already contemplated in the definition of Adjusted LIBOR Rate), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable lending office shall be imposed or deemed applicable or any other condition affecting its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans shall be imposed on any Lender or its applicable lending office or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Adjusted LIBOR Loans (except to the extent already included in the determination of the applicable Adjusted LIBOR), or there shall be a reduction in the amount received or receivable by such Lender or its applicable lending office, then the Company shall from time to time, upon written notice from and demand by such Lender (with a copy of such notice and demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender, within five Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost or such reduction; provided that the Company shall have no obligation to any Lender under this subsection 2.9.2 if (A) such Lender shall not have delivered such written notice to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such notice and (2) the date such Lender shall have become aware of such event or (B) the obligation to pay increased costs or indemnify against such reduction on account of taxes, duties or other charges would not have arisen but for (1) the failure of such Lender to provide any applicable forms or other documents requested by the Company which such Lender was otherwise required to provide under this Agreement, that would establish the entitlement of such Lender to a reduced rate of, or an exemption from, any tax, levy, charge, withholding or similar item with respect to its Adjusted LIBOR Loans or (2) any representation or warranty made by such Lender in connection with its Adjusted Libor Loans regarding an exemption (partial or complete) from taxes, levies, charges or withholdings proving to have been incorrect, false or misleading in any material respect when so made. A certificate as to the amount of such increased cost, submitted to the Company and the Administrative Agent by such Lender, shall, except for manifest error, be final, conclusive and binding for all purposes. 2.9.3. Required Termination and Prepayment. In the event that on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Adjusted LIBOR Loans has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, and in any such event, such Lender shall be an Affected Lender and it shall promptly give notice (by telephone confirmed in writing) to the Company and the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each Lender) of that determination. Subject to the prior withdrawal of a Notice of Borrowing or a Notice of Conversion/Continuation or prepayment of the Adjusted LIBOR Loans of an Affected Lender as contemplated by subsection 2.9.5, the obligation of an Affected Lender to make or maintain its Adjusted LIBOR Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the Company shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this subsection 2.9.3 is made or earlier, when required by law, repay its Adjusted LIBOR Loans of such Affected Lender, together with all interest accrued thereon and such Adjusted LIBOR Loans shall be reborrowed as an ABR Loan. 2.9.4. Options of Company. Without prejudice to the Company's rights set forth in Section 2.11, in lieu of paying an Affected Lender such additional moneys as are required by subsection 2.9.2 or the prepayment of an Affected Lender required by subsection 2.9.3, the Company may exercise any one of the following options: (i) Upon written notice to the Administrative Agent and each Lender, the Company may terminate the obligations of the Lenders to make or maintain Loans as, and to convert Loans into, Adjusted LIBOR Loans and in such event, the Company shall, prior to the time any payment pursuant to subsection 2.9.3 is required to be made or, if the provisions of subsection 2.9.2 are applicable, at the end of the then current Interest Period, convert all of the Adjusted LIBOR Loans into ABR Loans in the manner contemplated by subsection 2.5.4 but without satisfying the advance notice requirements therein; or (ii) The Company may give notice (by telephone confirmed in writing) to the Affected Lender and the Administrative Agent (who shall promptly give similar notice to each Lender) and require the Affected Lender to make the Adjusted LIBOR Loan then being requested as an ABR Loan or to continue to maintain its outstanding ABR Loan then the subject of a Notice of Conversion/Continuation as an ABR Loan or to convert its Adjusted LIBOR Loans then outstanding that are so affected into ABR Loans at the end of the then current Interest Period (or at such earlier time as prepayment is otherwise required to be made pursuant to subsection 2.9.3) in the manner contemplated by subsection 2.5.4 but without satisfying the advance notice requirements therein, such notice to pertain only to the Loans of the Affected Lender and to have no effect on the obligations of the other Lenders to make or maintain Adjusted LIBOR Loans or to convert ABR Loans into Adjusted LIBOR Loans. 2.9.5. Compensation. The Company shall compensate each Lender, upon written request by such Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Adjusted LIBOR Loans and any loss sustained by such Lender in connection with the re-employment of such funds), which such Lender may sustain with respect to the Company's Adjusted LIBOR Loans: (A) if for any reason (other than a default or error by such Lender) a Borrowing of any Adjusted LIBOR Loan does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion/Continuation or a telephonic request for borrowing or conversion/continuation or a successive Interest Period does not commence after notice therefor is given pursuant to subsection 2.5.4, (B) if any payment or prepayment of any of such Lender's Adjusted LIBOR Loans occurs on a date which is not the last day of the Interest Period applicable to that Loan, (C) if any prepayment of any such Lender's Adjusted LIBOR Loans is not made on any date specified in a notice of prepayment given by the Company or (D) as a consequence of any other default by the Company to repay such Lender's Adjusted LIBOR Loans when required by the terms of this Agreement; provided that the Company shall have no obligation to any Lender under this subsection 2.9.5 if such Lender shall not have delivered such written notice to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such notice and (2) the date such Lender shall have become aware of such event. 2.9.6. Quotation of LIBOR. Anything herein to the contrary notwithstanding, if on any Interest Rate Determination Date LIBOR is not available for any reason, the Administrative Agent shall give the Company and each Lender prompt notice thereof and the Loans requested shall be made as ABR Loans. 2.9.7. Taxes. (a) No Withholding. Except as otherwise provided herein, any and all payments by the Loan Parties under the Loan Documents shall be made free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the overall net income and franchise or similar taxes of the Administrative Agent, the Fronting Banks or any Lender (or any Purchasing Lender) imposed by the United States or any jurisdiction under the laws of which the Administrative Agent, the Fronting Bank or any such Lender (or Purchasing Lender) is organized or has its principal office or lending office or any political subdivision in which the applicable Administrative Agent, Fronting Bank, Lender, Replacement Lender or Purchasing Lender is engaged in business or any taxing authority thereof or therein (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, "Taxes"). If any Taxes are required to be deducted from or in respect of any sum payable hereunder to any Lender (or any Purchasing Lender), the Administrative Agent or Fronting Bank, then, subject to paragraph (e) of this subsection 2.9.7, (A) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection 2.9.7) such Lender (or Purchasing Lender), the Administrative Agent or the Fronting Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (B) the Company shall make such deductions and (C) the Company shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law; provided that no Purchasing Lender or Replacement Lender shall be entitled to receive any greater payment under this paragraph (a) or paragraph (c) of subsection 2.9.7 than such transferring Lender would have been entitled to receive with respect to the rights assigned or otherwise transferred unless in the case of a Purchasing Lender or a Replacement Lender (1) such assignment or transfer shall have been made at a time when the circumstances (including changes in applicable law) giving rise to such greater payment did not exist or had not yet occurred or (2) such assignment or transfer shall have been at the request of or approved by the Company. (b) Documentary and Similar Taxes. Except as otherwise provided in this clause (b), the Company agrees to pay any current or future stamp, intangible or documentary taxes or any other excise or property taxes, charges or similar levies (including, without limitation, mortgage recording taxes and similar fees) that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Registered Transfer Supplement entered into at the request of the Company or any other Loan Document, but excluding any current or future stamp, intangible or documentary taxes or any other excise or property taxes, charges or similar levies (including, without limitation, mortgage recording taxes and similar fees) that arise as a result of sales, assignments or other transfers of rights hereunder to any Transferee pursuant to Section 9.1 (including participations) or to any Replacement Lender pursuant to Section 9.22 and any Muskogee/Oklahoma Mortgage Recording Tax (all such non-excluded taxes, charges and levies are hereinafter referred to as, collectively, "Other Taxes"). (c) Indemnity. Except as otherwise provided in this subsection 2.9.7, the Company will indemnify each Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent and each Fronting Bank for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes on amounts payable under this subsection 2.9.7) paid by such Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or a Fronting Bank, as the case may be, and any liability (including penalties, interest and reasonable expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. Such indemnification shall be made within 30 days after the date any Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or a Fronting Bank, as the case may be, makes written demand therefor. With respect to any Taxes which are paid by the Company in accordance with this subsection 2.9.7, each Lender (or Purchasing Lender or Replacement Lender) or Administrative Agent or Fronting Bank receiving the benefits of such payment of Taxes hereby agrees to pay the Company any amount refunded to such party which it determines in its sole discretion to be a refund in respect of such Taxes, provided that the Company, upon the request of such Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or such Fronting Bank, agrees to return such refund (plus penalties, interest or other charges) to such Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or such Fronting Bank in the event the relevant taxing authority or other Governmental Authority determines that such Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or such Fronting Bank was not entitled to receive such refund. (d) Receipts. Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Company in respect of any payment to any Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or any Fronting Bank, the Company will furnish to the Administrative Agent, at its address referred to in Section 9.9, the original or a certified copy of a receipt (if available) evidencing payment thereof or other evidence reasonably satisfactory to such Lender (or Transferee), the Administrative Agent or such Fronting Bank, as the case may be. (e) Non-U.S. Lenders. Each of the Administrative Agent, any Fronting Bank and any Lender (or Purchasing Lender or Replacement Lender) that is not incorporated or otherwise formed under the laws of the United States of America or a state thereof (a "Non-U.S. Person") agrees that it shall, on or prior to the Closing Date, or, if later, the date it becomes a Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or a Fronting Bank hereunder, deliver to the Company and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Forms 1001 or 4224, or (B) in the case of Lenders (or Purchasing Lender or Replacement Lender) exempt from United States Federal withholding tax pursuant to Section 871(h) or 881(c) of the Internal Revenue Code, two United States Internal Revenue Service Forms W-8 and a certificate, substantially in the form of Exhibit XXVIII annexed hereto (such certificate, a "Status Certificate"), representing that such Non-U.S. Person is not a bank described in Section 881(c) of the Internal Revenue Code, or any successor applicable form of any thereof, certifying in each case that such Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or the Fronting Bank is entitled to receive payments hereunder payable to it without deduction or withholding of any United States Federal income taxes, or subject to a reduced rate thereof. Each of the Administrative Agent, the Fronting Bank or any Lender (or Purchasing Lender or Replacement Lender) that delivers to the Company and the Administrative Agent any such form or certification further undertakes to deliver to the Company and the Administrative Agent further copies of any such form or certification or other manner of certification reasonably satisfactory to the Company on or before the date that any such form or certification expires or becomes obsolete or of the occurrence of any event requiring a change in the most recent form or certification previously delivered by it to the Company or the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Company or the Administrative Agent, certifying that the Administrative Agent, Fronting Bank or such Lender (or Purchasing Lender or Replacement Lender), as the case may be, is entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes, or subject to a reduced rate thereof. If at any time on or after the date of this Agreement there has occurred, on or prior to the date on which any delivery of any such form or certification would otherwise be required, any change in law, rule, regulation, treaty, convention or directive, or any change in the interpretation or application of any thereof, that renders all such forms or certification previously delivered inapplicable or which would prevent the Administrative Agent, Fronting Bank or such Lender (or Purchasing Lender or Replacement Lender), as the case may be, from duly completing and delivering any such form or certificate with respect to it, the Administrative Agent, Fronting Bank or such Lender (or Purchasing Lender or Replacement Lender), as the case may be, shall advise the Company that under applicable law it shall be subject to withholding of United States Federal income tax at the full statutory rate, a reduced rate of withholding or without deduction or withholding. A Non-U.S. Person shall be required to furnish any such form or certification only if it is entitled to claim an exemption from or a reduced rate of withholding. Each of the Administrative Agent, the Fronting Bank and any Lender that is a U.S. or Non-U.S. Person and that is a party hereto as of the Closing Date hereby represents and warrants that, as of the Closing Date, payments made to it hereunder are exempt from withholding of United States Federal income taxes (A) because the Administrative Agent, the Fronting Bank or such Lender is organized or otherwise formed under the laws of the United States or any state thereof; (B) because such payments are effectively connected with a United States trade or business conducted by such Non-U.S. Person; (C) pur- suant to the terms of an income tax treaty between the United States and such Non- U.S. Person's country of residence; or (D) because such payments are portfolio interest exempt pursuant to Section 871(h) or 881(c) of the Internal Revenue Code. Notwithstanding any provision of paragraph (a), (b) or (c) of this subsection 2.9.7 to the contrary, the Company shall not have any obligation to pay any Taxes or Other Taxes or to indemnify any Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or the Fronting Bank for such Taxes or Other Taxes pursuant to this subsection 2.9.7 to the extent that such Taxes or Other Taxes result from (A) the failure of any Lender (or Purchasing Lender or Replacement Lender), the Administrative Agent or the Fronting Bank to comply with its obligations pursuant to this paragraph (e) or (B) any representation or warranty made in this paragraph (e), or made on any form or certification (or successor applicable form or certification) delivered pursuant to this paragraph (e) by the Lender (or Transferee), the Administrative Agent or the Fronting Bank incurring such Taxes or Other Taxes proving to have been incorrect, false or misleading in any material respect when so made or deemed to be made. Unless the Company and the Administrative Agent have received forms or other documents reasonably satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, the Company or the Administrative Agent will withhold at the applicable statutory or treaty rate. 2.9.8. Booking of Adjusted LIBOR Loans. Any Lender may make, carry or transfer Adjusted LIBOR Loans at, to, or for the account of, any of its branch offices or the office of an Affiliate of such Lender. Notwithstanding the foregoing, each Lender shall, to the extent requested to do so by the Company, use commercially reasonable efforts consistent with its internal policies and customary business practices to exercise the right set forth in the preceding sentence so as to avoid or minimize Taxes or Other Taxes in respect of Adjusted LIBOR Loans to the extent the exercise of such right would not otherwise adversely affect such Lender. 2.9.9. Assumptions Concerning Funding of Adjusted LIBOR Loans. Calculation of all amounts payable to a Lender under this Section 2.9 shall be made as though such Lender had actually funded its relevant Adjusted LIBOR Loan through the purchase of a Eurodollar deposit bearing interest at LIBOR applicable to such Adjusted LIBOR Loan in an amount equal to the amount of the Adjusted LIBOR Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided that each Lender may fund each of its Adjusted LIBOR Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.9. 2.9.10. Adjusted LIBOR Loans After an Event of Default. Unless the Lenders shall otherwise agree, after the occurrence of and during the continuance of a Potential Event of Default or Event of Default, the Company may not elect to have a Loan be made or maintained as, or converted to, an Adjusted LIBOR Loan after the expiration of any Interest Period then in effect for such Loan. 2.9.11. Affected Lender's Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Lender under subsection 2.2.8, 2.9.2 or 2.9.3 or to be entitled to payments pursuant to paragraph (a), (b) or (c) of subsection 2.9.7, it will so advise the Company and, if requested to do so by the Company, it will, to the extent not inconsistent with such Lender's internal policies and customary business practices, use commercially reasonable efforts to make, fund or maintain the affected Adjusted LIBOR Loans of such Lender through another lending office of such Lender if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to subsection 2.9.2 or such paragraphs of subsection 2.9.7 would be materially reduced or the illegality or other adverse circumstances which would otherwise require prepayment of such Loans pursuant to subsection 2.9.3 would cease to exist, and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise adversely affect such Loans or such Lender. The Company hereby agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this subsection 2.9.11. Section 2.10 Capital Requirements. If, while any of the Commitments or Loans or Letters of Credit are outstanding, any Fronting Bank or Lender determines that the adoption after the date of this Agreement of any applicable law, rule or regulation regarding capital adequacy or capital maintenance or any change therein, or any change after the date of this Agreement in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Fronting Bank or Lender, as the case may be, with any request or directive after the date of this Agreement regarding capital adequacy or capital maintenance (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Fronting Bank's or Lender's capital, as the case may be, as a consequence of its Commitments, Letters of Credit, Loans or participation in Letters of Credit to a level below that which such Fronting Bank or Lender, as the case may be, could have achieved but for such adoption, change or compliance (taking into consideration such Fronting Bank's or Lender's policies with respect to capital adequacy) by an amount deemed by such Fronting Bank or Lender, as the case may be, to be material, then from time to time, within 15 days after written demand by such Fronting Bank or Lender, the Company shall pay to such Fronting Bank or Lender such additional amount or amounts as will compensate it for such reduction; provided that the Company shall have no obligation to any Fronting Bank or Lender under this Section 2.10 if such Fronting Bank or Lender shall not have delivered such written demand to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such demand and (2) the date such Lender shall have become aware of such event. Section 2.11 Replacement Rights of Company. In the event that any Lender shall have delivered a notice or certificate or written demand pursuant to subsection 2.2.8, subsection 2.9.2, subsection 2.9.3, or Section 2.10, or one or more Loan Parties shall be required to make additional payments to or on behalf of or to otherwise indemnify any Lender, Replacement Lender or Purchasing Lender, for its own account or for the account of any Participant, under paragraph (a), (b) or (c) of subsection 2.9.7, so long as no Event of Default shall have occurred and be continuing, the Company shall have the right, but not the obligation, at its own expense (including with respect to the processing and recordation fee referred to in subsection 9.1.3), upon notice to such Lender and the Administrative Agent, to replace such Lender with an assignee (in accordance with and subject to the restrictions contained in subsection 9.1.3) approved by the Administrative Agent (which approval shall not be unreasonably withheld), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in subsection 9.1.3) all its interests, rights and obligations under this Agreement to such assignee; provided that no Lender shall be obligated to make any such assignment unless (A) such assignment shall not conflict with any law or any rule, regulation or order of any Governmental Authority, (B) such assignee shall pay to the affected Lender in immediately available funds on the date of such assignment the principal of the Loans made by such Lender hereunder and (C) the Company shall pay to the Affected Lender in immediately available funds on the date of such assignment the interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. The provisions of this Section 2.11 shall not be construed to limit or otherwise affect the rights of the Company in respect of Defaulting Lenders pursuant to the provisions of Section 9.22. Section 2.12 Swing Line Loans and Swing Line Notes. 2.12.1. Swing Line Loans. (a) Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Loan Parties set forth herein and in each of the other Loan Documents, Bankers hereby agrees to lend to the Company from time to time from and after the Closing Date through but excluding the Revolving Credit Maturity Date its Swing Line Commitment (as defined below) to be used for the purposes identified in subsection 2.8.3, notwithstanding the fact that such Swing Line Loans, when aggregated with Bankers' outstanding Revolving Loans, may exceed Bankers' Revolving Loan Commitment. Bankers' agreement to make Swing Line Loans to the Company pursuant to this subsection 2.12.1 is herein called the "Swing Line Commitment." The initial amount of Bankers' Swing Line Commitment is $25,000,000. In no event shall the aggregate principal amount of Swing Line Loans outstanding at any time exceed the Swing Line Commitment. The Swing Line Commitment is subject to reduction as set forth in subsections 2.7.8 and 2.7.9. The Swing Line Commitment shall expire on and the Swing Line Loans shall be paid in full no later than the Revolving Credit Maturity Date. (b) Amounts borrowed by the Company under this subsection 2.12.1 may, subject to the limitations set forth in subsection 2.7.1, be repaid and, subject to the other limitations set forth in this Agreement, to but excluding the Revolving Credit Maturity Date, be reborrowed. All Swing Line Loans shall be made as ABR Loans and shall not be entitled to be converted into Adjusted LIBOR Loans. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $100,000 and integral multiples of that amount. 2.12.2. Notice of Borrowing. (a) Subject to subsection 2.12.1, whenever the Company desires to borrow under this Section 2.12, it shall deliver to Bankers, a Notice of Borrowing (which may be telephonic confirmed promptly in writing) no later than 1:00 p.m. (New York time) on the proposed Funding Date. The Notice of Borrowing shall specify (A) the proposed Funding Date (which shall be a Business Day), (B) the amount of the proposed Swing Line Loan and (C) that such Swing Line Loan shall be an ABR Loan. (b) Neither the Administrative Agent nor Bankers shall incur any liability to the Company in acting upon any telephonic notice referred to above which the Administrative Agent or Bankers believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of the Company or for otherwise acting in good faith under this subsection 2.12.2 and, upon funding of Swing Line Loans by Bankers in accordance with this Agreement pursuant to any telephonic notice, the Company shall have borrowed Swing Line Loans hereunder. 2.12.3. Disbursement of Funds. Promptly after receipt of a Notice of Borrowing pursuant to subsection 2.12.2 (or telephonic notice in lieu thereof), Bankers shall make the amount of its Swing Line Loan available, in same day funds, at its office located at One Bankers Trust Plaza, New York, New York not later than 2:00 p.m. (New York time) on the Funding Date. Upon satisfaction or waiver (in accordance with Section 9.6) of all applicable conditions precedent to the borrowing of such Swing Line Loan, Bankers shall make the proceeds of such Loans available to the Company on such Funding Date by causing an amount of same day funds equal to the proceeds of such Swing Line Loan received by the Administrative Agent to be credited to the account of the Company at such office of the Administrative Agent. 2.12.4. Swing Line Note. The Company shall execute and deliver to Bankers on the Funding Date a Swing Line Note substantially in the form of Exhibit VII annexed hereto to evidence Bankers' Swing Line Loans, in the principal amount of $25,000,000. 2.12.5. Purchase of Swing Line Loans. Bankers may by written or telecopy notice given to each Lender not later than 10:00 a.m., New York City time, on any Business Day require the Lenders to purchase all or any portion of the Swing Line Loans outstanding. Such notice shall specify the aggregate amount of Swing Line Loans to be purchased and such Lender's pro rata percentage (based on such Lender's Adjusted Revolving Loan Percentage) of such Swing Line Loan or Swing Line Loans. Each Lender having an Adjusted Revolving Loan Percentage greater than zero shall pay to Bankers, not later than 2:00 p.m., New York City time, on the date of such notice, such Lender's pro rata percentage (determined as aforesaid) of the principal amount of such Swing Line Loan or Swing Line Loans. The purchase of such participations shall not affect the character of the applicable Swing Line Loans as Swing Line Loans or the Company's rights or obligations with respect thereto (including, without limitation, the Company's prepayment rights with respect thereto). Each Lender agrees that (A) its obligation to purchase any such participation and to pay the purchase price in respect thereof is absolute and unconditional and shall not be affected by any event or circumstance whatsoever, including, without limitation, the occurrence of any Potential Event of Default or Event of Default hereunder or any Lender Default by such Lender or any other Lender or the failure of any condition precedent set forth in ARTICLE III to be satisfied, and (B) each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. ARTICLE III CONDITIONS TO LOANS AND LETTERS OF CREDIT The effectiveness of this Agreement and the obligations of the Lenders to make Loans and to issue Letters of Credit hereunder are subject to the satisfaction of all of the following conditions: Section 3.1 Conditions to Loans Made on the Closing Date. The obligations of the Lenders to make all Loans hereunder, in addition to the conditions precedent specified in Section 3.2, are subject to prior or concurrent satisfaction of the following conditions on the Closing Date: 3.1.1. The Company shall have delivered, or caused to be delivered, to the Administrative Agent for the Lenders with sufficient copies, where appropriate, for each Lender and CG&R: (i) Certified copies of the Certificate of Incorporation of the Company, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation, each to be dated a recent date prior to the Closing Date; (ii) Copies of the By-laws of the Company, certified as of the Closing Date by its corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of the Company approving and authorizing such documents and actions as are contemplated hereby in form and substance satisfactory to the Administrative Agent and the Requisite Lenders, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of officers of the Company executing instruments, documents or agreements required to be executed in connection with this Agreement; and (v) Executed copies of the Collateral Documents. 3.1.2. Each Subsidiary that as of the Closing Date is a Material Subsidiary or a Guarantor Subsidiary shall have delivered, or caused to be delivered, to the Administrative Agent for the Lenders with sufficient copies, where appropriate, for each Lender and CG&R: (i) Certified copies of the Certificate of Incorporation of such Subsidiary, together with a certificate from the secretary or assistant secretary of such Subsidiary, each to be dated a recent date prior to the Closing Date; (ii) Copies of the By-laws of such Subsidiary, certified as of the Closing Date by the corporate secretary or an assistant secretary of such Subsidiary; (iii) Resolutions of the Board of Directors of such Subsidiary approving and authorizing such documents and actions as are contemplated hereby in form and substance satisfactory to the Administrative Agent and the Requisite Lenders, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of each Subsidiary executing the Guarantor Subsidiary Guarantee, the Collateral Documents to which such Guarantor Subsidiary is party, and the other instruments, documents and agreements required to be executed in connection therewith; (v) Executed copies of the Subsidiary Guarantee and the Collateral Documents to which each Guarantor Subsidiary is party; and (vi) Executed copies of any other instruments, documents and certificates required to be executed in connection with the execution of the Guarantor Subsidiary Guarantee and the other Collateral Documents to which such Subsidiary is party. 3.1.3. The Company shall have taken or caused to be taken such actions in such a manner so that the Administrative Agent, on behalf of the Lenders, has, immediately following the Closing Date, a valid and perfected Lien on the entire Collateral, which Lien shall be a first priority Lien subject only to Prior Liens. Such actions shall include, without limitation: (A) the delivery of the Pledge Agreements, (B) the delivery pursuant to the applicable Pledge Agreement of UCC financing statements (which shall name the Administrative Agent as secured party, in form and substance satisfactory to the Administrative Agent) granting a security interest in all Receivables, Inventory and Intellectual Property or evidence satisfactory to the Administrative Agent of filing of UCC financing statements in each office where filing is necessary or appropriate and (C) appropriate documents, including the applicable filings with the United States Patent and Trademark Office and United States Copyright Office, with respect to the Intellectual Property. 3.1.4. The Company shall have caused to be delivered to the Administrative Agent, on behalf of the Lenders, the following documents and instruments: (i) A Mortgage encumbering each Real Property, duly executed and acknowledged and otherwise in form for recording in the recording office of each political subdivision where such Real Property is situated, together with such certificates, affidavits, questionnaires or returns as shall be required in connection with the recording or filing thereof and such UCC-1 financing statements and other similar statements as are contemplated in respect of such Mortgage, accompanied by the local counsel opinion set forth as Exhibit IX-C, as applicable, which Mortgage and financing statements and other instruments shall be effective to create a Lien on such Real Property securing the Obligations subject to no Liens other than Prior Liens; (ii) With respect to each Real Property, such consents, approvals, amendments, supplements, estoppels, tenant subordination agreements or other instruments as shall reasonably be deemed necessary by the Administrative Agent and the Requisite Lenders in order for the owner or holder of the fee or leasehold interest to grant or continue the Lien contemplated by the Mortgage with respect to such Real Property; (iii) With respect to each Mortgage, a policy of title insurance (or a commitment, dated and recertified as of the Closing Date, to issue such a policy) insuring (or committing to insure) the Lien of such Mortgage as a valid first mortgage Lien on the Real Property described therein in an amount not less than the fair market value thereof or, in lieu thereof with respect to any group of Mortgages, a policy or policies (or commitment) providing such insurance (or commitment or commitments to provide such insurance) on a "tie-in" or "cluster" basis (i.e., policies or commitments which insure against (or commit to insure against) losses regardless of location or allocated value of the insured property up to a stated maximum coverage amount) in an amount acceptable to the Administrative Agent, each of which policy or policies (or commitment) shall (A) be issued by the Title Company, (B) include such reinsurance arrangements (with provisions for direct access) as shall be reasonably acceptable to the Administrative Agent and the Requisite Lenders, (C) have been supplemented by such endorsements, or, where such endorsements are not available at commercially reasonable premium costs, opinion letters of special counsel, architects or other professionals, which counsel, architects or other professionals shall be reasonably acceptable to the Administrative Agent and the Requisite Lenders, as shall be requested by the Administrative Agent and the Requisite Lenders (including, without limitation, endorsements or opinion letters on matters relating to usury, zoning, contiguity, revolving credit, last dollar, first loss, doing business, and so-called comprehensive coverage over covenants and restrictions) and (D) contain only such exceptions to title as shall constitute Prior Liens or are otherwise agreed to by the Administrative Agent and the Requisite Lenders prior to the Closing Date with respect to such Real Property; (iv) With respect to each Real Property located in Oklahoma and Wisconsin, an ALTA Survey thereof, and, with respect to Real Property located in Georgia, a perimeter survey thereof which identifies to the reasonable satisfaction of the Administrative Agent any and all encroachments and any and all utility and access easements, and other encumbrances, crossing or otherwise intersecting with the surveyed perimeter or affecting any of the improvements comprising a portion of such Real Property; (v) With respect to each Real Property, policies or certificates of insurance as required by the Mortgage relating thereto, which policies or certificates shall bear mortgagee endorsements of the character required by such Mortgage; (vi) With respect to each Real Property, UCC, judgment and tax lien searches confirming that the personal property comprising a part of such Real Property is subject to no Liens except Prior Liens and the Liens agreed to by the Administrative Agent and the Requisite Lenders prior to the Closing Date with respect to such Real Property; (vii) With respect to each Real Property, such affidavits, certificates and instruments of indemnification as shall reasonably be required to induce the Title Company to issue the endorsements contemplated in subparagraph (iii) above; (viii) With respect to each Real Property, copies of all Leases (as defined in the Mortgages), all of which Leases shall, to the extent not previously approved in writing by the Administrative Agent and the Requisite Lenders, be reasonably satisfactory to the Administrative Agent and the Requisite Lenders; (ix) With respect to each Real Property, confirmation that there has been issued and is in effect a valid and proper certificate of occupancy or local equivalent, if required by the local codes or ordinances, for the use then being made of such Real Property and that there is not outstanding any citation, violation or similar notice indicating that such Real Property contains conditions which are not in material compliance with local codes or ordinances relating to building or fire safety or structural soundness (other than any conditions which are being corrected in a timely manner and other than any provisions of such codes or ordinances the validity or applicability of which is being contested in good faith by appropriate proceedings diligently prosecuted and as to which enforcement proceedings have not been instituted or, if instituted, have been stayed); (x) A certificate of an officer of the Company certifying that, as of the date of delivery of such certificate, there has not occurred any material Taking or Destruction of any Real Property or, to the knowledge of such officer, any material adverse change in respect of any matter described in the Facilities Environmental Report, dated October 26, 1994, prepared by the Company and previously provided to the Lenders; and (xi) The IDA Estoppel. 3.1.5. The Company shall have caused to be delivered to each Lender an Officer's Certificate and an opinion satisfactory in all respects to the Requisite Lenders from an independent valuation firm satisfactory to the Requisite Lenders, in each case to the effect that, after giving effect to the Recapitalization, the Company will not be insolvent, will not be rendered insolvent by the indebtedness incurred in connection therewith, will not be left with unreasonably small capital with which to engage in its business and will not have incurred debts beyond its ability to pay such debts as they mature. 3.1.6. The Administrative Agent and CG&R shall have received copies of one or more favorable written opinions of Shearman & Sterling, counsel for the Company, substantially in the form of Exhibit VIII annexed hereto, dated as of the Closing Date, and pertaining to such other matters as the Administrative Agent may reasonably request. 3.1.7. The Administrative Agent and CG&R shall have received copies of one or more favorable written opinions of (A) James W. Nellen, II, Esq., Vice President and General Counsel for the Company substantially in the form of Exhibit IX-A annexed hereto, and Liebmann, Conway, Olejniczak & Jerry, Hunter, MacLean, Exley & Dunn, and Conner & Winters, special local counsel for the Company in Wisconsin, Georgia and Oklahoma, respectively, in the form of Exhibit IX-B annexed hereto, (B) opinions of counsel in each jurisdiction where there exists any inventory or accounts receivable to be subjected to the Lien of a Collateral Document which has a value in excess of $20,000,000 with respect to the perfection of the security interests contemplated by the Collateral Documents and certain related matters, in each case in substantially the form of Exhibit IX-C annexed hereto, and (C) an opinion of Michael, Best & Friedrich with respect to the perfection of security interests in the Intellectual Property contemplated by the Intellectual Property Pledge Agreement, substantially in the form of Exhibit IX-D annexed hereto, all of which opinions shall be dated as of the Closing Date, and cover such other matters as the Administrative Agent may reasonably request. 3.1.8. The Company shall have (A) consummated the Common Stock Offering, in accordance with applicable law and on terms satisfactory in all respects to the Requisite Lenders, and received not less than $300,000,000 in aggregate gross cash proceeds from the Common Stock Offering, (B) paid any and all amounts owing in respect of the Senior Secured Notes and the Existing Credit Facilities, (C) paid any and all amounts owing on or prior to the Closing Date pursuant to the Commitment Fee Letters and (D) paid all Transaction Costs in respect of the Recapitalization that are due as of the Closing Date or made arrangements to do so acceptable to the Requisite Lenders. 3.1.9. The Company shall have entered into the 1995 A/R Bridge, on terms satisfactory in all respects to the Requisite Lenders. 3.1.10. There shall be no governmental or judicial action, actual or threatened, that is likely to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby. 3.1.11. The Lenders shall have received satisfactory pro forma consolidated balance sheets of the Company and its Subsidiaries after giving effect to the Recapitalization and the Requisite Lenders shall be reasonably satisfied that such balance sheets are not inconsistent in any material respect with the Projections. 3.1.12. Except as has been disclosed in the Information Package delivered to the Lenders prior to the Closing Date, there shall not have occurred any material adverse change with respect to the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Company and its Subsidiaries, taken as a whole, since September 30, 1994. 3.1.13. As of the Closing Date, (A) all information and data (other than the Projections) concerning the Company and its Subsidiaries or the transactions contemplated hereby that are contained in the Information Package will not (to the best of the Company's knowledge with respect to information made available by any of the Company's authorized representatives), taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements are made, not misleading and (B) all financial projections concerning the Company and its Subsidiaries (collectively, the "Projections") that have been prepared by the Company or any of the Company's authorized representatives and made available to the Lenders have been prepared in good faith and are based upon reasonable assumptions (it being understood that nothing contained herein shall constitute a representation that the results forecasted in any Projections will in fact be achieved). The acceptance of the proceeds of the Loans and disbursements made on the Closing Date shall constitute a representation and warranty to the Administrative Agent and each of the Lenders that all of the applicable conditions specified above exist as of that time, except for such conditions that have been duly waived in writing hereunder by the beneficiaries thereof. Section 3.2 Conditions to Loans. The obligations of the Lenders to make all Loans (other than any Tranche A Term Loans and any Revolving Loans made on the Deferred Funding Date for the purposes contemplated in subsection 2.8.1) are subject to the prior or concurrent satisfaction or waiver of the following further conditions precedent: 3.2.1. The Administrative Agent shall have received, in accordance with the provisions of subsection 2.1.2, 2.3.2 or 2.12.2, as the case may be, before any Funding Date, an originally executed Notice of Borrowing signed by the chief executive officer, the chief financial officer or the treasurer of the Company requesting a Loan or by any executive officer of the Company designated by any of the above-described officers on behalf of the Company in writing delivered to the Administrative Agent. 3.2.2. As of such Funding Date: (i) The representations and warranties contained herein shall be true, correct and complete in all material respects on and as of such Funding Date to the same extent as though made on and as of that date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under this Agreement and except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing which would constitute (A) an Event of Default or (B) a Potential Event of Default; (iii) Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed by it on or before such Funding Date; (iv) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making such Loan; (v) The making of the Loans and disbursements requested on such Funding Date shall not violate Regulation G, T, X or U of the Federal Reserve Board; and (vi) Except as has been disclosed in the Information Package, there shall not be pending or, to the best knowledge of the Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting any Loan Party or any of its Subsidiaries, or any property of any Loan Party or any of its Subsidiaries which has not been disclosed by the Company in writing pursuant to Section 4.6 or subparagraph (ix) of Section 5.1 prior to the making of the last preceding Loan (or in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, which, in either event, in the opinion of the Requisite Lenders, would reasonably be expected to materially and adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, in each case, taken as a whole, or to impair the ability or obligation of any Loan Party to perform or of the Lenders to enforce the Obligations. No injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, this Agreement or the making of Loans or the issuance of Letters of Credit hereunder. 3.2.3. On such Funding Date, the Administrative Agent shall have received an Officers' Certificate from the Company, dated such Funding Date and satisfactory in form and substance to the Administrative Agent, to the effect that the conditions set forth in subsection 3.2.2 are satisfied on and as of that Funding Date. Section 3.3 Conditions to Tranche A Term Loans and Certain Revolving Loans on the Deferred Funding Date. The obligations of the Lenders to make Tranche A Term Loans and Revolving Loans on the Deferred Funding Date for the purposes contemplated in subsection 2.8.1 are subject only to prior or concurrent satisfaction of the following conditions (in addition to satisfaction of the conditions set forth in Section 3.1 unless such conditions have been waived in accordance with Section 9.6): 3.3.1. The Company shall have made all necessary arrangements, given all necessary notices and taken all other necessary action to redeem all the outstanding Existing Subordinated Debt and pay all other amounts and Transaction Costs owing in connection with such redemption, in accordance with the terms of the indentures governing the Existing Subordinated Debt. 3.3.2. There shall not have occurred and be continuing any Event of Default or Potential Default pursuant to Section 7.1, 7.6, 7.7, 7.9, 7.13 or 7.14. 3.3.3. The Company shall have (A) received not less than [$60,000,000] in aggregate gross cash proceeds from the 1995 A/R Bridge and (B) paid all Transaction Costs in respect of the 1995 A/R Bridge that are due as of the Deferred Funding Date or made arrangements to do so acceptable to the Administrative Agent. Section 3.4 Conditions to Initial Revolving Loans and Swing Line Loans. The obligations of the Lenders to make the initial Revolving Loans and Swing Line Loans are, in addition to the conditions precedent specified in Sections 3.1 and 3.2, subject to prior or concurrent satisfaction of the following conditions: 3.4.1. On or before the Funding Date of the initial Revolving Loan, the Company shall deliver to each Lender having a Revolving Loan Commitment (or to the Administrative Agent for such Lenders) the Revolving Notes executed by it in accordance with subsection 2.3.4 substantially in the form of Exhibit IV annexed hereto, drawn to the order of each such Lender and with appropriate insertions. 3.4.2. On or before the Funding Date of the initial Swing Line Loan, the Company shall deliver to Bankers the Swing Line Note executed by it in accordance with subsection 2.12.4 substantially in the form of Exhibit VII annexed hereto, drawn to the order of Bankers and with appropriate insertions. 3.4.3. The conditions precedent specified in Section 3.1 shall have been satisfied or waived in accordance with Section 9.6. Section 3.5 Conditions to All Letters of Credit. The obligation of each Fronting Bank to issue any Letter of Credit hereunder is subject to the prior or concurrent satisfaction of all of the following conditions: 3.5.1. On or before the date of issuance of the initial Letter of Credit, each of the conditions set forth in Sections 3.1 and 3.4 shall have been satisfied or waived in accordance with Section 9.6. 3.5.2. On or before the date of issuance of a Letter of Credit, the Administrative Agent shall have received in accordance with the provisions of subsection 2.2.2, a notice requesting the issuance of such Letter of Credit, all other information specified in subsection 2.2.2, and such other documents as the Fronting Bank may reasonably require in connection with the issuance of such Letter of Credit. 3.5.3. On the date of issuance of such Letter of Credit, all conditions precedent described in subsections 3.2.2 and 3.2.3 shall be satisfied to the same extent as though the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date; provided that the Officers' Certificate required to be delivered pursuant to subsection 3.2.3 shall be delivered to the Fronting Bank as well as to the Administrative Agent. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans and the disbursements pursuant to the Assignment Agreement and to issue Letters of Credit, the Company represents and warrants to each Lender as follows: Section 4.1 Organization, Powers, Good Standing, Business and Subsidiaries. 4.1.1. Organization and Powers. Each of the Loan Parties is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation (which jurisdiction as of the date of this Agreement is set forth on Schedule A annexed hereto). Each of the Loan Parties has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted, to enter into each Loan Document to which it is a party and to carry out the transactions contemplated hereby and thereby, and in the case of the Company, to issue the Notes and the Common Stock. 4.1.2. Good Standing. Each of the Loan Parties is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has not had and will not have a material adverse effect on the conduct of the business of the Company and its Subsidiaries, taken as a whole. 4.1.3. Conduct of Business. On the date of this Agreement, the Company and its Subsidiaries are engaged only in the businesses described in the Prospectus. 4.1.4. Subsidiaries. All of the Subsidiaries (other than inactive Subsidiaries or Foreign Subsidiaries having no significant assets or activities) of each of the Loan Parties, as of the date of this Agreement, are identified in Schedule A annexed hereto. The capital stock of each of the Subsidiaries identified in Schedule A is duly authorized, validly issued, fully paid and nonassessable. The capital stock of each Person identified on Schedule A is not Margin Stock. Each of the Subsidiaries of each Loan Party is validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has full corporate power and authority to own its assets and properties and to operate its business as presently owned and conducted except where failure to be in good standing or a lack of corporate power and authority has not had and will not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Schedule A correctly sets forth as of the date of this Agreement the ownership interest of each of the Loan Parties in each of its Subsidiaries identified therein. Section 4.2 Authorization of Borrowing, etc. 4.2.1. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents and the issuance, delivery and payment of the Notes and the reimbursement of Fronting Banks of payments made under the Letters of Credit and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents have been duly authorized by all necessary corporate action by each Loan Party. 4.2.2. No Conflict. The execution, delivery and performance by each Loan Party of each Loan Document to which it is respectively a party and the issuance, delivery and performance of the Notes, the consummation of the Common Stock Offering and the issuance of Common Stock and the other transactions comprising the Recapitalization and the reimbursement of Fronting Banks of payments made under Letters of Credit and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents do not and will not (A) violate (1) any provision of law applicable to any Loan Party, (2) the Certificates of Incorporation or Bylaws of any Loan Party, or (3) any order, judgment or decree of any court or other agency of government binding on any Loan Party, (B) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of any Loan Party, (C) result in or require the creation or imposition of any Lien upon any of its properties or assets (other than Liens in favor of the Lenders) or (D) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party, except for such violations, conflicts, breaches, Liens and defaults which would not have, and such approvals the absence of which would not have, a material adverse effect on the Company and its Subsidiaries, taken as a whole. 4.2.3. Governmental Consents. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and application of the proceeds of the Loans, the issuance, delivery and performance of the Notes, the reimbursement of Fronting Banks of payments made under Letters of Credit, the consummation of the Common Stock Offering, the issuance of Common Stock, and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents do not and will not require any registration with, authorization, order, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except such registration, consent, approval or notice as has been made, obtained or given and is in full force and effect and except for the filings to perfect security interests granted pursuant to Collateral Documents, and other filings, authorizations, notices, orders, consents and approvals the absence of which would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole or on the legality, validity or enforceability of any Loan Document. 4.2.4. Binding Obligation. This Agreement is, and the other Loan Documents and the Notes, when executed and delivered will be, the legally valid and binding obligations of the Loan Parties party thereto, enforceable against the applicable Loan Parties in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.2.5. Valid Issuance of Common Stock. The Common Stock issued in the Common Stock Offering has been duly and validly issued, fully paid and nonassessable. Such Common Stock has been registered or qualified under applicable federal and state securities laws. Section 4.3 Financial Condition. The Company has delivered to the Lenders true and complete copies of the Company's financial statements for the fiscal year of the Company ending December 31, 1994. Except as set forth in the Information Package, all such financial statements and all financial statements set forth in the Prospectus fairly present the consolidated financial position of the Company and its Subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of the Company and its Subsidiaries for each of the periods covered thereby, subject to changes resulting from audit and normal year-end adjustments. Neither the Company nor any of its Subsidiaries has as of the Closing Date any material Contingent Obligation, material contingent liability or material liability for taxes, long-term lease or unusual forward or long-term commitment which is not reflected in the foregoing financial statements, or the notes thereto. Section 4.4 No Adverse Material Change; No Stock Payments. Except as has been disclosed in the Information Package, since December 31, 1994, there has been no change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, which has been, either in any case or in the aggregate, materially adverse to the business, operations, property, assets or conditions (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Section 4.5 Title to Properties; Liens. Each Loan Party and each Subsidiary thereof has good, sufficient and legal title to and beneficial ownership of all its respective properties and assets (other than the Collateral) reflected in the most recent consolidated balance sheet referred to in Section 4.3 or in the most recent financial statements delivered pursuant to Section 5.1 of this Agreement, except for assets acquired or disposed of in the ordinary course of business since the date of such consolidated balance sheet and except for sales and other dispositions permitted hereunder and except for such defects that in the aggregate do not materially adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Except for the Liens created by the Collateral Documents and other Liens permitted by this Agreement, all such properties and assets are free and clear of Liens. The Company or another Loan Party has title to all the Collateral and title to each item of Collateral is subject to no Liens other than Liens which would be permitted pursuant to any Collateral Documents; provided that (A) no such Lien (other than Prior Liens) shall be superior to the Lien of such applicable Collateral Document and (B) except as otherwise provided in the form of Mortgage annexed hereto as Exhibit XIX-A(i), no warranty is made by the Company with respect to the Company's state of title to any Land within the Landfill Area (as defined in such form of Mortgage). The Company holds all material licenses, certificates of occupancy or operation and similar material certificates and clearances of municipal and other authorities necessary to own and operate its properties in the manner and for the purposes currently operated by the Company. Each Mill is suitable for its intended purposes and is served by such utilities as are necessary for the proper and efficient operation thereof. Each of the Recognition Instruments in existence as of the Closing Date is in full force and effect and the Administrative Agent and (assuming the Collateral Trustee, Lenders and the Administrative Agent shall have executed and delivered the assumption instrument contemplated in Section 4.2.2 of each such Recognition Instrument) the Collateral Trustee is entitled, in respect of the Collateral Documents, to exercise all the rights and receive all the benefits contemplated in each such Recognition Instrument to be exercisable by or available to the "Collateral Trustee" thereunder. Section 4.6 Litigation; Adverse Facts. Except as has been disclosed in the Information Package, there is no action, suit, proceeding, governmental investigation of which the Company has knowledge or arbitration (whether or not purportedly on behalf of any Loan Party or any respective Subsidiary thereof) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting any Loan Party or any of its respective Subsidiaries or any property of any Loan Party or any Subsidiary thereof which would reasonably be expected to result in any material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or that would impair the ability of any Loan Party to perform any of the Obligations. Section 4.7 Payment of Taxes. Except to the extent permitted by Section 5.3, all material tax returns and reports of each Loan Party and each Subsidiary thereof required to be filed by any of them have been filed, and all taxes, assessments, fees and other governmental charges upon such Persons and upon their respective properties, assets, income and franchises which are due and payable have been paid. The Company does not know of any proposed tax assessment against any such Person that would be material to the condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which is not being actively contested in good faith by such Person to the extent affected thereby in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. Section 4.8 Performance of Agreements. None of the Loan Parties or any Subsidiary of a Loan Party is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any Contractual Obligation of any such Person, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a material adverse effect on the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Schedules C and F correctly identify all credit facilities of the Company and its Subsidiaries as of December 31, 1994 in excess of $1,000,000. Section 4.9 Governmental Regulation. None of the Loan Parties or any Subsidiary of a Loan Party (A) is subject to regulation under the Public Utility Holding Company Act of 1935 or to any federal or state statute or regulation limiting its ability to incur Indebtedness for money borrowed as contemplated hereby or by any other Loan Document or (B) is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. Section 4.10 Securities Activities. None of the Loan Parties or any Subsidiary of a Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. Section 4.11 Employee Benefit Plans. 4.11.1. Each of the Loan Parties and each of its ERISA Affiliates is and each Pension Plan is in compliance in all material respects with all applicable provisions of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to all Pension Plans and Multiemployer Plans. 4.11.2. Except for (A) the standard termination in accordance with Section 4041(b) of ERISA of the Lily-Tulip, Inc. Salary Retirement Plan and (B) the occurrence of the Reportable Event described in Regulation 29 C.F.R. Section 2615.23(a)(1)(ii) with respect to the Fort Howard Cup Corporation Bargaining Unit Pension Plan upon the transfer of all the issued and outstanding shares of capital stock of Sweetheart Cup Company, Inc., no Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan and no Termination Event that is described in clause (E) of the definition of "Termination Event" has occurred. 4.11.3. The sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) is not more than $35,000,000. 4.11.4. No Loan Party or any of its ERISA Affiliates has incurred or reasonably expects to incur any withdrawal liability under Title IV of ERISA to any Multiemployer Plan individually or in the aggregate in excess of $25,000,000. 4.11.5. No Loan Party or any of its ERISA Affiliates has incurred any accumulated funding deficiency (whether or not waived) with respect to any Pension Plan individually or in the aggregate in excess of $15,000,000. 4.11.6. No Loan Party or any of its ERISA Affiliates has or reasonably expects to become subject to a lien in favor of any Pension Plan under Section 302(f) of ERISA individually or in the aggregate in excess of $15,000,000. As used in this Section 4.11, the term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA, and the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Internal Revenue Code. Section 4.12 Certain Fees. Other than as disclosed in the Information Package by the Company, no broker's or finder's fee or commission will be payable with respect to the offer, issue and sale, of the Notes and the Company hereby indemnifies the Lenders against and agrees that it will hold the Lenders harmless from any claim, demand or liability for broker's or finder's fees alleged to have been incurred in connection with any such offer, issue and sale or any of the other transactions contemplated hereby and any expenses, including reasonable legal fees, arising in connection with any such claim, demand or liability. Except as so disclosed, no other similar fees or commissions will be payable by any Loan Party or any of its Subsidiaries for any other services rendered to the Company or any of its Subsidiaries ancillary to the transactions contemplated hereby. Section 4.13 Disclosure. Except as disclosed in the Information Package, taken as a whole, the representations and warranties of the Loan Parties contained in this Agreement and any other document, certificate or written statement furnished to the Lenders by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement (including, without limitation, the Information Package but excluding the Projections (as to which the Company makes the representations and warranties set forth below)) do not contain any untrue statement of a material fact or omit to state a material fact (known to any such person in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading. Any reaffirmation of the foregoing sentence is subject to any change in the facts and conditions on which such representations and warranties are based, which changes are required, contemplated or permitted under this Agreement and subject to further disclosure contemplated by Section 5.1 and subparagraph (vi) of subsection 3.2.2; provided that in all cases, taken as a whole, representations and warranties of any Loan Party contained in this Agreement and any other document, certificate or written statement furnished to the Lenders by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement did not contain at the time made any untrue statement of a material fact or omit at the time made to state a material fact (known to any Loan Party in the case of any document not furnished by it) necessary in order to make the statement contained herein or therein not misleading. The Projections are based upon good faith estimates and assumptions believed by the Loan Parties to be reasonable at the time made, it being recognized by the Lenders that projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from the projected results. Except as disclosed in the Information Package, there is no fact known to any Loan Party (other than matters of a general economic nature) which materially and adversely affects the business, operations, property, assets or condition (financial or otherwise) of any Loan Party and its respective Subsidiaries, taken as a whole, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. Section 4.14 Patents, Trademarks, etc. Each of the Loan Parties and its Subsidiaries owns, or is licensed to use, all patents, trademarks, trade names, copyrights, technology, know-how and processes, service marks and rights with respect to the foregoing used in or necessary for the conduct of their respective businesses as currently conducted which are material to the condition (financial or otherwise), business or operations of the Company and its Subsidiaries, taken as a whole. To the Company's knowledge, the use of such patents, trademarks, trade names, copyrights, technology, know-how, processes and rights with respect to the foregoing by the Loan Parties and their respective Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liability on the part of any Loan Party and its Subsidiaries which is material to the Company and its Subsidiaries, taken as a whole. The consummation of the transactions contemplated by this Agreement (including the transactions contemplated by the Intellectual Property Pledge Agreement and any Collateral Document Amendment relating thereto) does not require any consent to be obtained with respect to such patents, trademarks, trade names, copyrights, technology, know-how or processes, or the license to use any of such patents, trademarks, trade names, copyrights, technology, know-how, processes or rights with respect thereto, which if not obtained will in any material manner or to any material extent impair the ownership of (or the license to use, as the case may be) any of such patents, trademarks, trade names, copyrights, technology, know-how or processes by each Loan Party and its Subsidiaries to an extent which in the aggregate would have a material adverse effect on the condition (financial or otherwise), business or operations of the Company and its Subsidiaries, taken as a whole. To the best knowledge of the Company, the rights of each Loan Party and its Subsidiaries so to sell, franchise or license under such brand names then being used may be transferred in connection with any sale of assets or stock of the related business by any Loan Party or any of its Subsidiaries with only such exceptions as are not material to the Company and its Subsidiaries, taken as a whole. Section 4.15 Environmental Protection. 4.15.1. Each of the Loan Parties and their respective Subsidiaries has either (A) obtained all material permits, licenses and other authorizations which are required with respect to the operation of its business under any Environmental Law or (B) submitted a timely application in respect of such permits, licenses or other authorizations (the submission of which, by itself or in conjunction with other appropriate action by such Loan Party or its Subsidiaries, is sufficient under applicable law to allow such Loan Party or any of its Subsidiaries to continue its business or operations pending a determination with respect to such application) and received at least oral confirmation from the relevant government authority that such permits, licenses or other authorizations will be issued or reserved, as appropriate under current operating conditions. 4.15.2. Each of the Loan Parties and their respective Subsidiaries is in material compliance with all terms and conditions of the required material permits, licenses and authorizations, and is also in material compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Laws. 4.15.3. Except as disclosed in the Information Package, there is no material civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice of demand letter pending or, to the knowledge of the Company, threatened against any Loan Party or any of their respective Subsidiaries under the Environmental Laws. 4.15.4. Except as disclosed in the Information Package, there are no material past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may materially interfere with or prevent material compliance with the Environmental Laws, or which may give rise to any material common law or legal liability, including, without limitation, liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or similar state, local or foreign laws, or otherwise form the basis of any material claim, action, demand, suit, proceeding, hearing or notice of violation, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste which would have a material adverse effect on the business, operations, condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. Section 4.16 Security Interests. On and as of the Closing Date, each of the Collateral Documents creates, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and Lien on all of the Collateral, which Lien shall be a first priority Lien subject only to Prior Liens. No filings or recordings are required in order to perfect the Liens created under the Collateral Documents except for filings or recordings which on or before the date of execution and delivery of such Collateral Document will have been made; provided that with respect to any Real Property, no failure to record any Mortgage relating thereto shall be deemed a breach of this Section if the Title Company has issued or committed to issue in respect of such Real Property an endorsement or endorsements complying with the provisions of subparagraph (iii) of subsection 3.1.4. Section 4.17 IDA and Certain Documents. Each of the Georgia Mill Lease, the Escrow Agreement and the Project Agreement is the valid and binding obligation of IDA, enforceable against IDA in accordance with its terms. Except as has been disclosed in writing to the Lenders, none of the Georgia Mill Lease, the Escrow Agreement or the Project Agreement has been modified, amended, supplemented or terminated. To the knowledge of the Company (after due inquiry), IDA is not in default under (and no condition exists which with notice or the lapse of time or both would constitute a default by IDA under) any of the Georgia Mill Lease, the Escrow Agreement or the Project Agreement. To the knowledge of the Company (after due inquiry), IDA's interest in each of the Georgia Mill Lease, the Escrow Agreement and the Project Agreement has not been assigned, pledged, mortgaged, hypothecated or otherwise encumbered or transferred to any party. Neither the execution and delivery by the Company of the Mortgages nor consummation of the transactions contemplated therein will conflict or be inconsistent with or result in any breach of any of the terms, covenants or provisions of or constitute a default under the Georgia Mill Lease, the Escrow Agreement or the Project Agreement. As of the time of the execution of the Escrow Agreement and the concurrent deposit of the limited warranty deed and bill of sale therein described from IDA to the Company with the Escrow Agent (as defined in the Escrow Agreement), all equitable interest in the Project (as defined in the Project Agreement) was irrevocably vested in the Company, and, as a result thereof, IDA's estate in the Project is limited to legal title. Section 4.18 Solvency. 4.18.1. Immediately after the consummation of the transactions to occur on the Closing Date and immediately following the making of each Loan made on the Closing Date and after giving effect to the application of the proceeds of such Loans, (A) the fair value of the assets of the Company and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Company and its Subsidiaries on a consolidated basis, (B) the fair saleable value of the property of the Company and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, (C) the Company and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, and (D) the Company and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date. 4.18.2. The Company does not intend to, or to permit any of its Subsidiaries to, and does not believe that it or any of its Subsidiaries will, incur debts beyond the Company's or such Subsidiary's ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by the Company or such Subsidiary and the timing of the amounts of cash to be payable on or in respect of the Company's Indebtedness or the Indebtedness of such Subsidiary. ARTICLE V AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments hereunder shall be in effect and until payment in full of all of the Loans and Notes and the cancellation or expiration of all Letters of Credit issued hereunder and the reimbursement in full of all amounts drawn thereunder unless the Requisite Lenders shall otherwise agree in writing, the Company shall perform all covenants in this ARTICLE V: Section 5.1 Financial Statements and Other Reports. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP. The Company will deliver to the Lenders: (i) As soon as practicable and in any event within 30 days after the end of each month ending after the Closing Date in each of the Company's fiscal years, other than months which are the last month in a fiscal quarter, (A) the consolidated balance sheet of the Company and its consolidated Subsidiaries, as at the end of such month, and (B) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such month and for the period from the beginning of the then current fiscal year to the end of such month; (ii) As soon as practicable and in any event within 45 days after the end of each fiscal quarter ending during or after 1995, other than quarters which are the last quarter in a fiscal year, (A) the consolidated balance sheet of the Company and its consolidated Subsidiaries, as at the end of such period and (B) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, all prepared in accordance with Rule 10-01 of Regulation S-X of the General Rules and Regulations Under the Securities Act of 1933, or any successor rule that sets forth the manner in which interim financial statements shall be prepared, it being understood that the foregoing shall include (1) a statement of profit and loss to the gross margin, including specified cost components and (2) statements of capital expenditures setting forth in comparative form, the corresponding periods of the previous fiscal year, the corresponding figures from the consolidated plan for the then current fiscal year delivered pursuant to subparagraph (xii) of this Section 5.1, all in reasonable detail and certified by the chief financial officer of the Company that, in the case of such consolidated financial statements, they fairly present the financial condition of the Company and its consolidated Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustment and, insofar as relates to divisions, based on the Company's normal accounting procedures applied on a consistent basis; (iii) As soon as practicable and in any event within 90 days after the end of each fiscal year of the Company (commencing with fiscal year 1995) (A) (1) the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and (2) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such fiscal year, it being understood that the foregoing shall include (x) a statement of profit and loss to the gross margin, including specified cost components and (y) statements of capital expenditures setting forth in comparative form the corresponding figures for the previous year, the corresponding figures from the consolidated plan for the current fiscal year delivered pursuant to subparagraph (xii) of this Section 5.1, all in reasonable detail, and (B) in the case of such consolidated financial statements, accompanied by a report thereon of Arthur Andersen & Co. or such other independent certified public accountants of recognized national standing selected by the Company which report shall be unqualified as to going concern and scope of audit and shall state that such consolidated financial statements present fairly the financial position of the Company and its consolidated Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for such changes as are concurred in by such accountants) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to subparagraphs (ii) and (iii) of this Section 5.1, (A) an Officers' Certificate of the Company stating that the signers have reviewed or caused to be reviewed under their supervision the terms of this Agreement, the Notes, the Letters of Credit and the other Loan Documents and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto and (B) a Compliance Certificate substantially in the form of Exhibit VI annexed hereto demonstrating in reasonable detail compliance (as determined in accordance with GAAP) during and at the end of such accounting periods with the restrictions contained in Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10 and 6.14 and a computation as of the last day of the applicable fiscal quarter of the Company of Ratio 1, Ratio 2 and the Applicable Category in respect of the period succeeding such quarter and the then unutilized amounts of the Discretionary Excess Cash Flow Balance and the Discretionary Equity Proceeds Balance and a computation of Excess Cash Flow in respect of the most recently ended fiscal year and, in addition, a written statement of the chief accounting officer or chief financial officer of the Company describing in reasonable detail the differences between the financial information contained in such financial statements and the information contained in the Compliance Certificate relating to the Company's compliance with Sections 6.6, 6.9 and 6.14; (v) Together with each delivery of consolidated financial statements of the Company and its consolidated Subsidiaries pursuant to subparagraph (iii) of this Section 5.1, a written statement by the independent public accountants giving the report thereon (A) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (B) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Potential Event of Default has come to their attention, and if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable to any Lender by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the ordinary course of their audit examination and (C) stating that based on their audit examination nothing has come to their attention which causes them to believe that the information contained in either or both of the certificates delivered therewith pursuant to subparagraph (iv) of this Section 5.1 is not correct or that the matters set forth in the Compliance Certificate delivered therewith pursuant to clause (B) of such subparagraph (iv) of this Section 5.1 for the applicable fiscal year are not stated in accordance with the terms of this Agreement; (vi) Promptly upon receipt thereof, copies of all reports submitted to the Company or any Subsidiary thereof by independent public accountants in connection with each annual, interim or special audit of the financial statements of the Company or any Subsidiary thereof made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (vii) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company or by any Subsidiary thereof to its respective security holders (other than the Company or any Subsidiary thereof), of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any Subsidiary thereof with any securities exchange or with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any such Subsidiary to the public concerning material developments in the business of the Company or any Subsidiary thereof; (viii) Promptly upon any officer of the Company obtaining knowledge (A) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice or taken any other action with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (B) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, (C) of any condition or event which would be required to be disclosed in a current report filed by the Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2 and 4 of such Form as in effect on the date hereof) if the Company were required to file such reports under the Exchange Act or (D) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; (ix) Promptly upon any officer of the Company obtaining knowledge of (A) the institution of, or non-frivolous threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries not previously disclosed by the Company to the Lenders, or (B) any material development in any such action, suit, proceeding, governmental investigation or arbitration, which, in either case, if adversely determined, would materially and adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, the Company shall promptly give notice thereof to the Lenders and provide such other information as may be reasonably available to it (without waiver of any applicable evidentiary privilege) to enable the Lenders and CG&R to evaluate such matters; (x) Promptly upon any officer of the Company becoming aware of the occurrence of any (A) Termination Event, (B) "prohibited transaction", within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code, or (C) filing by the Company or any of its ERISA Affiliates of an application for a waiver of an accumulated funding deficiency, in connection with any Pension Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company or its ERISA Affiliates have taken, are taking or propose to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or the Pension Benefit Guaranty Corporation with respect thereto; (xi) With reasonable promptness copies of (A) all notices received by the Company or any of its ERISA Affiliates of the Pension Benefit Guaranty Corporation's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (B) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Company or any of its ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan and (C) all notices received by the Company or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; (xii) As soon as practicable and in any event by the sixtieth day of each fiscal year of the Company, a consolidated plan, prepared in accordance with the Company's normal accounting procedures applied on a consistent basis, for such fiscal year of the Company, including, without limitation, (A) a forecasted consolidated balance sheet and a consolidated statement of changes in financial position of the Company for such fiscal year, including a forecasted statement of profit and loss to the gross margin and forecasted statements of working capital and capital expenditures and (B) the amount of total forecasted capital expenditures and forecasted consolidated selling, general and administrative expenses for such fiscal year; (xiii) As soon as practicable and in any event by the last day of each fiscal year of the Company, a report in form and substance reasonably satisfactory to the Administrative Agent and the Requisite Lenders outlining all material insurance coverage maintained as of the date of such report by the Company and its Subsidiaries and all material insurance coverage planned to be maintained by such Persons in the subsequent fiscal year; (xiv) Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to subparagraph (ii) of this Section 5.1, an Officers' Certificate of the Company stating that the signers made, or caused to be made under their supervision, a review of the terms of, and the records relating to, all of the Intercompany Indebtedness of the Company and its Subsidiaries and stating the amount of all outstanding Intercompany Indebtedness, including all Intercompany Indebtedness of all Subsidiaries to other Subsidiaries and the Company and all Intercompany Indebtedness of all Consolidated Subsidiaries to other Consolidated Subsidiaries and the Company as of the date of such financial statements; and (xv) With reasonable promptness, such other information and data (other than Sensitive Information), with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or any Lender. Notwithstanding anything to the contrary set forth above, the Company's failure to comply with subparagraphs (viii) and (ix) of this Section 5.1 (other than clause (A) of subparagraph (viii) of this Section 5.1, except to the extent that materiality is relevant to the existence or non-existence of an Event of Default or a Potential Event of Default) based on a good-faith determination by an officer of the Company that such condition, event or development is not material shall not be the basis for an Event of Default. Section 5.2 Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence and rights and franchises material to its business and those of each of its Subsidiaries; provided that the corporate existence of any such Subsidiary may be terminated if such termination is in the best interest of its parent and would not have a material adverse effect on the ability of the Loan Parties to perform their obligations under the Loan Documents; and provided, further, that neither the Company nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of the Company or such Subsidiary shall have determined that the preservation thereof is no longer desirable in the conduct of the business of the Company or such Subsidiary, as the case may be. Section 5.3 Payment of Taxes and Claims; Tax Consolidation. 5.3.1. The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon them or any of their properties or assets or in respect of any of their franchises, business, income or property before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a material Lien upon any of their material properties or assets, prior to the time when any material penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. 5.3.2. The Company will not, and will not permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than any of their respective Subsidiaries or such other Person as may be reasonably acceptable to the Requisite Lenders). Section 5.4 Maintenance of Properties; Insurance. The Company will maintain or cause to be maintained in good repair, working order and condition (ordinary wear and tear excepted) all material properties used in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof and will maintain and renew as necessary all material licenses, permits and other material clearances necessary to use and occupy the material properties of the Company and its Subsidiaries. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations to the extent that such types and such amounts of insurance are available at commercially reasonable rates. The Company will maintain such insurance as may be required to comply with any Mortgage and each Pledge Agreement, and shall otherwise comply with all provisions of the Collateral Documents relating to insurance. The Company will furnish to each Lender, upon reasonable request, information as to the insurance carried, and will not cancel any such insurance without the consent of the Requisite Lenders. Section 5.5 Inspection. The Company shall permit any authorized representatives designated by any Lender to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and, subject to Section 9.17, to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested; provided that in light of (A) the highly proprietary nature of the following information, (B) its historically demonstrated and ongoing value and importance in the Company's operating performance and (C) the substantial risk to the value of the Company's business if such information were not maintained on a strictly confidential basis, in no event shall the Company be required to disclose to any Person any information with regard to the Company's dry form technology or deinking technology, any formulas, recipes, process flow diagrams, equipment specifications, equipment purchase costs or manufacturing and process costs related thereto (the "Sensitive Information"). Section 5.6 No Further Negative Pledges. Except as provided in this Section 5.6, neither the Company nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired. The foregoing provisions of this Section 5.6 shall not be deemed violated by the following: (A) any Contractual Obligation restricting Liens on assets owned by a Foreign Subsidiary or on the shares of stock of any Foreign Subsidiary (other than any such shares that constitute Collateral and other than the shares of stock of Sterling International (U.K.) Limited and Sterling International Limited) or on the shares of stock of SIL Company (other than any such shares that constitute Collateral), (B) the provisions of (1) Section 3.08 of the indenture governing the 9 1/4% Unsecured Notes, as in effect on the Closing Date, (2) Section 3.08 of the indenture governing the 8 1/4% Unsecured Notes, as in effect on the Closing Date, or (3) any similar provision of any instrument comprising the Refinancing Senior Unsecured Debt that is no less favorable to the Company and the Lenders than the provisions of each such Section 3.08 referred to above, (C) the provisions of Section 3.08 of the indenture governing the 9% Senior Subordinated Notes, as in effect on the Closing Date, or the provisions of Section 3.08 of the indenture governing the 10% Subordinated Notes, as in effect on the Closing Date, (D) the provisions of any Capital Leases that restrict the imposition of Liens on the assets specifically demised pursuant thereto, (E) any agreement entered into by the Receivables Subsidiary in connection with a Receivables Transaction that prohibits or restricts the creation or assumption of any Liens upon the assets or properties of such Receivables Subsidiary or (F) the provisions of any other instrument governing Indebtedness of the Company or any Domestic Subsidiary of the Company permitted under Section 6.1, which Indebtedness is secured by a Lien permitted under Section 6.2, to the extent such provisions operate to restrict the ability of the Company or any of its Subsidiaries to grant Liens on the specific assets securing such Indebtedness. Section 5.7 Compliance with Laws, etc. The Company and its Subsidiaries shall comply with the requirements of all applicable laws, including Environmental Laws, rules, regulations and orders of any Governmental Authority, noncompliance with which would materially adversely affect the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Section 5.8 Interest Rate Agreements. On or prior to the 90th day following the Closing Date, the Company will enter into or obtain, and thereafter maintain in full force and effect, Interest Rate Agreements (other than Leveraged Swaps) as shall result in effectively fixing, for a period of not less than three years from the Closing Date, the interest rate per annum to the Company of Adjusted LIBOR Loans having a principal amount of not less than $500 million to an amount that does not exceed the sum, from time to time, of 10% per annum plus the LIBOR Spread. Section 5.9 Lender Meeting. The Company will participate in a meeting of Lenders once during each fiscal year to be held at a location and a time selected by the Company. Section 5.10 Security Interests. 5.10.1. The Company shall and shall cause each of the other Loan Parties to perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement, continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, including, without limitation, any filings in local real estate land record offices and the United States Patent and Trademark Office, or the United States Copyright Office, which are necessary or advisable, from time to time, in order to grant, continue and maintain in favor of the Collateral Trustee for the benefit of the Lenders a valid and perfected Lien on the Collateral, which Lien is a first priority Lien subject only to Prior Liens. 5.10.2. The Company shall and shall cause each of the other Loan Parties to undertake to deliver or cause to be delivered to the Administrative Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance satisfactory to the Collateral Trustee as the Collateral Trustee shall deem reasonably necessary or advisable to perfect or maintain the Liens for the benefit of the Lenders, including assets which are required to or do become Collateral after the Closing Date. Section 5.11 Future Guarantor Subsidiaries and Additional Pledge Agreements; Certain Future Acquisitions of Material Assets. 5.11.1. Promptly upon any Person or Subsidiary (in each case, other than a Lower Tier Foreign Subsidiary that constitutes a Controlled Foreign Corporation) becoming a direct or indirect Material Subsidiary of the Company, such Person or Subsidiary shall execute a Guarantor Subsidiary Guarantee guaranteeing all of the obligations owing to Lenders hereunder, to the fullest extent permitted by applicable law, substantially in the form of Exhibit XIII annexed hereto and shall, if it has not previously done so, enter into a Receivable/Inventory Pledge Agreement, to the fullest extent permitted by applicable law, substantially in the form of Exhibit XIV-B annexed hereto, with such changes therein (whether before or after the execution and delivery thereof) as are otherwise permitted by the Requisite Lenders. In addition, any Subsidiary of the Company (other than a Lower Tier Foreign Subsidiary that constitutes a Controlled Foreign Corporation) that meets the above criteria but cannot execute any such Pledge Agreement because of applicable law or whose Guarantor Subsidiary Guarantee or Pledge Agreement is limited because of applicable law, shall promptly upon any change of law reducing or removing such prohibition or limitation enter into a Guarantor Subsidiary Guarantee or such Pledge Agreement or shall promptly amend such instrument in a manner satisfactory to the Administrative Agent to reduce or remove such prohibition or limitation consistent with such law as so changed. In addition, the Company shall, if such Subsidiary is directly owned by the Company, or shall cause its relevant directly or indirectly owned Subsidiaries to, if such Subsidiary is not directly owned by the Company, complete and provide to the Administrative Agent a form of the Company Stock Pledge Agreement, substantially in the form of Exhibit XV annexed hereto with respect to such Subsidiary, which shall be effective to create, in favor of the Lenders and the Administrative Agent, a perfected, first priority Lien on all the capital stock or other equity interest in such Subsidiary. 5.11.2. Grant of Security Interest in Material Assets. Promptly upon (A) the acquisition by the Company or any Domestic Subsidiary of the Company of any Material Assets (as defined in clause (A) of the definition of Material Asset) not acquired in connection with or as part of an Expansion Project or (B) the capital stock or other equity interests in any First Tier Foreign Subsidiary of the Company becoming Material Assets pursuant to the provisions of clause (B) of the definition of Material Asset: (a) the Company and the Collateral Trustee will enter into such amendments or supplements to the Collateral Documents, or additional Collateral Documents, in each case in recordable form (if involving real estate) and in substantially the forms attached hereto as Exhibits XIV-A and XIV-B (to the extent the Material Assets consist of personal property) and Exhibits XIX-A through XIX-C (to the extent the Material Assets consist of real property) with, in each case, such changes thereto as are necessitated by local law or other applicable circumstances (the "Additional Collateral Documents") and as are necessary in order to grant to the Collateral Trustee for the benefit of the Lenders a valid first priority Lien and security interest in such Material Assets subject only to Permitted After Acquired Collateral Liens; and (b) the Company will also deliver to the Collateral Trustee the following: (i) to the extent the Material Assets consist of real property, an ALTA Survey and a policy of title insurance insuring that the Lien of the Additional Collateral Documents constitutes a valid and perfected first priority Lien on such real property in an aggregate amount equal to the fair value of the real property, together with an Officers' Certificate stating that any specific exceptions to such title insurance are Permitted After Acquired Collateral Liens and containing, or accompanied by, to the extent applicable, such endorsements and other assurances of the type included in or accompanying the title insurance policy required to be delivered to the Collateral Trustee pursuant to subsection 3.1.4; (ii) to the extent the Material Assets consist of personal property, UCC financing statements and all such other filings, notices or other instruments as shall be deemed necessary (in the reasonable judgment of the Collateral Trustee) to perfect such Lien of the Additional Collateral Documents in respect of such Material Assets and, if such Material Assets shall be of a character such that possession thereof is required to perfect such Lien, such Material Assets shall have been delivered to the Collateral Trustee; (iii) evidence of payment or a closing statement indicating payment of all filing fees, recording charges, transfer taxes and other costs and expenses, including, without limitation, reasonable legal fees and disbursements of counsel for the Collateral Trustee (and any local counsel), that may be incurred to validly and effectively subject such Material Assets to the Lien of any applicable Additional Collateral Document and perfect such Lien; and (iv) an opinion of counsel to the Company (which shall contain such limitations and exceptions as are customary for such opinions) to the effect that the Collateral Trustee has a valid and perfected Lien in respect of such Material Assets and that any applicable Additional Collateral Document is enforceable in accordance with its terms. 5.11.3. Limitations on Pledging of Shares and other Assets of Certain Foreign Subsidiaries and Delivery of Certain Guarantees. (a) Notwithstanding the provisions of subsections 5.11.1 and 5.11.2 above, so long as Section 956 (or a successor provision) of the Internal Revenue Code shall remain in effect and shall operate with respect to the Company and its Domestic Subsidiaries to (1) cause restrictive covenants coupled with a pledge of shares possessing 66 2/3% or more of the voting power of all classes of capital stock or other equity interests entitled to vote of any First Tier Foreign Subsidiary that constitutes a Controlled Foreign Corporation (the stock or other equity interests of which would otherwise be required to be pledged to the Lenders pursuant to subsection 5.11.1 or 5.11.2) or (2) cause, in the case of a First Tier Foreign Subsidiary that is a Material Subsidiary, the granting by such First Tier Foreign Subsidiary of any security interest pursuant to a Receivable/Inventory Pledge Agreement or of any rights pursuant to a Guarantor Subsidiary Guarantee to trigger an inclusion in the income of the Company or a Domestic Subsidiary pursuant to Section 951 (or a successor provision) of the Internal Revenue Code, the Company and its Subsidiaries shall not be required to cause such First Tier Foreign Subsidiary to execute and deliver such Guarantor Subsidiary Guarantee or such Receivable/Inventory Pledge Agreement and the Company and its Domestic Subsidiaries shall only be required to pledge, or to cause to be pledged, to the Lenders pursuant to subsection 5.11.1 or 5.11.2 shares representing the lesser of (i) the percentage held by the Company and its Domestic Subsidiaries and (ii) 65% of the voting power of all shares entitled to vote of such First Tier Foreign Subsidiary. (b) Upon any change in law or other applicable circumstances the effect of which is to permit a pledge of shares in a Foreign Subsidiary in addition to those contemplated to be pledged pursuant to paragraph (a) of this subsection 5.11.3 or (if such Foreign Subsidiary shall be a Material Subsidiary) the execution and delivery by such a Foreign Subsidiary of a Guarantor Subsidiary Guarantee or the granting by such Foreign Subsidiary of a security interest pursuant to a Receivable/Inventory Pledge Agreement without triggering an inclusion in the income of the Company or any Domestic Subsidiary of the Company pursuant to Section 951 (or a successor provision) of the Internal Revenue Code, the Company shall, and shall cause all applicable Subsidiaries of the Company to, (A) execute and deliver all such instruments, share certificates, financing statements, amendments or other documents as shall be reasonably requested by the Collateral Trustee to pledge all such additional shares to the Lenders as contemplated in subsections 5.11.1 and 5.11.2 and, (B) if such Foreign Subsidiary shall be a Material Subsidiary, to cause such Foreign Subsidiary to execute and deliver to the Administrative Agent a Guarantor Subsidiary Guarantee and/or a Receivables/Inventory Pledge Agreement. 5.11.4. At all times from and after the Closing Date, the Company shall cause each First Tier Foreign Subsidiary of the Company either (A) not to own any equity interests or other Investments in any Lower Tier Foreign Subsidiary or (B) not to engage in any business or activity other than the ownership of equity interests and/or other Investments in one or more Lower Tier Foreign Subsidiaries and not to incur any liabilities of any kind other than the granting of a guarantee and of a pledge of any such equity interests in Lower Tier Foreign Subsidiaries in favor of one or more financial institutions or other lending institutions to support or secure Indebtedness incurred by such Lower Tier Foreign Subsidiaries in compliance with the provisions of Section 6.1, each such guarantee and pledge to be without recourse to such First Tier Foreign Subsidiary, the Company or the Domestic Subsidiaries (except as permitted by Section 6.4). The provisions of the preceding sentence of this subsection 5.11.4 shall not apply to SIL Company or any direct or indirect Wholly Owned Subsidiary of SIL Company. 5.11.5. The provisions of subsections 5.11.1, 5.11.2 and 5.11.3 shall not be applicable to the capital stock or other equity securities in SIL Company, Fort Howard Holding or the capital stock or other equity securities in Sterling International Limited, Sterling International (U.K.) Limited or Sterling International Preference Limited (collectively, the "UK Holding Companies") and their direct and indirect Wholly Owned Subsidiaries and none of Fort Howard Holding, SIL Company, the UK Holding Companies and their direct and indirect Wholly Owned Subsidiaries shall be required to execute and deliver a Guarantor Subsidiary Guarantee or a Receivable/Inventory Pledge Agreement or, except as otherwise provided below with respect to equity securities of SIL Company, to otherwise pledge their assets or to guarantee the Obligations to the Lenders or the Administrative Agent hereunder. None of Fort Howard Holding, SIL Company or the UK Holding Companies shall enter into any new line of business or incur any new obligations in respect of its existing business after the date hereof (other than in the ordinary course of its existing business). The Company shall not create, or permit the creation of, any new Subsidiaries to own or hold any Investment, direct or indirect, in Fort Sterling. Notwithstanding the provisions of the first sentence of this subsection 5.11.5, the Company shall at all times cause to be maintained, pursuant to the Collateral Documents, in favor of the Collateral Trustee for the benefit of the Lenders, a first priority security interest in the equity securities of SIL Company representing at least 65% of the voting power of all equity securities entitled to vote of SIL Company. 5.11.6. Notwithstanding the provisions of subsection 5.11.2, the Company shall not be required to cause to be granted in favor of the Collateral Trustee and the Lenders any Lien in respect of a Material Asset if such Material Asset is encumbered by a Preexisting Assumed Lien the granting instrument in respect of which prohibits the granting to the Collateral Trustee and the Lenders of any Lien in respect of such Material Asset; provided that, at the earlier of (A) such time as the Indebtedness secured by such Pre-existing Assumed Lien shall be retired and (B) the scheduled maturity date of such Indebtedness (exclusive of any extensions of maturity effected in connection with the acquisition of such Material Asset or thereafter), the Company shall promptly comply with the provisions of subsection 5.11.2 in respect thereof to the extent such compliance would not otherwise be in violation of subsection 5.11.3 or 5.11.5. Section 5.12 Expansion Projects. 5.12.1. Mill Expansion Transactions. (a) Upon compliance with the provisions of this subsection 5.12.1, the Company may enter into a Permitted Expansion Financing with respect to the construction or installation of Existing Mill Expansion Equipment at a Mill (whether or not an Existing Mill) that has been encumbered by the Collateral Documents (each, an "Existing Mill Expansion Transaction"). Not later than 10 days after any Existing Mill Expansion Equipment is first placed into service by the Company, the Company shall deliver to the Administrative Agent an Officers' Certificate (i) identifying such Existing Mill Expansion Equipment, (ii) stating the date such Existing Mill Expansion Equipment was placed in service and (iii) stating whether the Company expects to enter into a Permitted Expansion Financing within 12 months after the date such Existing Mill Expansion Equipment was first placed in service. If the Company fails to deliver such Officer's Certificate to the Administrative Agent within the time period specified above or the Company states in such Officer's Certificate that it does not intend to enter into a Permitted Expansion Financing within 12 months of the date on which the applicable Existing Mill Expansion Equipment was first placed in service, such Existing Mill Expansion Equipment shall become subject to the Lien of the Collateral Documents and the Company shall promptly deliver to the Administrative Agent such instruments as the Administrative Agent or the Requisite Lenders may reasonably require to confirm that the Lien of the applicable Mortgage or other Collateral Document has attached thereto, including, without limitation, amendments to the applicable Mortgage or other Collateral Documents. If at any time within such 12-month period the Company determines to pursue an Unsecured Expansion Financing, the Company shall so notify the Administrative Agent in writing and the applicable Existing Mill Expansion Equipment shall become subject to the Lien of the Collateral Documents to the extent it is not already so subject and the Company shall deliver such instruments and take such other actions as are contemplated in the immediately preceding sentence. If the Company elects to enter into a Secured Expansion Financing or a Sale/Leaseback Financing in respect of such Existing Mill Expansion Equipment, the Company shall comply with the provisions of paragraphs (b) and (c) of subsection 5.12.1, as applicable. (b) If the Company elects to enter into a Permitted Expansion Financing which constitutes a Sale/Leaseback Financing, the Company may grant an Existing Mill Expansion Easement in respect of any Existing Mill Expansion Equipment and enter into an Existing Mill Expansion Lease with respect thereto upon the satisfaction of all the Existing Mill Expansion Conditions and delivery to the Administrative Agent of an Officers' Certificate confirming such satisfaction, which Officers' Certificate shall be accompanied by the Existing Mill Expansion Documents, each fully executed and acknowledged by the Company and all parties thereto other than the Administrative Agent and in form for execution by the Administrative Agent. The Administrative Agent shall execute, acknowledge (if applicable) and deliver to the Company a Recognition Instrument and any other Existing Mill Expansion Documents to which the Administrative Agent is, or is to be, a party following receipt thereof by the Administrative Agent and the satisfaction of the Existing Mill Expansion Conditions. The Administrative Agent's obligation to deliver any Existing Mill Expansion Documents and the Company's rights to enter into such Sale/Leaseback Financing shall be subject to the following conditions (collectively, the "Existing Mill Expansion Conditions"): (i) no Event of Default or Potential Event of Default shall have occurred and be continuing as at the date of delivery of such Existing Mill Expansion Documents; (ii) following the delivery of the applicable Recognition Instrument, the affected Mill (exclusive of the property subject to any Existing Mill Expansion Easement) shall have sufficient utility services and sufficient access to public roads, rail spurs, harbors, canals, terminals and other transportation structures for the continued use of such Mill for the production of tissue and paper products in substantially the manner carried on by the Company prior to such delivery; (iii) the Existing Mill Expansion Documents shall not create any Lien on property other than Existing Mill Expansion Equipment and the Land described in any related Existing Mill Expansion Easement; (iv) following commencement of construction relating to any Existing Mill Expansion Equipment and after completion thereof, the affected Mill shall comply in all material respects with applicable Environmental Laws and laws, rules, regulations and ordinances relating to zoning, land use and building and workplace safety; (v) following the delivery of a Recognition Instrument and the completion of construction or installation of any Existing Mill Expansion Equipment, the value of the affected Mill (exclusive of the value of the Existing Mill Expansion Equipment) shall not be less than the value of such Mill prior to such delivery and construction or installation; (vi) the applicable Existing Mill Expansion Lease shall provide to the Administrative Agent in substance all the material rights contemplated by Schedule H annexed to this Agreement (it being understood that in the event that the Recognition Instrument is substantially in the form of (A) that certain Nondisturbance, Cure Rights and Purchase Option Agreement, dated as of October 20, 1989, in respect of any Existing Mill Expansion Transaction relating to Land and Improvements located in Effingham County, Georgia (with such changes as shall be reasonably satisfactory to the Administrative Agent), or (B) that certain Cure Rights and Purchase Option Agreement dated as of October 20, 1989, in respect of any Expansion Transaction relating to Land and Improvements located in Brown County, Wisconsin (with such changes as shall be reasonably satisfactory to the Administrative Agent), the provisions of this subparagraph (vi) shall be deemed satisfied); (vii) to the extent that the Title Company shall be authorized by law to do so, the Title Company shall have committed to issue an endorsement to the title insurance policy in favor of the Administrative Agent relating to the affected Mill confirming that the Lien of the applicable Mortgage has attached to the tenant's interest under the applicable Existing Mill Expansion Lease and that the priority of such Lien with respect to such interest is subject to no Liens other than Prior Liens; (viii) unless such Existing Mill Expansion Equipment is located within existing Improvements, the Company shall have delivered to the Administrative Agent an ALTA Survey showing the location of the Existing Mill Expansion Equipment and/or, if applicable, the perimeter of the land affected (or to be affected) by the Existing Mill Expansion Easement relating to such Existing Mill Expansion Equipment; and (ix) such Sale/Leaseback Financing shall comply with the provisions of Sections 6.10 and 6.14. (c) If the Company elects to finance an Existing Mill Expansion Transaction with any Secured Expansion Financing, the Company's rights to enter into such transaction shall be subject to the following conditions (collectively, the "Alternative Existing Mill Expansion Conditions"): (i) the conditions set forth under subparagraphs (i), (iv) and (viii) of paragraph (b) of this subsection 5.12.1 shall be satisfied; (ii) the conditions set forth under subparagraphs (iii) and (v) of paragraph (b) of this subsection 5.12.1 shall be satisfied except that for purposes of satisfaction of such conditions, the term "Expansion Intercreditor Agreement" shall be substituted for the term "Recognition Instrument" as used therein; (iii) the lender in respect of such Permitted Expansion Financing shall have executed and delivered to the Administrative Agent an intercreditor agreement in substantially the form of Exhibit XXIV hereto (each, an "Expansion Intercreditor Agreement"); and (iv) the asset or assets subject to the Lien of such lender in connection with such financing shall be of such a nature that it or they at all times will be capable of being removed from the Mill at which such asset or assets is or are located without causing any material damage to or any diminution (other than a de minimis diminution) in value of any property comprising such Mill and without interfering with or impairing, in any material manner or for any material period, the operations of the Company at such Mill or causing such Mill or any portion thereof to fail to comply with any Environmental Law or any other law, rule, regulation or policy of any Governmental Authority. (d) In connection with the construction or installation of any Existing Mill Expansion Equipment or the execution of any Existing Mill Expansion Documents, the Company shall (A) execute, deliver and record, and obtain from any Expansion Lessor, if applicable, such instruments as the Administrative Agent or the Requisite Lenders may reasonably require, including, without limitation, amendments to the Collateral Documents and this Agreement and (B) deliver to the Administrative Agent such evidence of the satisfaction of the Existing Mill Expansion Conditions or Alternative Existing Mill Expansion Conditions as the Administrative Agent or the Requisite Lenders may reasonably require. Any and all construction and construction activities performed in connection with any Existing Mill Expansion Equipment shall be performed in compliance with the provisions of any applicable Mortgage and shall conform in all material respects with the provisions of applicable laws, rules, regulations and policies of all Governmental Authorities having jurisdiction and no Existing Mill Expansion Equipment may be operated or occupied unless, if applicable, a proper certificate of occupancy (or local equivalent) and, if applicable, all other required permits, licenses and clearances from all Governmental Authorities having jurisdiction shall have first been obtained and be in effect. 5.12.2. Greenfield Expansion Projects. (a) Upon compliance with the provisions of this subsection 5.12.2, the Company may enter into a Permitted Expansion Financing with respect to a Greenfield Expansion Project. Not later than 10 days after any Mill constituting Greenfield Expansion Assets is first placed into service by the Company, the Company shall deliver to the Administrative Agent an Officer's Certificate (i) identifying such Greenfield Expansion Assets, (ii) stating the date such Greenfield Expansion Assets were first placed in service and (iii) stating whether the Company expects to enter into a Permitted Expansion Financing with respect to such Greenfield Expansion Assets within 12 months of the date on which such Greenfield Expansion Assets were first placed in service. If the Company fails to deliver such Officer's Certificate within the time period specified above or the Company states in such Officer's Certificate that it does not intend to enter into such a Permitted Expansion Financing within 12 months of the date on which such Greenfield Expansion Assets were first placed in service, the Company shall promptly grant to the Administrative Agent for the benefit of the Lenders a first priority Lien (subject only to Permitted Encumbrances) on all assets and property acquired by the Company in connection with such Greenfield Expansion Assets by executing amendments or supplements to the Collateral Documents or by executing Additional Collateral Documents of the character contemplated to be delivered pursuant to paragraph (a) of subsection 5.11.2 in connection with the acquisition by the Company of Material Assets. If at any time within such 12-month period the Company determines to pursue an Unsecured Expansion Financing, the Company shall so notify the Administrative Agent in writing and the applicable Greenfield Expansion Assets shall become subject to the Lien of the Collateral Documents and the Company shall deliver such instruments and take such other actions as are contemplated in the immediately preceding sentence. In addition to such amendments or Additional Collateral Documents, the Company shall deliver to the Administrative Agent each of the documents and instruments enumerated in subsection 5.11.2(b) with respect to the acquisition of Material Assets except that for purposes of this requirement the term "Greenfield Expansion Assets" shall be substituted for the term "Material Asset" as used therein. The Company's rights to enter into any Permitted Expansion Financing in respect of Greenfield Expansion Assets shall be subject to the following conditions (collectively, the "Greenfield Expansion Financing Conditions"): (i) no Event of Default or Potential Event of Default shall have occurred and be continuing as of the date the Company proposes to enter into such Permitted Expansion Financing; (ii) no Lien shall be created in connection with such Permitted Expansion Financing on any asset other than the Greenfield Expansion Assets acquired or constructed in connection with such Greenfield Expansion Project and the land or leasehold estate related thereto; and (iii) if such Permitted Expansion Financing is a Sale/Leaseback Financing, such Sale/Leaseback Financing shall comply with the provisions of Sections 6.10 and 6.14. (b) Any and all construction and construction activities performed in connection with any Greenfield Expansion Project shall conform in all material respects to the provisions of applicable law and no Greenfield Expansion Assets may be operated or occupied unless, if applicable, a proper certificate of occupancy or local equivalent) and, if applicable, all other required permits, licenses and clearance from governmental authorities shall have first been obtained. Section 5.13 Certain Dispositions of Collateral. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, assign, transfer or otherwise dispose of any interest in any Real Property or any equipment or other tangible Collateral subject to a Mortgage or transfer or contribute any such Collateral to a Foreign Subsidiary pursuant to clause (xi) of Section 6.3 (each, a "Release Transaction") except in compliance with this Section 5.13, Section 6.7 or the Collateral Documents. Upon such compliance, the Company shall be entitled to receive from the Administrative Agent an instrument (each, a "Release") releasing the Lien of any applicable Collateral Document with respect to such Collateral. The Company shall exercise its rights under this Section 5.13 by delivery to the Administrative Agent of a notice (each, a "Release Notice"), which shall refer to this subsection, describe with particularity the items of property proposed to be covered by the Release and be accompanied by a counterpart of the Release fully executed and acknowledged by all parties thereto other than the Administrative Agent and in form for execution by the Administrative Agent, and an Officers' Certificate certifying as to the satisfaction of the Release Conditions. The Administrative Agent shall execute, acknowledge (if applicable) and deliver to the Company such counterpart within 10 days after receipt by the Administrative Agent of a Release Notice and the satisfaction of the Release Conditions. The Administrative Agent's obligation to deliver any Release and the Company's rights to transfer any Collateral to a Foreign Subsidiary pursuant to the provisions of subparagraph (xi) of Section 6.3 or to enter into any sale, lease, assignment, transfer or other disposition of any Collateral pursuant to the provisions of this Section shall be subject to the following conditions (collectively, "Release Conditions"): (i) no Event of Default or Potential Event of Default shall have occurred and be continuing as of the proposed effective date of such Release; (ii) if such Release relates to only a portion of a discrete parcel of Real Property or a portion of any property comprising a Mill, following such sale, transfer or other disposition and release of the Lien of any applicable Mortgage with respect thereto, the affected Real Property shall have sufficient utility services and sufficient access to public roads, rail spurs, harbors, canals, terminals and other transportation structures for the continued use of such Real Property for its use in substantially the manner carried on by the Company prior to such Release; (iii) if such Release relates to only a portion of a discrete parcel of Real Property or a portion of any property comprising a Mill, following such sale, transfer or other dispositions the affected Real Property or Mill shall comply in all material respects with applicable Environmental Laws and laws, rules, regulations and ordinances relating to zoning, land use and building and workplace safety; (iv) if such Release relates to only a portion of a discrete parcel of Real Property or a portion of any property comprising a Mill, following such sale, transfer or other disposition, the value of the affected Real Property or Mill (exclusive of the value of the released Collateral) shall not be less than the value of such Real Property or Mill prior to such Release and the transfer of such Collateral shall not impair the utility or legality of the affected Mill in any respect; (v) if such Release relates to only a portion of a discrete parcel of Real Property or a portion of any property comprising a Mill, the Title Company shall have committed to issue an endorsement to the title insurance policy in favor of the Administrative Agent for the benefit of the Lenders relating to the affected Real Property confirming that after such release the Lien of the applicable Mortgage continues unimpaired as a first priority Lien upon the remaining Mortgaged Property subject only to Prior Liens; and (vi) if such Release relates to a Real Property, the Company shall have delivered to the Administrative Agent for the benefit of the Lenders an ALTA Survey showing the property proposed to be released. In connection with any Release Transaction, the Company shall (A) execute, deliver, record and obtain such instruments as the Administrative Agent or the Requisite Lenders may reasonably require, including, without limitation, amendments to the Collateral Documents and this Agreement and (B) deliver to the Administrative Agent such evidence of the satisfaction of the Release Conditions as the Administrative Agent or the Requisite Lenders may reasonably require. The Company shall reimburse the Administrative Agent and Lenders upon demand for all costs or expenses incurred by each thereof in connection with any action contemplated by this Section 5.13. The provisions of this Section shall not be construed to prohibit the Company from leasing non-essential, non-manufacturing facilities located on any Real Property subject to a Mortgage so long as the rights granted to any lessee under such lease do not materially interfere with the operations of the Company at such Real Property as presently conducted and so long as the granting of such lease would not constitute a breach of any provision of such Mortgage. Section 5.14 Georgia Mill Lease and Mortgage. 5.14.1. Upon any expiration, termination or surrender (whether pursuant to actions taken by the Administrative Agent under the provisions of Article 2 of the Georgia Mill Mortgage or otherwise) of the Georgia Mill Lease, the Company shall take all actions and execute and file all instruments necessary to cause to be approved by all authorities having jurisdiction and recorded as soon as reasonably possible following any such expiration, termination or surrender a plat of subdivision (in form reasonably acceptable to Requisite Lenders) relating to the Land affected by the Georgia Mill Mortgage, which plat shall reflect as a single subdivided parcel ("Mill Lot") the Land underlying all Improvements constituting the Effingham County Mill and all additional Land required to meet local zoning and setback rules and laws and Environmental Laws as they relate to such Improvements and the severance from the Mill Lot of all other portions of the Land subject to the Georgia Mill Mortgage (collectively, "Severed Parcel"), including, without limitation, those portions used for sludge disposal and landfill purposes. Upon such approval and recordation, the Company shall (A) execute, deliver and record (and pay all expenses and taxes imposed in connection therewith and the reasonable attorneys' fees of the Administrative Agent's attorneys) a Mortgage ("Additional Georgia Mortgage") in the form of Exhibit XIX-C(ii) on the Severed Parcel and (B) deliver to the Administrative Agent on behalf of the Lenders a title insurance commitment or policy, in form and substance reasonably satisfactory to Requisite Lenders, in respect of the Additional Georgia Mortgage and such other assurances (including, without limitation, counsel opinions) as shall be reasonably requested by the Administrative Agent to confirm that the Additional Georgia Mortgage creates in favor of the Administrative Agent on behalf of the Lenders a valid and enforceable Lien on the Severed Parcel with a priority that is equal to the priority of the Georgia Mill Mortgage on the Severed Parcel. Upon compliance by the Company with its obligations set forth in the immediately preceding sentence, the Administrative Agent shall execute and record at the Company's expense (including, without limitation, payment by the Company of all applicable taxes and recording fees and the reasonable attorneys' fees of the Administrative Agent's attorneys) a partial release of the Lien of the Georgia Mill Mortgage from all Land comprising the Severed Parcel. 5.14.2. Notwithstanding the provisions of subsection 5.14.1, following any such expiration, termination or surrender of the Georgia Mill Lease and upon compliance by the Company with the provisions of Section 5.13 of this Agreement, the Administrative Agent shall deliver to the Company, without consideration or prepayment of any kind (other than the Administrative Agent's expenses incurred in connection therewith, including, without limitation, attorneys' fees), a partial release from the Lien of the Additional Georgia Mortgage of any parcel of Land encumbered thereby which (A) does not comprise any portion of the landfill or sludge operation serving or anticipated to serve the Effingham County Mill and (B) is not necessary for the proper and efficient operation of the Effingham County Mill or the landfill property related thereto or the compliance with zoning and setback rules and laws and Environmental Laws as they relate to any Improvements comprising such Effingham County Mill or to such landfill. 5.14.3. Upon failure by the Company to perform any obligation set forth in this Section 5.14, the Administrative Agent may perform such obligation on behalf of the Company, and the Administrative Agent shall be deemed to be the attorney-in-fact of the Company for such purpose. 5.14.4. The Company shall only be required to comply with the provisions of this Section 5.14 as and to the extent it is permitted to do so under the laws of the State of Georgia. Section 5.15 Transfer of Permits and Licenses. In addition to, and not in limitation of any right granted to the Administrative Agent under any Mortgage or obligation of the Company thereunder, the Company shall, and shall cause its Subsidiaries to, upon the foreclosure of any Mill that benefits from a permit or license required for the operation thereof, use its and their reasonable best efforts to cause the transfer of such permit or license to the entity then operating or which is to operate such foreclosed Mill. Section 5.16 Recapitalization. The Company shall take all reasonable actions to cause to be consummated as soon as practicable following the Closing Date the redemption and retirement of the Existing Subordinated Debt and the other transactions and payments required to complete the Recapitalization. Section 5.17 Green Bay Sludge Boiler. 5.17.1. Upon the commencement of construction of the Green Bay Sludge Boiler on land not then encumbered by a Mill Mortgage ("Sludge Boiler Land"), the Company shall take all actions and execute and file all instruments reasonably requested by the Administrative Agent to cause to be granted to the Lenders a mortgage lien on the Sludge Boiler Land having a priority and being on terms that are substantially similar to those applicable to the Mill Mortgage which encumbers the Company's Green Bay Wisconsin Mill. If any such mortgage is granted by the Company, the Company shall deliver to the Administrative Agent on behalf of the Lenders a title insurance commitment or policy, in form and substance reasonably satisfactory to the Administrative Agent, in respect of such mortgage and such other assurances (including, without limitation, counsel opinions) as shall be reasonably requested by the Administrative Agent to confirm that such mortgage creates in favor of the Administrative Agent on behalf of the Lenders a valid and enforceable Lien on the Sludge Boiler Land having a priority as set forth above. 5.17.2. Upon failure by the Company to perform any obligation set forth in this Section 5.17, the Administrative Agent may perform such obligation on behalf of the Company, and the Administrative Agent shall be deemed to be the attorney-in-fact of the Company for such purpose. ARTICLE VI NEGATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments shall be in effect and until payment in full of all of the Loans and the Notes and the cancellation or expiration of all Letters of Credit issued hereunder and the reimbursement in full of all amounts drawn thereunder, unless the Requisite Lenders shall otherwise give prior written consent, the Company will perform all covenants in this ARTICLE VI. Section 6.1 Indebtedness. The Company and its Subsidiaries shall not directly or indirectly create, incur, assume, guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) The Company and its Subsidiaries may become and remain liable with respect to the Obligations; (ii) The Company may become and remain liable with respect to the Indebtedness evidenced by the Refinancing Senior Unsecured Debt; provided that the principal amount of such Indebtedness shall not exceed, in the case of a refinancing of the 9-1/4% Unsecured Notes, the 8-1/4% Unsecured Notes or any Refinancing Senior Unsecured Debt, the then outstanding principal amount thereof; and provided, further, that such Indebtedness (A) provides for interest at rates which do not exceed the market rates for similar types of Indebtedness prevailing at the time such Indebtedness is incurred, (B) has a final scheduled maturity date that is subsequent to the date on which the final Scheduled Term Loans Principal Payment in respect of Tranche B Loans is due hereunder, (C) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Tranche B Term Loans on the date such Indebtedness is incurred, (D) contains no representation and warranty, covenant or event of default that (1) is in addition to the representations and warranties, covenants and events of default that are currently set forth in the instruments (as in effect on the Closing Date) evidencing or governing the 9-1/4% Unsecured Notes or the 8-1/4% Unsecured Notes, as the case may be, or (2) is more burdensome (to the Company) than the most burdensome (to the Company) corresponding representation and warranty, covenant or event of default set forth in the instruments (as in effect on the Closing Date) evidencing or governing the 9-l/4% Unsecured Notes or the 8-l/4% Unsecured Notes, as the case may be and (E) if the Refinancing Senior Unsecured Debt is Subordinated Indebtedness, contains subordination provisions no less favorable to the Lenders than the least favorable subordination provisions (to the Lenders) in the Existing Subordinated Debt; (iii) The Company and its Subsidiaries may remain and may become and remain liable with respect to Intercompany Indebtedness (including, without limitation, Intercompany Indebtedness to a Receivables Subsidiary); provided that (A) all such Intercompany Indebtedness (other than Intercompany Indebtedness to a Receivables Subsidiary) shall be evidenced by promissory notes, which may be master promissory notes governing all advances made by the maker of such note to the payee of such note and (B) any Intercompany Indebtedness owed by the Company to any Subsidiary shall be subordinated pursuant to the terms of the promissory note or notes evidencing such Intercompany Indebtedness in right of payment, from and after such time as the Loans shall have become due and payable (whether at date of maturity, by acceleration or otherwise), to the payment in full of the Obligations; and provided, further, that the aggregate amount of Inter- company Indebtedness of all Foreign Subsidiaries owing to the Company and the Subsidiaries of the Company (other than any Foreign Subsidiaries) shall not exceed the amounts permitted pursuant to the provisions of Section 6.3 (other than Intercompany Indebtedness owing as a result of or incurred to finance payment of Royalty or Management Fees that are payable by Foreign Subsidiaries to the Company and the Subsidiaries of the Company); (iv) The Company and its Subsidiaries may remain liable with respect to Existing Indebtedness which is described in Schedule C annexed hereto and may become and remain liable in respect of the Refinancing Foreign Debt; (v) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable (A) with respect to Indebtedness in respect of Capital Leases if such Capital Leases would be permitted by Section 6.9 and (B) with respect to other Indebtedness secured by Liens permitted by Section 6.2; (vi) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable with respect to Contingent Obligations permitted by Section 6.4 and, upon any obligations actually arising pursuant thereto, with respect to the Indebtedness corresponding to the Contingent Obligations so extinguished; (vii) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable with respect to Indebtedness incurred in connection with Sale/Leaseback Transactions permitted by Section 6.10 (other than any such Sale/Leaseback Transaction that is subject to the provisions of Section 5.12) so long as, if such Sale/Leaseback involves an Asset Sale, the Net Cash Proceeds of Sale received by the Company and its Subsidiaries in connection therewith are used as provided in such subsection; (viii) The Company may become and remain liable with respect to Indebtedness of the Company incurred pursuant to the Management Agreements; (ix) Any Foreign Subsidiary of the Company may become and remain liable with respect to Indebtedness for money borrowed to the extent that the Dollar equivalent of the aggregate Indebtedness of such Foreign Subsidiary outstanding pursuant to this subparagraph (ix) does not exceed, at any time, an amount equal to 150% of the aggregate amount of (A)(i) each investment made by the Company (whether in the form of equity contributions, Intercompany Indebtedness, contribution of a Contingent Obligation or otherwise) and the amount of each equity investment of all other investors in such Foreign Subsidiary since the Closing Date (all such investments being valued as at the time of investment) and (ii) the Fair Value (as of the Closing Date) of all equity Investments in such Foreign Subsidiary made by all such other investors prior to the Closing Date reduced by (B) the excess, if any, of (1) the aggregate Fair Value of all assets (determined, in each case, as at the time of transfer thereof) transferred by such Foreign Subsidiary (whether by dividend, loan, contribution or otherwise) since the Closing Date (other than interest on Intercompany Indebtedness in amounts and at rates not in excess of those payable in transactions between unaffiliated parties and payments of, or payments of principal of indebtedness related to, Royalty or Management Fees) to any investor in such Foreign Subsidiary over (2) the net income of such Foreign Subsidiary since the later of the Closing Date and the first date of such Investment by the Company or any Subsidiary of the Company; provided that, except as otherwise permitted in Section 6.4, neither the Company nor any of its Domestic Subsidiaries shall have personal liability for repayment of such Indebtedness; (x) The Company may become and remain liable with respect to Indebtedness for money borrowed constituting Permitted Expansion Construction Financing to the extent that the aggregate Indebtedness outstanding pursuant to this subparagraph (x) does not exceed, at any time, the difference between the Adjusted Revolving Loan Commitments (determined without regard to any deduction of the Revolving Loan Deduction Amount) and the then outstanding amount of Revolving Loans and Letters of Credit Usage; (xi) The Sellers and one or more Receivables Subsidiaries may become and remain liable for Indebtedness (in addition to permitted Intercompany Indebtedness) in an aggregate amount not exceeding at any one time $[100,000,000] in connection with a Receivables Program; provided that such Indebtedness shall not (A) include any obligations other than obligations directly related to the Receivables Program or (B) be enforceable against the Company or any Subsidiary of the Company or any of its or their assets (other than assets of the applicable Receivables Subsidiary); (xii) The Company may become and remain liable with respect to Indebtedness constituting Permitted Expansion Financings; (xiii) The Company may become and remain liable for Indebtedness in an aggregate amount not exceeding $60,000,000 under the 1995 A/R Bridge; and (xiv) In addition to the Indebtedness permitted by subparagraphs (i) through (xiii) of this Section 6.1, the Company and its Subsidiaries may become and remain liable with respect to Indebtedness not exceeding $25,000,000 in the aggregate at any time outstanding. Section 6.2 Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer or permit to exist any Lien (A) upon or with respect to any property of the Company or any of its Subsidiaries that is or should (pursuant to the terms hereof) be subject to the Lien of any Collateral Document or (B) upon any shares of stock of Fort Howard Holding, Inc., Sterling International (U.K.) Limited and Sterling International Limited, except, in the case of clause (A), for Liens which would be permitted pursuant to any applicable Collateral Documents and, in the case of clause (B), Permitted Encumbrances; provided that, in the case of clause (A), no such Liens (other than Prior Liens) shall be superior to the Lien of such applicable Collateral Document. With respect to all assets of the Company and its Subsidiaries other than (1) shares of stock of SIL Company and (2) assets described in clauses (A) and (B) above, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to such property or asset, whether now owned or hereafter acquired, or any income or profits therefrom, except: (i) Permitted Encumbrances; (ii) Liens described in Schedule D annexed hereto; (iii) Liens affecting assets, comprised of Existing Mill Expansion Equipment or Greenfield Expansion Assets, securing reimbursement obligations of the Company and its Subsidiaries with respect to letters of credit permitted by subparagraph (vii) of Section 6.4, in each case which Liens do not encumber Collateral pledged pursuant to any Collateral Document and which are granted pursuant to documents relating to such letters of credit; (iv) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business (other than any Lien imposed by ERISA) and which are either within the general parameters customary in the industry (as concurred in by the Administrative Agent) or are otherwise approved by the Requisite Lenders securing obligations under Commodities Agreements entered into by the Company or any of its Subsidiaries; (v) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Subsidiaries incurred in the ordinary course of business or as a result of this Agreement or the incurrence, guaranteeing or granting of security interests in respect of Obligations incurred pursuant to this Agreement or the other Loan Documents; (vi) Liens securing Indebtedness permitted under subparagraph (v) (clause A) or (vii) of Section 6.1, incurred in connection with Capital Leases or Sale/Leaseback Transactions permitted by Section 6.9 or 6.10 so long as such Liens do not extend to assets other than the assets subject to such Capital Lease or Sale/Leaseback Transaction and do not secure any Indebtedness other than Indebtedness directly incurred to finance such Capital Lease or Sale/Leaseback Transaction; (vii) Liens securing Indebtedness of (or of the Wholly Owned Subsidiaries of) a Foreign Subsidiary of the Company permitted under Section 6.1 so long as such Liens do not extend to assets other than assets owned by such Foreign Subsidiary or its Wholly Owned Subsidiaries and do not secure any Indebtedness other than Indebtedness of (or of the Wholly Owned Subsidiaries of) such Foreign Subsidiary; provided that no such Liens (other than Liens constituting Preexisting Assumed Liens) may encumber any common stock or other equity interest in any First Tier Foreign Subsidiary; (viii) Liens granted by any Receivables Subsidiary on Program Receivables or interests therein; provided that no such Lien may extend to any assets of the Company or any Subsidiary of the Company that is not a Receivables Subsidiary; (ix) Liens (which may be pari passu with the Liens securing the Obligations) granted in favor of a Lender to secure the obligations of the Company pursuant to any Qualified Interest Rate Agreement or Qualified Currency Agreement; (x) Liens securing Indebtedness constituting Permitted Expansion Construction Financing and incurred in accordance with the provisions of subparagraph (x) of Section 6.1; provided that no such Lien may extend to any assets of the Company other than the assets contemplated in the definition of Permitted Expansion Construction Financing; (xi) Liens affecting assets, comprised of Existing Mill Expansion Equipment or Greenfield Expansion Assets, securing Indebtedness constituting Permitted Expansion Financings (other than any such Indebtedness constituting Unsecured Expansion Financings); (xii) Liens granted by the Company on A/R Eligible Receivables; and (xiii) In addition to Liens permitted by subparagraphs (i) through (xii) above, the Company and its Subsidiaries may at any time have Liens securing the payment of Indebtedness with respect to property or assets with an aggregate Fair Value of not more than $25,000,000 (as measured from the Closing Date). Nothing in this Section 6.2 shall prohibit (A) the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries at its fair value or (B) the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. Section 6.3 Investments; Joint Ventures. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly make or own any Investment in any Person or enter into any Joint Venture, except: (i) The Company and its Subsidiaries may make and own Investments in Cash and Cash Equivalents; (ii) The Company may acquire and own Common Stock to the extent permitted under Section 6.5; (iii) The Company and its Subsidiaries may continue to own Investments in existence on the date hereof, and which are specifically described in Schedule E annexed hereto; (iv) The Company and its Subsidiaries may make intercompany loans to the Company or any Domestic Subsidiary of the Company to the extent permitted under Section 6.1; (v) The Company and its Subsidiaries may continue to own Investments in respect of Joint Ventures in existence on the date hereof, and which are specifically described in Schedule E annexed hereto; (vi) The Company and its Subsidiaries may make and own Investments in Joint Ventures operating in the United States after the date hereof; provided that the aggregate amount of such Investments made after the date hereof shall not exceed $25,000,000; (vii) The Company and its Subsidiaries may acquire and retain ownership of Investments as part of the consideration received by them from Asset Sales not prohibited by Section 6.7; provided that (A) no such Investment may be held or transferred to a Foreign Subsidiary of the Company unless (i) the asset which was the subject of such Asset Sale was owned by a Foreign Subsidiary of the Company or (ii) such transfer is not prohibited pursuant to the provisions of clause (x) of this Section 6.3, (B) no more than 25% of the consideration received by the Company and its Subsidiaries in respect of any Asset Sale for which the total consideration to be so received is in excess of $5,000,000 shall be represented by evidences of Indebtedness, (C) each promissory note evidencing such Indebtedness will be secured by a perfected security interest, subject to no prior Lien securing such Indebtedness, in all of the assets sold or otherwise disposed of in such Asset Sale in favor of the seller thereof and (D) the aggregate Fair Value of all such Investments shall not at any time exceed $30,000,000; and provided, further, that for purposes of compliance with this subparagraph (vii) of Section 6.3, Asset Sales involving the simultaneous receipt of notes and sale of such notes to a third party shall be excluded if such sale is permitted by Section 6.11; (viii) The Company or any Subsidiary of the Company may make and own Investments received in connection with the bankruptcy or reorganization of any of its suppliers and customers and in settlement of delinquent obligations of, and other disputes with, its customers and suppliers arising in the ordinary course of business; (ix) The Company or any Subsidiary of the Company may make and own Investments arising in connection with Commodities Agreements entered into in the ordinary course of its business; (x) The Company and its Domestic Subsidiaries may make and own Investments in Foreign Subsidiaries; provided that the aggregate amount of the Fair Values of all assets (including, but not limited to, cash, cash equivalents, capital and other assets) transferred by the Company and its Domestic Subsidiaries (such Fair Value to be measured in each case as of the actual date of transfer) to, and the maximum amount of all Contingent Obligations incurred for the benefit of, one or more Foreign Subsidiaries by way of capital contribution, loan, guarantee or otherwise shall not exceed at any time (A) the aggregate Fair Value of all assets (including, but not limited to, cash, cash equivalents, capital and other assets) transferred after the Closing Date by all Foreign Subsidiaries in the aggregate to the Company and its Domestic Subsidiaries (such Fair Value to be measured in each case as of the actual date of transfer) by way of capital contribution, loan, dividend, distribution or otherwise and all net reductions in Investments constituting Contingent Obligations (effected as a result of the retirement after the Closing Date by the applicable Foreign Subsidiary of Indebtedness guaranteed by the Company or any Domestic Subsidiary of the Company), plus (B) (i) during the period commencing on the Closing Date and ending on June 30, 1996, $40,000,000, and (ii) during all periods after June 30, 1996, $40,000,000 until such time as the Company shall have achieved an Interest Coverage Ratio of 1.9 or more, after which time such amount shall be increased to $100,000,000, plus (C) the aggregate of all amounts of the unutilized Discretionary Excess Equity Proceeds Balance and the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Investments pursuant to this subparagraph (x) (provided that the total of all amounts of the unutilized Discretionary Equity Proceeds Balance which the Company may elect to apply pursuant to this clause (C) shall not exceed, at any time, an amount equal to 50% of the sum of the Closing Date Excess Equity Proceeds Amount and the aggregate amount, as of such time, of all net cash proceeds received by the Company or any of its Subsidiaries after the Closing Date from all Equity Offerings after the Closing Date (exclusive of any shares sold pursuant to an overallotment option in respect of the Common Stock Offering) plus (D) the aggregate amount of Royalty and Management Fees on a consolidated basis previously paid after the Closing Date by Foreign Subsidiaries to the Company and its Subsidiaries; and provided, further, that nothing set forth in this subparagraph (x) shall be construed to permit the transfer to any Foreign Subsidiary of any asset which constitutes Collateral; (xi) The Company and its Domestic Subsidiaries may make and own Investments in any Foreign Subsidiary consisting of the transfer of tangible assets to such Foreign Subsidiary; provided that (A) the aggregate book value of all such tangible assets so transferred after the Closing Date pursuant to this subparagraph (xi) (determined, in each case, as of the date of transfer) after the Closing Date shall not exceed $10,000,000, (B) the aggregate Fair Value (as so determined) of all such tangible assets so transferred after the Closing Date pursuant to this subparagraph (xi) shall not exceed $25,000,000, and (C) if any such assets shall constitute, at the time of such transfer, Collateral, the Company shall have complied with the provisions of Section 5.13 concerning releases of Collateral; (xii) The Company and its Subsidiaries may make and own Investments in equity securities (other than equity securities of the Company or any of its Subsidiaries) listed on the New York Stock Exchange ("NYSE"); provided that the aggregate value, as determined by the closing price on the NYSE for such equity securities on the Business Day prior to making the Investment, of such equity securities shall not at any time exceed $2,000,000; (xiii) The Company or any Subsidiary may continue to own Investments in, and may make and own Investments in, Consolidated Capital Expenditures permitted to be made or owned by the Company or such Subsidiary under Section 6.14 and may make Investments as a direct consequence of the discharge of Contingent Obligations permitted under Section 6.4; (xiv) The Company may make Investments constituting recourse and non-recourse loans to management and other employees of the Company to purchase Common Stock and to pay taxes in respect of such purchases as permitted by the Management Agreements in an aggregate principal amount not to exceed $10,000,000 (plus accrued and unpaid interest thereon) at any time outstanding; (xv) The Company and its Subsidiaries may make and own Investments in Receivables Subsidiaries in accordance with the provisions of Section 6.11; and (xvi) In addition to Investments permitted by subparagraphs (i) through (xv) of this Section 6.3, the Company and its Subsidiaries may after the Closing Date make and own Investments (other than Investments in Foreign Subsidiaries or other Persons, properties or operations that are not organized or located in the United States of America (exclusive of its territories and possessions)) (A) with an aggregate Fair Value (determined, in each case, at the time such Investment is made) of not more than $25,000,000 outstanding at any time, and (B) (without limiting the rights of the Company under clause (A) hereof) in an aggregate amount (determined, in each case, at the time such Investment is made) outstanding at any time not exceeding the aggregate of all amounts of the unutilized Discretionary Excess Equity Proceeds Balance and the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Investments pursuant to this subparagraph (xvi); provided that, except as set forth in subparagraph (xii) of this Section 6.3, neither the Company nor any of its Subsidiaries may make or own Investments in any Margin Stock other than Common Stock. Section 6.4 Contingent Obligations. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or become or be liable with respect to any Contingent Obligation except: (i) Guarantees resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Obligations under the Guarantor Subsidiary Guarantees; (iii) Guarantees of Interest Rate Agreements and Currency Agreements entered into by the Company which are permitted by subparagraphs (v) and (vi) of this Section 6.4; (iv) One or more Receivables Subsidiaries may become and remain liable for Contingent Obligations directly related to or comprising a portion of any Receivables Transaction; (v) Interest Rate Agreements and Currency Agreements (other than Leveraged Swaps) entered into by the Company and any Lender; (vi) Currency Agreements (other than Leveraged Swaps) entered into by the Company or any Subsidiary of the Company and any financial institution in the ordinary course of business or in connection with Asset Sales; (vii) Contingent reimbursement obligations not exceeding $10,000,000 in the aggregate outstanding at one time under letters of credit (including any such letters of credit in existence as of the date hereof) other than Letters of Credit under this Agreement; (viii) Contingent Obligations in existence on the date hereof described in Schedule G and extensions and renewals thereof so long as the amount of any such Contingent Obligations so extended or renewed is not increased thereby from the amount thereof at the time extended or renewed; (ix) Contingent Obligations in respect of any obligation (other than any obligation with respect to Indebtedness) of (A) the Company or one of its Domestic Subsidiaries and (B) Foreign Subsidiaries and Foreign Joint Ventures to the extent, in the case of clause (A) and (B), such Contingent Obligation is an Investment permitted under Section 6.3; (x) Contingent Obligations represented by performance bonds and similar obligations relating to the sale of the Company's or its Subsidiaries' products incurred in the ordinary course of business (exclusive of obligations for payment of borrowed money) not to exceed $10,000,000 at any time; (xi) Contingent Obligations represented by surety bonds and similar obligations incurred in the ordinary course of business (exclusive of obligations for payment of borrowed money) not to exceed $15,000,000 at any time; (xii) Contingent Obligations pursuant to the Management Agreements; (xiii) Contingent Obligations in respect of Indebtedness of (A) the Company or a Domestic Subsidiary of the Company and (B) Foreign Subsidiaries to the extent such Contingent Obligations are Investments permitted under Section 6.3; and (xiv) In addition to the Contingent Obligations permitted by subparagraphs (i) through (xiii) of this Section 6.4, the Company and its Subsidiaries may become and remain liable with respect to other Contingent Obligations except Contingent Obligations which constitute Investments in Foreign Subsidiaries pursuant to Section 6.3 or which are for the benefit of any Foreign Subsidiary of the Company; provided that the maximum aggregate liability of the Company and its Subsidiaries in respect of all Contingent Obligations incurred pursuant to this subparagraph (xiv) shall not at any time exceed $25,000,000. Section 6.5 Restricted Junior Payments. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment except that (A) during each of the first two twelve-month periods starting on the Closing Date, the Company may declare and pay cash dividends to holders of its Common Stock in an amount up to $3,000,000 for each such period, (B) during any twelve-month period commencing on or after the second anniversary of the Closing Date, the Company may declare and pay cash dividends to holders of its Common Stock in an annual amount not to exceed 6% of the sum of (1) $300,000,000 less the amount of all Transaction Costs reasonably determined by the Company to be attributable to the first $300,000,000 of gross proceeds of the Common Stock Offering and (2) the aggregate net cash proceeds of all issuances of Common Stock of the Company occurring after the Closing Date (excluding the Common Stock Offering and any Common Stock sold pursuant to an overallotment option in connection with the Common Stock Offering); provided that no dividend in excess of $3,000,000 that is proposed to be declared or paid pursuant to this clause (B) may be declared or paid unless at the date of declaration and the date of payment thereof the unutilized portion of the Revolving Loan Commitment shall equal or exceed $100,000,000, (C) the Company may, commencing on March 31, 1996 and on each March 31 thereafter, declare and pay cash dividends to holders of its Common Stock in an amount not to exceed the then unutilized portion of the Discretionary Excess Cash Flow Balance, (D) the Company may (1) repurchase or redeem the Senior Unsecured Notes, in each case on the terms provided in the indentures governing the Senior Unsecured Notes (each as in effect on the date hereof), with the proceeds of Refinancing Senior Unsecured Indebtedness incurred in compliance with the provisions of Section 6.1, (2) repurchase or redeem its Common Stock pursuant to the Management Agreements and the Stockholders Agreements (each as in effect on the date hereof or, in the case of the Broad-Based Plan, the date of adoption thereof) to the extent that the aggregate amount of such repurchases and redemptions does not exceed $35,000,000 in the aggregate (as measured from the Closing Date) and (3) make purchases of Common Stock owned by MS Group for immediate resale to Persons other than the Company or a Subsidiary of the Company, (E) the Company may issue Indebtedness permitted under subparagraph (viii) of Section 6.1, (F) the Company may make Investments under subparagraph (xiv) of Section 6.3, (G) the Company may make, from time to time, Restricted Junior Payments of the character contemplated in clauses (A) and (D)(1) above and, following the retirement of all the Senior Unsecured Notes, the Company may repurchase or redeem Subordinated Indebtedness in an aggregate amount not exceeding, at any time, the aggregate of all amounts of the unutilized Discretionary Excess Equity Proceeds Balance which the Company has from time to time elected to apply to the making of Restricted Junior Payments pursuant to this clause (G); provided that if and for so long as the Company shall have achieved the Investment Grade Ratings in respect of the senior unsecured debt obligations of the Company, the Company shall not be required, as a condition to any exercise of its rights under this clause (G) with respect to redemptions and repurchases of Subordinated Indebtedness, to first refinance, repurchase or retire all Senior Unsecured Notes and all Refinancing Senior Unsecured Notes, (H) the Company may, from time to time, make Restricted Junior Payments of the character contemplated in clauses (A) and (D)(1) above, and the Company may repurchase or redeem Subordinated Indebtedness in an aggregate amount not exceeding at any time, the aggregate of all amounts of the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Restricted Junior Payments pursuant to this clause (H) and (I) the Company may redeem the 12 5/8% Subordinated Debentures and the 14 1/8% Discount Debentures as contemplated by the Recapitalization. Notwithstanding the foregoing, the Company may not declare or pay any dividends or redeem or repurchase any Securities or issue any Indebtedness or make any Investments referred to above (1) except to the extent permitted by applicable law or (2) if, at the time of such declaration or payment or redemption, repurchase, issuance or investment and immediately after giving effect thereto, no Potential Event of Default or Event of Default shall have occurred and be continuing. Section 6.6 Financial Covenants. 6.6.1. Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio to be less than (A) for the first and second full fiscal quarters (taken as one accounting period) beginning after the Closing Date, 1.25, (B) for the first, second, and third full fiscal quarters (taken as one accounting period) beginning after the Closing Date, 1.25, and (C) for any period of four consecutive full fiscal quarters (in each case taken as one accounting period) beginning after the Closing Date and ended during a period set forth below, the ratio set forth opposite such period: Period Ratio 12/31/95 - 12/30/96 1.40x 12/31/96 - 12/30/97 1.50x 12/31/97 - 12/30/98 1.60x 12/31/98 - 12/30/99 1.75x 12/31/99 - 12/30/00 1.85x 12/31/00 and thereafter 2.00x 6.6.2. Maximum Leverage Ratio. The Company will not permit the Leverage Ratio as of the end of any fiscal quarter set forth during any period below to be more than the ratio set forth opposite such period: Period Ratio 12/31/94 - 12/30/95 4.25x 12/31/95 - 12/30/96 4.00x 12/31/96 - 12/30/97 3.50x 12/31/97 - 12/30/98 3.00x 12/31/98 - 12/30/99 2.75x 12/31/99 - 12/30/00 2.50x 12/31/00 and thereafter 2.00x Section 6.7 Restriction on Fundamental Changes. Subject to Section 5.2, neither the Company nor any of its Subsidiaries will enter into any transaction of merger or consolidate, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or fixed assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, except: 6.7.1. The Company and the other Sellers, on the one hand, and any Receivables Subsidiary, on the other hand, may enter into and perform one or more Receivables Transactions; 6.7.2. Any Subsidiary of the Company (other than a Receivables Subsidiary) may be merged or consolidated with or into the Company or any Wholly Owned Subsidiary of the Company (other than a Foreign Subsidiary or a Receivables Subsidiary), or be liquidated, wound up or dissolved, or all or substantially all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Company or any Wholly Owned Subsidiary of the Company (other than a Foreign Subsidiary or a Receivables Subsidiary); provided that (A) any Foreign Subsidiary of the Company (other than a Foreign Subsidiary that is a Material Subsidiary) may be merged or consolidated with or into any other Foreign Subsidiary, or be liquidated, wound up or dissolved, or (B) all or substantially all of the business, property or assets of any Foreign Subsidiary (other than a Foreign Subsidiary that is a Material Subsidiary) may be conveyed, sold, leased, or transferred or otherwise disposed of, in one transaction or a series of transactions to another Foreign Subsidiary (other than to a Foreign Subsidiary that is also a Material Subsidiary) or (C) any of the foregoing transactions may occur between two Foreign Subsidiaries that are Material Subsidiaries; and provided, further, that, in the case of such a merger or consolidation of a Subsidiary and the Company, the Company shall be the continuing or surviving corporation, or, in the case of a merger or consolidation of a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation, or, in the case of a merger or consolidation of two Wholly Owned Subsidiaries, either of such Subsidiaries shall be the surviving or continuing corporation; and provided, further, that, in the case of such a merger or consolidation or disposition of a majority of the stock of a Guarantor Subsidiary or of substantially all of the business, property or assets of a Guarantor Subsidiary (A) the continuing, surviving or transferee corporation shall expressly assume the obligations of such Guarantor Subsidiary under the relevant Guarantor Subsidiary Guarantee and (B) in the case of a merger or consolidation, the net worth of the continuing or surviving corporation (calculated without giving effect to any increase in the amount of Intercompany Indebtedness for which the continuing or surviving corporation is liable as compared to the amount of Intercompany Indebtedness for which such Guarantor Subsidiary was liable immediately prior to such merger or consolidation) shall not be less than the net worth of such Guarantor Subsidiary immediately prior to such merger or consolidation; and provided, further, that, subject to the terms of the applicable Collateral Document, in the case of such a merger or consolidation or disposition of a majority of the stock of a Subsidiary or of all or substantially all of the business, property or assets of such a Subsidiary of the Company, the stock of which is pledged to secure the Obligations, the stock of the continuing, surviving or transferee corporation shall, at the time of consummation of such merger, consolidation or transfer, be pledged to secure the Obligations; 6.7.3. The Company or any of its Subsidiaries may convey, sell, transfer or otherwise dispose of any Margin Stock, whether now owned or hereafter acquired; provided that such disposition is for Fair Value; 6.7.4. The Company and its Subsidiaries may sell or dispose of in the ordinary course of business (A) property which is obsolete or no longer useful in any of its businesses or is of de minimis value (as determined, in the case of any such property the Fair Value of which is in excess of $10,000,000, in good faith by the Board of Directors of the Company or any Subsidiary selling such property, as the case may be), (B) Cash and Cash Equivalents, (C) other Investments described in subparagraphs (viii), (ix) and (xii) of Section 6.3; provided that any such sale or other disposition is made for at least the Fair Value of such assets and (D) Receivables subject to the requirements of Section 6.11; 6.7.5. Subject to Sections 5.2 and 6.7 so long as no Event of Default has occurred and is continuing or shall be caused thereby, the Company and its Subsidiaries may sell or otherwise dispose of any of their respective assets outside the ordinary course of business; provided that (A) any such sale or other disposition is made for at least the Fair Value of such assets, (B) any sale or other disposition of more than $250,000,000 in Fair Value of stock or other assets in any one transaction or a related series of transactions shall be subject to the prior written consent of Requisite Lenders unless such sale or other disposition is of Margin Stock, (C) in the case of an Expansion Transaction or disposition of tangible Collateral shall be subject to the requirements of Sections 5.12 and 5.13, respectively, and (D) in the case of any Receivables shall be subject to the requirements of Section 6.11; 6.7.6. The Company and its Subsidiaries may sell, resell or otherwise dispose of real or personal property held for sale or resale in the ordinary course of business; and 6.7.7. The Company and its Subsidiaries may make Investments otherwise permitted pursuant to Section 6.3 and Capital Expenditures otherwise permitted pursuant to Section 6.14. Section 6.8 ERISA. The Company will not, and will not permit any of its ERISA Affiliates to: 6.8.1. engage in any transaction in connection with which the Company or any of its ERISA Affiliates could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in either case in an aggregate amount in excess of $1,000,000; 6.8.2. fail to make full payment when due of all amounts which, under the provisions of any Pension Plan, or under ERISA or the Internal Revenue Code, the Company or any of its ERISA Affiliates is required to pay as contributions thereto; or permit to exist any accumulated funding deficiencies for which a waiver from the Internal Revenue Service has not been obtained with respect to all Pension Plans in an aggregate amount greater than $5,000,000; 6.8.3. permit the sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) to exceed $25,000,000; or 6.8.4. fail to make any payments in an amount individually or in the aggregate greater than $1,000,000 to any Multiemployer Plan that the Company or any of its ERISA Affiliates may be required to make under such Multiemployer Plan, any agreement relating to such Multiemployer Plan, or any law pertaining thereto. As used in this Section 6.8, the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Internal Revenue Code, and the term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA. Section 6.9 Restriction on Leases. The Company will not, and will not permit any of its Subsidiaries to, become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations as or of the lessee under any lease (other than intercompany leases between and among the Company and its Domestic Subsidiaries (other than a Receivables Subsidiary)), whether an Operating Lease or a Capital Lease, unless, immediately after giving effect to the incurrence of liability with respect to such lease, the Consolidated Rental Payments at the time in effect during the then current fiscal year of the Company shall not exceed the applicable amount set forth below: Fiscal Year Amount 1995 $ 50,000,000 1996 $ 55,000,000 1997 $ 60,000,000 1998 $ 65,000,000 1999 $ 70,000,000 2000 $ 75,000,000 2001 $ 80,000,000 2002 $ 85,000,000 Notwithstanding the foregoing, if the Company or any of its Subsidiaries shall have sold any Subsidiary or any line of business to any Person (other than the Company or any Subsidiary), each of the above amounts with respect to any period from or after the date of such sale shall be reduced by an amount equal to the reasonable good faith estimates by the Company (using such methods as the Administrative Agent may reasonably approve) of Consolidated Rental Payments of such Subsidiary or such line of business for such periods. Section 6.10 Sales and Leasebacks. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real or personal or mixed), whether now owned or hereafter acquired in a Sale/Leaseback Transaction; provided that the Company or any of its Subsidiaries may enter into Sale/Leaseback Transactions otherwise prohibited under this Section 6.10 if (A) the assets to be subject to such Sale/Leaseback Transaction are acquired, constructed or placed in service after the Closing Date, (B) the provisions of Section 6.9 would not be breached thereby, (C) in the case of assets located at any Mill subject to a Mill Mortgage, the Company has complied with the applicable provisions of Section 5.12 of this Agreement, and (D) if such Sale/Leaseback involves an Asset Sale the Net Cash Proceeds of Sale of such Sale/Leaseback Transaction are applied as required by Section 2.7.2(a). Section 6.11 Sale or Discount of Receivables; Receivables Transactions. 6.11.1. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell with or without recourse, or discount or otherwise sell for less than the face value thereof, notes or accounts receivable except notes issued in favor of the Company or any of its Subsidiaries in connection with sales or other dispositions of assets (other than inventory) so long as the Company or such Subsidiary, as the case may be, receives the Fair Value of such notes and such notes are sold without recourse. 6.11.2. Notwithstanding the foregoing, the Company and its Subsidiaries shall be entitled to enter into and perform (and sell and transfer notes or accounts receivables in accordance with) (i) the 1995 A/R Bridge and (ii) Receivables Transactions pursuant to a Receivables Program to be established and administered substantially in accordance with, and to have the characteristics set forth in, the Receivables Term Sheet and to make contributions to any Receivables Subsidiary from the funds received in connection therewith; provided that, for purposes of this Agreement only one Receivables Program may be in effect at any time. 6.11.3. So long as any Receivables Program shall remain in effect, the Company shall cause the Administrative Agent and the Lenders to have a valid and perfected first Lien on the equity securities of each Receivables Subsidiary (except to the extent otherwise provided in the proviso to the definition of Receivables Subsidiary). Section 6.12 Transactions with Shareholders and Affiliates. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity securities of the Company or with any Affiliate of the Company or of any such holder, on terms that are less favorable to the Company or such Subsidiary, as the case may be, than those which might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (A) any transaction between the Company and any of its Wholly Owned Subsidiaries or between any of its Wholly Owned Subsidiaries, (B) customary fees paid to members of the Board of Directors of the Company and its Subsidiaries, (C) the payment of fees to MS group or its Affiliates from time to time for financial, consulting and underwriting services, such fees not to exceed the then usual and customary fees of MS Group or its Affiliates for similar services, (D) transactions contemplated by the Management Agreements and the Stockholders Agreement, (E) transactions permitted by Section 6.5 and (F) any transaction necessary to consummate a Receivables Transaction pursuant to the Receivables Term Sheet. Section 6.13 Disposal of Subsidiary Stock. Except as permitted by Section 5.6, 5.11, 6.2 or 6.7 and as provided in the Collateral Documents and except with respect to Margin Stock, the Company will not: 6.13.1. directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of (or warrants, rights or options to acquire shares or other equity securities of) any of its Subsidiaries, except to qualify directors if required by applicable law; or 6.13.2. permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other securities of (or warrants, rights or options to acquire shares or other securities of) such Subsidiary, except to the Company, another Wholly Owned Subsidiary of the Company or to qualify directors if required by applicable law, except for equity interests in any Subsidiary of a Receivables Subsidiary as contemplated by the Receivables Program. Nothing in this Section 6.13 shall prohibit the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries or the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. Section 6.14 Limitation on Capital Expenditures. 6.14.1. The Company will not, and will not permit any of its Subsidiaries to, incur Capital Expenditures, except as specifically permitted in the following subsections of this Section 6.14. 6.14.2. Any one or more of the Foreign Subsidiaries of the Company may incur Capital Expenditures in such amounts and for such purposes as shall be determined by the Company or any such Foreign Subsidiary in its discretion; provided, however, that the Company and its Subsidiaries shall comply and have complied in all respects with the provisions of subsections (x) and (xi) of Section 6.3 in respect thereof to the extent applicable to such Capital Expenditures. 6.14.3. During each fiscal year of the Company ending on or after December 31, 1995, the Company and its Domestic Subsidiaries may incur on or after January 1, 1995, in respect of (A) the Green Bay Sludge Boiler, (B) the Savannah Boiler and (C) other matters not constituting Expansion Projects, Consolidated Domestic Capital Expenditures in an aggregate amount not in excess of $75,000,000 (the "Base Annual Capex Amount"). 6.14.4. Without limiting the rights of the Company and its Domestic Subsidiaries to incur Consolidated Domestic Capital Expenditures in accordance with subsection 6.14.3 above, the Company and its Domestic Subsidiaries may incur Consolidated Domestic Capital Expenditures in respect of Expansion Projects (other than the Green Bay Sludge Boiler and the Savannah Boiler) on the following terms and subject to each of the following conditions: (i) the aggregate amount (the "Domestic Capex Maximum") of Consolidated Domestic Capital Expenditures in the aggregate which may be incurred in respect of all such Expansion Projects shall not at any time exceed the sum of (a) $250,000,000 plus (b) the total amount of net cash proceeds received by the Company or any of its Subsidiaries after the Closing Date and prior to such time in respect of Permitted Expansion Financings (other than any Permitted Expansion Financings relating solely to the Green Bay Sludge Boiler or the Savannah Boiler); (ii) except for Capital Expenditures incurred in connection with the Initial Major Expansion Project or the Green Bay Dry Form Machine, neither the Company nor any of its Domestic Subsidiaries shall be permitted to incur, or become bound by any Contractual Obligation to incur, Consolidated Domestic Capital Expenditures in respect of any single such Expansion Project (the first of such Expansion Projects, the "Second Expansion Project") in excess of $30,000,000, unless the Company shall have, in respect of any period of four full consecutive fiscal quarters of the Company commencing after the Closing Date and ending with the quarter immediately preceding the quarter in which such amount in excess of $30,000,000 is first committed to be spent by the Company, achieved an Interest Coverage Ratio of 1.9 or greater, (it being understood that, if such Interest Coverage Ratio shall have been so achieved, the Company shall not be required to maintain such Interest Coverage Ratio as a condition to incurring further expenditures in respect of the Second Expansion Project); and (iii) except for Capital Expenditures incurred in connection with the Initial Major Expansion Project or the Second Expansion Project (to the extent permitted under clause (ii) above), neither the Company nor any of its Domestic Subsidiaries shall be permitted to incur, or become bound by any Contractual Obligation to incur, Consolidated Domestic Capital Expenditures in respect of any single Expansion Project in excess of $30,000,000 unless the Company shall have, in respect of any period of four consecutive fiscal quarters of the Company commencing on or after the Closing Date and ending after the quarter immediately preceding the quarter in which such amount in excess of $30,000,000 is first spent or committed to be spent by the Company in respect of such Expansion Project, achieved an Interest Coverage Ratio of 2.15 or greater (it being understood that, if such Interest Coverage Ratio shall have been so achieved, the Company shall not be required to maintain such Interest Coverage Ratio as a condition to incurring further expenditures in respect of such Expansion Project). 6.14.5. The Company may elect by written notice to the Lenders to apply to the making of Consolidated Domestic Capital Expenditures, in addition to the Base Annual Capex Amount and the Domestic Capex Maximum permitted under subsection 6.14.3 and 6.14.4, as applicable, (A) portions of the then unutilized Discretionary Excess Equity Proceeds Balance and the then unutilized Discretionary Excess Cash Flow Balance and (B) 100% of the unused amount (the "Capex Carryover Amount") of Consolidated Domestic Capital Expenditures, if any, in respect of prior fiscal years (beginning with fiscal year 1995) permitted under subsection 6.14.3. 6.14.6. For purposes of this Section 6.14 only, "Capital Expenditures" shall exclude expenditures of insurance proceeds received upon destruction of property to the extent such proceeds are used to effect restoration, replacement or repair of such property. Section 6.15 Conduct of Business. The Company will not, and will not permit any of its Subsidiaries (other than any Receivables Subsidiary) to, engage in any business other than (A) the business it and its Subsidiaries are engaged in on the date hereof as described in the Prospectus and similar or related businesses, (B) such other businesses as are engaged in by it and its Subsidiaries on the date hereof as shall not be of a nature which are material to it and its Subsidiaries and (C) such other lines of business as may be consented to by the Requisite Lenders (such consent not to be unreasonably withheld). The Company will not permit the Receivables Subsidiaries to engage in any business other than as contemplated by the Receivables Program. Section 6.16 Amendments or Waivers of Certain Documents; Prepayments of Indebtedness. 6.16.1. Neither the Company nor any of its Subsidiaries will agree to any (A) amendment to provisions of the Management Agreements imposing any additional obligation on the Company with respect to the acquisition by the Company or any of its Subsidiaries of any capital stock of the Company to the extent the aggregate amount of all such additional obligations would cause the Company to exceed the limitation on repurchases or redemptions of its Common Stock set forth in subclause (D)(2) of Section 6.5 (it being understood that any and all such additional obligations will be taken into account in determining whether such limitation has been exceeded), or (B) amendment to provisions of the Stockholders' Agreement which is materially adverse to the interests of the Lenders. 6.16.2. Neither the Company nor any of its Subsidiaries will (A) amend or otherwise change the terms of the Subordinated Notes or the indentures relating thereto, the Existing Subordinated Debt or the indentures relating thereto, the Senior Unsecured Notes or the indentures related thereto, any Refinancing Senior Unsecured Debt, any Permitted Expansion Financing, any Expansion Lease, the documents evidencing the 1995 A/R Bridge, the 1988 Revenue Bonds or the 1988 Revenue Bond Indenture, if the effect of such amendment or change is to increase the interest rate on such Indebtedness or the rental amounts due thereunder, as the case may be, change the dates upon which payments of rent, principal or interest are due thereon, change any event of default or condition to an event of default with respect to such Indebtedness or Expansion Lease, grant any security interest in favor of such Indebtedness, change the redemption provisions thereof, change the subordination provisions thereof, cause such Indebtedness or Expansion Lease to be guaranteed by any Subsidiary of the Company or which, together with all other amendments or changes made, increase materially the obligations of the obligor or confer additional rights on the holder of such Indebtedness or Expansion Lease which would be adverse to the Company or the Lenders or (B) except as otherwise expressly permitted in this Agreement, defease, or make any payments the effect of which is to defease, any such Indebtedness in whole or in part (whether pursuant to the defeasance provisions of such Indebtedness or otherwise). 6.16.3. Except for the making of Restricted Junior Payments expressly permitted under Section 6.5, the Company will not make any payment or prepayment of principal of, or interest on, or premium (if any) on, any of the Subordinated Notes except, in each case, for (A) regularly scheduled payments of principal, if any, and interest in accordance with the terms of the instruments evidencing or governing such Indebtedness and (B) payment of principal on the scheduled final maturity date of such Indebtedness in accordance with the terms of the governing instruments with respect thereto and (C) any mandatory payment or prepayment required to be made as a result of acceleration pursuant to the terms of the instruments governing such Indebtedness as in effect on the date hereof. 6.16.4. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on, the Senior Unsecured Notes or the Refinancing Senior Unsecured Debt, except, in each case, for (A) a refinancing of the Senior Unsecured Notes with the proceeds of Refinancing Senior Unsecured Debt permitted under Section 6.5, (B) regularly scheduled payments of interest in accordance with the terms of the applicable Senior Unsecured Notes Indenture or the instruments governing the Refinancing Senior Unsecured Debt, as the case may be, (C) payment of principal on the scheduled final maturity date of the Senior Unsecured Notes or the Refinancing Senior Unsecured Debt, in each case, in accordance with the terms of the applicable loan agreement, indenture or other governing instruments and (D) any mandatory payment or prepayment required to be made as a result of acceleration pursuant to the terms of the applicable Senior Unsecured Notes Indenture or the instruments governing the Refinancing Senior Unsecured Debt, as the case may be, in each case as in effect on the date hereof. 6.16.5. Neither the Company nor any of its Subsidiaries will voluntarily terminate any Expansion Lease or otherwise optionally make, either directly or indirectly, any payment to acquire or otherwise reacquire any assets leased by the Company under any Expansion Lease or any interest therein (including, without limitation, any beneficial interest therein) or any Indebtedness secured thereby, or make any optional prepayment of any rental obligation under any Expansion Lease to any other party to any Expansion Lease. 6.16.6. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on, any Indebtedness constituting Permitted Expansion Financing except for (A) regularly scheduled payments of principal, if any, and interest in accordance with the terms of the instruments governing such Indebtedness, (B) payment of principal on the scheduled final maturity date of such Indebtedness in accordance with the terms of the instruments governing such Indebtedness and (C) any mandatory payment or prepayment required to be made as a result of acceleration pursuant to the terms of the instruments governing such Indebtedness. 6.16.7. Neither the Company nor any of its Subsidiaries will (A) make any payment or prepayment of principal of, or interest on, any Indebtedness incurred in connection with a Receivables Transaction except for (1) regularly scheduled payments of interest thereon or (2) mandatory [or optional] prepayments or prepayments required to be made as a result of acceleration in each case as contemplated in the Receivables Term Sheet [, provided that no such optional prepayment may be made unless (i) there is no reduction in the commitment amount or other availability under the Receivables Program for the Company to obtain funds secured directly or indirectly by Program Receivables and (ii) the Company intends to reborrow or refund with new Indebtedness the amount so prepaid] or (B) make or permit any amendment to the documentation governing any Receivables Transaction which would cause such documentation (after giving effect thereto) not to comply with the requirements herein set forth with respect to Receivables Subsidiaries and Receivables Transactions. 6.16.8. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on the 1995 A/R Bridge, except, in each case, for (A) a payment of principal at the final maturity or the refinancing of the 1995 A/R Bridge with the net cash proceeds of the sale of A/R Eligible Receivables, (B) a payment of principal at the final maturity or the refinancing of the 1995 A/R Bridge to be funded, at the option of the Company, with the proceeds of Revolving Loans; provided that the amount of such Revolving Loans shall not exceed the lesser of $15,000,000 and the difference between the then outstanding principal amount of the 1995 A/R Bridge and the net cash proceeds of a Receivables Transaction utilized to refinance the 1995 A/R Bridge; (C) regularly scheduled payments of interest in accordance with the terms of the 1995 A/R Bridge and (D) any mandatory payment or prepayment required to be made as a result of acceleration or otherwise pursuant to the terms of the 1995 A/R Bridge as in effect on the date hereof. Section 6.17 Payment of Cash Interest on Subordinated Debt. Except with the consent of the Requisite Lenders, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay any interest in cash on Subordinated Debt where the Company has the option to pay such interest in securities or to accrue the interest payable with respect to such Subordinated Debt. ARTICLE VII EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur and be continuing: Section 7.1 Failure To Make Payments When Due. Failure to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise or failure to pay for 5 days after the day when due any interest on any Loan or any other amount due under this Agreement; or Section 7.2 Default in Other Agreements. Failure of the Company or any of its Subsidiaries to pay when due (A) any principal or interest on any Indebtedness (other than Indebtedness referred to in Section 7.1 or Indebtedness of any Receivables Subsidiary) in an individual principal amount of $15,000,000 or more or items of Indebtedness with an aggregate principal amount of $30,000,000 or more or (B) any Contingent Obligation in an individual amount of $15,000,000 or more or Contingent Obligations with an aggregate amount of $30,000,000 or more, in each case at the stated maturity thereof or beyond the end of any period after which the obligee thereunder is permitted to accelerate payment thereunder, or breach or default of the Company or any of its Subsidiaries (other than any Receivables Subsidiary) with respect to any other material term of any loan agreement, mortgage, indenture or other agreement relating to any Indebtedness in an individual principal amount of $15,000,000 or more or items of Indebtedness with an aggregate principal amount of $30,000,000 or more or any Contingent Obligation in an individual amount of $15,000,000 or more or Contingent Obligations with an aggregate amount of $30,000,000 or more; if the effect of such failure, default or breach is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation (or a trustee on behalf of such holder or holders) then to cause, that Indebtedness or Contingent Obligation to become or be declared due prior to its stated maturity (or the stated maturity of any underlying obligation, as the case may be); or Section 7.3 Breach of Certain Covenants. Failure of the Company to perform or comply with any term or condition contained in Section 2.8, 5.2, 5.6 or 5.15, ARTICLE VI or Section 9.6 of this Agreement; or Section 7.4 Breach of Warranty. Any representation or warranty made by any Loan Party in any Loan Document or in any statement or certificate at any time given by such Person in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or Section 7.5 Other Defaults Under Agreement or Loan Documents. Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or other Loan Documents other than those referred to above in Sections 7.1, 7.3 or 7.4 and such default shall not have been remedied or waived within 30 days after receipt of notice from the Administrative Agent or any Lender of such default; or Section 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc. 7.6.1. A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company, or any of its Subsidiaries which, as of the date of entry of such decree or order, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or 7.6.2. An involuntary case is commenced against the Company or any of its Subsidiaries which, as of the date of such commencement, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of such Subsidiaries, or over all or a substantial part of the property of the Company or any of such Subsidiaries, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of such Subsidiaries for all or a substantial part of the property of the Company or any of such Subsidiaries is involuntarily appointed; or a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Company or any of such Subsidiaries, and the continuance of any such events in this subsection 7.6.2 for 60 days unless dismissed, bonded or discharged; or Section 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or any of its Subsidiaries which, as of the date of entry of such decree or order, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) shall have a decree or an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of a decree or an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by the Company or any of such Subsidiaries of any general assignment for the benefit of creditors; or the inability or failure of the Company or any of such Subsidiaries generally to pay its debts as such debts become due; or the Board of Directors of the Company or any of such Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any of the foregoing; or Section 7.8 Judgments and Attachments. Any money judgment, writ or warrant of attachment, or similar process involving (A) in any individual case an amount in excess of $10,000,000 or (B) in the aggregate at any time an amount in excess of $20,000,000 (in either case not adequately covered by insurance as to which the insurance company has acknowledged coverage) shall be entered or filed against the Company or any of its Subsidiaries which, as of the date of such entry or filing, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 30 days or in any event later than five days prior to the date of any proposed sale thereunder; or Section 7.9 Dissolution. Any order, judgment or decree shall be entered against the Company or any of its Subsidiaries which, as of the date of such entry, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) decreeing the dissolution or split up of the Company or such Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or Section 7.10 Unfunded ERISA Liabilities. 7.10.1. Any Pension Plan maintained by the Company or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA; or 7.10.2. A trustee shall be appointed by an appropriate United States district court to administer any Pension Plan; or 7.10.3. The Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or 7.10.4. The Company or any of its respective ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan; or 7.10.5. The Termination Event that is described in clause (E) of the definition of "Termination Event" shall have occurred and be continuing; if as of the date thereof or any subsequent date, the sum of each of the Company's and its ERISA Affiliates' various liabilities (such liabilities to include, without limitation, any liability to the Pension Benefit Guaranty Corporation (or any successor thereto) or to any other party under ERISA or the Internal Revenue Code and to be calculated after giving effect to the tax consequences thereof) resulting from all such events listed in subsections 7.10.1 through 7.10.5 above exceeds $25,000,000; or Section 7.11 Withdrawal Liability Under Multiemployer Plan. The Company or any of its ERISA Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability requiring annual payments in an amount individually or in the aggregate exceeding $1,500,000 in any one year; unless (A) prior to the time any payment of such withdrawal liability is due in accordance with Section 4219(c)(2) of ERISA, the plan sponsor agrees in writing that the correct amount of the annual payment is less than $1,500,000, or (B) prior to the time any payment of such withdrawal liability is due in accordance with Section 4219(c)(2) of ERISA, a court of competent jurisdiction has enjoined and continues to enjoin the collection of such payment, or (C) Section 4219 of ERISA has been amended to provide that notification that such withdrawing employer has incurred a withdrawal liability would not, in the ordinary course or with the lapse of time, require the payment; provided that, in the event of such an amendment, an Event of Default shall be deemed to occur when any payment of such withdrawal liability becomes due or would, in the ordinary course or with the lapse of time, become due; or Section 7.12 Invalidity of Guarantees. Any Guarantor Subsidiary Guarantee for any reason, other than the satisfaction in full of all Obligations and termination of this Agreement, ceases to be in full force and effect or is declared to be null and void, or any Guarantor Subsidiary denies or disaffirms any of its obligations under the Guarantor Subsidiary Guarantee to which it is party or gives notice to such effect; or Section 7.13 Failure of Security. Any Pledge Agreement, Mortgage or any other Collateral Document shall, at any time, cease to be in full force and effect or shall be declared null and void, or the legality, validity or enforceability thereof shall be contested by any Loan Party or the Administrative Agent, as agent for the Lenders, shall not have or shall cease to have valid and perfected (to the extent required by the Collateral Documents) Lien in the Collateral with a fair market value or book value (whichever is greater) of more than $20,000,000 in the aggregate of the priority contemplated by the applicable Collateral Document in each case for any reason other than the failure of the Administrative Agent to take any action within its control, or any Loan Party shall fail to perform or observe in any material respect any Collateral Document; or Section 7.14 Change in Control. If there shall occur any Change in Control; THEN (A) upon the occurrence of and during the continuance of any Event of Default described in the foregoing Section 7.6 or 7.7 (other than the last clause of Section 7.7), each of (1) the unpaid principal amount of and accrued interest on the Loans and (2) an amount equal to the maximum amount which may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts of other documents required to draw under such Letter of Credit) shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company and the obligation of each Lender to make any Loan and the obligation of any Fronting Bank to issue any Letter of Credit hereunder shall thereupon terminate, and (B) upon the occurrence of and during the continuance of any other Event of Default, Requisite Lenders may, by written notice to the Company, declare all of the Loans and an amount equal to the amounts described in subclause (2) to be, and the same shall forthwith become, due and payable, together with accrued interest thereon and the obligation of each Lender to make any Loan and the obligation of any Fronting Bank to issue any Letter of Credit hereunder shall thereupon terminate; provided that the foregoing shall not affect in any way the obligations of Lenders to purchase from any Fronting Bank participations in the unreimbursed amount of any drawings under any Letters of Credit as provided in subsection 2.2.5. Whether or not any Loans or other Obligations shall have been accelerated or become due as set forth above, upon the occurrence and during the continuance of any Event of Default, the Administrative Agent or any Lender may exercise any remedy available under the Loan Documents or applicable law in respect thereof (including, without limitation, foreclosure of the Liens in respect of the Collateral). If at any time within 60 days after acceleration of the maturity of any Loan, the Company shall pay all arrears of interest and all payments on account of the principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all Events of Default and Potential Events of Default (other than non-payment of principal of and accrued interest on the Loans and the Notes, and payments of amounts referred to in subclause (2) above, in each case due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 9.6, then the Requisite Lenders by written notice to the Company may rescind and annul the acceleration and its consequences, but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. ARTICLE VIII THE ADMINISTRATIVE AGENT Section 8.1 Appointment. Bankers is hereby appointed the Administrative Agent hereunder by each Lender, and each Lender hereby authorizes the Administrative Agent to act hereunder and under the other instruments and agreements referred to herein as its agent hereunder and thereunder. Bankers is hereby authorized, as the Administrative Agent to execute consents to service of process and such other documents on behalf of Lenders, as may be required by law or as may be necessary or desirable. Bankers agrees to act as such upon the express conditions contained in this ARTICLE VIII and in the Collateral Documents. The provisions of this ARTICLE VIII, except as provided in subsections 8.6.2 and 8.6.3 and Section 8.7 where the consent of the Company is required, are solely for the benefit of the Administrative Agent, and the Company shall not have any rights as a third party beneficiary of any of the provisions hereof except for those contained in subsections 8.6.2 and 8.6.3 and Section 8.7 where the consent of the Company is required. In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Company. Section 8.2 Powers; General Immunity. 8.2.1. Duties Specified. Each Lender irrevocably authorizes the Administrative Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other instruments and agreements referred to herein as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have only those duties and responsibilities which are expressly specified in this Agreement and the Collateral Documents and it may perform such duties by or through its agents or employees. The duties of the Administrative Agent shall be mechanical and administrative in nature; and the Administrative Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or the other instruments and agreements referred to herein except as expressly set forth herein or therein. 8.2.2. No Responsibility for Certain Matters. The Administrative Agent shall not be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement, the Collateral Documents or the Notes issued hereunder, or for the issuance of Letters of Credit and such Lender's purchase of participations therein, if any, or for the perfection or priority of any Lien created or purported to be created by any Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to Lenders or by or on behalf of the Company or any of its Subsidiaries to the Administrative Agent or any Lender, or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Event of Default or Potential Event of Default. 8.2.3. Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees or agents shall be liable to the Lenders for any action taken or omitted hereunder or in connection herewith (including, without limitation, any act or omission under the Collateral Documents) unless caused by its or their gross negligence or willful misconduct. If the Administrative Agent shall request instructions from the Lenders with respect to any act or action (including the failure to take an action) in connection with this Agreement or the other instruments and agreements referred to herein, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Requisite Lenders. Without prejudice to the generality of the foregoing, (A) the Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Company), accountants, experts and other professional advisors selected by it and (B) no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or (where so instructed) refraining from acting under this Agreement or the other instruments and agreements referred to herein in accordance with the instructions of the Requisite Lenders. The Administrative Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or the other instruments and agreements referred to herein unless and until it has obtained the instructions of the Requisite Lenders. 8.2.4. Administrative Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Administrative Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans or any Letter of Credit, the Administrative Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any Subsidiary or Affiliate of the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company or any such Subsidiary or Affiliate for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. Section 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Company and its Subsidiaries in connection with the making of the Loans and other disbursements on the Closing Date and thereafter and the issuance of Letters of Credit hereunder and has made and shall continue to make its own appraisal of the creditworthiness of each of them. The Administrative Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto whether coming into its possession before the making of the Loans and other disbursements on the Closing Date and thereafter or the issuance of any Letter of Credit or any time or times thereafter, and the Administrative Agent shall have no responsibility with respect to the accuracy of or the completeness of the information provided to Lenders. Section 8.4 Right to Indemnity. Each Lender severally agrees to indemnify the Administrative Agent, on its demand and as incurred proportionately to its Credit Exposure Amount, to the extent the Administrative Agent shall not have been reimbursed by the Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in performing its duties hereunder or in any way relating to or arising out of this Agreement or any other Loan Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that result from the Administrative Agent's gross negligence or willful misconduct. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. Section 8.5 Registered Holder of Note Treated as Owner. The Administrative Agent may deem and treat the registered holder of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been registered with the Administrative Agent. Any request, authority or consent of any person or entity who at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor. Section 8.6 Resignation by Administrative Agent. 8.6.1. The Administrative Agent may resign from the performance of all its functions and duties hereunder at any time by giving 15 Business Days' prior written notice to the Company and the Lenders. Such resignation shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to subsections 8.6.2 and 8.6.3 below or as otherwise provided below. 8.6.2. Upon any such notice of resignation, the Requisite Lenders shall appoint a successor Administrative Agent acceptable to the Company in its reasonable discretion and which shall be an incorporated bank or trust company. 8.6.3. If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the resigning Administrative Agent with the consent of the Company, shall then appoint a successor Administrative Agent who shall serve as the Administrative Agent until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. 8.6.4. If no successor Administrative Agent has been appointed pursuant to subsection 8.6.2 or 8.6.3 by the 20th Business Day after the date such notice of resignation was given by the resigning Administrative Agent, the Administrative Agent's resignation shall become effective and Requisite Lenders shall thereafter perform all the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. Section 8.7 Guarantor Subsidiary Guarantee and Collateral Documents. Each Lender hereby authorizes the Administrative Agent to act as Collateral Trustee on behalf of and for the benefit of such Lender. Each Lender hereby authorizes (A) the Collateral Trustee to enter into the Collateral Documents and to take all action contemplated by the Collateral Documents and (B) the Administrative Agent to enter into the Guarantor Subsidiary Guarantee; provided that the Collateral Trustee shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Collateral Documents without the prior consent of the Requisite Lenders. Each Lender agrees that no Lender shall have any right individually to seek or to enforce the Guarantor Subsidiary Guarantee or to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Lenders upon the terms of the Guarantor Subsidiary Guarantee and by the Collateral Trustee upon the terms of the Collateral Documents. The Collateral Trustee may assign its rights and obligations as the collateral agent under any of the Collateral Documents to any direct or indirect Subsidiary of the Collateral Trustee or to any trustee, with (in the case of any such assignment occurring prior to the occurrence and continuance of an Event of Default) the consent of the Company (which consent will not be unreasonably withheld or delayed), which assignee, in each such case, shall be entitled to all the rights of the Collateral Trustee under the applicable Collateral Document and all right hereunder of the Collateral Trustee with respect to the applicable Collateral Document. Section 8.8 Successor Administrative Agent. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent, and the retiring or removed Administrative Agent shall be discharged from its duties and obligations as the Administrative Agent under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as the Administrative Agent the provisions of this ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. ARTICLE IX MISCELLANEOUS Section 9.1 Successors and Assigns; Participations. 9.1.1. This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent and all future registered holders of the Notes and their respective successors and registered assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. 9.1.2. Any Lender may at any time sell to one or more banks or other entities ("Participants") participating interests in its Revolving Loan Commitment and Revolving Loans, Term Loan Commitments, Tranche A Term Loans, Tranche B Term Loans, any Letter of Credit or participation therein or any other right of such Lender hereunder or thereunder; provided that no sale of participating interests in any Letter of Credit or participations therein may be made separately from the sale of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the registered holder of any such Note and such interest in such Letter of Credit for all purposes under this Agreement, and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement, the Notes or the Letters of Credit are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the 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 and any Note or Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note or Letter of Credit; provided that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Sec- tions 9.4 and 9.5 hereof. The Company also agrees that each Participant shall be entitled to the benefits, subject to any limitations set forth therein, of Sections 2.2, 2.9 and 2.10 hereof with respect to its participation in the Adjusted LIBOR Loans and ABR Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater payment under any of such Sections than the relevant Lender would have been entitled to receive with respect to the relevant Loans, unless such participation is made with the Company's prior written consent. Each Lender agrees that any agreement between such Lender and any such Participant in respect of such participating interest shall refer to this Agreement and shall not restrict such Lender's right to agree to any amendment, supplement or modification to this Agreement or any of the Loan Documents except (A) to extend the final maturity of any Loan or Note, or any installment thereof, or of any Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Credit Maturity Date), in which such Participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Events of Default or of a mandatory reduction in Total Loan Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the Participant's participation is not increased as a result thereof), or (B) to consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement. Each Lender agrees to use commercially reasonable efforts to include and require in each participation agreement delivered by it pursuant to this subsection 9.1.2 to a Participant that is not a commercial bank a specific acknowledgement by such Participant (and by each other Person that may obtain, directly or indirectly from such Participant, an interest in any one or more Commitments and Loans) of the representations, warranties, covenants and agreements deemed to be made by such Participant pursuant to the provisions of Section 9.23; provided that no Lender shall have any liability hereunder in respect of any act or omission of, or state of facts or circumstances relating to, any Person to whom the holder of any such participating interest may grant or sell sub-participating interests. 9.1.3. (a) Any Lender may (A) without the consent of any Person, at any time, assign to any Lender or any Affiliate thereof and (B) with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed) to one or more additional banks or financial institutions (all such Affiliates, Lenders and additional banks or financial institutions being "Purchasing Lenders"), all or any part of its Credit Exposure pursuant to a Registered Transfer Supplement, substantially in the form of Exhibit XVIII annexed hereto (any such Registered Transfer Supplement, a "Registered Transfer Supplement"), executed by such Purchasing Lender, such transferor Lender and the Administrative Agent and in compliance with subsection 9.1.5; provided that (1) each such assignment pursuant to clause (A) above shall be limited to an amount equal to the lesser of (x) such Lender's Credit Exposure Amount then in effect and (y) a minimum amount of $5,000,000 and integral multiples of $1,000,000 above such amount, (2) such transferor Lender and Purchasing Lender deliver to the Administrative Agent the tax documentation required by paragraph (e) of subsection 2.9.7, if applicable, (3) in the case of assignments of Revolving Loan Commitments or Revolving Loans, such transferor Lender obtains, additionally, the consent of each Lender then constituting a Fronting Bank, (4) no such consent of the Company will be required if a Potential Event of Default or an Event of Default shall have occurred and be continuing and (5) the Company shall be entitled to withhold its consent to any such proposed assignment for any reason or no reason if (x) immediately after giving effect thereto, the Purchasing Lender would be an Affected Lender or the Company or other Loan Parties would be required to make payments pursuant to or on behalf of such Purchasing Lender pursuant to subsection 2.9.7 and (y) the transferor Lender was not an Affected Lender as to which the Company has declined or failed to exercise its rights pursuant to Section 2.11 and was not, at the time of such assignment, entitled to receive any payments pursuant to paragraph (a), (b) or (c) of subsection 2.9.7. Subject to compliance with the foregoing sentence, upon (A) such execution of such Registered Transfer Supplement, (B) delivery of an executed copy thereof to the Company, (C) payment by such Purchasing Lender to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Purchasing Lender, (D) the receipt of a processing and recording fee of $2,500 by the Administrative Agent and (E) recordation of assignment in the Register pursuant to subsection 9.1.5, such Purchasing Lender shall for all purposes be a Lender party to this Agreement and shall have all the rights (including, without limitation, the benefits of Section 2.10) and obligations of a Lender under this Agreement to the same extent as if it were an original party hereto with the Tranche A Funding Percentage, Tranche B Funding Percentage, Revolving Loan Commitment, Adjusted Revolving Loan Percentage, Credit Exposure Amount, A Credit Exposure Amount and B Credit Exposure Amount set forth in such Registered Transfer Supplement, and no further consent or action by the Company, the Lenders or the Administrative Agent shall be required. Such Registered Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of the Tranche A Funding Percentages, Tranche B Funding Percentages, Revolving Loan Commitments, Adjusted Revolving Loan Percentages, Credit Exposure Amounts, A Credit Exposure Amounts and B Credit Exposure Amounts arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Commitments, the Notes and the Letters of Credit. Upon the consummation of any transfer to a Purchasing Lender pursuant to this subsection 9.1.3, the transferor Lender, the Administrative Agent and the Company shall make appropriate arrangements as required under subsection 9.1.5 so that a replacement Note is issued to such transferor Lender and a new Note or, as appropriate, a replacement Note, issued to such Purchasing Lender, in each case in principal amounts reflecting their Tranche A Funding Percentages, Tranche B Funding Percentages, Revolving Loan Commitments, Adjusted Revolving Loan Percentages, Credit Exposure Amounts, A Credit Exposure Amounts and B Credit Exposure Amounts or, as appropriate, their outstanding Loans, as adjusted pursuant to such Registered Transfer Supplement. (b) In addition to the assignments permitted under paragraph (a) of subsection 9.1.3 above, any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank without the prior written consent of the Company, the Administrative Agent, any Fronting Bank or Bankers; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Federal Reserve Bank for such Lender as a party or entitle such Federal Reserve Bank to require such Lender to take or omit to take any action hereunder. 9.1.4. The Company authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and any Subsidiary of the Company which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or any other Loan Document or which has been delivered to such Lender by the Company in connection with such Lender's credit evaluation of the Company and its Subsidiaries prior to entering into this Agreement; provided that if such information is confidential information as contemplated by Section 9.17 hereof, such Lender may so disclose such information only if such Transferee or prospective Transferee previously agrees in writing to be bound by the terms of Section 9.17. 9.1.5. (a) The Company and other Loan Parties hereby designate the Administrative Agent to serve as the Company's agent, solely for purposes of this subsection 9.1.5, to maintain a register (the "Register") on which the Administrative Agent will record the Commitments from time to time of each Lender, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and to retain a copy of each Registered Transfer Supplement delivered to the Administrative Agent pursuant to this subsection. Failure to make any such recordation, or any error in such recordation shall not affect the Company's obligations in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the other Loan Parties, the Administrative Agent, the Fronting Banks and the Lenders shall treat each Person in whose name a Loan and the Note evidencing the same is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. With respect to any Lender, the assignment or other transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made and Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and, except to the extent provided in this subsection 9.1.5, otherwise complies with subsec- tion 9.1.3, and prior to such recordation all amounts owing to the transferor Lender with respect to such Commitments, Loans and Notes shall remain owing to the transferor Lender. The registration of assignment or other transfer of all or part of any Commitments, Loans and Notes for a Lender shall be recorded by the Administrative Agent on the Register only upon the acceptance by Agent of a properly executed and delivered Registered Transfer Supplement substantially in the form of Exhibit XVIII annexed hereto. Coincident with the delivery of such Registered Transfer Supplement to the Administrative Agent for acceptance and registration of assignment or sale of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. The Company agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities or whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this subsection 9.1.5 (other than losses, claims, damages and liabilities arising from acts or omissions that represent gross negligence or willful misconduct on the part of the Administrative Agent). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Company and any Lender at any reasonable time upon reasonable prior notice to the Administrative Agent. (b) The Company may not replace any Lender pursuant to Section 2.11 or Section 9.22, unless, with respect to any Notes held by such Lender, the requirements of subsection 9.1.5(a) have been satisfied. Section 9.2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (A) all the actual and reasonable costs and expenses of preparation of the Loan Documents and all the costs of furnishing all opinions by counsel for the Company and the other Loan Parties (including, without limitation, any opinions requested by Requisite Lenders as provided in ARTICLE III hereof as to any legal matters arising hereunder), (B) the reasonable fees, expenses and disbursements of CG&R in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans hereunder, and any amendments and waivers hereto or thereto, (C) all the actual costs and expenses of creating, perfecting, continuing and maintaining Liens in favor of Lenders pursuant to any Loan Document, including filing and recording fees and expenses (other than Muskogee/Oklahoma Mortgage Recording Taxes, which shall be paid by Bankers, for the account of the Lenders), title insurance, fees and expenses of counsel for providing such opinions as Requisite Lenders may reasonably request as provided therein and reasonable fees and expenses of CG&R, and (D) after the occurrence of an Event of Default, all costs and expenses (including, without limitation, reasonable attorneys fees, including allocated costs of internal counsel, and, with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed), costs of settlement) incurred by the Lenders and/or the Administrative Agent in enforcing any Obligations of or in collecting any payments due from the Company hereunder or under the Notes or any of the other Loan Documents by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement, including, without limitation, in the nature of a "work-out" or of any insolvency or bankruptcy proceedings. Section 9.3 Indemnity. In addition to the payment of expenses pursuant to Section 9.2, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold the Administrative Agent, and each Person who is or was a Lender and any holder of any of the Notes, and the officers, directors, employees, agents, and affiliates of such Person and such holders (collectively called the "Indemnitees"), upon their demand and as incurred, harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), which may be imposed on, incurred by, or asserted against such Indemnitee, in any manner relating to or arising out of this Agreement, the other Loan Documents, the Lenders' agreement to make the Loans or other disbursements on the Closing Date or thereafter or issue the Letters of Credit or the use or intended use of the proceeds of any of the Loans or disbursements hereunder or use or intended use of the Letters of Credit (the "indemnified liabilities"); provided that the Company shall have no obligation to an Indemnitee hereunder with respect to indemnified liabilities that result from the gross negligence or willful misconduct of that Indemnitee or from claims, litigation, investigations or proceedings made or initiated by, as the case may be, one Indemnitee against any other Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them except to the extent set forth in the proviso to the next preceding sentence. Section 9.4 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Lender is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, without limitation, Indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of the Company against and on account of the obligations and liabilities of the Company to such Lender or that subsequent holder under this Agreement and the Notes and the Letters of Credit, including, without limitation, all claims of any nature or description arising out of or connected with this Agreement or the Notes, irrespective of whether or not (A) such Lender shall have made any demand hereunder or (B) such Lender shall have declared the principal or the interest on the Loans and Notes, any obligation of the Company with respect to the Letters of Credit and other amounts due hereunder to be due and payable as permitted by ARTICLE VII and although said obligations and liabilities, or any of them, may be contingent or unmatured. Section 9.5 Ratable Sharing. 9.5.1. Each Lender and each subsequent holder by acceptance of a Note agree among themselves that (A) with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Notes and amounts payable in respect of Letters of Credit and commitment commissions with respect to the Commitments, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Lenders proportionately to their respective interests in the Notes, the Tranche A Term Loans, the Revolving Loans or the Tranche B Term Loans, as the same may appear, whether received by voluntary payment, by the exercise of the right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Notes, (B) if any of them shall exercise any right of counterclaim, set-off, banker's lien or similar right with respect to amounts owed by the Company hereunder or under the Notes relating to any facility hereunder or in respect of the Letters of Credit, such Lender or holder, as the case may be, shall apportion the amount recovered as a result of the exercise of such right pro rata in accordance with all amounts outstanding at such time owed by the Company in respect of such facility, and (C) if any of them shall thereby through the exercise of any right of counterclaim, set-off, banker's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal and interest due with respect to the Notes held by the Lender relating to any facility hereunder, the amount of any Letter of Credit or any participation therein or any amount payable hereunder, as the case may be, which is greater than the proportion received by any other holder of the Notes relating to the same facility in respect to such aggregate amount of principal and interest due with respect to such Notes held by it, the amount of any Letter of Credit or any participation therein or any amount payable hereunder, such Lender or such holder of such Notes receiving such proportionately greater payments shall (1) notify each other applicable Lender and the Administrative Agent of such receipt and (2) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the Notes relating to such facility held by the other holders and in Letters of Credit issued by other Lenders so that all such recoveries of principal and interest with respect to such Notes and reimbursement of amounts drawn under or payable with respect to Letters of Credit, if applicable, shall be proportionate to their respective interests in such facility or the Letters of Credit, as the case may be; provided that, if all or part of such proportionately greater payment received by such purchasing holder is thereafter recovered from such holder, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that holder to the extent of such recovery, but without interest. The Company expressly consents to the foregoing arrangement and agrees that any holder of a participation in any such Note or Letter of Credit, as the case may be, so purchased and any other subsequent holder of a participation in any Note otherwise acquired may to the extent permitted by applicable law, exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Company to such holder as fully as if that holder were a holder of such a Note in the amount of the participation held by such holder. Any amounts required to be shared or used to purchase participations pursuant to this subsection 9.5.1 (in each case, in connection with Revolving Loans, Swing Line Loans and Letters of Credit) shall be applied first, to all Lenders (other than Defaulting Lenders), ratably in respect of all such amounts then due and payable to each such lender and second, to the Defaulting Lenders, ratably for any amount due and payable to such Lenders. 9.5.2. Notwithstanding anything to the contrary contained herein, the provisions of the preceding subsection 9.5.1 shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders. Section 9.6 Amendments and Waivers. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Company and the Requisite Lenders; provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) affected thereby, (A) extend the Tranche A Term Maturity Date, the Tranche B Term Maturity Date or the Revolving Credit Maturity Date (it being understood that any waiver of the application of any prepayment of or collateralization for or the method of application of any prepayment to the amortization of the Loans or other Obligations shall not constitute any such extension), or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Potential Event of Default or Event of Default or of a mandatory reduction in the Total Commitments or a waiver of the type contemplated in the second next preceding parenthetical shall not constitute a change in the terms of any Commitment of any Lender), (B) release or permit the release of all or substantially all of the Collateral or release any Guarantor Subsidiary from its Guarantor Subsidiary Guarantee (in each case except as expressly provided in the Loan Documents), (C) amend, modify or waive any provision of this Section, (D) reduce the percentage specified in, or otherwise modify, the definition of Requisite Lenders, Credit Exposure Amount, A Credit Exposure Amount, B Credit Exposure Amount, Tranche A Funding Percentage, Tranche B Funding Percentage or Adjusted Revolving Loan Percentage or (E) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement; and provided, further, that no such change, waiver, discharge or termination shall amend, modify or waive any of the terms contained in subsection 2.1.5 or Section 2.7 or the definition of Scheduled Term Loans Principal Payment (x) without the consent of the Required A Lenders (to the extent that, in any such case, such amendment, modification or waiver would reduce, or change the time of payment of, any amounts received by Lenders owning Tranche A Term Loans) or (y) without the consent of the Required B Lenders (to the extent that, in any case, such amendment, modification or waiver would reduce, or change the time of payment of, any amount received by Lenders owning Tranche B Term Loans). Any amendment, modification, termination or waiver of any of the provisions contained in ARTICLE III shall be effective only if evidenced by a writing signed by or on behalf of the Administrative Agent and the Requisite Lenders. No amendment, modification, termination or waiver of any provision of ARTICLE VIII hereof shall be effective without the written concurrence of the Administrative Agent. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Company in any case shall entitle the Company to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 9.6 shall be binding upon each holder of the Notes at the time outstanding, each future holder of the Notes, and, if signed by the Company, on the Company. Section 9.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is prohibited by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise outside the limitation of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. Section 9.8 Change in Accounting Principles; Fiscal Year or Tax Laws. If (A) any change in the accounting principles under GAAP used in preparation of the financial statements referred to in Section 4.3 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in ARTICLES I, V and VI hereof, or (B) there is a material change in federal tax laws which materially affects the Company's ability to comply with the financial covenants, standards or terms found in ARTICLE I, V or VI hereof, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such changes as if such changes had not been made; provided that, unless and until an agreement is reached following such negotiations, such provisions shall remain unchanged and in full force and effect. Section 9.9 Notices. Unless otherwise provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given (A) when delivered in person or a legible copy is received by telecopy or telex or (B) four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that notices to the Administrative Agent shall not be effective until received by the Administrative Agent. For the purposes hereof, the address of each of the parties hereto (until notice of a change thereof is delivered as provided in this Section 9.9) shall be set forth under such party's name on the signature pages hereto. Section 9.10 Survival of Warranties and Certain Agreements. Notwithstanding anything in this Agreement or implied by law to the contrary and without limiting any survival provision set forth in any Collateral Document, the agreements of the Company set forth in subsections 2.2.8, 2.2.9, 2.8.4, 2.9.2, 2.9.5, 2.9.7 and 2.9.9 and Sections 9.2 and 9.3 and the agreements of Lenders set forth in subsections 2.9.7, 2.9.8, 2.9.11, 8.2.3 and 9.1.2 (last sentence only) and Sections 8.4, 9.4 and 9.5 shall survive the payment of the Loans and the Notes, the cancellation or expiration of the Letters of Credit and the reimbursement of any amount drawn thereunder and the termination of this Agreement. Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Lender or any holder of any Note in the exercise of any power, right or privilege under any Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under any Loan Document are cumulative to and not exclusive of, any rights or remedies otherwise available. Section 9.12 Severability. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not, to the extent permitted by law, in any way be affected or impaired thereby. Section 9.13 Obligations Several; Independent Nature of the Lenders' Rights. The obligation of each Lender hereunder is several, and no Lender shall be responsible for the obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement and no action taken by Lenders pursuant hereto shall be deemed to constitute Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Notwithstanding the foregoing, each Lender agrees that no Lender shall have any right individually to realize upon the security granted by the Collateral Documents, it being understood and agreed that such rights and remedies may only be exercised by the Administrative Agent for the benefit of the Lenders. Section 9.14 Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Section 9.15 Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. Section 9.16 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY WITH RESPECT TO THIS AGREEMENT, ANY NOTE OR ANY LETTER OF CREDIT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY ACCEPTS (TO THE MAXIMUM EXTENT PERMITTED BY LAW) FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. THE COMPANY DESIGNATES AND APPOINTS [THE PRENTICE HALL CORPORATION SYSTEM, ONE GULF & WESTERN PLAZA, NEW YORK, NEW YORK 10023-7773] AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY IRREVOCABLY AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE COMPANY AT ITS ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY THE COMPANY REFUSES TO ACCEPT SERVICE, THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. Section 9.17 Confidentiality. Subject to Section 9.1, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Company in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event, subject to Section 9.1, may make disclosure reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Note or participation therein or in any Obligation or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Company of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information so that either or both of them may seek an appropriate protective order; and provided, further, that in no event shall any Lender be obligated or required to return any materials furnished by the Company or any of its Subsidiaries. Section 9.18 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto, and written or telephonic notification of such execution and authorization of delivery thereof has been received by the Company and the Administrative Agent and all applicable conditions to such effectiveness have been satisfied. Section 9.19 Determinations Pursuant to Collateral Documents. In each circumstance where, under any provision of a Collateral Document, the Collateral Trustee shall have the right to grant or withhold any consent, exercise any remedy, make any determination or direct any action under such Collateral Document, the Collateral Trustee shall act in respect of such consent, exercise of remedies, determination or action, as the case may be, only with the consent of or at the direction of the Requisite Lenders; provided that no consent of any party shall be required with respect to any consent, determination or other matter that is, in the reasonable judgment of the Collateral Trustee, ministerial or administrative in nature. In each circumstance where any consent of or direction from the Requisite Lenders is required, the Collateral Trustee shall send to the Lenders a notice setting forth a description in reasonable detail of the matter as to which consent or direction is requested and the Collateral Trustee's proposed course of action with respect thereto. In the event the Collateral Trustee shall not have received a response from any Lender within ten Business Days after the giving of such notice, such Lender shall be deemed to have agreed to the course of action proposed by the Collateral Trustee. Each Lender hereby authorizes the Collateral Trustee to execute and deliver one or more intercreditor agreements of the character contemplated in the Receivables Term Sheet. Section 9.20 Certain Obligations of Company. Nothing in this Agreement shall be construed to limit any obligation of the Company set forth in any Collateral Document. Section 9.21 Waiver of Jury Trial. Each of the Company and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or related to any of the Loan Documents or the actions of the Administrative Agent, any Arranger and any Lender in the negotiation, administration, performance or enforcement hereof and thereof. Section 9.22 Defaulting Lenders. 9.22.1. If any Lender becomes a Defaulting Lender, the Company shall have the right to replace such Lender (the "Replaced Lender"), in accordance with the requirements of Section 9.1, if no Event of Default or Potential Event of Default will exist after giving effect to such replacement, with one or more other Lenders or Purchasing Lenders, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender"), reasonably acceptable to the Administrative Agent; provided that (A) at the time of any replacement pursuant to this Section 9.22, the Replacement Lender shall execute and deliver one or more Registered Transfer Supplements pursuant to Section 9.1 (and with the fee payable pursuant to said Section 9.1 to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans of, and participations in Letters of Credit by, the Replaced Lenders and, in connection therewith, shall pay to (1) the Replaced Lender in respect thereof an amount equal to the sum of (x) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, (y) an amount equal to all unreimbursed drawings that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (z) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender pursuant to Section 2.6 and subsection 2.2.6, (2) the Fronting Bank an amount equal to such Replaced Lender's Adjusted Revolving Loan Percentage of any then unreimbursed drawings under Letters of Credit to the extent such amount was not theretofore funded by such Replaced Lender and (3) Bankers an amount equal to such Replaced Lender's Adjusted Revolving Loan Percentage of any Swing Line Loans as to which Bankers has exercised the option set forth in subsection 2.12.5 to the extent such amount was not theretofore funded by such Replaced Lender, and (B) all obligations of the Company owing to the Replaced Lender (other than those specifically described in clause (A) above in respect of which the transfer purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. 9.22.2. Upon the execution of the respective Registered Transfer Supplements, the payment of amounts referred to in clauses (A) and (B) of subsection 9.22.1 and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the Company, (A) the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Lender, and (B) the Adjusted Revolving Loan Percentages of the Lenders shall be automatically adjusted at such time to give effect to such replacement (and to give effect to the replacement of a Defaulting Lender with one or more Non-Defaulting Lenders). 9.22.3. Nothing herein shall relieve any Defaulting Lender of its liability to the Company for all damages suffered by the Company as a result of the Lender Default of such Defaulting Lender. Section 9.23 Lenders' ERISA Matters. 9.23.1. Lenders' Representations and Warranties. Except as otherwise provided in subsection 9.23.2, each Lender and each Transferee, solely with respect to itself, severally represents and warrants that one or more of the following is true with respect to all of the funds used to make or purchase any interest in any Loan (or one or more of the following is true with respect to each portion of the funds used to make or purchase such interest in such Loan if such funds are from more than one source): (i) no part of the funds to be used by it constitutes under the Internal Revenue Code or ERISA the assets of any Plan; or (ii) (A) the funds to be used by it constitute, under the Internal Revenue Code or ERISA, the assets of an insurance company pooled separate account, as such term is used in Prohibited Transaction Class Exemption 90-1 issued by the U.S. Department of Labor, or a "collective investment fund," as defined in Section IV of Prohibited Transaction Class Exemption 91-38 issued by the U.S. Department of Labor, in which a Plan has an interest, and (B) such Loan or interest therein is, and the subsequent holding of the Note or any agreement related thereto shall at all times thereafter be, entitled to full relief under Prohibited Transaction Class Exemption 90-1 or 91-38, as applicable; or (iii) (A) the funds to be used by it for any Loan or interest therein which constitute, under the Internal Revenue Code or ERISA, the assets of any Plan are invested in an investment fund which is managed by a "Qualified Professional Asset Manager" as such term is defined in Prohibited Transaction Class Exemption 84-14 issued by the U.S. Department of Labor, and (B) such Loan or interest therein is and the subsequent holding of the Note or any agreement related thereto shall at all times thereafter be, exempt under Prohibited Transaction Class Exemption 84-14 to the fullest extent provided therein. 9.23.2. General Account Assets. A Lender or Transferee which is an insurance company subject to state regulation that is making or purchasing an interest in a Loan with General Account Assets represents with respect to the portion of its assets constituting General Account Assets, in lieu of making a representation under subsection 9.23.1 with respect thereto, that one of the following is true: (i) no part of the General Account Assets used to make or purchase such interest in a Loan will be from assets allocated to a segment of its general account in which one or more Plans has any interest, other than an interest which will not result in the Note relating thereto being deemed to be the assets of any such Plan; or (ii) such Lender or Transferee is an "insurance company" and such General Account Assets are assets of an "insurance company general account" as defined in Section V of Proposed Class Exemption for Certain Transactions Involving Insurance Company General Accounts issued by the U.S. Department of Labor, 59 Federal Register 43134, August 22, 1994 (Application No. D-9662) ("Proposed Prohibited Transaction Exemption D-9662") and such Loan or interest therein is, and shall at all times thereafter satisfy the requirements to be and shall be exempt under the Proposed Prohibited Transaction Exemption D-9662 to the fullest extent provided therein (assuming for this purpose that the Proposed Prohibited Transaction Exemption D-9662 was granted as a final prohibited transaction exemption by the U.S. Department of Labor on the date and in the form it was proposed). 9.23.3. Representations of Transferees. Each Person that becomes a Transferee hereunder shall be deemed to make, effective upon the acceptance of any assignment of an interest hereunder or the entering into of any participation agreement contemplated in subsection 9.1.2, the representations and warranties set forth in subsection 9.23.1 or, with respect to General Account Assets used to acquire its interest or participation, subsection 9.23.2. Such deemed representation shall be effective against, and binding on, such Transferee to the same extent as if such Transferee had executed an original counterpart of this Agreement. 9.23.4. Additional ERISA Representations. Each Lender that now or hereafter makes or maintains any Loan with any assets of any Plan (i) represents and warrants that it has evaluated for itself the merits of making or maintaining such Loan; has not solicited and has not received from the Company, MS Group or any of their Affiliates, any evaluation or other investment advice on any basis in respect of the advisability of making or maintaining such Loan; and is not relying and has not relied on the Company, MS Group or any of their Affiliates for any investment advice with respect to making or maintaining such Loan in any manner that would cause the Company, MS Group or any of their Affiliates to become a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of the Internal Revenue Code) in connection with making or maintaining such Loan and (ii) acknowledges and confirms that none of the Company, MS Group or any of their Affiliates is acting as a "fiduciary" (within the meaning of ERISA, the Internal Revenue Code or any other applicable law or any rulings or regulations thereunder) for such Lender in connection with making or maintaining such Loan. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWER: FORT HOWARD CORPORATION By: ___________________________ Title: ________________________ Notice Address: Attention: EX-4.7 4 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Exhibit 4.7 $60,000,000 RECEIVABLES CREDIT AGREEMENT Dated as of March 8, 1995, among FORT HOWARD CORPORATION and BANKERS TRUST COMPANY, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and CHEMICAL BANK, as Lenders, and BANKERS TRUST COMPANY, as Administrative Agent - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- FORT HOWARD CORPORATION RECEIVABLES CREDIT AGREEMENT dated as of March 8, 1995 TABLE OF CONTENTS Heading Page INTRODUCTION................................ RECITALS.................................... ARTICLE I DEFINITIONS................................. Section 1.1 Certain Defined Terms....................... Section 1.2 Accounting Terms............................ Section 1.3 Other Definitional Provisions; Anniversaries............................ Section 1.4 Adjustment for Special Reserve.............. Section 1.5 Currency Equivalent Generally............... ARTICLE II COMMITMENTS AND LOANS; NOTES................ Section 2.1 Loans and Notes............................. 2.1.1 Loan Commitments............................ 2.1.2 Notice of Borrowing......................... 2.1.3 Disbursement of Funds....................... 2.1.4 Notes....................................... 2.1.5 Maturity Date............................... Section 2.2 Total Loan Commitments; Limitations on Outstanding Loan Amounts............................. Section 2.3 Interest on the Loans....................... 2.3.1 Rate of Interest............................ 2.3.2 Interest Periods............................ 2.3.3 Interest Payments........................... 2.3.4 Conversion or Continuation.................. 2.3.5 Post-Maturity Interest...................... 2.3.6 Computation of Interest..................... Heading Page Section 2.4 Commissions................................. 2.4.1 Commitment Commissions...................... 2.4.2 Bankers and Lenders' Commissions............ 2.4.3 No Refund of Fees........................... Section 2.5 Prepayments and Payments.................... 2.5.1 Voluntary Prepayments....................... 2.5.2 Mandatory Prepayments....................... 2.5.3 Company's Mandatory Prepayment Obligation; Application of Prepayments.............................. 2.5.4 Manner and Time of Payment.................. 2.5.5 Apportionment of Payments................... 2.5.6 Payments on Non-Business Days............... 2.5.7 Payment Accounts; Notation of Payment............. Section 2.6 Use of Proceeds............................. 2.6.1 The Loans................................... 2.6.2 Margin Regulations.......................... Section 2.7 Special Provisions Governing Adjusted LIBOR Loans.............................. 2.7.1 Determination of Interest Rate.............. 2.7.2 Increased Costs............................. 2.7.3 Required Termination and Prepayment......... 2.7.4 Options of Company.......................... 2.7.5 Compensation................................ 2.7.6 Quotation of LIBOR.......................... 2.7.7 Taxes....................................... 2.7.8 Booking of Adjusted LIBOR Loans............. 2.7.9 Assumptions Concerning Funding of Adjusted LIBOR Loans..................... 2.7.10 Adjusted LIBOR Loans After an Event of Default.................................. 2.7.11 Affected Lender's Obligation to Mitigate................................. Section 2.8 Capital Requirements........................ Section 2.9 Replacement Rights of Company............... ARTICLE III CONDITIONS TO LOANS......................... Section 3.1 Conditions to Effectiveness of Agreement................................ Section 3.2 Conditions to the Loans..................... -ii- Heading Page ARTICLE IV REPRESENTATIONS AND WARRANTIES.............. Section 4.1 Organization, Powers, Good Standing, Business and Subsidiaries................ 4.1.1 Organization and Powers..................... 4.1.2 Good Standing............................... 4.1.3 Conduct of Business......................... 4.1.4 Subsidiaries................................ Section 4.2 Authorization of Borrowing, etc............. 4.2.1 Authorization of Borrowing.................. 4.2.2 No Conflict................................. 4.2.3 Governmental Consents....................... 4.2.4 Binding Obligation.......................... 4.2.5 Valid Issuance of Common Stock.............. Section 4.3 Financial Condition......................... Section 4.4 No Adverse Material Change; No Stock Payments................................. Section 4.5 Title to Properties; Liens.................. Section 4.6 Litigation; Adverse Facts................... Section 4.7 Payment of Taxes............................ Section 4.8 Performance of Agreements................... Section 4.9 Governmental Regulation..................... Section 4.10 Securities Activities....................... Section 4.11 Employee Benefit Plans...................... Section 4.12 Certain Fees................................ Section 4.13 Disclosure.................................. Section 4.14 Patents, Trademarks, etc.................... Section 4.15 Environmental Protection.................... Section 4.16 Security Interests.......................... Section 4.17 Solvency.................................... ARTICLE V AFFIRMATIVE COVENANTS....................... Section 5.1 Financial Statements and Other Reports............ Section 5.2 Corporate Existence, etc.................... Section 5.3 Payment of Taxes and Claims; Tax Consolidation............................ Section 5.4 Maintenance of Properties; Insurance........ Section 5.5 Inspection.................................. Section 5.6 No Further Negative Pledges................. Section 5.7 Compliance with Laws, etc................... Section 5.8 Lender Meeting.............................. Section 5.9 Security Interests.......................... -iii- Heading Page Section 5.10 Certain Dispositions of Collateral.......... Section 5.11 Recapitalization............................ Section 5.12 Collateral Reporting........................ Section 5.13 Cash Collateral............................. ARTICLE VI NEGATIVE COVENANTS.......................... Section 6.1 Indebtedness................................ Section 6.2 Liens....................................... Section 6.3 Investments; Joint Ventures................. Section 6.4 Contingent Obligations...................... Section 6.5 Restricted Junior Payments.................. Section 6.6 Financial Covenants......................... 6.6.1 Interest Coverage Ratio..................... 6.6.2 Maximum Leverage Ratio...................... Section 6.7 Restriction on Fundamental Changes.......... Section 6.8 ERISA....................................... Section 6.9 Restriction on Leases....................... Section 6.10 Sales and Leasebacks........................ Section 6.11 Sale or Discount of Receivables............. Section 6.12 Transactions with Shareholders and Affiliates............................... Section 6.13 Disposal of Subsidiary Stock................ Section 6.14 Limitation on Capital Expenditures.......... Section 6.15 Conduct of Business......................... Section 6.16 Amendments or Waivers of Certain Documents; Prepayments of Indebtedness............................. Section 6.17 Payment of Cash Interest on Subordinated Debt........................ ARTICLE VII EVENTS OF DEFAULT........................... Section 7.1 Failure To Make Payments When Due........... Section 7.2 Default in Other Agreements................. Section 7.3 Breach of Certain Covenants................. Section 7.4 Breach of Warranty.......................... Section 7.5 Other Defaults Under Agreement or Loan Documents................................ Section 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc............................ -iv- Heading Page Section 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc............................ Section 7.8 Judgments and Attachments................... Section 7.9 Dissolution................................. Section 7.10 Unfunded ERISA Liabilities.................. Section 7.11 Withdrawal Liability Under Multiemployer Plan....................... Section 7.12 Failure of Security......................... Section 7.13 Change in Control........................... ARTICLE VIII THE ADMINISTRATIVE AGENT.................... Section 8.1 Appointment................................. Section 8.2 Powers; General Immunity.................... 8.2.1 Duties Specified............................ 8.2.2 No Responsibility for Certain Matters............. 8.2.3 Exculpatory Provisions...................... 8.2.4 Administrative Agent Entitled to Act as Lender................................... Section 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness......................... Section 8.4 Right to Indemnity.......................... Section 8.5 Registered Holder of Note Treated as Owner.................................... Section 8.6 Resignation by Administrative Agent......... Section 8.7 Collateral Documents........................ Section 8.8 Successor Administrative Agent.............. ARTICLE IX MISCELLANEOUS............................... Section 9.1 Successors and Assigns; Participations............ Section 9.2 Expenses.................................... Section 9.3 Indemnity................................... Section 9.4 Set Off..................................... Section 9.5 Ratable Sharing............................. Section 9.6 Amendments and Waivers...................... Section 9.7 Independence of Covenants................... Section 9.8 Change in Accounting Principles; Fiscal Year or Tax Laws......................... Section 9.9 Notices..................................... -v- Heading Page Section 9.10 Survival of Warranties and Certain Agreements............................... Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative...................... Section 9.12 Severability................................ Section 9.13 Obligations Several; Independent Nature of the Lenders' Rights................... Section 9.14 Headings.................................... Section 9.15 Applicable Law.............................. Section 9.16 Consent to Jurisdiction and Service of Process.................................. Section 9.17 Confidentiality............................. Section 9.18 Counterparts; Effectiveness................. Section 9.19 Determinations Pursuant to Collateral Documents................................ Section 9.20 Certain Obligations of Company.............. Section 9.21 Waiver of Jury Trial........................ Section 9.22 Lenders' ERISA Matters...................... 9.22.1 Lenders' Representations and Warranties........... 9.22.2 General Account Assets...................... 9.22.3 Representations of Transferees.............. 9.22.4 Additional ERISA Representations............ SIGNATURE PAGES..................................................... SCHEDULES A SUBSIDIARIES B LENDERS' COMMITMENTS C EXISTING INDEBTEDNESS D EXISTING LIENS E EXISTING INVESTMENTS F CREDIT FACILITIES TO BE TERMINATED ON THE CLOSING DATE G CONTINGENT OBLIGATIONS EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTE IV FORM OF COMPLIANCE CERTIFICATE V FORM OF OPINION OF SHEARMAN & STERLING, COUNSEL TO FORT HOWARD VI FORM OF OPINION OF JAMES W. NELLEN, II, ESQ., COUNSEL TO FORT HOWARD - vi- VII FORM OF OPINION OF LOCAL COUNSEL TO FORT HOWARD VIII FORM OF OFFICER'S CLOSING CERTIFICATE IX FORM OF COMPANY RECEIVABLES PLEDGE AGREEMENT X FORM OF REGISTERED TRANSFER SUPPLEMENT XI FORM OF LETTER ESCROW AND SECURITY AGREEMENT XII FORM OF OFFICER'S FUNDING DATE CERTIFICATE XIII FORM OF OFFICER'S SECTION 5.1(iv) CERTIFICATE XIV FORM OF OFFICER'S SECTION 5.1(xiv) CERTIFICATE XV FORM OF STATUS CERTIFICATE XVI FORM OF BORROWING BASE CERTIFICATE XVII FORM OF CASH COLLATERAL AGREEMENT XVIII FAIR VALUE DETERMINATION PROCEDURES RECEIVABLES CREDIT AGREEMENT RECEIVABLES CREDIT AGREEMENT, dated as of March 8, 1995, by and among FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), BANKERS TRUST COMPANY ("Bankers"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BOA") and CHEMICAL BANK, as lenders (each, together with its successors and assigns, a "Lender"), and BANKERS TRUST COMPANY, as administrative agent for the Lenders (in such capacity and together with its successors in such capacity, the "Administrative Agent"). R E C I T A L S: A. The parties hereto desire to provide for, among other things, the Company to borrow on a term basis the Loans (as hereinafter defined) in an aggregate principal amount not to exceed $60,000,000. B. The Lenders desire that the Obligations (as hereinafter defined) be secured by a security interest in certain Receivables (as hereinafter defined) owned by the Company. A G R E E M E N T: The Company, the Lenders and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "ABR Loan" means any Loan bearing interest at a rate determined by reference to ABR in accordance with the provisions of subsection 2.3.1. "ABR Spread" means the percent per annum from time to time in effect pursuant to paragraph (d) of subsection 2.3.1. - 2 - "Adjusted Consolidated Net Income" means, for any period, Consolidated Net Income during such period, plus (minus) the amount of depreciation, depletion, amortization of intangibles, deferred taxes, accreted and zero coupon bond interest and other non-cash expenses (income), losses (gains) or charges (credits) that, pursuant to GAAP, were deducted (added) in determining such Consolidated Net Income. "Adjusted LIBOR" means, for any Interest Rate Determination Date, the rate per annum (rounded upward to the next higher one hundredth of one percent) obtained by dividing (A) LIBOR for such Interest Rate Determination Date by (B) a percentage equal to 100% minus the stated maximum rate, as of such Interest Rate Determination Date, of all reserves required to be maintained against "Eurocurrency Liabilities" as specified in Regulation D (or against any other category of liabilities specified in Regulation D which includes deposits by reference to which the interest rate on Adjusted LIBOR Loans is determined or any category of extensions of credit or other assets specified in Regulation D which includes loans by a non-United States office of any Lender to United States residents). "Adjusted LIBOR Borrowing" means a Borrowing comprised of Adjusted LIBOR Loans. "Adjusted LIBOR Loan" means any Loan bearing interest at a rate determined by reference to Adjusted LIBOR in accordance with the provisions of subsection 2.3.1. "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement. "Affected Lender" means any Lender affected by any of the events described in subsection 2.7.2 or subsection 2.7.3. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. No Lender or parent or Subsidiary of any Lender shall be treated as an Affiliate of the Company solely by virtue of its being a Lender or a parent or Subsidiary of a Lender. "Agreement" means this receivables credit agreement as from time to time in effect. - 3 - "Alternate Base Rate" or "ABR" means, 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, the term "Base CD Rate" means the sum of (A) the product of (1) the Three-Month Secondary CD Rate multiplied by (2) Statutory Reserves and (B) the Assessment Rate. The term "Three-Month Secondary CD Rate" means, 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 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 Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. The term "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by the Federal funds broker, 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 Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (B) or (C), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. - 4 - "Applicable Category" means, at any date of determination thereof, the category in the table appearing in paragraph (d) of subsection 2.3.1 having the lowest spreads and which, as of the last day of the fiscal quarter of the Company immediately preceding such date of determination, is applicable to the Company based upon both Ratio 1 and Ratio 2 for the period of four consecutive fiscal quarters of the Company ending on such last day. "Arrangers" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Assessment Rate" means for any date the annual rate most recently estimated by Bankers as the then-current net annual assessment rate that will be employed in determining amounts payable by Bankers to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in Dollars at Bankers' domestic offices. "Asset Sale" has the meaning assigned to such term in the Senior Credit as in effect on the date hereof. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination thereof, the quotient obtained by dividing (A) the sum of the products of (1) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (2) the amount of each such principal payment by (B) the sum of all such principal payments. "Bankers" means Bankers Trust Company, in its individual capacity. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Base Annual Capex Amount" has the meaning assigned to that term in subsection 6.14.3. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowing" means the borrowing of Loans hereunder. "Borrowing Base" means, as at any time, an amount equal to (i) the aggregate amount of Eligible Receivables (as reflected in the most recent Borrowing Base Certificate - 5 - delivered to the Administrative Agent, pursuant to Section 5.12, prior to such time), minus (ii) 25% of such aggregate amount, minus (iii) the Additional Reserve, if any, as at such time. As used herein, "Additional Reserve" means, as at any time, an amount that, (x) on the basis of any increase (as compared to the historical levels as of the Closing Date) (other than a de minimis increase) in the aggregate amounts or ratios of defaulting or delinquent Receivables, dilutions or liabilities of the Company to its customers that may be asserted against the Receivables or any other change (other than a de minimis change) in the characteristics of Receivables or Eligible Receivables or the speed of collections or similar applicable circumstances deemed relevant by the Administrative Agent in its reasonable judgment, the Administrative Agent has determined (after giving effect to the deduction referred to in clause (ii) above, the deductions referred to in the definition of "Eligible Receivable" and the amount then on deposit, pursuant to Section 5.13, in the Cash Collateral Account) is required to be deducted from the Borrowing Base as at such time in order to insure that the collections received from time to time shall suffice for the payment hereunder in a timely fashion of the principal of and interest on the Loans and all other amounts then or within the following month due hereunder. "Borrowing Base Certificate" means the certificates of the Company concerning the Company's Borrowing Base, which certificate shall be substantially in the form of Exhibit XVI, with such changes and schedules attached thereto as the Administrative Agent may from time to time reasonably require. "Business Day" means (A) for all purposes other than as covered by clause (B) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such State are authorized or required by law or other governmental action to close and (B) with respect to all notices, determinations, fundings and payments in connection with LIBOR, any day which is a Business Day described in clause (A) and which is also a day for trading by and between banks in Dollar deposits in the applicable London interbank market. "Capex Carryover Amount" has the meaning assigned to that term in subsection 6.14.5. "Capital Expenditures" means, in respect of any Person, (A) expenditures (whether paid in cash or accrued as a liability and including, without limitation, interest which is required to be capitalized under GAAP) by such Person which, in conformity with GAAP, are required to be included in "additions - 6 - to property, plant or equipment" or similar items reflected in a statement of changes in financial position of such Person and (B) to the extent not included in clause (A) above, any Indebtedness (whether or not recourse to such Person and whether or not assumed or guaranteed by such Person) secured by any asset acquired by such Person pursuant to any expenditure of the type described in clause (A) above, or owing by any entity acquired by such Person pursuant to any expenditure of the type described in clause (A) above (it being understood that each item covered in this clause (B) shall be deemed incurred as of the date of the applicable acquisition), provided that any Indebtedness referred to in this clause (B) owing by an entity acquired by such Person that is not a Wholly Owned Subsidiary of such Person shall only be included in an amount equal to the product of (1) such Person's direct or indirect percentage of equity ownership in such entity at the time such Indebtedness is incurred or deemed incurred and (2) the amount of such Indebtedness. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by such Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person. "Cash" means money, currency or a credit balance in a Deposit Account. "Cash Collateral Account" means that certain cash collateral account of the Company established and maintained pursuant to the Cash Collateral Agreement. "Cash Collateral Agreement" means the Cash Collateral Agreement substantially in the form of Exhibit XVII annexed hereto, executed and delivered by the Company, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Cash Equivalents" means (A) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof, (B) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (C) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either - 7 - Standard & Poor's Corporation or Moody's Investors Service, Inc., (D) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000, (E) Eurodollar time deposits having a maturity of less than one year purchased from any Lender directly (whether such deposit is with such Lender or any other Lender hereunder) and (F) repurchase agreements and reverse repurchase agreements with any Lender or any primary dealer of United States government securities relating to marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Institutions Examination Council Supervisory Policy--Repurchase Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985 (the "Supervisory Policy") and, in the case of a repurchase agreement with a primary dealer, the Company shall take possession of the obligations subject to such arrangement. "Cash Release Request" has the meaning assigned to that term in Section 5.13 of this Agreement. "CG&R" means Cahill Gordon & Reindel, as counsel for the Lenders in connection with this Agreement and the transactions contemplated hereby, and any successor counsel thereto. A "Change in Control" shall be deemed to have occurred if (A) any person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Act of 1934, as in effect on the date hereof) other than (1) The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), MS Group, Fort Howard Equity Investors L.P., Fort Howard Equity Investors II, L.P. and their respective general or limited partners and/or Affiliates or (2) any employee benefit plan of the Company or of any of its Affiliates shall become the beneficial owner of shares representing 25% or more of any outstanding class of capital stock having ordinary voting power in the election of directors of the Company or (B) there shall occur during any period after the Closing Date a change in the Board of Directors of the Company pursuant to which the individuals who constituted the Board of Directors of the Company at the beginning of such period (together with any other director whose election by the Board of Directors of the Company (or whose nomination by the - 8 - Board of Directors for election by the stockholders of the Company) was approved by a vote of at least a majority of the directors then in office who either were directors at the beginning of such period or whose election was previously so approved or by a duly authorized committee of the Board of Directors (which committee was designated by at least a majority of directors then in office who either were directors at the beginning of such period or whose election was previously so approved) cease to constitute 75% of the directors of the Company at the end of such period. "Closing Date" means the "Closing Date" as such term is defined in the Senior Credit Agreement as in effect on the date hereof. "Closing Date Excess Equity Proceeds Amount" means the amount of net cash proceeds derived from the Common Stock Offering in excess of the difference between (A) $300,000,000 and (B) the amount of Transaction Costs reasonably estimated by the Company to be attributable to the issuance of common stock in the Common Stock Offering assuming it provides gross proceeds to the Company equal to $300,000,000. "Collateral" means, as of any date of determination, the Receivables and all other property encumbered by the Collateral Documents. "Collateral Agent" means the Administrative Agent or such other Person that is the collateral agent pursuant to the Collateral Documents. "Collateral Documents" means the Pledge Agreements and all other instruments or documents delivered by the Company in order to grant Liens on any Collateral, as amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Collections" means all Cash, funds, checks, notes, instruments and any other form of remittance tendered by account debtors in payment of Receivables. "Commitment" means, with respect to each Lender, the commitment of such Lender to make the Loans hereunder in a maximum aggregate amount set forth opposite such Lender's name in Schedule B annexed hereto under the heading "Commitments" as such maximum amount may be reduced pursuant to subsection 9.1.3 by such Lender entering into a Registered Transfer Supplement. "Commitment Fee Letters" means collectively, the fee letter agreement dated November 2, 1992 among the Company and the Arrangers and the three supplementary fee letter agreements - 9 - of the Company dated November 2, 1994, in each case as such agreements are in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time. "Commodities Agreement" means any forward contract, option, futures contract, futures option, or similar agreement or arrangement entered into by the Company designed to protect the Company or any of its Subsidiaries from fluctuations in the price of commodities. "Common Stock" means the common stock of the Company, par value $.01 per share. "Common Stock Offering" means the initial public offering by the Company on the Closing Date of shares of newly issued Common Stock, on the terms and subject to the conditions described in the Prospectus (including, without limitation, any shares sold pursuant to any over- allotment option granted in connection therewith). "Company" has the meaning assigned to that term in the introduction to this Agreement. "Compliance Certificate" means a certificate substantially in the form annexed hereto as Exhibit IV delivered to the Lenders by the Company pursuant to clause (B) of subparagraph (iv) of Section 5.1. "Consolidated Domestic Capital Expenditures" means, for any period, the sum of (A) the aggregate of all Capital Expenditures by the Company and its Domestic Subsidiaries during such period, plus (B) to the extent not covered by clause (A) hereof, the aggregate of all expenditures by the Company and its Domestic Subsidiaries to acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, including, without limitation, the amount of any Indebtedness of any such acquired Person, whether or not such Indebtedness is assumed or guaranteed by the Company or any Subsidiary of the Company (other than any such expenditures of the type permitted under clause (ix) or clause (x) of Section 6.3), it being understood that each item covered by this clause (B) shall be deemed incurred as of the date of the applicable acquisition; provided that any Indebtedness referred to in this clause (B) of any acquired Person that is not a Wholly Owned Subsidiary of the Company shall only be included in an amount equal to the product of (1) the Company's direct or indirect percentage of equity ownership in such acquired Person at the time such Indebtedness is incurred or deemed incurred and (2) the amount of such Indebtedness. - 10 - "Consolidated EBITDA" means, without duplication, for any period, the total of the amounts for such period of (A) Consolidated Net Income, plus (B) provision for taxes based on income, plus (C) total interest expense (including that attributable to Capital Leases), plus (D) depreciation expense, plus (E) amortization expense, plus (F) other non-cash items reducing or deducted in calculating Consolidated Net Income, minus (G) other non-cash items increasing Consolidated Net Income, minus (H) charges against the Special Reserve, all as determined on a consolidated basis for the Company and its Subsidiaries for such period taken as a single accounting period determined (other than in the case of clause H) in conformity with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, (A) total interest expense for such period (including that attributable to Capital Leases) of the Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Company and its Subsidiaries including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing (and excluding capitalized interest, to the extent such capitalized interest constitutes a Capital Expenditure or a Consolidated Domestic Capital Expenditure), and (B) net costs under Interest Rate Agreements for such period, but excluding, however, in the case of clause (A), interest expense not payable in cash (including amortization of discount), any amounts referred to in Section 2.4 payable to the Administrative Agent and the Lenders on or before the Closing Date and Transaction Costs relating to the Recapitalization, all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Consolidated Net Income" for any period, means the net income (or loss) of the Company and its Subsidiaries (whether or not consolidated with the Company pursuant to GAAP for financial reporting purposes) on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (A) the income (or loss) of any Person (other than a Subsidiary of the Company) in which any other Person (other than the Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Subsidiaries by such Person during such period, (B) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with any of the Company's Subsidiaries or that Person's assets are acquired by the Company or any of its Subsidiaries, (C) the income of any Subsidiary of the Company to the extent that the - 11 - declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, and (D) any after-tax cash gains or losses attributable to Asset Sales. "Consolidated Rental Payments" means, for any period, the aggregate amount of all amounts paid or payable or accrued or accruable during such period under all Capital Leases and Operating Leases of the Company and its Subsidiaries (net of sublease income), all as determined on a consolidated basis for the Company and its Subsidiaries in conformity with GAAP. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (A) with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (B) under any letter of credit issued for the account of that Person or for which that Person is otherwise liable for reimbursement thereof, or (C) under Commodities Agreements, Currency Agreements or Interest Rate Agreements. Contingent Obligations shall include, without limitation, (A) the direct or indirect guarantee, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, and (B) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (1) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (2) to maintain the solvency or any balance sheet item, level of income or financial condition of another, or (3) to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, if in the case of any such agreement the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to in the case of a Contingent Obligation described in clause (A) in the first sentence of this definition, the amount of the obligation so guaranteed or otherwise supported, in the case of a Contingent Obligation described in clause (B) in the first sentence of this definition, the amount available to be drawn - 12 - under the relevant letter of credit and in the case of a Contingent Obligation described in clause (C) in the first sentence of this definition, the relevant Termination Value. "Contractual Obligation", as applied to any Person, means any provision of any security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Controlled Foreign Corporation" means any direct or indirect Subsidiary of the Company which is a controlled foreign corporation, as defined in section 957(a) (or successor provision) of the Internal Revenue Code. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement entered into by the Company designed to protect the Company or any of its Subsidiaries against fluctuations in currency values. "Deficiency Amount" has the meaning assigned to that term in Section 5.13. "Deficiency Notice" has the meaning assigned to that term in Section 5.13. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Discretionary Excess Cash Flow Deduction Amount" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Discretionary Excess Cash Flow Balance" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Discretionary Equity Proceeds Balance" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Discretionary Voluntary Prepayment" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Dollars" or the sign "$" means the lawful money of the United States of America. - 13 - "Domestic Capex Maximum" has the meaning assigned to that term in subsection 6.14.4. "Domestic Subsidiary" means, at any date of determination, any Subsidiary of the Company other than a Foreign Subsidiary. "8-1/4% Unsecured Notes" means the Company's 8-1/4% Senior Notes due February 1, 2002, issued and outstanding pursuant to a certain indenture, dated as of February 1, 1994 between the Company and Norwest Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Eligible Receivables" means each Receivable of the Company except a Receivable: (i) to which the Company does not have sole legal and beneficial ownership; (ii) which arises out of a sale made by the Company to a Subsidiary; (iii) (a) which is unpaid more than 90 days from the date of invoice or (b) which has been written off the books of the Company or has been otherwise designated by the Company as uncollectible; (iv) which is from an account debtor or an Affiliate of such account debtor that has a Receivable excluded under clause (iii) above and fifty percent (50%) or more of all Receivables from such account debtor and such of its Affiliates are ineligible, under clause (iii); (v) as to which the account debtor for such Receivable is a creditor of the Company, has or has asserted a right of setoff, has disputed its liability or made any claim with respect to the Receivable or any other Receivable which has not been resolved, (in which case such Receivable shall be deemed not to be an Eligible Receivable but only to the extent of the amount owed by the Company to the account debtor, the amount of such actual or asserted right of setoff, or the amount of such dispute or claim, as the case may be); (vi) as to which the account debtor is (or its assets are) the subject of an Insolvency Event; (vii) which is not payable in Dollars or as to which the account debtor for the Receivable is either not - 14 - organized under the laws of the United States of America or any State thereof or is located outside or has its principal place of business or substantially all of its assets outside the continental United States, except to the extent such Receivable is supported by an irrevocable letter of credit reasonably satisfactory to the Administrative Agent (as to form, substance and issuer) and in the possession of the Administrative Agent; (viii) as to which the sale to the account debtor is on a bill- and-hold, guaranteed sale, sale-and-return, ship-and-return, sale on approval or consignment or other similar basis or made pursuant to any other written agreement providing for repurchase or return of any merchandise which has been claimed to be defective or otherwise unsatisfactory, other than sales made in the ordinary course of the Company's business containing customary terms for the return of defective or non-conforming goods; (ix) the account debtor is the United States of America or any department, agency or instrumentality thereof, unless the Company duly assigns its rights to payment of such Receivable to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. {{ 3727 et seq.), which assignment and related documents and filings shall be in form and substance reasonably satisfactory to the Administrative Agent; (x) which does not comply with all requirements of law, including, without limitation, the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Board of Governors of the Federal Reserve System; or (xi) (a) as to which either the perfection, enforceability or validity of the Administrative Agent's security interest or the Lenders' right or ability to receive direct payments is governed by any federal or state statutory requirement other than those of (x) the statute referred to in clause (ix) above or (y) the UCC, or (b) which is not subject to a valid and perfected first priority Lien in favor of the Administrative Agent for the benefit of the Lenders, subject to no other Liens other than the Liens (if any) permitted by the Receivables Pledge Agreement. "Environmental Laws" means federal, state, local and foreign law or regulations, codes, orders, decrees, judgments, permits, authorizations, agreements, or injunctions issued, - 15 - promulgated, approved or entered thereunder relating to pollution or protection of the environment, including, without limitation, laws relating to occupational safety and health and other laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. "Equity Offering" means any issuance or sale by the Company or any Subsidiary of the Company whether pursuant to a registered public offering, private placement or otherwise of any shares of capital stock or other equity securities of the Company or any Subsidiary of the Company, or any obligations convertible into or exchangeable for, or giving any Person a right, option or warrant to acquire, such securities or such convertible or exchangeable obligations, other than issuances or sales of Common Stock pursuant to the Common Stock Offering and other than issuances and sales of shares of capital stock or other equity securities of a Subsidiary of the Company to the Company or a Subsidiary of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA Affiliate", as applied to any Person, means any trade or business (whether or not incorporated) which is under common control with that Person within the meaning of Section 4001(b) of ERISA and the regulations promulgated thereunder or that would be treated as a single employer with that Person (A) under Section 414(b) or (c) of the Internal Revenue Code or (B) solely for purposes of any section or sections of the Internal Revenue Code or ERISA to which such section or sections apply, under Section 414(m) or (o) of the Internal Revenue Code. "Event of Default" means each of the events set forth in ARTICLE VII. "Excess Cash Flow" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. - 16 - "Existing Credit Facilities" means the 1988 Credit Agreement and the 1992 Credit Agreement, together with, in each case, all notes, mortgages, security instruments and other ancillary or related documentation. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries listed in Schedule C annexed hereto. "Existing Mill Expansion Equipment" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Existing Subordinated Debt" means the 12-5/8% Subordinated Debentures and the 14-1/8% Discount Debentures, together with, in each case, all obligations of the Company set forth in the indentures relating thereto. "Expansion Lease" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Expansion Project" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Fair Value" means, with respect to any asset or property (including intangibles or instruments), the fair market value thereof as determined by the Board of Directors of the Company or a committee thereof (or, if authorized to do so by the Board of Directors of the Company or a committee thereof, by the Chief Financial Officer or the Chief Accounting Officer of the Company) in each case pursuant to standards, assumptions and procedures set forth in Exhibit XVIII. "First Tier Foreign Subsidiary" means, at any date of determination, a Foreign Subsidiary of the Company (A)(i) which is organized under the laws of a jurisdiction other than the United States or any State thereof and (ii) as to which the Company and/or one or more Subsidiaries organized under the laws of the United States of America or any State thereof hold directly shares of stock or other equity interests having more than 50% of the total voting power of shares of the capital stock or other equity interests therein (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof or (B) which is organized under the laws of the United States of America or any State therein and which does not have any Subsidiaries that are Foreign Subsidiaries. - 17 - "Foreign Subsidiary" means each of the following: (A) each Subsidiary or Joint Venture of the Company identified as such on Schedule A annexed hereto, (B) each Subsidiary or Joint Venture of the Company which is organized under the laws of a jurisdiction other than the United States of America or any State thereof and (C) each Subsidiary or Joint Venture of the Company which is organized under the laws of the United States of America or any State thereof more than 80% of the sales, earnings or assets (determined on a consolidated basis) of which are located or derived from operations in territories of the United States of America and jurisdictions outside the United States of America. "Fort Howard Holding" means Fort Howard Holding, Inc., a Delaware corporation and a Wholly Owned Subsidiary of the Company. "Fort Sterling" means Fort Sterling Limited, an English limited liability company and a Foreign Subsidiary of the Company. "14-1/8% Discount Debentures" means the Company's 14-1/8% Junior Subordinated Discount Debentures due November 1, 2004, issued and outstanding pursuant to a certain indenture, dated as of November 1, 1988 between the Company and Society National Bank as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Funding Date" means a Business Day selected by the Company and identified in a Notice of Borrowing delivered in accordance with subsection 2.1.2 for the funding by the Lenders of the Loans, which Business Day shall not be later than 45 days after the Closing Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination; provided that compliance by the Company with the financial covenants set forth in Section 6.6 shall be calculated in accordance with GAAP as in effect on the Closing Date. "General Account Assets" means the assets allocated to the general account of an insurance company subject to state regulation. - 18 - "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Green Bay Dry Form Machine" means the third air-laid (dry form) paper machine installed at the Company's Green Bay, Wisconsin Mill, together with related ancillary improvements or equipment. "Green Bay Sludge Boiler" means the industrial boiler installed in the vicinity or as a part of the Company's Green Bay, Wisconsin Mill following the date of this Agreement which is designed to burn, among other things, sludge generated by the Company's wastepaper recycling operations. "Greenfield Expansion Assets" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Guarantor Subsidiary" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Guarantor Subsidiary Guarantee" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Indebtedness", as applied to any Person, means (A) all indebtedness for borrowed money, (B) that portion of obligations with respect to Capital Leases which is properly classified as a liability on a balance sheet in conformity with GAAP, (C) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (D) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (1) due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services in respect thereof, or (2) evidenced by a note or similar written instrument and (E) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. "Indemnitees" has the meaning assigned to that term in Section 9.3. "Information Package" means, collectively, the Memorandum dated January 1995 delivered by the Administrative Agent to the Lenders, the Registration Statement and any - 19 - Supplementary Letter delivered by the Company to the Administrative Agent, in each case as it may be supplemented to the date of the signing of this Agreement. "Initial Major Expansion Project" means the first Expansion Project to be commenced by the Company or any of its Subsidiaries after the Closing Date that involves or will involve Capital Expenditures by the Company and its Subsidiaries in respect thereof in an aggregate amount estimated by the Company in its reasonable judgment to be $100,000,000 or more to complete and put in service. "Insolvency Event" means, with respect to any Person, the occurrence of any of the following: (a) a voluntary or involuntary petition for bankruptcy or other relief involving that Person, its assets or its liabilities under the Bankruptcy Code or any similar statute, (b) an assignment of its assets for the benefit of creditors, (c) its failure, suspension of business operations, or insolvency, (d) appointment of a receiver or trustee for it or a substantial portion of its assets, or (e) general failure to pay its debts as they become due. "Intercompany Indebtedness" means any Indebtedness of the Company or any Subsidiary of the Company which, in the case of the Company, is owing to any Subsidiary or which, in the case of any such Subsidiary, is owing to the Company or any other Subsidiary of the Company. "Interest Coverage Ratio" means, for any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Expense for such period. "Interest Payment Date" means, with respect to a Loan, if it is an Adjusted LIBOR Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of six or more months, "Interest Payment Date" shall also include each Interest Period Anniversary Date for such Interest Period. "Interest Period" means any interest period applicable to a Loan as determined pursuant to subsection 2.3.2. "Interest Period Anniversary Date" means, for each Interest Period which is six or more months, each three-month anniversary of the commencement of such Interest Period. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement - 20 - entered into by the Company designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates. "Interest Rate Determination Date" means, for each Interest Period, the second Business Day prior to the first day of the related Interest Period for an Adjusted LIBOR Loan. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time hereafter and any successor statute. "Investment", as applied to any Person (the "Investor"), means any direct or indirect purchase or other acquisition by the Investor of, or a beneficial interest in, stock or other Securities of any other Person other than (A) in the case of each Investor that is a Foreign Subsidiary, a direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the case of each Investor that is the Company or a Domestic Subsidiary, a Subsidiary that is not a Foreign Subsidiary, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by the Investor to any other Person other than (A) in the case of each Investor that is a Foreign Subsidiary, a direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the case of each Investor that is the Company or a Domestic Subsidiary, a Subsidiary that is not a Foreign Subsidiary, including all indebtedness and accounts receivable owing to the Investor from such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of the Investor's business (other than Royalty or Management Fees). The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. A Contingent Obligation of the Company or any of its Subsidiaries in respect of the obligations of a Foreign Subsidiary shall constitute an Investment in such Foreign Subsidiary to the extent of such Contingent Obligation. The amount of such Investment shall be equal to the amount of the Contingent Obligation as determined by the last sentence of the definition of Contingent Obligation. Any renewals, extensions or replacements of an existing Contingent Obligation or other Indebtedness which constitutes an Investment hereunder shall not constitute a new Investment at the time of such renewal, extension or replacement except to the extent such renewal, extension or replacement increases the amount of such Contingent Obligation and then only to the extent of such increase. - 21 - "Investment Grade Ratings" has the meaning assigned to that term in subsection 2.3.1. "Investor" has the meaning assigned to that term in the definition of Investment. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that, as to any such arrangement in corporate form, such corporation shall not, as to any Person of which such corporation is a Subsidiary, be considered to be a Joint Venture to which such Person is a party. "Lender" has the meaning assigned to that term in the introduction to this Agreement and includes Bankers, BOA and Chemical Bank, in their individual capacities. "Letter of Credit" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Leverage Ratio" means, for any period, the ratio of the principal amount of Senior Secured Indebtedness outstanding at the last day of such period to Consolidated EBITDA for such period. "Leveraged Swap" means any Commodities Agreement, Currency Agreement or Interest Rate Agreement pursuant to which any party shall be entitled to receive from the counterparty thereto, in respect of each notional Dollar or other applicable unit that is the subject thereof, any payment or credit in excess of the amount necessary to compensate such party for the actual and direct cost or deemed cost to such party of any fluctuation in interest rates or currency exchange rates in respect of such Dollar or other unit of currency or market costs or prices in respect of such unit. "LIBOR" means, in respect of any Adjusted LIBOR Borrowing for any Interest Period, the rate per annum at which dollar deposits approximately equal in principal amount to the Administrative Agent's portion of such Adjusted LIBOR Borrowing and for a maturity comparable to such Interest Period are offered to the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m. (London time) on the Interest Rate Determination Date for such Interest Period. "LIBOR Spread" means the percent per annum from time to time in effect pursuant to paragraph (d) of subsection 2.3.1. - 22 - "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan" or "Loans" means the loans made by the Lenders to the Company pursuant to Section 2.1.1. Each Loan shall be either an Adjusted LIBOR Loan or an ABR Loan. "Loan Documents" means this Agreement, the Notes and the Collateral Documents. "Management Agreements" means (A) the Management Equity Participation Agreements between the Company and certain officers and directors and holders of stock (or options on stock), (B) the Fort Howard Corporation Management Equity Plan (the "Plan") effective as of April 29, 1991, and the Agreements (as defined in the Plan) related thereto, (C) the Fort Howard Corporation 1995 Stock Incentive Plan (the "1995 Plan") effective as of January 15, 1995, and the Award Agreements (as defined in the 1995 Plan) related thereto, and (D) any equity-based plan (a "Broad- Based Plan") adopted by the Company for its employees generally (provided that any such Broad-Based Plan may not cause the Company to exceed (i) the limitation on Investments set forth in subparagraph (xiii) of Section 6.3 or (ii) the limitation on repurchases or redemptions of Common Stock set forth in subclause (D)(2) of Section 6.5), as such Management Equity Participation Agreements, the Plan, the Agreements, the 1995 Plan and the Award Agreements and any Broad-Based Plan are in effect on the date of this Agreement (or the date of adoption in the case of any Broad-Based Plan) and as they may have been and hereafter may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System of the United States as in effect from time to time. "Material Subsidiary" means each Subsidiary of the Company or its successors now existing or hereafter acquired or formed by the Company or such successors which (A) for the most recent fiscal year of the Company or such successors accounted for more than 10% of the consolidated revenues of the Company or such successors, or (B) as at the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company or such successors as shown on the consolidated financial statements of the Company or such successors, as the case may be, for such fiscal year. - 23 - "Maturity Date" means the seventh anniversary of the Closing Date. "Moody's" means Moody's Investors Service, Inc., together with any successor thereto that issues ratings of corporate securities. "MS Group" means Morgan Stanley Group Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "9% Senior Subordinated Notes" means the Company's 9% Senior Subordinated Notes due February 1, 2006, issued and outstanding pursuant to a certain indenture, as amended, dated as of February 1, 1994 between the Company and The Bank of New York, as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "9-1/4% Unsecured Notes" means the Company's 9-1/4% Senior Notes due March 15, 2001, issued and outstanding pursuant to a certain indenture, dated as of March 15, 1993 between the Company and Norwest Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "1988 Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of October 24, 1988, among FH Acquisition Corp. and the lenders party thereto and Bankers Trust Company, Bank of America National Trust and Savings Association, The Bank of Nova Scotia, Chemical Bank, The Industrial Bank of Japan, Limited, New York Branch and Wells Fargo, N.A., as lead managers and Bankers Trust Company, as agent, as amended to the Closing Date. "1988 Revenue Bond Indenture" means the indenture pursuant to which the 1988 Revenue Bonds were issued. "1988 Revenue Bonds" means the Development Authority of Effingham County Pollution Control Revenue Bonds (Fort Howard Corporation Project) Series 1988, issued by the Development Authority of Effingham County to refund the 1985 Revenue Bonds. "1992 Credit Agreement" means that certain Credit Agreement, dated as of March 22, 1993, among Fort Howard Corporation, the lenders party thereto and Bankers Trust Company, as agent, as amended to the Closing Date. - 24 - "Non-U.S. Person" has the meaning assigned to that term in paragraph (e) of subsection 2.7.7. "Notes" means one or more of the promissory notes of the Company issued in registered form in respect of the Loans pursuant to subsection 2.1.4 or issued in registered form as replacement notes in connection with an assignment made pursuant to this Agreement and, in each case, substantially in the form of Exhibit III annexed hereto, as the same may be modified, endorsed or amended from time to time. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto with respect to the proposed Borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto with respect to a proposed conversion or continuation. "Obligations" means all obligations of every nature of the Company from time to time owed to the Administrative Agent or the Lenders or any of them under the Loan Documents. "Officers' Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its Chairman of the Board (if an officer) or its President or one of its Vice Presidents and by its Chief Financial Officer or its Treasurer; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of the Loans hereunder shall include (A) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (B) a statement that, in the opinion of the signer or signers, he or they have made or have caused to be made such examination or investigation as is necessary to enable him or them to express an informed opinion as to whether or not such condition has been complied with, and (C) a statement as to whether, in the opinion of the signer or signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any property (whether real, personal or mixed) under which that Person is a lessee and which is not a Capital Lease. "Other Taxes" has the meaning assigned to that term in paragraph (b) of subsection 2.7.7. - 25 - "Participants" has the meaning assigned to that term in subsection 9.1.2. "Pension Plan" means any employee plan which is subject to the provisions of Title IV of ERISA and which is maintained for employees of the Company or any ERISA Affiliate of the Company, other than a Multiemployer Plan. "Permitted Encumbrances" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by Section 5.3; (ii) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Any attachment or judgment Lien not in excess of $20,000,000 (exclusive of any amount adequately covered by insurance as to which the insurance company has acknowledged coverage) and any other attachment or judgment lien unless the judgment it secures shall, within 60 days after the entry thereof, not have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (v) Leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its Subsidiaries; (vi) Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material - 26 - respect with the ordinary conduct of the business of the Company or any of its Subsidiaries; (vii) Any interest or title of a lessor under any lease permitted by Section 6.9; (viii) Liens arising from UCC financing statements regarding leases permitted by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) Liens securing surety bonds in an amount not to exceed individually or in the aggregate $5,000,000 at any time outstanding; and (xi) Liens securing appeal bonds, which Liens do not cover assets having a value in excess of $20,000,000 individually or in the aggregate at any time and which assets are valued at the greater of (A) fair market value and (B) book value. "Permitted Expansion Construction Financing" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Permitted Expansion Financing" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Plan" shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Section 406 of ERISA and a plan (as defined in Section 4975 of the Internal Revenue Code) which is subject to Section 4975 of the Internal Revenue Code. "Pledge Agreements" means the Receivables Pledge Agreement and the Cash Collateral Agreement. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would - 27 - constitute an Event of Default if that condition or event were not cured or waived within any applicable grace or cure period. "Preexisting Assumed Lien" means any Lien securing Indebtedness (A) of any Person that becomes a Foreign Subsidiary (or a Subsidiary of such Person) at the time such Person becomes a Foreign Subsidiary, which Indebtedness was not incurred in connection with the acquisition of such Person or an interest therein by the Company or any Subsidiary of the Company and which Indebtedness and Lien are not prohibited under Section 6.1 or Section 6.2 hereof, or (B) incurred by the Company or a Subsidiary of the Company specifically to finance the acquisition of assets (which acquisition is not prohibited hereunder) and which Indebtedness and Lien are (1) as of the date of such acquisition, held by the seller of such assets, (2) not prohibited under the provisions of Section 6.1 or 6.2 of this Agreement and (3) evidenced by an instrument or instruments which (i) neither prohibit or restrict the granting of a junior Lien on the encumbered assets in favor of the Lenders nor limit any rights or remedies of the Lenders in respect of any such junior Lien and (ii) contain a warranty by the applicable seller that, as of the date of such acquisition, such seller has no present intention or plan to transfer for value or pledge such Indebtedness and Lien to any other Person. "Prime Rate" means the rate which Bankers announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Bankers may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Prior Liens" means, in respect of the Collateral described in any Collateral Document, the Liens described in the schedules annexed to such Collateral Document (if any) and any other Liens which, pursuant to the provisions of such Collateral Document, are or may be superior to the Lien of such Collateral Document. "Projections" has the meaning assigned to such term in subsection 3.1.11. "Proportionate Share" of a Lender means a fraction, expressed as a decimal, obtained by dividing its Commitment by the Total Loan Commitment. "Prospectus" means the prospectus of the Company dated February 8, 1995, relating to the Common Stock Offering, as amended and supplemented on or prior to the date of the signing of this Agreement. - 28 - "Purchasing Lenders" has the meaning assigned to that term in subsection 9.1.3. "Qualified Currency Agreement" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Qualified Interest Rate Agreement" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Ratio 1" means, for each period of four consecutive fiscal quarters of the Company (treated as a single accounting period), the Interest Coverage Ratio for such period. "Ratio 2" means, for each period of four consecutive fiscal quarters of the Company (treated as a single accounting period), the Leverage Ratio, as of the last day of such period. "Recapitalization" means, collectively, (A) the Common Stock Offering, (B) the repayment in full of all loans outstanding, and other amounts due, under the Existing Credit Facilities and the Senior Secured Notes, (C) the redemption and retirement of the Existing Subordinated Debt, (D) the execution and delivery of the Senior Credit Agreement and any additional documentation required pursuant to the Senior Credit Agreement and the consummation of the transactions contemplated thereunder and (E) the execution and delivery of this Agreement and the Loan Documents and the consummation of the transactions contemplated hereunder and thereunder. "Receivables" means all of the Company's rights to payment for goods sold or leased or services performed by the Company for or to any Person (other than a Foreign Subsidiary of the Company that is a Controlled Foreign Corporation), whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (1) all security pledged, assigned, hypothecated or granted to or held by the Company to secure the foregoing, (2) general intangibles arising out of the Company's rights in any goods, the sale of which gave rise thereto, (3) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (4) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, and (5) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers. - 29 - "Receivables Pledge Agreement" means the Company Receivables Pledge Agreement substantially in the form of Exhibit IX annexed hereto executed and delivered by the Company, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance herewith and therewith. "Receivables Transaction" has the meaning assigned to that term in the Senior Credit Agreement as in effect on the date hereof. "Refinancing Foreign Debt" means any Indebtedness of a Foreign Subsidiary of the Company, incurred in accordance with the provisions of subparagraph (iv) of Section 6.1, all the net cash proceeds of which are used to refinance the Indebtedness identified in Schedule C as "Foreign Indebtedness" or any previously incurred Refinancing Foreign Debt of such Subsidiary. "Refinancing Senior Unsecured Debt" or "Refinancing Senior Unsecured Indebtedness" means any unsecured Indebtedness of the Company, incurred in accordance with the provisions of subparagraph (ii) of Section 6.1, all of the net cash proceeds of which are used to refinance Senior Unsecured Notes or any previously incurred Refinancing Senior Unsecured Debt. "Register" has the meaning assigned to that term in subsection 9.1.5. "Registered Transfer Supplement" has the meaning assigned to that term in subsection 9.1.3. "Registration Statement" means the Registration Statement No. 33-56573, filed by the Company on February 8, 1995 with the Securities and Exchange Commission in connection with the Common Stock Offering, as it may be amended or supplemented on or prior to the date of the signing of this Agreement. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System of the United States as in effect from time to time. "Release" has the meaning assigned to that term in Sec- tion 5.10. "Release Condition" has the meaning assigned to that term in Section 5.10. "Release Notice" has the meaning assigned to that term in Sec- tion 5.10. - 30 - "Release Transaction" has the meaning assigned to that term in Section 5.10. "Requisite Lenders" means, as of any date of determination, one or more Lenders having an aggregate Credit Exposure Percentage as of such date greater than 50%. As used herein, the "Credit Exposure Percentage" of one or more Lenders as of any date is a fraction, expressed as a percentage, of which (A) the numerator is the Commitment of such Lender as of such date and (B) the denominator is the Total Loan Commitment as of such date. "Restricted Junior Payment" means (A) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Company, now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (B) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Company now or hereafter outstanding, (C) whether in cash or additional securities, any payment or prepayment of principal of, premium, if any, or interest on, or any redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness and (D) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Company (other than Common Stock of the Company or options or rights to acquire Common Stock of the Company) now or hereafter outstanding. "Revolving Loan Commitment" shall have the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Royalty or Management Fees" means those amounts owed or owing from time to time by a Foreign Subsidiary of the Company to the Company or any of its Domestic Subsidiaries pursuant to agreements which provide for the provision of management or technical services or advice or the licensing of patents, trademarks, trade secrets, know-how or proprietary information; provided that such amounts for any period in respect of the services or advice so provided or such licenses, as the case may be shall not exceed the fees that would be charged by an unaffiliated third party for such services, advice or licenses. "Sale/Leaseback Transaction" means an arrangement with any bank, insurance company or other lender or investor or to which any such lender or investor is a party, providing for the leasing by the Company or a Subsidiary of the Company of - 31 - any property, whether now owned or hereafter acquired, which has been or is to be sold or transferred by the Company or any Subsidiary of the Company to such lender or investor. "Savannah Boiler" means the next industrial boiler installed at the Company's Effingham County, Georgia Mill following the date of this Agreement. "Savannah Project" means the acquisition and construction of the next tissue paper manufacturing machine to be constructed or acquired after the Closing Date at the Company's Effingham County, Georgia Mill, together with related manufacturing, converting and ancillary equipment, improvements and facilities. "Scheduled Term Loans Principal Payment" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Second Expansion Project" has the meaning assigned to that term in subsection 6.14.4. "Securities" means any stock, shares, voting trust certificates, bonds, debentures, options, warrants, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Senior Credit Agreement" means that certain Credit Agreement, dated as of the date hereof, among the Company, the lenders identified therein and Bankers, BOA and Chemical Bank, as arrangers and Bankers as administrative agent. "Senior Lenders" means the lenders from time to time party to the Senior Credit Agreement. "Senior Loans" means the loans made by the lenders to the Company pursuant to the Senior Credit Agreement. "Senior Note Purchase Agreement" means that certain Note Purchase Agreement, dated as of September 11, 1991, as amended, by and among the Company and the other Persons listed on the signature pages thereto, relating to the Senior Secured Notes. - 32 - "Senior Secured Indebtedness" means the following obligations of the Company and/or any of its Subsidiaries: (A) Indebtedness of the type described in clause (B) of the definition of Indebtedness, (B) the Indebtedness described in subparagraph (vii) and subparagraph (x) of Section 6.1, (C) any other Indebtedness of the Company or any Subsidiary of the Company that is not Subordinated Indebtedness and is secured by any Lien on any property of the Company or any Subsidiary of the Company and (D) the full amount of the obligations of the Company or any Subsidiary of the Company under any letter of credit issued for the account of the Company or any Subsidiary of the Company that are secured by a Lien on any property of the Company or any Subsidiary of the Company. In calculating the amount of Senior Secured Indebtedness, there shall be excluded in the case of any revolving loan facility or letter of credit commitment issued in favor of the Company or any Subsidiary of the Company, the then unutilized portion of such facility or commitment and, except as specified in clause (D) of the preceding sentence, any Contingent Obligation. "Senior Secured Notes" means the Series A Senior Secured Floating Rate Notes due 1997, the Series B Senior Secured Floating Rate Notes due 1998, the Series C-1 Senior Secured Floating Rate Notes due 1999, the Series C-2 Senior Secured Floating Rate Notes due 1999 and the Series D Senior Secured Floating Rate Notes due 2000, each as issued, and as amended from time to time, pursuant to the Senior Note Purchase Agreement. "Senior Unsecured Notes" means the 9-1/4% Unsecured Notes and the 8-1/4% Unsecured Notes. "Sensitive Information" has the meaning assigned to that term in Section 5.5. "SIL Company" means SIL Company, a California corporation that is wholly owned by Fort Howard Holdings Inc. and which owns indirectly 100% of the outstanding equity securities of Fort Sterling. "S&P" means Standard & Poor's Corporation, together with any successor that issues ratings of corporate securities. "Special Reserve" means the special reserve in the amount of $20,000,000 established as of December 31, 1994 by the Company in respect of certain environmental matters. "Status Certificate" has the meaning assigned to that term in paragraph (e) of subsection 2.7.7. - 33 - "Stockholders Agreement" means one or more Stockholders Agreements substantially in the form delivered to the Lenders (draft of 2/15/95), as the same may be amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Subordinated Indebtedness" means the Indebtedness of the Company subordinated in right of payment to the Obligations, including, without limitation, the Subordinated Notes and the Existing Subordinated Debt. "Subordinated Notes" means the 9% Senior Subordinated Notes and the 10% Subordinated Notes. "Subsidiary" of any Person means any corporation, association or other Person of which more than 50% of the total voting power of shares of stock or other equity interests therein 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. Unless otherwise indicated, "Subsidiary" means a Subsidiary of the Company. "Taxes" has the meaning assigned to that term in paragraph (a) of subsection 2.7.7. "10% Subordinated Notes" means the Company's 10% Subordinated Notes due March 15, 2003, issued pursuant to a certain indenture dated as of March 15, 1993 between the Company and United States Trust Company of New York, as Trustee, as such notes and indenture shall be in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "Termination Event" means (A) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation or any successor thereof under such regulations), or (B) the withdrawal of the Company or any of its ERISA Affiliates from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (C) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (D) the filing by the Pension Benefit Guaranty Corporation (or any successor thereof) of a notice of its intent to terminate a Pension Plan, or (E) the receipt by the Company or any ERISA Affiliate of - 34 - notice of the termination or reorganization of any Multiemployer Plan or (F) the occurrence of any other event or condition that might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; provided that, for the purposes of Section 4.11 only, the termination of any Pension Plan or termination or reorganization of any Multiemployer Plan and any action taken with respect to any such termination or reorganization shall not be a Termination Event if the Company and its ERISA Affiliates shall not incur net liabilities aggregating more than $25,000,000 (such liabilities to include, without limitation, any liability to the Pension Benefit Guaranty Corporation (or any successor thereof), or to any other party under ERISA or the Internal Revenue Code) resulting from all such terminations or reorganizations. "Termination Value" of an Interest Rate Agreement or Currency Agreement at any time means the amount that would be payable by the Company to the counterparty thereto if such agreement was terminated at such time because of default of the Company thereunder. "Total Loan Commitment" and "Total Loan Commitments" have the meanings assigned to those terms in Section 2.2. "Tranche B Term Loans" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Transaction Costs" means the fees, costs and expenses payable by the Company pursuant hereto and other fees, costs and expenses payable by the Company or a Subsidiary thereof in connection with the Recapitalization (other than interest expense). "Transferee" has the meaning assigned to that term in subsection 9.1.4. "12-5/8% Subordinated Debentures" means the Company's 12-5/8% Subordinated Debentures due November 1, 2000, issued and outstanding pursuant to a certain indenture, dated as of November 1, 1988 between the Company and United States Trust Company of New York, as Trustee, as in effect on the Closing Date and as thereafter amended, supplemented or otherwise modified from time to time in accordance herewith or therewith. "UCC" means the Uniform Commercial Code, as in effect in the applicable jurisdiction. - 35 - "Unsecured Expansion Financings" has the meaning assigned to such term in the Senior Credit Agreement as in effect on the date hereof. "Wholly Owned Subsidiary" of any Person means any Subsidiary all of the shares of capital stock of which (except directors' qualifying shares) are at the time directly or indirectly owned by such Person. Section 1.2 Accounting Terms. For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Section 1.3 Other Definitional Provisions; Anniversaries. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. For purposes of this Agreement, a monthly anniversary of the Closing Date shall occur on the same day of the applicable month as the day of the month on which the Closing Date occurred; provided that if the applicable month has no such day (i.e., 29, 30 or 31), the monthly anniversary shall be deemed to occur on the last day of the applicable month. Section 1.4 Adjustment for Special Reserve. For purposes of calculating the Leverage Ratio in respect of periods which include fiscal quarters ending on or prior to December 31, 1994, Consolidated EBITDA shall be determined without taking into account the establishment of the Special Reserve. Section 1.5 Currency Equivalent Generally. For all purposes of this Agreement, (A) the equivalent in Dollars of any amount in any other currency shall be determined at the rate of exchange quoted by the Administrative Agent in New York City at 9:00 A.M. (New York City time) on the date of determination to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of such other currency with Dollars and (B) the equivalent in any currency (other than Dollars) of any amount in Dollars shall be determined at the rate of exchange quoted by the Administrative Agent in New York City at 9:00 A.M. (New York City time) on the date of determination to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with such other currency. In determining compliance with the covenants and other terms of this Agreement that require amounts of another currency to be converted into Dollars or amounts of Dollars to be converted into another currency, as the case may be, such amounts shall be converted pursuant to the first sentence of this Section 1.5 on the date that (A) Indebtedness is incurred, (B) an Investment is made, (C) a transfer of assets occurs or (D) any other relevant transaction occurs, as the case may be. - 36 - ARTICLE II COMMITMENTS AND LOANS; NOTES Section 2.1 Loans and Notes. 2.1.1. Loan Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Company set forth herein and in each of the other Loan Documents, on the Funding Date, each Lender having a Commitment hereby severally agrees to lend the Company an aggregate amount not exceeding its Commitment. The aggregate amount of the Commitments is $60,000,000. Each Lender's Commitment shall expire on the Funding Date if the Loans are borrowed on the Funding Date but, in any event, not later than 5:00 P.M. (New York time) on the date 45 days after the Closing Date. The Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Commitments, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make the Loans hereunder nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in such other Lender's obligation to make the Loans hereunder. The Loans made on the Funding Date shall be made in an aggregate amount of $60,000,000. 2.1.2. Notice of Borrowing. The Company shall deliver to the Administrative Agent a Notice of Borrowing substantially in the form of Exhibit I annexed hereto in respect of the Borrowing to be made on the Funding Date. Such Notice of Borrowing shall be irrevocable and shall specify (A) the date on which the Loans are to be made (which shall be the same Business Day for all Loans made hereunder) and (B) whether such Loans will be based on Adjusted LIBOR or ABR. In the event that such Borrowing shall consist, in whole or in part, of Adjusted LIBOR Loans, such Notice of Borrowing shall be received by the Administrative Agent no later than 2:00 p.m. (New York time), at least three Business Days in advance of the Funding Date. In the event that such Borrowing shall consist solely of ABR Loans, such Notice of Borrowing shall be received by the Administrative Agent no later than 11:00 a.m. (New York time), at least one Business Day in advance of the Funding Date. - 37 - 2.1.3. Disbursement of Funds. (a) Promptly after receipt of the Notice of Borrowing pursuant to subsection 2.l.2, the Administrative Agent shall notify each Lender of the proposed Borrowing. Arrangements may be made satisfactory to the Company, the Administrative Agent and each Lender whereby an amount equal to the aggregate amount of the Loans to be borrowed on the Funding Date may be placed in escrow to facilitate the making of the Loans on the Funding Date; provided that in any event each Lender shall have made arrangements satisfactory to the Company, the Administrative Agent and such Lender whereby the funds for the Loans made on the Funding Date shall be made available by the Lenders to the Administrative Agent, not later than 1:00 P.M. (New York time) on the Funding Date. Upon satisfaction or waiver of the conditions precedent specified in Section 3.2, the Administrative Agent shall make the proceeds of the Loans available to the Company on the Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Administrative Agent at its office located at One Bankers Trust Plaza, New York, New York to be credited to the account of the Company at such office of the Administrative Agent. The parties hereto acknowledge and agree that the Loans will be borrowed in New York, New York. (b) Unless the Administrative Agent shall have been notified by any Lender prior to the Funding Date that such Lender does not intend to make available to the Administrative Agent the amount of funds necessary to satisfy such Lender's obligations under subsection 2.1.1 on the Funding Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the Funding Date and the Administrative Agent in its sole discretion may, but shall not be obligated to, make available to the Company a corresponding amount on the Funding Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the date of borrowing of the Loans until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at ABR. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company and the Company shall immediately pay such corresponding amount to the Administrative Agent. Nothing in this subsection 2.l.3 shall be deemed to relieve any Lender - 38 - from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Company may have against any Lender as a result of any default by such Lender hereunder. 2.1.4. Notes. As of the Funding Date, the Company will have executed and delivered to each Lender, as applicable (or to the Administrative Agent for that Lender), a Note substantially in the form of Exhibit III annexed hereto, to evidence such Lender's Loans, in the principal amount of such Lender's Commitment, with other appropriate insertions. 2.1.5. Maturity Date. Any prepayment of the Loans may not be reborrowed. The Loans and all other amounts owed hereunder with respect to the Loans shall be paid in full no later than the Maturity Date. Section 2.2 Total Loan Commitment; Limitations on Outstanding Loan Amounts. The aggregate amount of the Commitments of all the Lenders hereunder as in effect at any time is herein called the "Total Loan Commitment" at such time. The Total Loan Commitment as of the Closing Date is $60,000,000. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the aggregate principal amount of the Loans made by a Lender exceed such Lender's Proportionate Share of the Total Loan Commitment. Section 2.3 Interest on the Loans. 2.3.1. Rate of Interest. (a) The Loans shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to ABR or Adjusted LIBOR. The applicable basis for determining the rate of interest with respect to the Loans shall be selected by the Company at the time the Notice of Borrowing is given pursuant to subsection 2.1.2. If on any day a Loan is outstanding in respect of which notice has not been delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for that day such Loan shall bear interest determined by reference to ABR. (b) If a Loan is an ABR Loan, such Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when ABR is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to ABR (as ABR changes from time to time) plus the ABR Spread in effect at such time with respect to such Loan. - 39 - (c) If a Loan is an Adjusted LIBOR Loan, such Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to Adjusted LIBOR for the Interest Period in effect for such Loan plus the LIBOR Spread in effect at such time with respect to such Loan. (d) The ABR Spread and LIBOR Spread per annum in respect of the Loans shall initially be as specified in "Category 1" in the table set forth below and shall be subject to adjustment from time to time after the Funding Date as provided in this paragraph. If, as of the last day of any fiscal quarter of the Company, the results of Ratio 1 and Ratio 2, as set forth in a Compliance Certificate delivered pursuant to subparagraph (iv) of Section 5.1, are such as to cause to be applicable any Applicable Category other than the category in the table below which was applicable on the date of delivery of such Compliance Certificate, the ABR Spread and the LIBOR Spread shall automatically be adjusted (effective as of the times set forth in the next succeeding sentence) to equal the amounts set forth as ABR Spread and LIBOR Spread, respectively, in such new Applicable Category and the spreads set forth in such new Applicable Category shall continue to be the ABR Spread and the LIBOR Spread until such time as there shall be delivered a Compliance Certificate indicating results of Ratio 1 and Ratio 2 which cause to be applicable a different Applicable Category. Each adjustment of the ABR Spread and the LIBOR Spread pursuant to this paragraph (d) shall take effect (A) in the case of the ABR Spread, with respect to all ABR Loans outstanding on and after the date that is five Business Days following the date of delivery to the Administrative Agent of a Compliance Certificate pursuant to subparagraph (iv) of Section 5.1 relating to the immediately preceding fiscal quarter and (B) in the case of the LIBOR Spread, with respect to all Interest Periods commencing on and after the date that is five Business Days following the date of delivery to the Administrative Agent of such Compliance Certificate. - 40 - Interest Rate Step-Downs Category 1 ABR Spread LIBOR Spread When none of the Categories below is applicable 1.50% 2.50% Category 2 Ratio 1: 2.00 to 1 or higher 1.25% 2.25% Ratio 2: 3.00 to 1 or lower Category 3 Ratio 1: 2.25 to 1 or higher 1.00% 2.00% Ratio 2: 2.75 to 1 or lower Category 4 Ratio 1: 2.50 to 1 or higher 0.75% 1.75% Ratio 2: 2.50 to 1 or lower Category 5 Ratio 1: 2.75 to 1 or higher 0.50% 1.50% Ratio 2: 2.25 to 1 or lower Category 6 Ratio 1: 3.00 to 1 or higher 0.25% 1.25% Ratio 2: 2.00 to 1 or lower Category 7 Ratio 1: 3.25 to 1 or higher 0.00% 1.00% Ratio 2: 1.50 to 1 or lower Notwithstanding the foregoing provisions of this paragraph (d), (i) there shall not be any adjustment to the ABR Spread or the LIBOR Spread, as provided above, until the first anniversary of the Closing Date (except if an Event of Default shall have occurred and be continuing) and (ii) at any time during which the Company has failed to deliver a Compliance Certificate described in subparagraph (iv) of Section 5.1 with respect to a fiscal quarter in accordance with the provisions thereof, or at any time that an Event of Default shall have occurred and shall be continuing, as of the date such Compliance Certificate is due or as of the date such Event of Default shall have occurred, as the case may be, the ABR Spread shall be reset, if necessary, to be 1-1/2% and the LIBOR Spread shall be reset, if - 41 - necessary, to be 2-1/2% until such time as the Company shall deliver such certificate in accordance with the provisions of subparagraph (iv) of Section 5.1 or such Event of Default shall be cured or waived or shall otherwise no longer be continuing. (e) Notwithstanding the foregoing and except where an Event of Default shall have occurred and is continuing, if any senior unsecured debt obligations of the Company receive a rating from S&P of at least BBB-, or from Moody's of at least Baa3, from the date that is the fifth Business Day of the fiscal quarter of the Company following the fiscal quarter containing the first date that either such rating is announced and for so long as such rating shall remain in effect the LIBOR Spread and the ABR Spread, respectively, with respect to the Loans shall be 0.75% and 0.00% and if any senior unsecured debt obligations of the Company receive ratings from both S&P and Moody's of at least BBB- and Baa3, respectively (such ratings, the "Investment Grade Ratings"), from the date that is the fifth Business Day of the fiscal quarter of the Company following the fiscal quarter containing the first date that both the Investment Grade Ratings shall be effective and for so long as both such ratings shall remain in effect the LIBOR Spread and the ABR Spread, respectively, shall be 0.625% and 0.00%. (f) The applicable ABR Spread or LIBOR Spread for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be presumptively correct absent manifest error. 2.3.2. Interest Periods. In connection with each Adjusted LIBOR Loan, the Company shall elect an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be either a one, two, three or six month period or, if permitted under sub- paragraph (vii) of this subsection 2.3.2, a twelve-month period; provided that: (i) subject to subparagraph (v) below, the Interest Period for an Adjusted LIBOR Loan shall commence on the date of such Loan and each Interest Period occurring thereafter in respect of such Adjusted LIBOR Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (ii) if an Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; - 42 - (iii) if an Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if such Business Day occurs in a different month, such Interest Period shall expire on the Business Day next preceding such day; (iv) no Interest Period shall extend beyond the Maturity Date; (v) the initial Interest Period for a Loan which is converted pursuant to subsection 2.7.4 shall commence on the date of such conversion and shall expire on the date on which the Interest Periods for the Loans of the other the Lenders which were not converted expire; (vi) there shall be no more than 6 Interest Periods relating to Loans outstanding at any time (it being understood that Interest Periods for Adjusted LIBOR Loans which are scheduled to end on the same date shall constitute one Interest Period for purposes of this clause (vi)); and (vii) no Loan may have an Interest Period of twelve months unless the Administrative Agent, after consultation with the Lenders, has determined in good faith based on prevailing conditions in the London interbank market on any date of determination that U.S. dollar deposits are generally offered by the Lenders to first class banks in the London interbank market for a comparable maturity. 2.3.3. Interest Payments. Subject to subsection 2.3.5, interest shall be payable on the Loans as follows: (i) interest on each ABR Loan shall be payable in arrears on and to each September 30, December 30, March 30 and June 30 of each year, commencing on the first of such dates to occur after the Funding Date, upon any prepayment of any such Loan (to the extent accrued on the principal amount being prepaid) and at maturity of such ABR Loan; and (ii) interest on each Adjusted LIBOR Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the principal amount being prepaid) and at maturity of such Adjusted LIBOR Loan. 2.3.4. Conversion or Continuation. (a) Subject to the provisions of Section 2.7, the Company shall have the option (A) to convert at any time all or any part of an - 43 - outstanding ABR Loan equal to $10,000,000 principal amount and integral multiples of $1,000,000 in excess of that amount to an Adjusted LIBOR Loan; provided that, after giving effect to each such conversion, there shall not exist any Adjusted LIBOR Loan with a particular Interest Period that has a principal amount less than $25,000,000 (it being understood that Interest Periods for Adjusted LIBOR Loans which are scheduled to end on the same date shall constitute one Interest Period for this purpose) or (B) upon the expiration of any Interest Period applicable to an Adjusted LIBOR Loan, (1) to continue all or any portion of such Loan equal to $25,000,000 principal amount and integral multiples of $1,000,000 in excess of that amount as an Adjusted LIBOR Loan and the succeeding Interest Period(s) of such continued Loan shall commence on the last day of the Interest Period of the Loan to be continued or (2) to convert such Adjusted LIBOR Loan to an ABR Loan; provided that no outstanding Loan may be continued as, or be converted into, an Adjusted LIBOR Loan when any Event of Default or Potential Event of Default has occurred and is continuing. (b) The Company shall deliver a Notice of Conversion/ Continuation substantially in the form of Exhibit II annexed hereto to the Administrative Agent no later than 1:00 P.M. (New York time) at least three Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (A) the proposed conversion/continuation date (which shall be a Business Day), (B) the amount of the Loan to be converted/continued, (C) the nature of the proposed conversion/continuation and (D) the requested Interest Period. In lieu of delivering the above-described Notice of Conversion/Continuation, the Company may give the Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.3.4; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Administrative Agent on or before the proposed conversion/continuation date. If the Company has failed timely to deliver a Notice of Conversion/Continuation or give such telephonic notice with respect to an Adjusted LIBOR Loan, the Company shall be deemed to have delivered to the Administrative Agent a Notice of Conversion/Continuation to convert such Adjusted LIBOR Loan into an ABR Loan. (c) Neither the Administrative Agent nor any Lender shall incur liability to the Company in acting upon any telephonic notice referred to above which the Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of the Company or for otherwise acting in good faith under this subsection 2.3.4 and upon conversion/continuation by the Administrative Agent in accordance with this Agreement pursuant - 44 - to any telephonic notice, the Company shall have continued or converted, as the case may be, Loans hereunder. (d) Except as provided in subsection 2.7.4, a Notice of Conversion/Continuation for conversion to, or continuation of, an Adjusted LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Company shall be bound to convert or continue in accordance therewith. 2.3.5. Post-Maturity Interest. To the extent permitted by applicable law, any interest payment on the Loans not paid when due, whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for ABR Loans. 2.3.6. Computation of Interest. Interest on the Loans shall be computed on the basis of a 360-day year (except for interest payable in respect of an ABR Loan based on the Prime Rate, which shall be computed on the basis of a 365/66 day year) and the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment or, in the case of an Adjusted LIBOR Loan, the Interest Payment Date, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on such Loan. Section 2.4 Commissions. 2.4.1. Commitment Commissions. The Company agrees to pay to the Administrative Agent for distribution to each Lender commitment commissions with respect to the Total Loan Commitment for the period from and including the Closing Date to and excluding the Funding Date, at an annual rate equal to 0.50%, such annual rate shall be applied on a daily basis to $60,000,000 from the Closing Date to the Funding Date. Such commitment commissions shall be payable in arrears on September 30, December 30, March 30 and June 30 of each year, commencing on the first such date to occur after the Closing Date, and the date such commitments expire or terminate, calculated, in all cases, on the basis of a 360 day year and the actual number of days elapsed. 2.4.2. Bankers and Lenders' Commissions. The Company agrees to pay to Bankers and the other Lenders the commissions and other amounts at such times or upon the happening of such events as are set forth in the Commitment Fee - 45 - Letters. Nothing herein set forth shall limit the rights of Bankers or the other Lenders to receive the fees and other amounts payable under the Commitment Fee Letter. 2.4.3. No Refund of Fees. Once paid, all fees and commissions payable pursuant to this Section 2.4 shall not be refundable under any circumstances. Section 2.5 Prepayments and Payments. 2.5.1. Voluntary Prepayments. The Company may, upon not less than two Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent (which notice the Administrative Agent will promptly transmit by telegram, telex or telephone to each Lender), at any time and from time to time, prepay the Loans, in whole or in part at any time, without penalty or premium, in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount or, if less, the outstanding principal amount thereof. All voluntary prepayments of the Loans shall be applied in the amounts and manner applicable to mandatory prepayments as set forth in subsection 2.5.3. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date. Amounts of the Loans that are so prepaid may not be reborrowed. 2.5.2. Mandatory Prepayments. The Company shall, upon the occurrences set forth below, make prepayments of the Loans in the amounts and manner set forth below. (a) Prepayments from Sales of Collateral. Upon any sale, transfer or other disposition of any Collateral, in accordance with the provisions of Section 5.10, the Company shall prepay the Loans in an amount equal to the proceeds received by the Company in respect of such sale, transfer or other disposition net of costs of sale and taxes paid or payable by the Company as a result thereof. (b) Prepayments from Proceeds of Receivables Transactions. On the first date on which the Company or any Subsidiary of the Company receives proceeds of a Receivables Transaction, the Company shall prepay the Loans in full. 2.5.3. Company's Mandatory Prepayment Obligation; Application of Prepayments. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of accrued and unpaid interest on the principal amount being prepaid before application to principal. Any mandatory prepayment shall be applied first to - 46 - ABR Loans to the full extent thereof before application to Adjusted LIBOR Loans as determined by the Administrative Agent; provided that in lieu of application of any such prepayment to Adjusted LIBOR Loans prior to the expiration of the Interest Period with respect thereto, the Company may execute an Escrow Letter substantially in the form of Exhibit XI annexed hereto with respect to the principal and interest due in respect of such prepayment and deposit with the Administrative Agent funds equal to such amount for application to the Loans in accordance with the terms of the Escrow Letter. 2.5.4. Manner and Time of Payment. All payments of principal, interest and fees hereunder and under the Notes by the Company shall be made without defense, setoff or counterclaim and in same day funds and delivered to the Administrative Agent not later than 12:00 Noon (New York time) on the date due at its office located at One Bankers Trust Plaza, New York, New York for the account of the applicable Lenders; funds received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day. The Company hereby authorizes the Administrative Agent to charge its account with Bankers in order to cause timely payment to be made to the Administrative Agent of all principal, interest and fees due hereunder (subject to sufficient funds being available in its account for such purpose). 2.5.5. Apportionment of Payments. Aggregate principal and interest payments in respect of the Loans shall be apportioned according to the applicable Lenders' respective Commitments. The Administrative Agent shall promptly distribute to each Lender at its primary address set forth below its name on the appropriate signature page hereof, or at such other address as any Lender may request, its share of all such payments received by the Administrative Agent, if any, payable to such Lender when received by the Administrative Agent. 2.5.6. Payments on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Notes or of the commissions or fees hereunder, as the case may be; provided that in the event that the day on which payment relating to an Adjusted LIBOR Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day. - 47 - 2.5.7. Payment Accounts; Notation of Payment. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from the Loans, from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (b) The Administrative Agent shall maintain accounts in which it will record (A) the amount of the Loans made hereunder, whether the Loans consist of ABR Loans or Adjusted LIBOR Loans, and the Interest Period applicable thereto, (B) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (C) the amount of any sum received by the Administrative Agent hereunder from the Company and each Lender's share thereof. (c) The entries made in the accounts maintained pursuant to paragraphs (a) and (b) of this subsection 2.5.7 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations therein recorded; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Company to repay the Loans in accordance with their terms. (d) Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), such Lender will make a notation thereon of all Loans and principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under any such Note shall not limit or otherwise affect the obligation of the Company hereunder or under such Note with respect to the Loan and payments of principal or interest on any such Note. Section 2.6 Use of Proceeds. 2.6.1. The Loans. The proceeds of the Loans made by the Lenders to the Company on the Funding Date shall be applied, as soon as reasonably practicable, to (A) redeem in full, in accordance with its terms, 100% of the outstanding principal amount of the Existing Subordinated Debt and pay accrued interest and premium, if any, with respect thereto and (B) pay the fees and expenses payable in connection with the redemption pursuant to clause (A) of this sentence above. 2.6.2. Margin Regulations. No portion of the proceeds of the Loans shall be used by the Company in any - 48 - manner which might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T, or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of the Board or to violate the Exchange Act, in each case as in effect on the date of such borrowing and such use of proceeds. Section 2.7 Special Provisions Governing Adjusted LIBOR Loans. Notwithstanding other provisions of this Agreement, the following provisions shall govern with respect to Adjusted LIBOR Loans as to the matters covered: 2.7.1. Determination of Interest Rate. As soon as practicable after 11:00 a.m. (New York time) on an Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate which shall apply to the Adjusted LIBOR Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Company and to each Lender. 2.7.2. Increased Costs. Without duplication of payments under subsection 2.7.7, if, by reason of (A) after the date of this Agreement, the introduction of or any change in or in the interpretation of any law or regulation, or (B) the compliance with any guideline or request after the date of execution of this Agreement from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (i) any Lender (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans (except for changes in the rate of tax on the overall net income of such Lender or its applicable lending office imposed by the jurisdiction in which such Lender's principal executive office or applicable lending office is located); or (ii) any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System to the extent not already contemplated in the definition of Adjusted LIBOR), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender's applicable - 49 - lending office shall be imposed or deemed applicable or any other condition affecting its Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR Loans shall be imposed on any Lender or its applicable lending office or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Adjusted LIBOR Loans (except to the extent already included in the determination of the applicable Adjusted LIBOR), or there shall be a reduction in the amount received or receivable by such Lender or its applicable lending office, then the Company shall from time to time, upon written notice from and demand by such Lender (with a copy of such notice and demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender, within five Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost or such reduction; provided that the Company shall have no obligation to any Lender under this subsection 2.7.2 if (A) such Lender shall not have delivered such written notice to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such notice and (2) the date such Lender shall have become aware of such event or (B) the obligation to pay increased costs or indemnify against such reduction on account of taxes, duties or other charges would not have arisen but for (1) the failure of such Lender to provide any applicable forms or other documents requested by the Company which such Lender was otherwise required to provide under this Agreement, that would establish the entitlement of such Lender to a reduced rate of, or an exemption from, any tax, levy, charge, withholding or similar item with respect to its Adjusted LIBOR Loans or (2) any representation and warranty made by such Lender in connection with its Adjusted Libor Loans regarding an exemption (partial or complete) from taxes, levies, charges or withholdings proving to have been incorrect, false or misleading in any material respect when so made. A certificate as to the amount of such increased cost, submitted to the Company and the Administrative Agent by such Lender, shall, except for manifest error, be final, conclusive and binding for all purposes. 2.7.3. Required Termination and Prepayment. In the event that on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Adjusted LIBOR Loans has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), - 50 - then, and in any such event, such Lender shall be an Affected Lender and it shall promptly give notice (by telephone confirmed in writing) to the Company and the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each Lender) of that determination. Subject to the prior withdrawal of a Notice of Conversion/Continuation or prepayment of the Adjusted LIBOR Loans of an Affected Lender as contemplated by subsection 2.7.5, the obligation of an Affected Lender to make or maintain its Adjusted LIBOR Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and the Company shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this subsection 2.7.3 is made or earlier, when required by law, repay its Adjusted LIBOR Loans of such Affected Lender, together with all interest accrued thereon and such Adjusted LIBOR Loans shall be reborrowed as an ABR Loan. 2.7.4. Options of Company. Without prejudice to the Company's rights set forth in Section 2.9 and without limiting any accrued obligations of the Company under subsection 2.7.2, if the Company is required to pay an Affected Lender additional moneys under subsection 2.7.2, the Company may in lieu of the prepayment of Loans of an Affected Lender as required under subsection 2.7.3, exercise any one of the following options: (i) Upon written notice to the Administrative Agent and each Lender, the Company may terminate the obligations of the Lenders to make or maintain Loans as, and to convert Loans into, an Adjusted LIBOR Loan and in such event, the Company shall, prior to the time any payment pursuant to subsection 2.7.3 is required to be made or, if the provisions of subsection 2.7.2 are applicable, at the end of the then current Interest Period, convert all of the Adjusted LIBOR Loans into ABR Loans in the manner contemplated by subsection 2.3.4 but without satisfying the advance notice requirements therein; or (ii) The Company may give notice (by telephone confirmed in writing) to the Affected Lender and the Administrative Agent (who shall promptly give similar notice to each Lender) and require the Affected Lender to make the Adjusted LIBOR Loan then being requested as an ABR Loan or to continue to maintain its outstanding ABR Loan then the subject of a Notice of Conversion/Continuation as an ABR Loan or to convert its Adjusted LIBOR Loans then outstanding that are so affected into ABR Loans at the end of the then current Interest Period (or at such earlier time as prepayment is otherwise required to be made pursuant to subsection 2.7.3) in the manner - 51 - contemplated by subsection 2.3.4 but without satisfying the advance notice requirements therein, such notice to pertain only to the Loans of the Affected Lender and to have no effect on the obligations of the other Lenders to make or maintain Adjusted LIBOR Loans or to convert ABR Loans into Adjusted LIBOR Loans. 2.7.5. Compensation. The Company shall compensate each Lender, upon written request by such Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Adjusted LIBOR Loans and any loss sustained by such Lender in connection with the re-employment of such funds), which such Lender may sustain with respect to the Company's Adjusted LIBOR Loans: (A) if for any reason (other than a default or error by such Lender) the Borrowing of any Adjusted LIBOR Loan does not occur on a date specified therefor in the Notice of Borrowing or a Notice of Conversion/Continuation or a telephonic request for borrowing or conversion/continuation or a successive Interest Period does not commence after notice therefor is given pursuant to subsection 2.3.4, (B) if any payment or prepayment of any of such Lender's Adjusted LIBOR Loans occurs on a date which is not the last day of the Interest Period applicable to that Loan, (C) if any prepayment of any such Lender's Adjusted LIBOR Loans is not made on any date specified in a notice of prepayment given by the Company or (D) as a consequence of any other default by the Company to repay such Lender's Adjusted LIBOR Loans when required by the terms of this Agreement; provided that the Company shall have no obligation to any Lender under this subsection 2.7.5 if such Lender shall not have delivered such written notice to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such notice and (2) the date such Lender shall have become aware of such event. 2.7.6. Quotation of LIBOR. Anything herein to the contrary notwithstanding, if on any Interest Rate Determination Date LIBOR is not available for any reason, the Administrative Agent shall give the Company and each Lender prompt notice thereof and the Loans requested shall be made as ABR Loans. 2.7.7. Taxes. (a) No Withholding. Except as otherwise provided herein, any and all payments by the Company, under the Loan Documents shall be made free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with - 52 - respect thereto, excluding taxes imposed on or measured by the overall net income and franchise or similar taxes of the Administrative Agent, or any Lender (or any Purchasing Lender) imposed by the United States or any jurisdiction under the laws of which the Administrative Agent or any such Lender (or Purchasing Lender) is organized or has its principal office or lending office or any political subdivision in which the applicable Administrative Agent, Lender or Purchasing Lender is engaged in business or any taxing authority thereof or therein (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, "Taxes"). If any Taxes are required to be deducted from or in respect of any sum payable hereunder to any Lender (or any Purchasing Lender) or the Administrative Agent, then, subject to paragraph (e) of this subsection 2.7.7, (A) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection 2.7.7) such Lender (or Purchasing Lender) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (B) the Company shall make such deductions and (C) the Company shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law; provided that no Purchasing Lender shall be entitled to receive any greater payment under this paragraph (a) or paragraph (c) of subsection 2.7.7 than such transferring Lender would have been entitled to receive with respect to the rights assigned, participated or otherwise transferred unless in the case of a Purchasing Lender (1) such assignment or transfer shall have been made at a time when the circumstances (including changes in applicable law) giving rise to such greater payment did not exist or had not yet occurred or (2) such assignment or transfer shall have been at the request of or approved by the Company. (b) Documentary and Similar Taxes. Except as otherwise provided in this clause (b), the Company agrees to pay any current or future stamp, intangible or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Registered Transfer Supplement entered into at the request of the Company or any other Loan Document, but excluding any current or future stamp, intangible or documentary taxes or any other excise or property taxes, charges or similar levies that arise as a result of sales, assignments or other transfers of rights hereunder to any Transferee pursuant to Section 9.1 (including participations) (all such non-excluded taxes, charges and levies are hereinafter referred to as, collectively, "Other Taxes"). - 53 - (c) Indemnity. Except as otherwise provided in this subsection 2.7.7, the Company will indemnify each Lender (or Purchasing Lender) and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes on amounts payable under this subsection 2.7.7) paid by such Lender (or Purchasing Lender) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and reasonable expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. Such indemnification shall be made within 30 days after the date any Lender (or Purchasing Lender) or the Administrative Agent, as the case may be, makes written demand therefor. With respect to any Taxes which are paid by the Company in accordance with this subsection 2.7.7, each Lender (or Purchasing Lender) or Administrative Agent receiving the benefits of such payment of Taxes hereby agrees to pay the Company any amount refunded to such party which it determines in its sole discretion to be a refund in respect of such Taxes; provided that the Company, upon the request of such Lender (or Purchasing Lender) or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Lender (or Purchasing Lender) or the Administrative Agent in the event the relevant taxing authority or other Governmental Authority determines that such Lender (or Purchasing Lender) or the Administrative Agent was not entitled to receive such refund. (d) Receipts. Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Company in respect of any payment to any Lender (or Purchasing Lender) or the Administrative Agent, the Company will furnish to the Administrative Agent, at its address referred to in Section 9.9, the original or a certified copy of a receipt (if available) evidencing payment thereof or other evidence reasonably satisfactory to such Lender (or Transferee) or the Administrative Agent, as the case may be. (e) Non-U.S. Lenders. Each of the Administrative Agent and any Lender (or Purchasing Lender) that is not incorporated or otherwise formed under the laws of the United States of America or a state thereof (a "Non-U.S. Person") agrees that it shall, on or prior to the Closing Date, or, if later, the date it becomes a Lender (or Purchasing Lender) or the Administrative Agent hereunder, deliver to the Company and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Forms 1001 or 4224, or (B) in the case of Lenders (or Purchasing Lenders) exempt from United States Federal withholding tax pursuant to Section 871(h) or 881(c) of the Internal Revenue Code, two United States Internal Revenue Service Forms W-8 and a certificate, - 54 - substantially in the form of Exhibit XV annexed hereto (such certificate, a "Status Certificate"), representing that such Non-U.S. Person is not a bank described in Section 881(c) of the Internal Revenue Code, or any successor applicable form of any thereof, certifying in each case that such Lender (or Purchasing Lender) or the Administrative Agent is entitled to receive payments hereunder payable to it without deduction or withholding of any United States Federal income taxes, or subject to a reduced rate thereof. Each of the Administrative Agent or any Lender (or Purchasing Lender) that delivers to the Company and the Administrative Agent any such form or certification further undertakes to deliver to the Company and the Administrative Agent further copies of any such form or certification or other manner of certification reasonably satisfactory to the Company on or before the date that any such form or certification expires or becomes obsolete or of the occurrence of any event requiring a change in the most recent form or certification previously delivered by it to the Company or the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Company or the Administrative Agent, certifying that the Administrative Agent or such Lender (or Purchasing Lender), as the case may be, is entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes, or subject to a reduced rate thereof. If at any time on or after the date of this Agreement there has occurred, on or prior to the date on which any delivery of any such form or certification would otherwise be required, any change in law, rule, regulation, treaty, convention or directive, or any change in the interpretation or application of any thereof, that renders all such forms or certification previously delivered inapplicable or which would prevent the Administrative Agent or such Lender (or Purchasing Lender), as the case may be, from duly completing and delivering any such form or certificate with respect to it, the Administrative Agent or such Lender (or Purchasing Lender), as the case may be, shall advise the Company that under applicable law it shall be subject to withholding of United States Federal income tax at the full statutory rate, a reduced rate of withholding or without deduction or withholding. A Non-U.S. Person shall be required to furnish any such form or certification only if it is entitled to claim an exemption from or a reduced rate of withholding. Each of the Administrative Agent and any Lender that is a U.S. or Non-U.S. Person and that is a party hereto as of the Closing Date hereby represents and warrants that, as of the Closing Date, payments made to it hereunder are exempt from withholding of United States Federal income taxes (A) because the Administrative Agent or such Lender is organized or otherwise formed under the laws of the United States or any state thereof; (B) because such payments are effectively connected with a United States trade or business conducted by - 55 - such Non-U.S. Person; (C) pursuant to the terms of an income tax treaty between the United States and such Non-U.S. Person's country of residence; or (D) because such payments are portfolio interest exempt pursuant to Section 871(h) or 881(c) of the Internal Revenue Code. Notwithstanding any provision of paragraph (a), (b) or (c) of this subsection 2.7.7 to the contrary, the Company shall not have any obligation to pay any Taxes or Other Taxes or to indemnify any Lender (or Purchasing Lender) or the Administrative Agent for such Taxes or Other Taxes pursuant to this subsection 2.7.7 to the extent that such Taxes or Other Taxes result from (A) the failure of any Lender (or Purchasing Lender) or the Administrative Agent to comply with its obligations pursuant to this paragraph (e) or (B) any representation or warranty made in this paragraph (e), or made on any form or certification (or successor applicable form or certification) delivered pursuant to this paragraph (e) by the Lender (or Purchasing Lender) or the Administrative Agent incurring such Taxes or Other Taxes proving to have been incorrect, false or misleading in any material respect when so made or deemed to be made. Unless the Company and the Administrative Agent have received forms or other documents reasonably satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, the Company or the Administrative Agent will withhold at the applicable statutory or treaty rate. 2.7.8. Booking of Adjusted LIBOR Loans. Any Lender may make, carry or transfer Adjusted LIBOR Loans at, to, or for the account of, any of its branch offices or the office of an Affiliate of such Lender. Notwithstanding the foregoing, each Lender shall, to the extent requested to do so by the Company, use commercially reasonable efforts consistent with its internal policies and customary business practices to exercise the right set forth in the preceding sentence so as to avoid or minimize Taxes or Other Taxes in respect of Adjusted LIBOR Loans to the extent the exercise of such right would not otherwise adversely affect such Lender. 2.7.9. Assumptions Concerning Funding of Adjusted LIBOR Loans. Calculation of all amounts payable to a Lender under this Section 2.7 shall be made as though such Lender had actually funded its relevant Adjusted LIBOR Loan through the purchase of a Eurodollar deposit bearing interest at LIBOR applicable to such Adjusted LIBOR Loan in an amount equal to the amount of the Adjusted LIBOR Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided that each Lender may fund each of its Adjusted LIBOR Loans in any manner it sees fit and the - 56 - foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.7. 2.7.10. Adjusted LIBOR Loans After an Event of Default. Unless the Lenders shall otherwise agree, after the occurrence of and during the continuance of a Potential Event of Default or Event of Default, the Company may not elect to have Loans be made or maintained as, or converted to, an Adjusted LIBOR Loan after the expiration of any Interest Period then in effect for such Loan. 2.7.11. Affected Lender's Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Lender under subsection 2.7.2 or 2.7.3 or to be entitled to payments pursuant to paragraphs (a), (b) or (c) of subsection 2.7.7, it will so advise the Company and, if requested to do so by the Company, it will, to the extent not inconsistent with such Lender's internal policies and customary business practices, use commercially reasonable efforts to make, fund or maintain the affected Adjusted LIBOR Loans of such Lender through another lending office of such Lender if as a result thereof the additional moneys which would otherwise be required to be paid in respect of such Loans pursuant to subsection 2.7.2 or such paragraphs of subsection 2.7.7 would be materially reduced or the illegality or other adverse circumstances which would otherwise require prepayment of such Loans pursuant to subsection 2.7.3 would cease to exist, and if, as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise adversely affect such Loans or the Lender. The Company hereby agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this subsection 2.7.11. Section 2.8 Capital Requirements. If, while any of the Commitments or the Loans are outstanding, any Lender determines that the adoption after the date of this Agreement of any applicable law, rule or regulation regarding capital adequacy or capital maintenance or any change therein, or any change after the date of this Agreement in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive after the date of this Agreement regarding capital adequacy or capital maintenance (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of its Commitment or Loans to a level below that - 57 - which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 15 days after written demand by such Lender, the Company shall pay to such Lender such additional amount or amounts as will compensate it for such reduction; provided that the Company shall have no obligation to any Lender under this Section 2.8 if such Lender shall not have delivered such written demand to the Company within six months following the later of (1) the date of the occurrence of the event which forms the basis for such demand and (2) the date such Lender shall have become aware of such event. Section 2.9 Replacement Rights of Company. In the event that any Lender shall have delivered a notice or certificate or written demand pursuant to subsection 2.7.2, subsection 2.7.3, or Section 2.8, or the Company shall be required to make additional payments to or on behalf of or to otherwise indemnify any Lender or Purchasing Lender, for its own account or for the account of any Participant, under paragraph (a), (b) or (c) of subsection 2.7.7, so long as no Event of Default shall have occurred and be continuing, the Company shall have the right, but not the obligation, at its own expense (including with respect to the processing and recordation fee referred to in subsection 9.1.3), upon notice to such Lender and the Administrative Agent, to replace such Lender with an assignee (in accordance with and subject to the restrictions contained in subsection 9.1.3) approved by the Administrative Agent (which approval shall not be unreasonably withheld), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in subsection 9.1.3) all its interests, rights and obligations under this Agreement to such assignee; provided that no Lender shall be obligated to make any such assignment unless (A) such assignment shall not conflict with any law or any rule, regulation or order of any Governmental Authority, (B) such assignee shall pay to the affected Lender in immediately available funds on the date of such assignment the principal of the Loan made by such Lender hereunder and (C) the Company shall pay to the Affected Lender in immediately available funds on the date of such assignment the interest accrued to the date of payment on the Loan made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. - 58 - ARTICLE III CONDITIONS TO LOANS The obligations of the Lenders to make the Loans hereunder are subject to the satisfaction of all of the following conditions: Section 3.1 Conditions to Effectiveness of Agreement. The effectiveness of this Agreement is subject to prior or concurrent satisfaction of the following conditions on the Closing Date: 3.1.1. The Company shall have delivered, or caused to be delivered, to the Administrative Agent for the Lenders with sufficient copies, where appropriate, for each Lender and CG&R: (i) Certified copies of the Certificate of Incorporation of the Company, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation, each to be dated a recent date prior to the Closing Date; (ii) Copies of the By-laws of the Company, certified as of the Closing Date by its corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of the Company approving and authorizing such documents and actions as are contemplated hereby in form and substance satisfactory to the Administrative Agent and the Requisite Lenders, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of officers of the Company executing instruments, documents or agreements required to be executed in connection with this Agreement; and (v) Executed copies of each of the Collateral Documents. 3.1.2. The Company shall have taken or caused to be taken such actions in such a manner so that, effective immediately upon the funding of the Loans, the Collateral Agent, on behalf of the Lenders, will have a valid and perfected Lien on the entire Collateral, which Lien shall be a first priority Lien subject only to Prior Liens. Such actions - 59 - shall include, without limitation: (A) the delivery of the Pledge Agreements and (B) the delivery pursuant to the applicable Pledge Agreement of UCC financing statements (which shall name the Administrative Agent as secured party, in form and substance satisfactory to the Administrative Agent) granting a security interest in all Collateral or evidence satisfactory to the Administrative Agent of filing of UCC financing statements in each office where filing is necessary or appropriate. 3.1.3. The Company shall have (substantially in the form of Exhibit VIII) caused to be delivered to each Lender an Officer's Certificate and an opinion satisfactory in all respects to the Requisite Lenders from an independent valuation firm satisfactory to the Requisite Lenders, in each case to the effect that, after giving effect to the Recapitalization, the Company will not be insolvent, will not be rendered insolvent by the indebtedness incurred in connection therewith, will not be left with unreasonably small capital with which to engage in its business and will not have incurred debts beyond its ability to pay such debts as they mature. 3.1.4. The Administrative Agent and CG&R shall have received copies of one or more favorable written opinions of Shearman & Sterling, counsel for the Company, substantially in the form of Exhibit V annexed hereto, dated as of the Closing Date, and pertaining to such other matters as the Administrative Agent may reasonably request. 3.1.5. The Administrative Agent and CG&R shall have received copies of one or more favorable written opinions of (A) James W. Nellen, II, Esq., Vice President and General Counsel for the Company, substantially in the form of Exhibit VI annexed hereto and (B) counsel in each jurisdiction where there exists any accounts receivable to be subjected to the Lien of a Collateral Document with respect to the perfection of the security interests contemplated by the Collateral Documents and certain related matters, in each case in substantially the form of Exhibit VII annexed hereto. 3.1.6. The Company shall have (A) consummated the Common Stock Offering, in accordance with applicable law and on terms satisfactory in all respects to the Requisite Lenders, and received not less than $300,000,000 in aggregate gross cash proceeds from the Common Stock Offering, (B) paid any and all amounts owing in respect of the Senior Secured Notes and the Existing Credit Facilities and terminated all commitments under the Existing Credit Facilities, (C) paid any and all amounts owing on or prior to the Closing Date pursuant to the Commitment Fee Letter and (D) paid all Transaction Costs in respect of the Recapitalization that are due as of the Closing - 60 - Date or made arrangements to do so acceptable to the Requisite Lenders. 3.1.7. The Company shall have entered into the Senior Credit Agreement, on terms satisfactory in all respects to the Requisite Lenders and shall have borrowed thereunder the loans contemplated to be borrowed on the Closing Date. 3.1.8. There shall be no governmental or judicial action, actual or threatened, that is likely to restrain, prevent or impose burdensome conditions on the transactions contemplated hereby. 3.1.9. The Lenders shall have received satisfactory pro forma consolidated balance sheets of the Company and its Subsidiaries after giving effect to the Recapitalization and the Requisite Lenders shall be reasonably satisfied that such balance sheets are not inconsistent in any material respect with the Projections. 3.1.10. Except as has been disclosed in the Information Package, there shall not have occurred any material adverse change with respect to the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Company and its Subsidiaries, taken as a whole, since September 30, 1994. 3.1.11. As of the Closing Date, (A) all information and data (other than the Projections) concerning the Company and its Subsidiaries or the transactions contemplated hereby that are contained in the Information Package will not (to the best of the Company's knowledge with respect to information made available by any of the Company's authorized representatives), taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such statements are made, not misleading and (B) all financial projections concerning the Company and its Subsidiaries (collectively, the "Projections") that have been prepared by the Company or any of the Company's authorized representatives and made available to the Lenders have been prepared in good faith and are based upon reasonable assumptions (it being understood that nothing contained herein shall constitute a representation that the results forecasted in any Projections will in fact be achieved). 3.1.12. (A) The Company shall have delivered a Borrowing Base Certificate to the Agent (with sufficient copies for each of the Lenders and the Administrative Agent) duly completed. Such Borrowing Base Certificate shall be made as of - 61 - the last day of the month immediately preceding the Closing Date; provided that if the Closing Date is within ten (10) days of such month end, such Borrowing Base Certificate shall be made as of the second preceding month end. Such Borrowing Base Certificate shall also contain (1) a detailed schedule showing the aging of Receivables as of the date of the Borrowing Base Certificate and (2) a summary schedule showing the aging of Receivables as of the Friday of the week immediately preceding the Closing Date, in each case, in a form reasonably satisfactory to the Administrative Agent. (B) As of the date of the Borrowing Base Certificate referred to in clause (A), and after giving effect to the transactions to occur on the Closing Date, the Administrative Agent shall be satisfied, in its sole discretion, that the Company would have the availability to incur Loans under this Agreement in the aggregate amount of $60,000,000. The execution and delivery of this Agreement on the Closing Date shall constitute a representation and warranty to the Administrative Agent and each of the Lenders that all of the applicable conditions specified above exist as of that time, except for such conditions that have been duly waived in writing hereunder by the beneficiaries thereof. Section 3.2 Conditions to the Loans. The obligations of the Lenders to make the Loans on the Funding Date for the purposes contemplated in subsection 2.6.1 are subject to the prior or concurrent satisfaction or waiver of the following further conditions precedent (in addition to satisfaction of the conditions set forth in Section 3.1 unless such conditions have been waived in accordance with Section 9.6): 3.2.1. The Administrative Agent shall have received, in accordance with the provisions of subsection 2.1.2, before the Funding Date, an originally executed Notice of Borrowing signed by the chief executive officer, the chief financial officer or the treasurer of the Company requesting the Loans or by any executive officer of the Company designated by any of the above-described officers on behalf of the Company in writing delivered to the Administrative Agent. 3.2.2. As of the Funding Date: (i) The Company shall have made all necessary arrangements, given all necessary notices and taken all other necessary action to redeem all the outstanding Existing Subordinated Debt and pay all other amounts and Transaction Costs owing in connection with such - 62 - redemption, in accordance with the terms of the indentures governing the Existing Subordinated Debt. (ii) There shall not have occurred and be continuing any Event of Default or Potential Event of Default pursuant to Section 7.1, 7.6, 7.7, 7.9, 7.12 or 7.13. 3.2.3. The Company shall have delivered a Borrowing Base Certificate to the Administrative Agent (with sufficient copies for each of the Lenders) duly completed. Such Borrowing Base Certificate shall be made as of the last day of the month immediately preceding the Funding Date; provided that if the Funding Date is within ten (10) days of such month end, the Borrowing Base Certificate shall be made as of the second preceding month end. The Borrowing Base Certificate shall also contain (1) a detailed schedule showing the aging of Receivables as of the date of the Borrowing Base Certificate and (2) a summary schedule showing the aging of Receivables as of the Friday of the week immediately preceding the Funding Date, in each case, in a form reasonably satisfactory to the Administrative Agent. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans, the Company represents and warrants to each Lender as follows: Section 4.1 Organization, Powers, Good Standing, Business and Subsidiaries.__________ 4.1.1. Organization and Powers. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation (which jurisdiction as of the date of this Agreement is set forth on Schedule A annexed hereto). The Company has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted, to enter into each Loan Document and to carry out the transactions contemplated hereby and thereby, and in the case of the Company, to issue the Notes and the Common Stock. 4.1.2. Good Standing. The Company is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has not had and will not have a material - 63 - adverse effect on the conduct of the business of the Company and its Subsidiaries, taken as a whole. 4.1.3. Conduct of Business. On the date of this Agreement, the Company and its Subsidiaries are engaged only in the businesses described in the Prospectus. 4.1.4. Subsidiaries. All of the Subsidiaries (other than inactive Subsidiaries or Foreign Subsidiaries having no significant assets or activities) of the Company and its Subsidiaries, as of the date of this Agreement, are identified in Schedule A annexed hereto. The capital stock of each of the Subsidiaries identified in Schedule A is duly authorized, validly issued, fully paid and nonassessable. The capital stock of each Person identified on Schedule A is not Margin Stock. Each of the Subsidiaries of the Company is validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has full corporate power and authority to own its assets and properties and to operate its business as presently owned and conducted except where failure to be in good standing or a lack of corporate power and authority has not had and will not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. Schedule A correctly sets forth as of the date of this Agreement the ownership interest of the Company and each of its Subsidiaries in their respective Subsidiaries identified therein. Section 4.2 Authorization of Borrowing, etc. 4.2.1. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents and the issuance, delivery and payment of the Notes and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents have been duly authorized by all necessary corporate action by the Company. 4.2.2. No Conflict. The execution, delivery and performance by the Company of each Loan Document and the issuance, delivery and performance of the Notes, the consummation of the Common Stock Offering and the issuance of Common Stock and the other transactions comprising the Recapitalization and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents do not and will not (A) violate (1) any provision of law applicable to the Company, (2) the Certificates of Incorporation or Bylaws of the Company, or (3) any order, judgment or decree of any court or other agency of government binding on the Company, (B) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company, - 64 - (C) result in or require the creation or imposition of any Lien upon any of its properties or assets (other than Liens in favor of the Lenders) or (D) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company, except for such violations, conflicts, breaches, Liens and defaults which would not have, and such approvals the absence of which would not have, a material adverse effect on the Company and its Subsidiaries, taken as a whole. 4.2.3. Governmental Consents. The execution, delivery and performance by the Company of the Loan Documents to which it is a party and application of the proceeds of the Loans, the issuance, delivery and performance of the Notes, the consummation of the Common Stock Offering, the issuance of Common Stock, and the grant and continuation of the security interests in the Collateral pursuant to the Collateral Documents do not and will not require any registration with, authorization, order, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except such registration, consent, approval or notice as has been made, obtained or given and is in full force and effect and except for the filings to perfect security interests granted pursuant to Collateral Documents, and other filings, authorizations, notices, orders, consents and approvals the absence of which would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole or on the legality, validity or enforceability of any Loan Document. 4.2.4. Binding Obligation. This Agreement is, and the other Loan Documents and the Notes, when executed and delivered will be, the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.2.5. Valid Issuance of Common Stock. The Common Stock issued in the Common Stock Offering has been duly and validly issued, fully paid and nonassessable. Such Common Stock has been registered or qualified under applicable federal and state securities laws. Section 4.3 Financial Condition. The Company has delivered to the Lenders true and complete copies of the Company's financial statements for the fiscal year of the Company ending December 31, 1994. Except as set forth in the Information Package, all such financial statements and all financial statements set forth in the Prospectus fairly present - 65 - the consolidated financial position of the Company and its Subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of the Company and its Subsidiaries for each of the periods covered thereby, subject to changes resulting from audit and normal year- end adjustments. Neither the Company nor any of its Subsidiaries has as of the Closing Date any material Contingent Obligation, material contingent liability or material liability for taxes, long-term lease or unusual forward or long-term commitment which is not reflected in the foregoing financial statements, or the notes thereto. Section 4.4 No Adverse Material Change; No Stock Payments. Except as has been disclosed in the Information Package, since December 31, 1994, there has been no change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, which has been, either in any case or in the aggregate, materially adverse to the business, operations, property, assets or conditions (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Section 4.5 Title to Properties; Liens. The Company has good, sufficient and legal title to and beneficial ownership of all its properties and assets (other than the Collateral) reflected in the most recent consolidated balance sheet referred to in Section 4.3 or in the most recent financial statements delivered pursuant to Section 5.1 of this Agreement, except for assets acquired or disposed of in the ordinary course of business since the date of such consolidated balance sheet and except for sales and other dispositions permitted hereunder and except for such defects that in the aggregate do not materially adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Except for the Liens created by the Collateral Documents and other Liens permitted by this Agreement, all such properties and assets are free and clear of Liens. The Company has title to all the Collateral and title to each item of Collateral is subject to no Liens other than Liens which would be permitted pursuant to any Collateral Documents; provided that no such Lien (other than Prior Liens) shall be superior to the Lien of such applicable Collateral Document. The Company holds all material licenses, certificates of occupancy or operation and similar material certificates and clearances of municipal and other authorities necessary to own and operate its properties in the manner and for the purposes currently operated by the Company. Section 4.6 Litigation; Adverse Facts. Except as has been disclosed in the Information Package, there is no - 66 - action, suit, proceeding, governmental investigation of which the Company has knowledge or arbitration (whether or not purportedly on behalf of the Company or any Subsidiary thereof) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any property of the Company or any Subsidiary thereof which would reasonably be expected to result in any material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or that would impair the ability of the Company to perform any of the Obligations. Section 4.7 Payment of Taxes. Except to the extent permitted by Section 5.3, all material tax returns and reports of the Company and each Subsidiary thereof required to be filed by any of them have been filed, and all taxes, assessments, fees and other governmental charges upon such Persons and upon their respective properties, assets, income and franchises which are due and payable have been paid. The Company does not know of any proposed tax assessment against any such Person that would be material to the condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which is not being actively contested in good faith by such Person to the extent affected thereby in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. Section 4.8 Performance of Agreements. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any Contractual Obligation of any such Person, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a material adverse effect on the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Schedules C and F correctly identify all credit facilities of the Company and its Subsidiaries as of December 31, 1994 in excess of $1,000,000. Section 4.9 Governmental Regulation. Neither the Company nor any of its Subsidiaries (A) is subject to regulation under the Public Utility Holding Company Act of 1935 or to any federal or state statute or regulation limiting its ability to incur Indebtedness for money borrowed as - 67 - contemplated hereby or by any other Loan Document or (B) is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. Section 4.10 Securities Activities. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. Section 4.11 Employee Benefit Plans. 4.11.1. The Company and each of its ERISA Affiliates are and each Pension Plan is in compliance in all material respects with all applicable provisions of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to all Pension Plans and Multiemployer Plans. 4.11.2. Except for (A) the standard termination in accordance with Section 4041(b) of ERISA of the Lily-Tulip, Inc. Salary Retirement Plan and (B) the occurrence of the Reportable Event described in Regulation 29 C.F.R. Section 2615.23(a)(1)(ii) with respect to the Fort Howard Cup Corporation Bargaining Unit Pension Plan upon the transfer of all the issued and outstanding shares of capital stock of Sweetheart Cup Company, Inc., no Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan and no Termination Event that is described in clause (E) of the definition of "Termination Event" has occurred. 4.11.3. The sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) is not more than $35,000,000. 4.11.4. Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any withdrawal liability under Title IV of ERISA to any Multiemployer Plan individually or in the aggregate in excess of $25,000,000. 4.11.5. Neither the Company nor any of its ERISA Affiliates has incurred any accumulated funding deficiency (whether or not waived) with respect to any Pension Plan individually or in the aggregate in excess of $15,000,000. 4.11.6. Neither the Company nor any of its ERISA Affiliates has or reasonably expects to become subject to a lien in favor of any Pension Plan under Section 302(f) of ERISA individually or in the aggregate in excess of $15,000,000. - 68 - As used in this Section 4.11, the term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA, and the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Internal Revenue Code. Section 4.12 Certain Fees. Other than as disclosed in the Information Package by the Company, no broker's or finder's fee or commission will be payable with respect to the offer, issue and sale, of the Notes and the Company hereby indemnifies the Lenders against and agrees that it will hold the Lenders harmless from any claim, demand or liability for broker's or finder's fees alleged to have been incurred in connection with any such offer, issue and sale or any of the other transactions contemplated hereby and any expenses, including reasonable legal fees, arising in connection with any such claim, demand or liability. Except as so disclosed, no other similar fees or commissions will be payable by the Company or any of its Subsidiaries for any other services rendered to the Company or any of its Subsidiaries ancillary to the transactions contemplated hereby. Section 4.13 Disclosure. Except as disclosed in the Information Package, taken as a whole, the representations and warranties of the Company contained in this Agreement and any other document, certificate or written statement furnished to the Lenders by or on behalf of the Company or any Subsidiary of the Company for use in connection with the transactions contemplated by this Agreement (including, without limitation, the Information Package but excluding the Projections (as to which the Company makes the representations and warranties set forth below)) do not contain any untrue statement of a material fact or omit to state a material fact (known to any such person in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading. Any reaffirmation of the foregoing sentence is subject to any change in the facts and conditions on which such representations and warranties are based, which changes are required, contemplated or permitted under this Agreement and subject to further disclosure contemplated by Section 5.1; provided that in all cases, taken as a whole, representations and warranties of the Company contained in this Agreement and any other document, certificate or written statement furnished to the Lenders by or on behalf of the Company or any Subsidiary of the Company for use in connection with the transactions contemplated by this Agreement did not contain at the time made any untrue statement of a material fact or omit at the time made to state a material fact (known to the Company or any Subsidiary of the Company in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading. The Projections - 69 - are based upon good faith estimates and assumptions believed by the Company and its Subsidiaries to be reasonable at the time made, it being recognized by the Lenders that projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from the projected results. Except as disclosed in the Information Package, there is no fact known to the Company (other than matters of a general economic nature) which materially and adversely affects the business, operations, property, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. Section 4.14 Patents, Trademarks, etc. The Company and its Subsidiaries own, or are licensed to use, all patents, trademarks, trade names, copyrights, technology, know-how and processes, service marks and rights with respect to the foregoing used in or necessary for the conduct of their respective businesses as currently conducted which are material to the condition (financial or otherwise), business or operations of the Company and its Subsidiaries, taken as a whole. To the Company's knowledge, the use of such patents, trademarks, trade names, copyrights, technology, know-how, processes and rights with respect to the foregoing by the Company, its Subsidiaries and their respective Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liability on the part of the Company, its Subsidiaries and their respective Subsidiaries which is material to the Company and its Subsidiaries, taken as a whole. The consummation of the transactions contemplated by this Agreement does not require any consent to be obtained with respect to such patents, trademarks, trade names, copyrights, technology, know-how or processes, or the license to use any of such patents, trademarks, trade names, copyrights, technology, know-how, processes or rights with respect thereto, which if not obtained will in any material manner or to any material extent impair the ownership of (or the license to use, as the case may be) any of such patents, trademarks, trade names, copyrights, technology, know-how or processes by the Company and its Subsidiaries to an extent which in the aggregate would have a material adverse effect on the condition (financial or otherwise), business or operations of the Company and its Subsidiaries, taken as a whole. To the best knowledge of the Company, the rights of the Company, its Subsidiaries and their respective Subsidiaries so to sell, franchise or license under such brand names then being used may be transferred in connection with any sale of assets or stock of the related business by the Company, its Subsidiaries or any of their - 70 - respective Subsidiaries with only such exceptions as are not material to the Company and its Subsidiaries, taken as a whole. Section 4.15 Environmental Protection. 4.15.1. The Company, its Subsidiaries and their respective Subsidiaries have either (A) obtained all material permits, licenses and other authorizations which are required with respect to the operation of its business under any Environmental Law or (B) submitted a timely application in respect of such permits, licenses or other authorizations (the submission of which, by itself or in conjunction with other appropriate action by the Company, its Subsidiaries or any of their respective Subsidiaries, is sufficient under applicable law to allow the Company, its Subsidiaries and their respective Subsidiaries to continue its business or operations pending a determination with respect to such application) and received at least oral confirmation from the relevant government authority that such permits, licenses or other authorizations will be issued or reserved, as appropriate under current operating conditions. 4.15.2. The Company, its Subsidiaries and their respective Subsidiaries are in material compliance with all terms and conditions of the required material permits, licenses and authorizations, and are also in material compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Laws. 4.15.3. Except as disclosed in the Information Package, there is no material civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice of demand letter pending or, to the knowledge of the Company, threatened against the Company, its Subsidiaries or any of their respective Subsidiaries under the Environmental Laws. 4.15.4. Except as disclosed in the Information Package, there are no material past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may materially interfere with or prevent material compliance with the Environmental Laws, or which may give rise to any material common law or legal liability, including, without limitation, liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or similar state, local or foreign laws, or otherwise form the basis of any material claim, action, demand, suit, proceeding, hearing or notice of violation, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, - 71 - disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste which would have a material adverse effect on the business, operations, condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. Section 4.16 Security Interests. On and as of the Closing Date, each of the Collateral Documents creates, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and Lien on all of the Collateral, which Lien shall be a first priority Lien subject only to Prior Liens. No filings or recordings are required in order to perfect the Liens created under the Collateral Documents except for filings or recordings which on or before the date of execution and delivery of such Collateral Document will have been made. Section 4.17 Solvency. 4.17.1. Immediately after the consummation of the transactions to occur on the Closing Date and the Funding Date and immediately following the making of the Loans and after giving effect to the application of the proceeds of the Loans, (A) the fair value of the assets of the Company and its Subsidiaries on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Company and its Subsidiaries on a consolidated basis, (B) the fair saleable value of the property of the Company and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, (C) the Company and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, and (D) the Company and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date and the Funding Date. 4.17.2. The Company does not intend to, or to permit any of its Subsidiaries to, and does not believe that it or any of its Subsidiaries will, incur debts beyond the Company's or such Subsidiary's ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by the Company or such Subsidiary and the timing of - 72 - the amounts of cash to be payable on or in respect of the Company's Indebtedness or the Indebtedness of such Subsidiary. ARTICLE V AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments hereunder shall be in effect and until payment in full of the Loans and the Notes, unless the Requisite Lenders shall otherwise agree in writing, the Company shall perform all covenants in this ARTICLE V: Section 5.1 Financial Statements and Other Reports. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP. The Company will deliver to the Lenders: (i) As soon as practicable and in any event within 30 days after the end of each month ending after the Closing Date in each of the Company's fiscal years, other than months which are the last month in a fiscal quarter, (A) the consolidated balance sheet of the Company and its consolidated Subsidiaries, as at the end of such month, and (B) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such month and for the period from the beginning of the then current fiscal year to the end of such month; (ii) As soon as practicable and in any event within 45 days after the end of each fiscal quarter ending during or after 1995, other than quarters which are the last quarter in a fiscal year, (A) the consolidated balance sheet of the Company and its consolidated Subsidiaries, as at the end of such period and (B) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, all prepared in accordance with Rule 10-01 of Regulation S-X of the General Rules and Regulations Under the Securities Act of 1933, or any successor rule that sets forth the manner in which interim financial statements shall be prepared, it being understood that the foregoing shall include (1) a statement of profit and loss to the gross margin, - 73 - including specified cost components and (2) statements of capital expenditures setting forth in comparative form, the corresponding periods of the previous fiscal year, the corresponding figures from the consolidated plan for the then current fiscal year delivered pursuant to subparagraph (xii) of this Section 5.1, all in reasonable detail and certified by the chief financial officer of the Company that, in the case of such consolidated financial statements, they fairly present the financial condition of the Company and its consolidated Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustment and, insofar as relates to divisions, based on the Company's normal accounting procedures applied on a consistent basis; (iii) As soon as practicable and in any event within 90 days after the end of each fiscal year of the Company (commencing with fiscal year 1995) (A) (1) the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and (2) the related consolidated statements of earnings and retained earnings and cash flow statements of the Company and its consolidated Subsidiaries for such fiscal year, it being understood that the foregoing shall include (x) a statement of profit and loss to the gross margin, including specified cost components and (y) statements of capital expenditures setting forth in comparative form the corresponding figures for the previous year, the corresponding figures from the consolidated plan for the current fiscal year delivered pursuant to subparagraph (xii) of this Section 5.1, all in reasonable detail, and (B) in the case of such consolidated financial statements, accompanied by a report thereon of Arthur Andersen & Co. or such other independent certified public accountants of recognized national standing selected by the Company which report shall be unqualified as to going concern and scope of audit and shall state that such consolidated financial statements present fairly the financial position of the Company and its consolidated Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for such changes as are concurred in by such accountants) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; - 74 - (iv) Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to subparagraphs (ii) and (iii) of this Section 5.1, (A) an Officers' Certificate of the Company (substantially in the form of Exhibit XIII) stating that the signers have reviewed or caused to be reviewed under their supervision the terms of this Agreement, the Notes and the other Loan Documents and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken, is taking and proposes to take with respect thereto and (B) a Compliance Certificate substantially in the form of Exhibit IV annexed hereto demonstrating in reasonable detail compliance (as determined in accordance with GAAP) during and at the end of such accounting periods with the restrictions contained in Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10 and 6.14 and a computation as of the last day of the applicable fiscal quarter of the Company of Ratio 1, Ratio 2 and the Applicable Category in respect of the period succeeding such quarter and the then unutilized amounts of the Discretionary Excess Cash Flow Balance and the Discretionary Equity Proceeds Balance in respect of the most recently ended fiscal year and, in addition, a written statement of the chief accounting officer or chief financial officer of the Company describing in reasonable detail the differences between the financial information contained in such financial statements and the information contained in the Compliance Certificate relating to the Company's compliance with Sections 6.6, 6.9 and 6.14; (v) Together with each delivery of consolidated financial statements of the Company and its consolidated Subsidiaries pursuant to subparagraph (iii) of this Section 5.1, a written statement by the independent public accountants giving the report thereon (A) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (B) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Potential Event of Default has come to their attention, and if such - 75 - a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable to any Lender by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the ordinary course of their audit examination and (C) stating that based on their audit examination nothing has come to their attention which causes them to believe that the information contained in either or both of the certificates delivered therewith pursuant to subparagraph (iv) of this Section 5.1 is not correct or that the matters set forth in the Compliance Certificate delivered therewith pursuant to clause (B) of such subparagraph (iv) of this Section 5.1 for the applicable fiscal year are not stated in accordance with the terms of this Agreement; (vi) Promptly upon receipt thereof, copies of all reports submitted to the Company or any Subsidiary thereof by independent public accountants in connection with each annual, interim or special audit of the financial statements of the Company or any Subsidiary thereof made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (vii) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company or by any Subsidiary thereof to its respective security holders (other than the Company or any Subsidiary thereof), of all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Company or any Subsidiary thereof with any securities exchange or with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any such Subsidiary to the public concerning material developments in the business of the Company or any Subsidiary thereof; (viii) Promptly upon any officer of the Company obtaining knowledge (A) of any condition or event which constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice or taken any other action with respect to a claimed Event of Default or Potential Event of Default under this Agreement, (B) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, (C) of any condition or event which would be required to be - 76 - disclosed in a current report filed by the Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2 and 4 of such Form as in effect on the date hereof) if the Company were required to file such reports under the Exchange Act or (D) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; (ix) Promptly upon any officer of the Company obtaining knowledge of (A) the institution of, or non-frivolous threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries not previously disclosed by the Company to the Lenders, or (B) any material development in any such action, suit, proceeding, governmental investigation or arbitration, which, in either case, if adversely determined, would materially and adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, the Company shall promptly give notice thereof to the Lenders and provide such other information as may be reasonably available to it (without waiver of any applicable evidentiary privilege) to enable the Lenders and CG&R to evaluate such matters; (x) Promptly upon any officer of the Company becoming aware of the occurrence of any (A) Termination Event, (B) "prohibited transaction", within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code, or (C) filing by the Company or any of its ERISA Affiliates of an application for a waiver of an accumulated funding deficiency, in connection with any Pension Plan or any trust created thereunder, a written notice specifying the nature thereof, what action the Company or its ERISA Affiliates have taken, are taking or propose to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or the Pension Benefit Guaranty Corporation with respect thereto; - 77 - (xi) With reasonable promptness, copies of (A) all notices received by the Company or any of its ERISA Affiliates of the Pension Benefit Guaranty Corporation's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (B) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Company or any of its ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan and (C) all notices received by the Company or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; (xii) As soon as practicable and in any event by the sixtieth day of each fiscal year of the Company, a consolidated plan, prepared in accordance with the Company's normal accounting procedures applied on a consistent basis, for such fiscal year of the Company, including, without limitation, (A) a forecasted consolidated balance sheet and a consolidated statement of changes in financial position of the Company for such fiscal year, including a forecasted statement of profit and loss to the gross margin and forecasted statements of working capital and capital expenditures and (B) the amount of total forecasted capital expenditures and forecasted consolidated selling, general and administrative expenses for such fiscal year; (xiii) As soon as practicable and in any event by the last day of each fiscal year of the Company, a report in form and substance reasonably satisfactory to the Administrative Agent and the Requisite Lenders outlining all material insurance coverage maintained as of the date of such report by the Company and its Subsidiaries and all material insurance coverage planned to be maintained by such Persons in the subsequent fiscal year; (xiv) Together with each delivery of financial statements of the Company and its Subsidiaries pursuant to subparagraph (ii) of this Section 5.1, an Officers' Certificate of the Company (substantially in the form of Exhibit XIV) stating that the signers made, or caused to be made under their supervision, a review of the terms of, and the records relating to, all of the Intercompany Indebtedness of the Company and its Subsidiaries and stating the amount of all outstanding Intercompany Indebtedness, including all Intercompany Indebtedness of all Subsidiaries to other Subsidiaries and the Company and all Intercompany Indebtedness of all consolidated - 78 - Subsidiaries to other Consolidated Subsidiaries and the Company as of the date of such financial statements; and (xv) With reasonable promptness, such other information and data (other than Sensitive Information), with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or any Lender. Notwithstanding anything to the contrary set forth above, the Company's failure to comply with subparagraphs (viii) and (ix) of this Section 5.1 (other than clause (A) of subparagraph (viii) of this Section 5.1, except to the extent that materiality is relevant to the existence or non-existence of an Event of Default or a Potential Event of Default) based on a good-faith determination by an officer of the Company that such condition, event or development is not material shall not be the basis for an Event of Default. Section 5.2 Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence and rights and franchises material to its business and those of each of its Subsidiaries; provided that the corporate existence of any such Subsidiary may be terminated if such termination is in the best interest of its parent and would not have a material adverse effect on the ability of the Company to perform its obligations under the Loan Documents; and provided, further, that neither the Company nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of the Company or such Subsidiary shall have determined that the preservation thereof is no longer desirable in the conduct of the business of the Company or such Subsidiary, as the case may be. Section 5.3 Payment of Taxes and Claims; Tax Consolidation.__________________ 5.3.1. The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon them or any of their properties or assets or in respect of any of their franchises, business, income or property before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a material Lien upon any of their material properties or assets, prior to the time when any material penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, - 79 - if any, as shall be required in conformity with GAAP shall have been made therefor. 5.3.2. The Company will not, and will not permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than any of their respective Subsidiaries or such other Person as may be reasonably acceptable to the Requisite Lenders). Section 5.4 Maintenance of Properties; Insurance. The Company will maintain or cause to be maintained in good repair, working order and condition (ordinary wear and tear excepted) all material properties used in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof and will maintain and renew as necessary all material licenses, permits and other material clearances necessary to use and occupy the material properties of the Company and its Subsidiaries. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations to the extent that such types and such amounts of insurance are available at commercially reasonable rates. The Company will furnish to each Lender, upon reasonable request, information as to the insurance carried, and will not cancel any such insurance without the consent of the Requisite Lenders. Section 5.5 Inspection. The Company shall maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice and agrees that such books and records will reflect the Collateral Agent's and the Lenders' interest in the Receivables of the Company. The Company shall permit any authorized representatives designated by any Lender to visit and inspect any of the properties of the Company, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested, for the purpose, subject to Section 9.17, of (i) inspecting and/or copying (at the Company's expense) any and all records pertaining to the Collateral, (ii) discussing the Company's and its Subsidiaries' affairs, finances and accounts with its and their officers and independent public accountants and (iii) verifying Eligible Receivables; provided that in light of (A) the highly proprietary nature of the following information, (B) its historically demonstrated and ongoing value and - 80 - importance in the Company's operating performance and (C) the substantial risk to the value of the Company's business if such information were not maintained on a strictly confidential basis, in no event shall the Company be required to disclose to any Person any information with regard to the Company's dry form technology or de-inking technology, any formulas, recipes, process flow diagrams, equipment specifications, equipment purchase costs or manufacturing and process costs related thereto (the "Sensitive Information"). Section 5.6 No Further Negative Pledges. Except as provided in this Section 5.6, neither the Company nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired. The foregoing provisions of this Section 5.6 shall not be deemed violated by the following: (A) any Contractual Obligation restricting Liens on assets owned by a Foreign Subsidiary or on the shares of stock of any Foreign Subsidiary (other than Collateral as defined in the Senior Credit Agreement and other than the shares of stock of Sterling International (U.K.) Limited and Sterling International Limited) or on the shares of stock of SIL Company (other than Collateral as defined in the Senior Credit Agreement), (B) the provisions of (1) Section 3.08 of the indenture governing the 9 1/4% Unsecured Notes, as in effect on the Closing Date, (2) Section 3.08 of the indenture governing the 8 1/4% Unsecured Notes, as in effect on the Closing Date, or (3) any similar provision of any instrument comprising the Refinancing Senior Unsecured Debt that is no less favorable to the Company and the Lenders than the provisions of each such Section 3.08 referred to above, (C) the provisions of Section 3.08 of the indenture governing the 9% Senior Subordinated Notes, as in effect on the Closing Date, or the provisions of Section 3.08 of the indenture governing the 10% Subordinated Notes, as in effect on the Closing Date, (D) the provisions of any Capital Leases that restrict the imposition of Liens on the assets specifically demised pursuant thereto, (E) the provisions of Section 5.6 of the Senior Credit Agreement as in effect on the date hereof, and (F) the provisions of any other instrument governing Indebtedness of the Company or any Domestic Subsidiary of the Company permitted under Section 6.1, which Indebtedness is secured by a Lien permitted under Section 6.2, to the extent such provisions operate to restrict the ability of the Company or any of its Subsidiaries to grant Liens on the specific assets securing such Indebtedness. Section 5.7 Compliance with Laws, etc. The Company and its Subsidiaries shall comply with the requirements of all applicable laws, including Environmental Laws, rules, regulations and orders of any Governmental Authority, - 81 - noncompliance with which would materially adversely affect the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. Section 5.8 Lender Meeting. The Company will participate in a meeting of Lenders once during each fiscal year to be held at a location and a time selected by the Company. Section 5.9 Security Interests. 5.9.1. The Company shall perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement, continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, which are necessary or advisable, from time to time, in order to grant, continue and maintain in favor of the Collateral Agent for the benefit of the Lenders a valid and perfected Lien on the Collateral, which Lien is a first priority Lien subject only to Prior Liens. 5.9.2. The Company shall deliver or cause to be delivered to the Administrative Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance satisfactory to the Collateral Agent as the Collateral Agent shall deem reasonably necessary or advisable to perfect or maintain the Liens for the benefit of the Lenders, including assets which are required to or do become Collateral after the Closing Date. Section 5.10 Certain Dispositions of Collateral. The Company shall not sell, lease, assign, transfer or otherwise dispose of any interest in any Collateral or transfer or contribute any such Collateral to a Foreign Subsidiary pursuant to clause (x) of Section 6.3 (each, a "Release Transaction") except in compliance with this Section 5.10, Section 6.7 and the Collateral Documents. Upon such compliance, the Company shall be entitled to receive from the Collateral Agent an instrument (each, a "Release") releasing the Lien of any applicable Collateral Document with respect to such Collateral. The Company shall exercise its rights under this Section 5.10 by delivery to the Collateral Agent of a notice (each, a "Release Notice"), which shall refer to this subsection, describe with particularity the items of property proposed to be covered by the Release and be accompanied by a counterpart of the Release fully executed and acknowledged by all parties thereto other than the Collateral Agent and in form - 82 - for execution by the Collateral Agent, and an Officers' Certificate certifying as to the satisfaction of the Release Conditions. The Collateral Agent shall execute and deliver to the Company such counterpart within 10 days after receipt by the Collateral Agent of a Release Notice and the satisfaction of the Release Conditions. The Collateral Agent's obligation to deliver any Release and the Company's rights to transfer any Collateral to a Foreign Subsidiary pursuant to the provisions of subparagraph (x) of Section 6.3 or to enter into any sale, lease, assignment, transfer or other disposition of any Collateral pursuant to the provisions of this Section shall be subject to the following conditions (collectively, "Release Conditions"): (i) no Event of Default or Potential Event of Default shall have occurred and be continuing as of the proposed effective date of such Release; (ii) Any Receivables sold, transferred or otherwise disposed of by the Company shall be sold, transferred or otherwise disposed of to a Person other than an Affiliate of the Company for face value without any discount or allowance; (iii) such sale, transfer or other disposition shall not result in the incurrence by the Company of any Indebtedness not otherwise permitted by Section 6.1; and (iv) all proceeds of such sale, transfer or other disposition shall be applied to prepay the Loans in accordance with subsection 2.5.2(a). In connection with any Release Transaction, the Company shall (A) execute, deliver, file and obtain such instruments as the Administrative Agent or the Requisite Lenders may reasonably require, including, without limitation, amendments to the Collateral Documents and this Agreement and (B) deliver to the Administrative Agent such evidence of the satisfaction of the Release Conditions as the Administrative Agent or the Requisite Lenders may reasonably require. The Company shall reimburse the Administrative Agent and Lenders upon demand for all costs or expenses incurred by each thereof in connection with any action contemplated by this Section 5.10. Section 5.11 Recapitalization. The Company shall take all reasonable actions to cause to be consummated as soon as practicable following the Closing Date the redemption and retirement of the Existing Subordinated Debt and the other transactions and payments required to complete the Recapitalization. - 83 - Section 5.12 Collateral Reporting. The Company shall timely deliver to each of the Administrative Agent and each of the Lenders weekly, before 12:00 noon on Friday of each week, a duly completed Borrowing Base Certificate, which shall: (i) identify the balance of the Company's Eligible Receivables as of Friday of the immediately preceding week; (ii) be prepared by or under the supervision of such Borrower's chief executive officer or chief financial officer or treasurer and certified by such officer subject only to adjustment upon completion of the normal year- end audit; and (iii) have attached thereto such additional schedules and other information as the Administrative Agent may, from time to time, reasonably request. Section 5.13 Cash Collateral. If, at any time, the aggregate principal amount of Loans outstanding shall exceed the Borrowing Base (as determined by the Administrative Agent based upon the Dollar amount of Eligible Receivables as reflected in the most recent Borrowing Base Certificate delivered by the Company to the Administrative Agent), the Administrative Agent may, within five (5) Business Days of its receipt of such Borrowing Base Certificate, deliver to the Company a notice (each, a "Deficiency Notice") indicating the amount by which the principal amount of Loans then outstanding exceeds the Borrowing Base (such amount, the "Deficiency Amount"). The Company shall, within two (2) Business Days of its receipt of any Deficiency Notice, cause Cash or Cash Equivalents in an amount at least equal to the Deficiency Amount to be deposited into the Cash Collateral Account. If any subsequent Borrowing Base Certificate delivered to the Administrative Agent and the Lenders indicates that (i) the aggregate principal amount of Loans outstanding does not exceed the Borrowing Base or (ii) the aggregate principal amount of Loans outstanding exceeds the Borrowing Base by an amount which is less than the amount of Cash and Cash Equivalents then on deposit in the Cash Collateral Account, the Company may deliver to the Administrative Agent a written request for the release of such excess funds (each, a "Cash Release Request"), which request shall indicate the amount of cash to be released, the basis for the Company's determination that such release is appropriate and a direction as to the manner of payment of such funds. Upon its receipt of any Cash Release Request, the Administrative Agent shall confirm the amount of funds to be released and, upon such confirmation, shall promptly return such funds as directed in the Cash Release Notice. - 84 - ARTICLE VI NEGATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments shall be in effect and until payment in full of the Loans and all of the Notes, unless the Requisite Lenders shall otherwise give prior written consent, the Company will perform all covenants in this ARTICLE VI. Section 6.1 Indebtedness. The Company and its Subsidiaries shall not directly or indirectly create, incur, assume, guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) The Company and its Subsidiaries may become and remain liable with respect to the Obligations; (ii) The Company may become and remain liable with respect to the Indebtedness evidenced by the Refinancing Senior Unsecured Debt; provided that the principal amount of such Indebtedness shall not exceed, in the case of a refinancing of either the 9-1/4% Unsecured Notes, the 8-1/4% Unsecured Notes or any Refinancing Senior Unsecured Debt, the then outstanding principal amount thereof; and provided, further, that such Indebtedness (A) provides for interest at rates which do not exceed the market rates for similar types of Indebtedness prevailing at the time such Indebtedness is incurred, (B) has a final scheduled maturity date that is subsequent to the date on which the final Scheduled Term Loans Principal Payment in respect of Tranche B Term Loans is due under the Senior Credit Agreement, (C) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Tranche B Term Loans on the date such Indebtedness is incurred, (D) contains no representation and warranty, covenant or event of default that (1) is in addition to the representations and warranties, covenants and events of default that are currently set forth in the instruments (as in effect on the Closing Date) evidencing or governing the 9-1/4% Unsecured Notes or the 8-1/4% Unsecured Notes, as the case may be, or (2) is more burdensome (to the Company) than the most burdensome (to the Company) corresponding representation and warranty, covenant or event of default set forth in the instruments (as in effect on the Closing Date) evidencing or governing the 9-l/4% Unsecured Notes or the 8-l/4% Unsecured Notes, as the case may be and (E) if the Refinancing Senior Unsecured Debt is Subordinated Indebtedness, contains subordination provisions no less favorable to the Lenders - 85 - than the least favorable subordination provisions (to the Lenders) in the Existing Subordinated Debt; (iii) The Company and its Subsidiaries may remain and may become and remain liable with respect to Intercompany Indebtedness; provided that (A) all such Intercompany Indebtedness shall be evidenced by promissory notes, which may be master promissory notes governing all advances made by the maker of such note to the payee of such note and (B) any Intercompany Indebtedness owed by the Company to any Subsidiary shall be subordinated pursuant to the terms of the promissory note or notes evidencing such Intercompany Indebtedness in right of payment, from and after such time as the Loans shall have become due and payable (whether at date of maturity, by acceleration or otherwise), to the payment in full of the Obligations; and provided, further, that the aggregate amount of Intercompany Indebtedness of all Foreign Subsidiaries owing to the Company and the Subsidiaries of the Company (other than any Foreign Subsidiaries) shall not exceed the amounts permitted pursuant to the provisions of Section 6.3 (other than Intercompany Indebtedness owing as a result of or incurred to finance payment of Royalty or Management Fees that are payable by Foreign Subsidiaries to the Company and the Subsidiaries of the Company); (iv) The Company and its Subsidiaries may remain liable with respect to Existing Indebtedness which is described in Schedule C annexed hereto and may become and remain liable in respect of the Refinancing Foreign Debt; (v) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable (A) with respect to Indebtedness in respect of Capital Leases if such Capital Leases would be permitted by Section 6.9 and (B) with respect to other Indebtedness secured by Liens permitted by Section 6.2; (vi) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable with respect to Contingent Obligations permitted by Section 6.4 and, upon any obligations actually arising pursuant thereto, with respect to the Indebtedness corresponding to the Contingent Obligations so extinguished; (vii) The Company and its Subsidiaries (other than any Foreign Subsidiary) may become and remain liable with respect to Indebtedness incurred in connection with Sale/Leaseback Transactions permitted by Section 6.10; - 86 - (viii) The Company may become and remain liable with respect to Indebtedness of the Company incurred pursuant to the Management Agreements; (ix) Any Foreign Subsidiary of the Company may become and remain liable with respect to Indebtedness for money borrowed to the extent that the Dollar equivalent of the aggregate Indebtedness of such Foreign Subsidiary outstanding pursuant to this subparagraph (ix) does not exceed, at any time, an amount equal to 150% of the aggregate amount of (A)(i) each investment made by the Company (whether in the form of equity contributions, Intercompany Indebtedness, contribution of a Contingent Obligation or otherwise) and the amount of each equity investment of all other investors in such Foreign Subsidiary since the Closing Date (all such investments being valued as at the time of investment) and (ii) the Fair Value (as of the Closing Date) of all equity Investments in such Foreign Subsidiary made by all such other investors prior to the Closing Date reduced by (B) the excess, if any, of (1) the aggregate Fair Value of all assets (determined, in each case, as at the time of transfer thereof) transferred by such Foreign Subsidiary (whether by dividend, loan, contribution or otherwise) since the Closing Date (other than interest on Intercompany Indebtedness in amounts and at rates not in excess of those payable in transactions between unaffiliated parties and payments of, or payments of principal of indebtedness related to, Royalty or Management Fees) to any investor in such Foreign Subsidiary over (2) the net income of such Foreign Subsidiary since the later of the Closing Date and the first date of such Investment by the Company or any Subsidiary of the Company; provided that, except as otherwise permitted in Section 6.4, neither the Company nor any of its Domestic Subsidiaries shall have personal liability for repayment of such Indebtedness; (x) The Company or any Domestic Subsidiary of the Company may become and remain liable with respect to Indebtedness for money borrowed constituting Permitted Expansion Construction Financing to the extent that the aggregate Indebtedness outstanding pursuant to this subparagraph (x) does not exceed the aggregate amounts permitted under subsection 6.1(x) of the Senior Credit Agreement; (xi) The Company may become and remain liable with respect to Indebtedness constituting Permitted Expansion Financings; - 87 - (xii) The Company may become and remain liable with respect to Indebtedness in an aggregate principal amount not to exceed $1,440,000,000 under the Senior Credit Agreement; and (xiii) In addition to the Indebtedness permitted by subparagraphs (i) through (xii) of this Section 6.1, the Company and its Subsidiaries may become and remain liable with respect to Indebtedness not exceeding $25,000,000 in the aggregate at any time outstanding. Section 6.2 Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer or permit to exist any Lien upon or with respect to any property of the Company that is or should (pursuant to the terms hereof) be subject to the Lien of any Collateral Document except (i) Liens in favor of the Collateral Agent for the benefit of the lenders under the Senior Credit Agreement granted to secure the Company's obligations thereunder, which Liens on the Collateral shall be subject and subordinate to the Liens granted to the Collateral Agent for the benefit of the Lenders hereunder, and (ii) Liens which would be permitted pursuant to any applicable Collateral Documents; provided that no such Liens (other than Prior Liens) shall be superior to the Lien of such applicable Collateral Document. With respect to assets other than Collateral, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to such property or asset, whether now owned or hereafter acquired, or any income or profits therefrom, except: (i) Permitted Encumbrances; (ii) Liens described in Schedule D annexed hereto; (iii) Liens affecting assets, comprised of Existing Mill Expansion Equipment or Greenfield Expansion Assets, securing reimbursement obligations of the Company and its Subsidiaries with respect to letters of credit permitted by subparagraph (vi) of Section 6.4, in each case which Liens do not encumber Collateral pledged pursuant to any Collateral Document and which are granted pursuant to documents relating to such letters of credit; (iv) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business (other than any Lien imposed by ERISA) and which are either within the general parameters customary in the industry (as concurred in by the Administrative Agent) or are otherwise approved by the - 88 - Requisite Lenders securing obligations under Commodities Agreements entered into by the Company or any of its Subsidiaries; (v) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Subsidiaries incurred in the ordinary course of business or as a result of this Agreement or the incurrence, guaranteeing or granting of security interests in respect of Obligations incurred pursuant to this Agreement or the other Loan Documents; (vi) Liens securing Indebtedness permitted under subparagraph (v) (clause A) or (vii) of Section 6.1, incurred in connection with Capital Leases or Sale/Leaseback Transactions permitted by Section 6.9 or 6.10 so long as such Liens do not extend to assets other than the assets subject to such Capital Lease or Sale/Leaseback Transaction and do not secure any Indebtedness other than Indebtedness directly incurred to finance such Capital Lease or Sale/Leaseback Transaction; (vii) Liens securing Indebtedness of (or of the Wholly-Owned Subsidiaries of) a Foreign Subsidiary of the Company permitted under Section 6.1 so long as such Liens do not extend to assets other than assets owned by such Foreign Subsidiary or its Wholly Owned Subsidiaries and do not secure any Indebtedness other than Indebtedness of (or of the Wholly Owned Subsidiaries of) such Foreign Subsidiary; provided that no such Liens (other than Liens constituting Preexisting Assumed Liens) may encumber any common stock or other equity interest in any First Tier Foreign Subsidiary; (viii) Liens granted in favor of a Lender under the Senior Credit Agreement to secure the obligations of the Company pursuant to any Qualified Interest Rate Agreement or Qualified Currency Agreement; (ix) Liens securing Indebtedness constituting Permitted Expansion Construction Financing and incurred in accordance with the provisions of subparagraph (x) of Section 6.1; provided that no such Lien may extend to any assets of the Company other than the assets contemplated in the definition of Permitted Expansion Construction Financing; (x) Liens affecting assets, comprised of Existing Mill Expansion Equipment or Greenfield Expansion Assets, securing Indebtedness constituting Permitted Expansion - 89 - Financings (other than any such Indebtedness constituting Unsecured Expansion Financings); (xi) Liens on assets of the Company and its Subsidiaries required pursuant to the Senior Credit Agreement as in effect on the date hereof to be granted by the Company and its Subsidiaries to secure Indebtedness under the Senior Credit Agreement; and (xii) In addition to Liens permitted by subparagraphs (i) through (xi) above, the Company and its Subsidiaries may at any time have Liens securing the payment of Indebtedness with respect to property or assets with an aggregate Fair Value of not more than $25,000,000 (as measured from the Closing Date). Nothing in this Section 6.2 shall prohibit (A) the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries at its fair value or (B) the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. Section 6.3 Investments; Joint Ventures. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person or enter into any Joint Venture, except: (i) The Company and its Subsidiaries may make and own Investments in Cash and Cash Equivalents; (ii) The Company may acquire and own Common Stock to the extent permitted under Section 6.5; (iii) The Company and its Subsidiaries may continue to own Investments in existence on the date hereof, and which are specifically described in Schedule E annexed hereto; (iv) The Company and its Subsidiaries may make intercompany loans to the Company or any Domestic Subsidiary of the Company to the extent permitted under Section 6.1; (v) The Company and its Subsidiaries may continue to own Investments in respect of Joint Ventures in existence on the date hereof, and which are specifically described in Schedule E annexed hereto; (vi) The Company and its Subsidiaries may make and own Investments in Joint Ventures operating in the United States after the date hereof; provided that the aggregate - 90 - amount of such Investments made after the date hereof shall not exceed $25,000,000; (vii) The Company or any Subsidiary of the Company may make and own Investments received in connection with the bankruptcy or reorganization of any of its suppliers and customers and in settlement of delinquent obligations of, and other disputes with, its customers and suppliers arising in the ordinary course of business; (viii) The Company or any Subsidiary of the Company may make and own Investments arising in connection with Commodities Agreements entered into in the ordinary course of its business; (ix) The Company and its Domestic Subsidiaries may make and own Investments in Foreign Subsidiaries; provided that the aggregate amount of the Fair Values of all assets (including, but not limited to, cash, cash equivalents, capital and other assets) transferred by the Company and its Domestic Subsidiaries (such Fair Value to be measured in each case as of the actual date of transfer) to, and the maximum amount of all Contingent Obligations incurred for the benefit of, one or more Foreign Subsidiaries by way of capital contribution, loan, guarantee or otherwise shall not exceed at any time (A) the aggregate Fair Value of all assets (including, but not limited to, cash, cash equivalents, capital and other assets) transferred after the Closing Date by all Foreign Subsidiaries in the aggregate to the Company and its Domestic Subsidiaries (such Fair Value to be measured in each case as of the actual date of transfer) by way of capital contribution, loan, dividend, distribution or otherwise and all reductions in Investments constituting Contingent Obligations (effected as a result of the retirement after the Closing Date by the applicable Foreign Subsidiary of Indebtedness guaranteed by the Company or any Domestic Subsidiary of the Company), plus (B) (i) during the period commencing on the Closing Date and ending on June 30, 1996, $40,000,000, and (ii) during all periods after June 30, 1996, $40,000,000 until such time as the Company shall have achieved an Interest Coverage Ratio of 1.9 or more, after which time such amount shall be increased to $100,000,000, plus (C) the aggregate of all amounts of the unutilized Discretionary Equity Proceeds Balance and the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Investments pursuant to this subparagraph (ix) (provided that the total of all amounts of the unutilized Discretionary Equity Proceeds Balance which the Company may elect to apply pursuant to this clause (C) shall not - 91 - exceed, at any time, an amount equal to 50% of the sum of the Closing Date Excess Equity Proceeds Amount and the aggregate amount, as of such time, of all net cash proceeds received by the Company or any of its Subsidiaries after the Closing Date from all Equity Offerings after the Closing Date (exclusive of any shares sold pursuant to an overallotment option in respect of the Common Stock Offering) plus (D) the aggregate amount of Royalty and Management Fees on a consolidated basis previously paid after the Closing Date by Foreign Subsidiaries to the Company and its Subsidiaries; and provided, further, that nothing set forth in this subparagraph (ix) shall be construed to permit the transfer to any Foreign Subsidiary of any asset which constitutes Collateral or which constitutes Collateral (as such term is defined in the Senior Credit Agreement as in effect on the date hereof); (x) The Company and its Domestic Subsidiaries may make and own Investments in any Foreign Subsidiary consisting of the transfer of tangible assets to such Foreign Subsidiary; provided that (A) the aggregate book value of all such tangible assets so transferred after the Closing Date pursuant to this subparagraph (x) (determined, in each case, as of the date of transfer) after the Closing Date shall not exceed $10,000,000 and (B) the aggregate Fair Value (as so determined) of all such tangible assets so transferred after the Closing Date pursuant to this subparagraph (x) shall not exceed $25,000,000; (xi) The Company and its Subsidiaries may make and own Investments in equity securities (other than equity securities of the Company or any of its Subsidiaries) listed on the New York Stock Exchange ("NYSE"); provided that the aggregate value, as determined by the closing price on the NYSE for such equity securities on the Business Day prior to making the Investment, of such equity securities shall not at any time exceed $2,000,000; (xii) The Company or any Subsidiary may continue to own Investments in, and may make and own Investments in, Consolidated Domestic Capital Expenditures permitted to be made or owned by the Company or such Subsidiary under Section 6.14 and may make Investments as a direct consequence of the discharge of Contingent Obligations permitted under Section 6.4; (xiii) The Company may make Investments constituting recourse and non-recourse loans to management and other employees of the Company to purchase Common Stock and to - 92 - pay taxes in respect of such purchases as permitted by the Management Agreements in an aggregate principal amount not to exceed $10,000,000 (plus accrued and unpaid interest thereon) at any time outstanding; and (xiv) In addition to Investments permitted by subparagraphs (i) through (xiii) of this Section 6.3, the Company and its Subsidiaries may after the Closing Date make and own Investments (other than Investments in Foreign Subsidiaries or other Persons, properties or operations that are not organized or located in the United States of America (exclusive of its territories and possessions)) (A) with an aggregate Fair Value (determined, in each case, at the time such Investment is made) of not more than $25,000,000 outstanding at any time, and (B) (without limiting the rights of the Company under clause (A) hereof) in an aggregate amount (determined, in each case, at the time such Investment is made) outstanding at any time not exceeding the aggregate of all amounts of the unutilized Discretionary Equity Proceeds Balance and the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Investments pursuant to this subparagraph (xv); provided that, except as set forth in subparagraph (xi) of this Section 6.3, neither the Company nor any of its Subsidiaries may make or own Investments in any Margin Stock other than Common Stock. Section 6.4 Contingent Obligations. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or become or be liable with respect to any Contingent Obligation except: (i) Guarantees resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Obligations under the Guarantor Subsidiary Guarantees as in effect on the date hereof; (iii) Guarantees of Interest Rate Agreements and Currency Agreements entered into by the Company which are permitted by subparagraphs (iv) and (v) of this Section 6.4; (iv) Interest Rate Agreements and Currency Agreements (other than Leveraged Swaps) entered into by the Company and any Lender; (v) Commodities Agreements and Currency Agreements (other than Leveraged Swaps) entered into by the Company - 93 - or any Subsidiary of the Company and any financial institution in the ordinary course of business; (vi) Contingent reimbursement obligations not exceeding $10,000,000 in the aggregate outstanding at one time under letters of credit (including any such letters of credit in existence as of the date hereof) other than Letters of Credit; (vii) Contingent Obligations in existence on the date hereof described in Schedule G and extensions and renewals thereof so long as the amount of any such Contingent Obligations so extended or renewed is not increased thereby from the amount thereof at the time extended or renewed; (viii) Contingent Obligations in respect of any obligation (other than any obligation with respect to Indebtedness) of (A) the Company or one of its Domestic Subsidiaries and (B) Foreign Subsidiaries to the extent, in the case of clause (A) and (B), such Contingent Obligation is an Investment permitted under Section 6.3; (ix) Contingent Obligations represented by performance bonds and similar obligations relating to the sale of the Company's or its Subsidiaries' products incurred in the ordinary course of business (exclusive of obligations for payment of borrowed money) not to exceed $10,000,000 at any time; (x) Contingent Obligations represented by surety bonds and similar obligations incurred in the ordinary course of business (exclusive of obligations for payment of borrowed money) not to exceed $15,000,000 at any time; (xi) Contingent Obligations pursuant to the Management Agreements; (xii) Contingent Obligations in respect of Indebtedness of (A) the Company or a Domestic Subsidiary of the Company and (B) Foreign Subsidiaries to the extent such Contingent Obligations are Investments permitted under Section 6.3; (xiii) Contingent reimbursement obligations not exceeding $50,000,000 in the aggregate outstanding at any time under Letters of Credit; and (xiv) In addition to the Contingent Obligations permitted by subparagraphs (i) through (xiii) of this Section 6.4, the Company and its Subsidiaries may become - 94 - and remain liable with respect to other Contingent Obligations except Contingent Obligations which constitute Investments in Foreign Subsidiaries pursuant to Section 6.3 or which are for the benefit of any Foreign Subsidiary of the Company; provided that the maximum aggregate liability of the Company and its Subsidiaries in respect of all Contingent Obligations incurred pursuant to this subparagraph (xiv) shall not at any time exceed $25,000,000. Section 6.5 Restricted Junior Payments. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment except that (A) during each of the first two twelve-month periods starting on the Closing Date, the Company may declare and pay cash dividends to holders of its Common Stock in an amount up to $3,000,000 for each such period, (B) during any twelve-month period commencing on or after the second anniversary of the Closing Date, the Company may declare and pay cash dividends to holders of its Common Stock in an annual amount not to exceed 6% of the sum of (1) $300,000,000 less the amount of all Transaction Costs reasonably determined by the Company to be attributable to the first $300,000,000 of gross proceeds of the Common Stock Offering and (2) the aggregate net cash proceeds of all issuances of Common Stock of the Company occurring after the Closing Date (excluding the Common Stock Offering and any Common Stock sold pursuant to an overallotment option in connection with the Common Stock Offering); provided that no dividend in excess of $3,000,000 that is proposed to be declared or paid pursuant to this clause (B) may be declared or paid unless at the date of declaration and the date of payment thereof the unutilized portion of the Revolving Loan Commitment under the Senior Credit Agreement shall equal or exceed $100,000,000, (C) the Company may, commencing on March 31, 1996 and on each March 31 thereafter, declare and pay cash dividends to holders of its Common Stock in an amount not to exceed the then unutilized portion of the Discretionary Excess Cash Flow Balance, (D) the Company may (1) repurchase or redeem the Senior Unsecured Notes, in each case on the terms provided in the indentures governing the Senior Unsecured Notes (each as in effect on the date hereof), with the proceeds of Refinancing Senior Unsecured Indebtedness incurred in compliance with the provisions of Section 6.1, (2) repurchase or redeem its Common Stock pursuant to the Management Agreements and the Stockholders Agreements (each as in effect on the date hereof or, in the case of a Broad-Based Plan, the date of adoption thereof) to the extent that the aggregate amount of such repurchases and redemptions does not exceed $35,000,000 in the aggregate (as measured from the Closing Date) and (3) make purchases of Common Stock owned by MS Group for immediate - 95 - resale to Persons other than the Company or a Subsidiary of the Company, (E) the Company may issue Indebtedness permitted under subparagraph (viii) of Section 6.1, (F) the Company may make Investments under subparagraph (xiii) of Section 6.3, (G) the Company may make, from time to time, Restricted Junior Payments of the character contemplated in clauses (A) and (D)(1) above and, following the retirement of all the Senior Unsecured Notes or the refinancing of all the Senior Unsecured Notes with Refinancing Senior Unsecured Debt having a final maturity later than the final maturity of the Tranche B Term Loans, the Company may repurchase or redeem Subordinated Indebtedness in an aggregate amount not exceeding, at any time, the aggregate of all amounts of the unutilized Discretionary Equity Proceeds Balance which the Company has from time to time elected to apply to the making of Restricted Junior Payments pursuant to this clause (G); provided that if and for so long as the Company shall have achieved the Investment Grade Ratings in respect of the senior unsecured debt obligations of the Company, the Company shall not be required, as a condition to any exercise of its rights under this clause (G) with respect to redemptions and repurchases of Subordinated Indebtedness, to first refinance, repurchase or retire all Senior Unsecured Notes and all Refinancing Senior Unsecured Notes, (H) the Company may, from time to time, make Restricted Junior Payments of the character contemplated in clauses (A) and (D)(1) above, and the Company may repurchase or redeem Subordinated Indebtedness in an aggregate amount not exceeding at any time, the aggregate of all amounts of the unutilized Discretionary Excess Cash Flow Balance which the Company has from time to time elected to apply to the making of Restricted Junior Payments pursuant to this clause (H) and (I) the Company may redeem the 12 5/8% Subordinated Debentures and the 14 1/8% Discount Debentures as contemplated by the Recapitalization. Notwithstanding the foregoing, the Company may not declare or pay any dividends or redeem or repurchase any Securities or issue any Indebtedness or make any Investments referred to above (1) except to the extent permitted by applicable law or (2) if, at the time of such declaration or payment or redemption, repurchase, issuance or investment and immediately after giving effect thereto, no Potential Event of Default or Event of Default shall have occurred and be continuing. Section 6.6 Financial Covenants. 6.6.1. Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio to be less than (A) for the first and second full fiscal quarters (taken as one accounting period) beginning after the Closing Date, 1.25, (B) for the first, second, and third full fiscal quarters (taken as one accounting period) beginning after the Closing Date, 1.25, and (C) for any period of four consecutive full fiscal quarters - 96 - (in each case taken as one accounting period) beginning after the Closing Date and ended during a period set forth below, the ratio set forth opposite such period: Period Ratio 12/31/95 - 12/30/96 1.40x 12/31/96 - 12/30/97 1.50x 12/31/97 - 12/30/98 1.60x 12/31/98 - 12/30/99 1.75x 12/31/99 - 12/30/00 1.85x 12/31/00 and thereafter 2.00x 6.6.2. Maximum Leverage Ratio. The Company will not permit the Leverage Ratio as of the end of any fiscal quarter set forth during any period below to be more than the ratio set forth opposite such period: Period Ratio 9/30/95 - 12/30/95 4.25x 12/31/95 - 3/30/96 4.00x 3/31/96 - 6/29/96 3.85x 6/30/96 - 7/29/96 3.70x 9/30/96 - 12/30/96 3.55x 12/31/96 - 3/30/97 3.45x 3/31/97 - 6/29/97 3.30x 6/30/97 - 9/29/97 3.20x 9/30/97 - 12/30/97 3.10x 12/31/97 - 12/30/98 3.00x 12/31/98 - 12/31/99 2.75x 12/31/99 - 12/30/00 2.50x 12/31/00 and thereafter 2.00x Section 6.7 Restriction on Fundamental Changes. Subject to Section 5.2, neither the Company nor any of its Subsidiaries will enter into any transaction of merger or consolidate, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or fixed assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, except: 6.7.1. Any Subsidiary of the Company may be merged or consolidated with or into the Company or any Wholly Owned Subsidiary of the Company (other than a Foreign Subsidiary), or be liquidated, wound up or dissolved, or all or substantially - 97 - all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Company or any Wholly Owned Subsidiary of the Company (other than a Foreign Subsidiary); provided that (A) any Foreign Subsidiary of the Company (other than a Foreign Subsidiary that is a Material Subsidiary) may be merged or consolidated with or into any other Foreign Subsidiary, or be liquidated, wound up or dissolved, or (B) all or substantially all of the business, property or assets of any Foreign Subsidiary (other than a Foreign Subsidiary that is a Material Subsidiary) may be conveyed, sold, leased, or transferred or otherwise disposed of, in one transaction or a series of transactions to another Foreign Subsidiary (other than to a Foreign Subsidiary that is also a Material Subsidiary) or (C) any of the foregoing transactions may occur between two Foreign Subsidiaries that are Material Subsidiaries; and provided, further, that, in the case of such a merger or consolidation of a Subsidiary and the Company, the Company shall be the continuing or surviving corporation, or, in the case of a merger or consolidation of a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation, or, in the case of a merger or consolidation of two Wholly Owned Subsidiaries, either of such Subsidiaries shall be the surviving or continuing corporation; 6.7.2. The Company or any of its Subsidiaries may convey, sell, transfer or otherwise dispose of any Margin Stock, whether now owned or hereafter acquired; provided that such disposition is for Fair Value; 6.7.3. The Company and its Subsidiaries may sell or dispose of in the ordinary course of business (A) property which is obsolete or no longer useful in any of its businesses or is of de minimis value (as determined, in the case of any such property the Fair Value of which is in excess of $10,000,000, in good faith by the Board of Directors of the Company or any Subsidiary selling such property, as the case may be), (B) Cash and Cash Equivalents, (C) other Investments described in subparagraphs (vii) and (x) of Section 6.3; provided that any such sale or other disposition is made for at least the Fair Value of such assets and (D) Receivables subject to the requirements of Sections 5.10 and 6.11; 6.7.4. Subject to Sections 5.2 and 6.7 and 5.10 in respect of sales of Collateral, so long as no Event of Default has occurred and is continuing or shall be caused thereby, the Company and its Subsidiaries may sell or otherwise dispose of any of their respective assets outside the ordinary course of business; provided that (A) any such sale or other disposition is made for at least the Fair Value of such assets, (B) any - 98 - sale or other disposition of more than $250,000,000 in Fair Value of stock or other assets in any one transaction or a related series of transactions shall be subject to the prior written consent of Requisite Lenders unless such sale or other disposition is of Margin Stock, and (C) in the case of any Collateral shall be subject to the requirements of Sections 5.10 and 6.11; 6.7.5. The Company and its Subsidiaries may sell, resell or otherwise dispose of real or personal property held for sale or resale in the ordinary course of business; and 6.7.6. The Company and its Subsidiaries may make Investments otherwise permitted pursuant to Section 6.3 and Capital Expenditures otherwise permitted pursuant to Section 6.14. Section 6.8 ERISA. The Company will not, and will not permit any of its ERISA Affiliates to: 6.8.1. engage in any transaction in connection with which the Company or any of its ERISA Affiliates could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in either case in an aggregate amount in excess of $1,000,000; 6.8.2. fail to make full payment when due of all amounts which, under the provisions of any Pension Plan, or under ERISA or the Internal Revenue Code, the Company or any of its ERISA Affiliates is required to pay as contributions thereto; or permit to exist any accumulated funding deficiencies for which a waiver from the Internal Revenue Service has not been obtained with respect to all Pension Plans in an aggregate amount greater than $5,000,000; 6.8.3. permit the sum of the amount of unfunded benefit liabilities under all Pension Plans (excluding each Pension Plan with an amount of unfunded benefit liabilities of zero or less) to exceed $25,000,000; or 6.8.4. fail to make any payments in an amount individually or in the aggregate greater than $1,000,000 to any Multiemployer Plan that the Company or any of its ERISA Affiliates may be required to make under such Multiemployer Plan, any agreement relating to such Multiemployer Plan, or any law pertaining thereto. As used in this Section 6.8, the term "accumulated funding deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of the Internal Revenue Code, and the - 99 - term "amount of unfunded benefit liabilities" has the meaning specified in Section 4001(a)(18) of ERISA. Section 6.9 Restriction on Leases. The Company will not, and will not permit any of its Subsidiaries to, become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations as or of the lessee under any lease (other than intercompany leases between and among the Company and its Domestic Subsidiaries), whether an Operating Lease or a Capital Lease, unless, immediately after giving effect to the incurrence of liability with respect to such lease, the Consolidated Rental Payments at the time in effect during the then current fiscal year of the Company shall not exceed the applicable amount set forth below: Fiscal Year Amount 1995 $ 50,000,000 1996 $ 55,000,000 1997 $ 60,000,000 1998 $ 65,000,000 1999 $ 70,000,000 2000 $ 75,000,000 2001 $ 80,000,000 2002 $ 85,000,000 Notwithstanding the foregoing, if the Company or any of its Subsidiaries shall have sold any Subsidiary or any line of business to any Person (other than the Company or any Subsidiary), each of the above amounts with respect to any period from or after the date of such sale shall be reduced by an amount equal to the reasonable good faith estimates by the Company (using such methods as the Administrative Agent may reasonably approve) of Consolidated Rental Payments of such Subsidiary or such line of business for such periods. Section 6.10 Sales and Leasebacks. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real or personal or mixed), whether now owned or hereafter acquired in a Sale/Leaseback Transaction; provided that the Company or any of its Subsidiaries may enter into Sale/Leaseback Transactions otherwise prohibited under this Section 6.10 if (A) the assets to be subject to such Sale/Leaseback Transaction are acquired, constructed or placed in service after the Closing Date, and (B) the provisions of Section 6.9 would not be breached thereby. - 100 - Section 6.11 Sale or Discount of Receivables The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell with or without recourse, or discount or otherwise sell for less than the face value thereof, notes or accounts receivable except notes issued in favor of the Company or any of its Subsidiaries in connection with sales or other dispositions of assets (other than inventory) so long as the Company or such Subsidiary, as the case may be, receives the Fair Value of such notes and such notes are sold without recourse. Section 6.12 Transactions with Shareholders and Affiliates. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity securities of the Company or with any Affiliate of the Company or of any such holder, on terms that are less favorable to the Company or such Subsidiary, as the case may be, than those which might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (A) any transaction between the Company and any of its Wholly Owned Subsidiaries or between any of its Wholly Owned Subsidiaries, (B) customary fees paid to members of the Board of Directors of the Company and its Subsidiaries, (C) the payment of fees to MS Group or its Affiliates from time to time for financial, consulting and underwriting services, such fees not to exceed the then usual and customary fees of MS Group or its Affiliates for similar services, (D) transactions contemplated by the Management Agreements and the Stockholders Agreement and (E) transactions permitted by Section 6.5. Section 6.13 Disposal of Subsidiary Stock. Except as permitted by Section 5.6, 6.2 or 6.7 and, except with respect to Margin Stock, the Company will not: 6.13.1. directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of (or warrants, rights or options to acquire shares or other equity securities of) any of its Subsidiaries, except to qualify directors if required by applicable law; or 6.13.2. permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities or convertible debt securities of (or warrants, rights or options to acquire shares or other equity securities - 101 - or convertible debt securities of) such Subsidiary, except to the Company, another Wholly Owned Subsidiary of the Company or to qualify directors if required by applicable law. Nothing in this Section 6.13 shall prohibit the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by the Company or any of its Subsidiaries or the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. Section 6.14 Limitation on Capital Expenditures. 6.14.1. The Company will not, and will not permit any of its Subsidiaries to, incur Capital Expenditures, except as specifically permitted in the following subsections of this Section 6.14. 6.14.2. Any one or more of the Foreign Subsidiaries of the Company may incur Capital Expenditures in such amounts and for such purposes as shall be determined by the Company or any such Foreign Subsidiary in its discretion; provided, however, that the Company and its Subsidiaries shall comply and have complied in all respects with the provisions of subsections (ix) and (x) of Section 6.3 in respect thereof to the extent applicable to such Capital Expenditures. 6.14.3. During each fiscal year of the Company ending on or after December 31, 1995, the Company and its Domestic Subsidiaries may incur on or after January 1, 1995, in respect of (A) the Green Bay Sludge Boiler, (B) the Savannah Boiler and (C) other matters not constituting Expansion Projects, Consolidated Domestic Capital Expenditures in an aggregate amount not in excess of $75,000,000 (the "Base Annual Capex Amount"). 6.14.4. Without limiting the rights of the Company and its Domestic Subsidiaries to incur Consolidated Domestic Capital Expenditures in accordance with subsection 6.14.3 above, the Company and its Domestic Subsidiaries may incur Consolidated Domestic Capital Expenditures in respect of Expansion Projects (other than the Green Bay Sludge Boiler and the Savannah Boiler) on the following terms and subject to each of the following conditions: (i) the aggregate amount (the "Domestic Capex Maximum") of Consolidated Domestic Capital Expenditures in the aggregate which may be incurred in respect of all such Expansion Projects shall not at any time exceed the sum of (a) $250,000,000 plus (b) the total amount of net cash proceeds received by the Company or any of its Subsidiaries after the Closing Date and prior to such time - 102 - in respect of Permitted Expansion Financings (other than any Permitted Expansion Financings relating solely to the Green Bay Sludge Boiler or the Savannah Boiler); (ii) except for Capital Expenditures incurred in connection with the Initial Major Expansion Project or the Green Bay Dry Form Machine, neither the Company nor any of its Domestic Subsidiaries shall be permitted to incur, or become bound by any Contractual Obligation to incur, Consolidated Domestic Capital Expenditures in respect of any single such Expansion Project (the first of such Expansion Projects, the "Second Expansion Project") in excess of $30,000,000, unless the Company shall have, in respect of any period of four full consecutive fiscal quarters of the Company commencing after the Closing Date and ending with the quarter immediately preceding the quarter in which such amount in excess of $30,000,000 is first committed to be spent by the Company, achieved an Interest Coverage Ratio of 1.9 or greater (it being understood that, if the Second Interest Coverage Ratio shall have been so achieved, the Company shall not be required to maintain such Interest Coverage Ratio as a condition to incurring further expenditures in respect of the Second Expansion Project); and (iii) except for Capital Expenditures incurred in connection with the Initial Major Expansion Project or the Second Expansion Project (to the extent permitted under clause (ii) above), neither the Company nor any of its Domestic Subsidiaries shall be permitted to incur, or become bound by any Contractual Obligation to incur, Consolidated Domestic Capital Expenditures in respect of any single Expansion Project in excess of $30,000,000 unless the Company shall have, in respect of any period of four consecutive fiscal quarters of the Company commencing on or after the Closing Date and ending after the quarter immediately preceding the quarter in which such amount in excess of $30,000,000 is first spent or committed to be spent by the Company in respect of such Expansion Project, achieved an Interest Coverage Ratio of 2.15 or greater (it being understood that, if such Interest Coverage Ratio shall have been so achieved, the Company shall not be required to maintain such Interest Coverage Ratio as a condition to incurring further expenditures in respect of such Expansion Project). 6.14.5. The Company may elect by written notice to the Lenders to apply to the making of Consolidated Domestic Capital Expenditures, in addition to the Base Annual Capex Amount and the Domestic Capex Maximum permitted under subsection 6.14.3 and 6.14.4, as applicable, (A) portions of - 103 - the then unutilized Discretionary Equity Proceeds Balance and the then unutilized Discretionary Excess Cash Flow Balance and (B) 100% of the unused amount (the "Capex Carryover Amount") of Consolidated Domestic Capital Expenditures, if any, in respect of prior fiscal years (beginning with fiscal year 1995) permitted under subsection 6.14.3. 6.14.6. For purposes of this Section 6.14 only, "Capital Expenditures" shall exclude expenditures of insurance proceeds received upon destruction of property to the extent such proceeds are used to effect restoration, replacement or repair of such property. Section 6.15 Conduct of Business. The Company will not, and will not permit any of its Subsidiaries to, engage in any business other than (A) the business it and its Subsidiaries are engaged in on the date hereof as described in the Prospectus and similar or related businesses, (B) such other businesses as are engaged in by it and its Subsidiaries on the date hereof as shall not be of a nature which are material to it and its Subsidiaries and (C) such other lines of business as may be consented to by the Requisite Lenders (such consent not to be unreasonably withheld). Section 6.16 Amendments or Waivers of Certain Documents; Prepayments of Indebtedness. 6.16.1. Neither the Company nor any of its Subsidiaries will agree to any (A) amendment to provisions of the Management Agreements imposing any additional obligation on the Company with respect to the acquisition by the Company or any of its Subsidiaries of any capital stock of the Company to the extent the aggregate amount of all such additional obligations would cause the Company to exceed the limitation on repurchases or redemptions of its Common Stock set forth in subclause (D)(2) of Section 6.5 (it being understood that any and all such additional obligations will be taken into account in determining whether such limitation has been exceeded), or (B) amendment to provisions of the Stockholders' Agreement which is materially adverse to the interests of the Lenders. 6.16.2. Neither the Company nor any of its Subsidiaries will (A) amend or otherwise change the terms of the Subordinated Notes or the indentures relating thereto, the Existing Subordinated Debt or the indentures relating thereto, the Senior Unsecured Notes or the indentures related thereto, any Refinancing Senior Unsecured Debt, any Permitted Expansion Financing, any Expansion Lease, the Senior Credit Agreement and the documentation executed in connection therewith, the documents evidencing the 1988 Revenue Bonds or the 1988 Revenue Bond Indenture, if the effect of such amendment or change is to - 104 - increase the interest rate on such Indebtedness or the rental amounts due thereunder, as the case may be, change the dates upon which payments of rent, principal or interest are due thereon, change any event of default or condition to an event of default with respect to such Indebtedness or Expansion Lease, grant any security interest in favor of such Indebtedness, change the redemption provisions thereof, change the subordination provisions thereof, cause such Indebtedness or Expansion Lease to be guaranteed by any Subsidiary of the Company or which, together with all other amendments or changes made, increase materially the obligations of the obligor or confer additional rights on the holder of such Indebtedness or Expansion Lease which would be adverse to the Company or the Lenders or (B) except as otherwise expressly permitted in this Agreement, defease, or make any payments the effect of which is to defease, any such Indebtedness in whole or in part (whether pursuant to the defeasance provisions of such Indebtedness or otherwise). 6.16.3. Except for the making of Restricted Junior Payments expressly permitted under Section 6.5, the Company will not make any payment or prepayment of principal of, or interest on, or premium (if any) on, any of the Subordinated Notes except, in each case, for (A) regularly scheduled payments of principal, if any, and interest in accordance with the terms of the instruments evidencing or governing such Indebtedness, (B) payment of principal on the scheduled final maturity date of such Indebtedness in accordance with the terms of the governing instruments with respect thereto and (C) any mandatory payment or prepayment required to be made as a result of acceleration pursuant to the terms of the instruments governing such Indebtedness as in effect on the date hereof. 6.16.4. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on, the Senior Unsecured Notes or the Refinancing Senior Unsecured Debt, except, in each case, for (A) a refinancing of the Senior Unsecured Notes with the proceeds of Refinancing Senior Unsecured Debt permitted under Section 6.5, (B) regularly scheduled payments of interest in accordance with the terms of the applicable Senior Unsecured Notes Indenture or the instruments governing the Refinancing Senior Unsecured Debt, as the case may be, (C) payment of principal on the scheduled final maturity date of the Senior Unsecured Notes or the Refinancing Senior Unsecured Debt, in each case, in accordance with the terms of the applicable loan agreement, indenture or other governing instruments and (D) any mandatory payment or prepayment required to be made as a result of acceleration pursuant to the terms of the applicable Senior Unsecured Notes Indenture or the instruments governing the Refinancing Senior - 105 - Unsecured Debt, as the case may be, in each case as in effect on the date hereof. 6.16.5. Neither the Company nor any of its Subsidiaries will voluntarily terminate any Expansion Lease or otherwise optionally make, either directly or indirectly, any payment to acquire or otherwise reacquire any assets leased by the Company under any Expansion Lease or any interest therein (including, without limitation, any beneficial interest therein) or any Indebtedness secured thereby, or make any optional prepayment of any rental obligation under any Expansion Lease to any other party to any Expansion Lease. 6.16.6. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on, any Indebtedness constituting Permitted Expansion Financing except for (A) regularly scheduled payments of principal, if any, and interest in accordance with the terms of the instruments governing such Indebtedness, (B) payment of principal on the scheduled final maturity date of such Indebtedness in accordance with the terms of the instruments governing such Indebtedness and (C) any mandatory payment or prepayment required to be made as a result of acceleration or otherwise pursuant to the terms of the instruments governing such Indebtedness. 6.16.7. Neither the Company nor any of its Subsidiaries will make any payment or prepayment of principal of, or interest on, or premium (if any) on the Senior Loans, except, in each case, for (A) mandatory prepayments required pursuant to Section 2.7.2 of the Senior Credit Agreement as in effect on the date hereof, (B) regularly scheduled payments of interest in accordance with the terms of the Senior Credit Agreement as in effect on the date hereof and (C) any mandatory payment or prepayment required to be made as a result of acceleration or otherwise pursuant to the terms of the Senior Credit Agreement as in effect on the date hereof. Section 6.17 Payment of Cash Interest on Subordinated Debt. Except with the consent of the Requisite Lenders, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay any interest in cash on Subordinated Debt where the Company has the option to pay such interest in securities or to accrue the interest payable with respect to such Subordinated Debt. -106 - ARTICLE VII EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur and be continuing: Section 7.1 Failure To Make Payments When Due. Failure to pay the Loans when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise or failure to pay for 5 days after the day when due any interest on the Loans or any other amount due under this Agreement; or Section 7.2 Default in Other Agreements. Failure of the Company or any of its Subsidiaries to pay when due (A) any principal or interest on any Indebtedness (other than Indebtedness referred to in Section 7.1) in an individual principal amount of $15,000,000 or more or items of Indebtedness with an aggregate principal amount of $30,000,000 or more or (B) any Contingent Obligation in an individual amount of $15,000,000 or more or Contingent Obligations with an aggregate amount of $30,000,000 or more, in each case at the stated maturity thereof or beyond the end of any period after which the obligee thereunder is permitted to accelerate payment thereunder, or breach or default of the Company or any of its Subsidiaries with respect to any other material term of any loan agreement, mortgage, indenture or other agreement relating to any Indebtedness in an individual principal amount of $15,000,000 or more or items of Indebtedness with an aggregate principal amount of $30,000,000 or more or any Contingent Obligation in an individual amount of $15,000,000 or more or Contingent Obligations with an aggregate amount of $30,000,000 or more; if the effect of such failure, default or breach is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation (or a trustee on behalf of such holder or holders) then to cause, that Indebtedness or Contingent Obligation to become or be declared due prior to its stated maturity (or the stated maturity of any underlying obligation, as the case may be); or Section 7.3 Breach of Certain Covenants. Failure of the Company to perform or comply with any term or condition contained in Section 2.6, 5.2 or 5.6, ARTICLE VI or Section 9.6 of this Agreement; or Section 7.4 Breach of Warranty. Any representation or warranty made by the Company in any Loan Document or in any statement or certificate at any time given by such Person in writing pursuant hereto or thereto or in connection herewith or -107 - therewith shall be false in any material respect on the date as of which made; or Section 7.5 Other Defaults Under Agreement or Loan Documents. The Company shall default in the performance of or compliance with any term contained in this Agreement or other Loan Documents other than those referred to above in Sections 7.1, 7.3 or 7.4 and such default shall not have been remedied or waived within 30 days after receipt of notice from the Administrative Agent or any Lender of such default; or Section 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc.________________________ 7.6.1. A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company, or any of its Subsidiaries which, as of the date of entry of such decree or order, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or 7.6.2. An involuntary case is commenced against the Company or any of its Subsidiaries which, as of the date of such commencement, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of such Subsidiaries, or over all or a substantial part of the property of the Company or any of such Subsidiaries, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of such Subsidiaries for all or a substantial part of the property of the Company or any of such Subsidiaries is involuntarily appointed; or a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Company or any of such Subsidiaries, and the continuance of any such events in this subsection 7.6.2 for 60 days unless dismissed, bonded or discharged; or - 108 - Section 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or any of its Subsidiaries which, as of the date of entry of such decree or order, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) shall have a decree or an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of a decree or an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by the Company or any of such Subsidiaries of any general assignment for the benefit of creditors; or the inability or failure of the Company or any of such Subsidiaries generally to pay its debts as such debts become due; or the Board of Directors of the Company or any of such Subsidiaries (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any of the foregoing; or Section 7.8 Judgments and Attachments. Any money judgment, writ or warrant of attachment, or similar process involving (A) in any individual case an amount in excess of $10,000,000 or (B) in the aggregate at any time an amount in excess of $20,000,000 (in either case not adequately covered by insurance as to which the insurance company has acknowledged coverage) shall be entered or filed against the Company or any of its Subsidiaries which, as of the date of such entry or filing, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 30 days or in any event later than five days prior to the date of any proposed sale thereunder; or Section 7.9 Dissolution. Any order, judgment or decree shall be entered against the Company or any of its Subsidiaries which, as of the date of such entry, would constitute a Material Subsidiary (whether or not, as of such date, such Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary under any other applicable provision of this Agreement) decreeing the dissolution or split up of the Company or such Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or - 109 - Section 7.10 Unfunded ERISA Liabilities. 7.10.1. Any Pension Plan maintained by the Company or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA; or 7.10.2. A trustee shall be appointed by an appropriate United States district court to administer any Pension Plan; or 7.10.3. The Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or 7.10.4. The Company or any of its respective ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan; or 7.10.5. The Termination Event that is described in clause (E) of the definition of "Termination Event" shall have occurred and be continuing; if as of the date thereof or any subsequent date, the sum of each of the Company's and its ERISA Affiliates' various liabilities (such liabilities to include, without limitation, any liability to the Pension Benefit Guaranty Corporation (or any successor thereto) or to any other party under ERISA or the Internal Revenue Code and to be calculated after giving effect to the tax consequences thereof) resulting from all such events listed in subsections 7.10.1 through 7.10.5 above exceeds $25,000,000; or Section 7.11 Withdrawal Liability Under Multiemployer Plan. The Company or any of its ERISA Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability requiring annual payments in an amount individually or in the aggregate exceeding $1,500,000 in any one year; unless (A) prior to the time any payment of such withdrawal liability is due in accordance with Section 4219(c)(2) of ERISA, the plan sponsor agrees in writing that the correct amount of the annual payment is less than $1,500,000, or (B) prior to the time any payment of such withdrawal liability is due in accordance with Section 4219(c)(2) of ERISA, a court of competent jurisdiction has enjoined and continues to enjoin the collection of such payment, or (C) Section 4219 of ERISA has been amended to provide that notification that such withdrawing employer has - 109 - incurred a withdrawal liability would not, in the ordinary course or with the lapse of time, require the payment; provided that, in the event of such an amendment, an Event of Default shall be deemed to occur when any payment of such withdrawal liability becomes due or would, in the ordinary course or with the lapse of time, become due; or Section 7.12 Failure of Security. Any Collateral Document shall, at any time, cease to be in full force and effect or shall be declared null and void, or the legality, validity or enforceability thereof shall be contested by the Company or the Administrative Agent, as agent for the Lenders, shall not have or shall cease to have valid and perfected (to the extent required by the Collateral Documents) Lien in the Collateral with a face value of more than $2,000,000 in the aggregate of the priority contemplated by the applicable Collateral Document in each case for any reason other than the failure of the Administrative Agent to take any action within its control, or the Company shall fail to perform or observe in any material respect any Collateral Document; or Section 7.13 Change in Control. If there shall occur any Change in Control; THEN (A) upon the occurrence of and during the continuance of any Event of Default described in the foregoing Section 7.6 or 7.7 (other than the last clause of Section 7.7), each of (i) the unpaid principal amount of and accrued interest on the Loans, and (ii) all other amounts comprising the Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company and (B) upon the occurrence of and during the continuance of any other Event of Default, the Requisite Lenders may, by written notice to the Company, declare the Loans to be, and the same shall forthwith become, due and payable, together with accrued interest thereon. Whether or not the Loans or other Obligations shall have been accelerated or become due as set forth above, upon the occurrence and during the continuance of any Event of Default, the Administrative Agent or any Lender may exercise any remedy available under the Loan Documents or applicable law in respect thereof (including, without limitation, foreclosure of the Liens in respect of the Collateral). If at any time within 60 days after acceleration of the maturity of any Loan, the Company shall pay all arrears of interest and all payments on account of the principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement or the Notes) and all Events of Default and Potential Events of Default (other than non-payment - 110 - of principal of and accrued interest on the Loans and the Notes, and payments of amounts referred to in subclause (2) above, in each case due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 9.6, then the Requisite Lenders by written notice to the Company may rescind and annul the acceleration and its consequences, but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. ARTICLE VIII THE ADMINISTRATIVE AGENT Section 8.1 Appointment. Bankers is hereby appointed the Administrative Agent hereunder by each Lender, and each Lender hereby authorizes the Administrative Agent to act hereunder and under the other instruments and agreements referred to herein as its agent hereunder and thereunder. Bankers is hereby authorized, as the Administrative Agent to execute consents to service of process and such other documents on behalf of Lenders, as may be required by law or as may be necessary or desirable. Bankers agrees to act as such upon the express conditions contained in this ARTICLE VIII and in the Collateral Documents. The provisions of this ARTICLE VIII, except as provided in subsections 8.6.2 and 8.6.3 and Section 8.7 where the consent of the Company is required, are solely for the benefit of the Administrative Agent, and the Company shall not have any rights as a third party beneficiary of any of the provisions hereof except for those contained in subsections 8.6.2 and 8.6.3 and Section 8.7 where the consent of the Company is required. In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Company. Section 8.2 Powers; General Immunity. 8.2.1. Duties Specified. Each Lender irrevocably authorizes the Administrative Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other instruments and agreements referred to herein as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have only those duties and responsibilities which are expressly specified in this Agreement and the Collateral Documents and it may perform such duties by or through its agents or employees. The - 111 - duties of the Administrative Agent shall be mechanical and administrative in nature; and the Administrative Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or the other instruments and agreements referred to herein except as expressly set forth herein or therein. 8.2.2. No Responsibility for Certain Matters. The Administrative Agent shall not be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement, the Collateral Documents or the Notes issued hereunder, or for the perfection or priority of any Lien created or purported to be created by any Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to Lenders or by or on behalf of the Company or any of its Subsidiaries to the Administrative Agent or any Lender, or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Event of Default or Potential Event of Default. 8.2.3. Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees or agents shall be liable to the Lenders for any action taken or omitted hereunder or in connection herewith (including, without limitation, any act or omission under the Collateral Documents) unless caused by its or their gross negligence or willful misconduct. If the Administrative Agent shall request instructions from the Lenders with respect to any act or action (including the failure to take an action) in connection with this Agreement or the other instruments and agreements referred to herein, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Requisite Lenders. Without prejudice to the generality of the foregoing, (A) the Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions - 112 - and judgments of attorneys (who may be attorneys for the Company), accountants, experts and other professional advisors selected by it and (B) no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or (where so instructed) refraining from acting under this Agreement or the other instruments and agreements referred to herein in accordance with the instructions of the Requisite Lenders. The Administrative Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or the other instruments and agreements referred to herein unless and until it has obtained the instructions of the Requisite Lenders. 8.2.4. Administrative Agent Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Administrative Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, the Administrative Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any Subsidiary or Affiliate of the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company or any such Subsidiary or Affiliate for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. Section 8.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Company and its Subsidiaries in connection with the making of the Loans and other disbursements on the Closing Date and thereafter and has made and shall continue to make its own appraisal of the creditworthiness of each of them. The Administrative Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto whether coming into its possession before the making of the Loans and other disbursements on the Closing Date and thereafter or any time or times thereafter, and the - 113 - Administrative Agent shall have no responsibility with respect to the accuracy of or the completeness of the information provided to Lenders. Section 8.4 Right to Indemnity. Each Lender severally agrees to indemnify the Administrative Agent, on its demand and as incurred proportionately to its Commitment, to the extent the Administrative Agent shall not have been reimbursed by the Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in performing its duties hereunder or in any way relating to or arising out of this Agreement or any other Loan Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that result from the Administrative Agent's gross negligence or willful misconduct. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. Section 8.5 Registered Holder of Note Treated as Owner. The Administrative Agent may deem and treat the registered holder of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been registered with the Administrative Agent. Any request, authority or consent of any person or entity who at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor. Section 8.6 Resignation by Administrative Agent. 8.6.1. The Administrative Agent may resign from the performance of all its functions and duties hereunder at any time by giving 15 Business Days' prior written notice to the Company and the Lenders. Such resignation shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to subsections 8.6.2 and 8.6.3 below or as otherwise provided below. 8.6.2. Upon any such notice of resignation, the Requisite Lenders shall appoint a successor Administrative - 114 - Agent acceptable to the Company in its reasonable discretion and which shall be an incorporated bank or trust company. 8.6.3. If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the resigning Administrative Agent with the consent of the Company, shall then appoint a successor Administrative Agent who shall serve as the Administrative Agent until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. 8.6.4. If no successor Administrative Agent has been appointed pursuant to subsection 8.6.2 or 8.6.3 by the 20th Business Day after the date such notice of resignation was given by the resigning Administrative Agent, the Administrative Agent's resignation shall become effective and Requisite Lenders shall thereafter perform all the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided above. Section 8.7 Collateral Documents. Each Lender hereby authorizes the Administrative Agent to act as Collateral Agent on behalf of and for the benefit of such Lender. Each Lender hereby authorizes the Collateral Agent to enter into the Collateral Documents and to take all action contemplated by the Collateral Documents; provided that the Collateral Agent shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Collateral Documents without the prior consent of the Requisite Lenders. Each Lender agrees that no Lender shall have any right individually to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised by the Collateral Agent for the benefit of the Lenders upon the terms of the Collateral Documents. The Collateral Agent may assign its rights and obligations as the collateral agent under any of the Collateral Documents to any direct or indirect Subsidiary of the Collateral Agent or to any trustee, with (in the case of any such assignment occurring prior to the occurrence and continuance of an Event of Default) the consent of the Company (which consent will not be unreasonably withheld or delayed), which assignee, in each such case, shall be entitled to all the rights of the Collateral Agent under the applicable Collateral Document and all right hereunder of the Collateral Agent with respect to the applicable Collateral Document. Section 8.8 Successor Administrative Agent. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become - 115 - vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent, and the retiring or removed Administrative Agent shall be discharged from its duties and obligations as the Administrative Agent under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as the Administrative Agent the provisions of this ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. ARTICLE IX MISCELLANEOUS Section 9.1 Successors and Assigns; Participations. 9.1.1. This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent and all future registered holders of the Notes and their respective successors and registered assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. 9.1.2. Any Lender may at any time sell to one or more banks or other entities ("Participants") participating interests in its Commitment or any other right of such Lender hereunder or thereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the registered holder of any such Note for all purposes under this Agreement, and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement or the Notes are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the 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 and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Sections 9.4 and 9.5 hereof. The Company also agrees that each - 116 - Participant shall be entitled to the benefits, subject to any limitations set forth therein, of Sections 2.7 and 2.8 hereof with respect to its participation in the Adjusted LIBOR Loans and ABR Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater payment under any of such Sections than the relevant Lender would have been entitled to receive with respect to the Loans, unless such participation is made with the Company's prior written consent. Each Lender agrees that any agreement between such Lender and any such Participant in respect of such participating interest shall refer to this Agreement and shall not restrict such Lender's right to agree to any amendment, supplement or modification to this Agreement or any of the Loan Documents except (A) to extend the final maturity of any Loan or Note, or any installment thereof, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Events of Default or of a mandatory reduction in Total Loan Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any Participant if such Participant's participation is not increased as a result thereof), or (B) to consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement. Each Lender agrees to use commercially reasonable efforts to include and require in each participation agreement delivered by it pursuant to this subsection 9.1.2 to a Participant that is not a commercial bank a specific acknowledgment by such Participant (and by each other Person that may obtain, directly or indirectly from such Participant, an interest in any one or more Commitments and Loans) of the representations, warranties, covenants and agreements deemed to be made by such Participant pursuant to the provisions of Section 9.23; provided that no Lender shall have any liability hereunder in respect of any act or omission of, or state of facts or circumstances relating to, any Person to whom the holder of any such participating interest may grant or sell sub-participating interests. 9.1.3. (a) Any Lender may, (A) without the consent of any Person, at any time, assign to any Lender or any Affiliate thereof and (B) with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed) to one or more additional banks or financial institutions (all such Affiliates, Lenders and additional banks or financial institutions being "Purchasing Lenders"), all or any part of its Commitment pursuant to a Registered Transfer - 117 - Supplement, substantially in the form of Exhibit X annexed hereto (any such Registered Transfer Supplement, a "Registered Transfer Supplement"), executed by such Purchasing Lender, such transferor Lender and the Administrative Agent and in compliance with subsection 9.1.5; provided that (1) each such assignment pursuant to clause (A) above shall be limited to an amount equal to the lesser of (x) such Lender's Commitment then in effect and (y) a minimum amount of $5,000,000 and integral multiples of $1,000,000 above such amount, (2) such transferor Lender and Purchasing Lender deliver to the Administrative Agent the tax documentation required by paragraph (e) of subsection 2.7.7, if applicable, and a processing and recordation fee of $2,500, (3) no such consent of the Company will be required if a Potential Event of Default or an Event of Default shall have occurred and be continuing and (4) the Company shall be entitled to withhold its consent to any such proposed assignment for any reason or no reason if (x) immediately after giving effect thereto, the Purchasing Lender would be an Affected Lender or the Company would be required to make payments pursuant to or on behalf of such Purchasing Lender pursuant to subsection 2.7.7 and (y) the transferor Lender was not an Affected Lender as to which the Company has declined or failed to exercise its rights pursuant to Section 2.9 and was not, at the time of such assignment, entitled to receive any payments pursuant to paragraph (a), (b) or (c) of subsection 2.7.7. Subject to compliance with the foregoing sentence, upon (A) such execution of such Registered Transfer Supplement, (B) delivery of an executed copy thereof to the Company, (C) payment by such Purchasing Lender to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Purchasing Lender, (D) the receipt of a processing and recording fee of $2,500 by the Administrative Agent and (E) recordation of assignment in the Register pursuant to subsection 9.1.5, such Purchasing Lender shall for all purposes be a Lender party to this Agreement and shall have all the rights (including, without limitation, the benefits of Section 2.8) and obligations of a Lender under this Agreement to the same extent as if it were an original party hereto with the Commitment set forth in such Registered Transfer Supplement, and no further consent or action by the Company, the Lenders or the Administrative Agent shall be required. Such Registered Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of the Commitments arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement, the Commitments and the Notes. Upon the consummation of any transfer to a Purchasing Lender pursuant to this subsection 9.1.3, the transferor Lender, the Administrative Agent and the Company - 118 - shall make appropriate arrangements as required under subsection 9.1.5 so that a replacement Note is issued to such transferor Lender and a new Note or, as appropriate, a replacement Note, issued to such Purchasing Lender, in each case in principal amounts reflecting their Commitments or, as appropriate, their outstanding Loans, as adjusted pursuant to such Registered Transfer Supplement. (b) In addition to the assignments permitted under paragraph (a) of subsection 9.1.3 above, any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank without the prior written consent of the Company, the Administrative Agent or Bankers; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Federal Reserve Bank for such Lender as a party or entitle such Federal Reserve Bank to require such Lender to take or omit to take any action hereunder. 9.1.4. The Company authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and any Subsidiary of the Company which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or any other Loan Document or which has been delivered to such Lender by the Company in connection with such Lender's credit evaluation of the Company and its Subsidiaries prior to entering into this Agreement; provided that if such information is confidential information as contemplated by Section 9.17 hereof, such Lender may so disclose such information only if such Transferee or prospective Transferee previously agrees to be bound by the terms of Section 9.17. 9.1.5. (a) The Company and other Loan Parties hereby designate the Administrative Agent to serve as the Company's agent, solely for purposes of this subsection 9.1.5, to maintain a register (the "Register") on which the Administrative Agent will record the Commitments from time to time of each Lender, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and to retain a copy of each Registered Transfer Supplement delivered to the Administrative Agent pursuant to this subsection. Failure to make any such recordation, or any error in such recordation shall not affect the Company's obligations in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the other Loan Parties, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan and the Note evidencing the same is registered as the - 119 - owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. With respect to any Lender, the assignment or other transfer of the Commitment of such Lender and the rights to the principal of, and interest on, any Loan made and Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and, except to the extent provided in this subsection 9.1.5, otherwise complies with subsec- tion 9.1.3, and prior to such recordation all amounts owing to the transferor Lender with respect to such Commitments, Loans and Notes shall remain owing to the transferor Lender. The registration of assignment or other transfer of all or part of any Commitment, Loans and Notes for a Lender shall be recorded by the Administrative Agent on the Register only upon the acceptance by Agent of a properly executed and delivered Registered Transfer Supplement substantially in the form of Exhibit X annexed hereto. Coincident with the delivery of such Registered Transfer Supplement to the Administrative Agent for acceptance and registration of assignment or sale of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. The Company agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities or whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this subsection 9.1.5 (other than losses, claims, damages and liabilities arising from acts or omissions that represent gross negligence or willful misconduct on the part of the Administrative Agent). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Company and any Lender at any reasonable time upon reasonable prior notice to the Administrative Agent. (b) The Company may not replace any Lender pursuant to Section 2.9 or Section 9.22, unless, with respect to any Notes held by such Lender, the requirements of subsection 9.1.5(a) have been satisfied. Section 9.2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to promptly pay (A) all the actual and reasonable costs and expenses of preparation of the Loan Documents and all the costs of furnishing all opinions by counsel for the Company and the other Loan Parties (including, without limitation, any opinions requested by Requisite Lenders as provided in ARTICLE III hereof as to any legal matters arising hereunder), - 120 - (B) the reasonable fees, expenses and disbursements of CG&R in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans hereunder, and any amendments and waivers hereto or thereto, (C) all the actual costs and expenses of creating, perfecting, continuing and maintaining Liens in favor of Lenders pursuant to any Loan Document, including filing and recording fees and expenses, fees and expenses of counsel for providing such opinions as Requisite Lenders may reasonably request as provided therein and reasonable fees and expenses of CG&R, and (D) after the occurrence of an Event of Default, all costs and expenses (including, without limitation, reasonable attorneys fees, including allocated costs of internal counsel, and, with the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed), costs of settlement) incurred by the Lenders and/or the Administrative Agent in enforcing any Obligations of or in collecting any payments due from the Company hereunder or under the Notes or any of the other Loan Documents by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement, including, without limitation, in the nature of a "work-out" or of any insolvency or bankruptcy proceedings. Section 9.3 Indemnity. In addition to the payment of expenses pursuant to Section 9.2, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold the Administrative Agent, and each Person who is or was a Lender and any holder of any of the Notes, and the officers, directors, employees, agents, and affiliates of such Person and such holders (collectively called the "Indemnitees"), upon their demand and as incurred, harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), which may be imposed on, incurred by, or asserted against such Indemnitee, in any manner relating to or arising out of this Agreement, the other Loan Documents, the Lenders' agreement to make the Loans or other disbursements on the Closing Date or thereafter or the use or intended use of the proceeds of the Loan or disbursements hereunder (the "indemnified liabilities"); provided that the Company shall have no obligation to an Indemnitee hereunder with respect to indemnified liabilities that result from the gross negligence or willful misconduct of that Indemnitee or from claims, litigation, investigations or proceedings made or initiated by, - 121 - as the case may be, one Indemnitee against any other Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them except to the extent set forth in the proviso to the next preceding sentence. Section 9.4 Set Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Lender is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, without limitation, Indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of the Company against and on account of the obligations and liabilities of the Company to such Lender or that subsequent holder under this Agreement and the Notes, including, without limitation, all claims of any nature or description arising out of or connected with this Agreement or the Notes, irrespective of whether or not (A) such Lender shall have made any demand hereunder or (B) such Lender shall have declared the principal or the interest on the Loan and Notes, and other amounts due hereunder to be due and payable as permitted by ARTICLE VII and although said obligations and liabilities, or any of them, may be contingent or unmatured. Section 9.5 Ratable Sharing. 9.5.1. Each Lender and each subsequent holder by acceptance of a Note agree among themselves that (A) with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Notes and commitment commissions with respect to the Commitments, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Lenders proportionately to their respective interests in the Notes and the Loans as the same may appear, whether received by voluntary payment, by the exercise of the right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Notes, (B) if any of them shall exercise any right of counterclaim, set-off, banker's lien or similar right with respect to amounts owed by the Company hereunder or under the Notes relating to the Loans, such Lender or holder, as the case - 122 - may be, shall apportion the amount recovered as a result of the exercise of such right pro rata in accordance with all amounts outstanding at such time owed by the Company in respect of the Loans, and (C) if any of them shall thereby through the exercise of any right of counterclaim, set-off, banker's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal and interest due with respect to the Notes held by the Lender relating to the Loans or any participation therein or any amount payable hereunder, as the case may be, which is greater than the proportion received by any other holder of the Notes in respect to such aggregate amount of principal and interest due with respect to such Notes held by it, such Lender or such holder of such Notes receiving such proportionately greater payments shall (1) notify each other applicable Lender and the Administrative Agent of such receipt and (2) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the Notes relating to the Loans held by the other holders so that all such recoveries of principal and interest with respect to such Notes shall be proportionate to their respective interests in the Loans; provided that, if all or part of such proportionately greater payment received by such purchasing holder is thereafter recovered from such holder, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that holder to the extent of such recovery, but without interest. The Company expressly consents to the foregoing arrangement and agrees that any holder of a participation in any such Note, so purchased and any other subsequent holder of a participation in any Note otherwise acquired may to the extent permitted by applicable law, exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Company to such holder as fully as if that holder were a holder of such a Note in the amount of the participation held by such holder. Any amounts required to be shared or used to purchase participations pursuant to this subsection 9.5.1 shall be applied to all Lenders ratably in respect of all such amounts then due and payable to each such lender. Section 9.6 Amendments and Waivers. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Company and the Requisite Lenders; provided that no such change, waiver, discharge or termination shall, without the consent of each Lender affected thereby, (A) extend the Maturity Date (it being understood that any waiver of the application of any prepayment of or collateralization for or the method of application of any prepayment to the amortization - 123 - of the Loan or other Obligations shall not constitute any such extension), or reduce the rate or extend the time of payment of interest, commissions or fees (other than as a result of waiving the applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Potential Event of Default or Event of Default or of a mandatory reduction in the Total Loan Commitment or a waiver of the type contemplated in the second next preceding parenthetical shall not constitute a change in the terms of any Commitment of any Lender), (B) release or permit the release of all or substantially all of the Collateral (except as expressly provided in the Loan Documents), (C) amend, modify or waive any provision of this Section, (D) reduce the percentage specified in, or otherwise modify, the definition of Requisite Lenders, Commitment or (E) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement; and provided, further, that no such change, waiver, discharge or termination shall amend, modify or waive any of the terms contained in subsection 2.1.5 or Section 2.5 without the consent of the Required Lenders (to the extent that, in any such case, such amendment, modification or waiver would reduce, or change the time of payment of, any amounts received by Lenders). Any amendment, modification, termination or waiver of any of the provisions contained in ARTICLE III shall be effective only if evidenced by a writing signed by or on behalf of the Administrative Agent and the Requisite Lenders. No amendment, modification, termination or waiver of any provision of ARTICLE VIII hereof shall be effective without the written concurrence of the Administrative Agent. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Company in any case shall entitle the Company to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 9.6 shall be binding upon each holder of the Notes at the time outstanding, each future holder of the Notes, and, if signed by the Company, on the Company. Section 9.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is prohibited by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise outside the limitation of, another covenant shall not avoid the occurrence of an Event of - 124 - Default or Potential Event of Default if such action is taken or condition exists. Section 9.8 Change in Accounting Principles; Fiscal Year or Tax Laws. If (A) any change in the accounting principles under GAAP used in preparation of the financial statements referred to in Section 4.3 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in ARTICLES I, V and VI hereof, or (B) there is a material change in federal tax laws which materially affects the Company's ability to comply with the financial covenants, standards or terms found in ARTICLE I, V or VI hereof, the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such changes as if such changes had not been made; provided that, unless and until an agreement is reached following such negotiations, such provisions shall remain unchanged and in full force and effect. Section 9.9 Notices. Unless otherwise provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given (A) when delivered in person or a legible copy is received by telecopy or telex or (B) four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed; provided that notices to the Administrative Agent shall not be effective until received by the Administrative Agent. For the purposes hereof, the address of each of the parties hereto (until notice of a change thereof is delivered as provided in this Section 9.9) shall be set forth under such party's name on the signature pages hereto. Section 9.10 Survival of Warranties and Certain Agreements. Notwithstanding anything in this Agreement or implied by law to the contrary and without limiting any survival provision set forth in any Collateral Document, the agreements of the Company set forth in subsections 2.7.2, 2.7.5, 2.7.7 and 2.7.9 and Sections 9.2 and 9.3 and the agreements of Lenders set forth in subsections 2.7.7, 2.7.8, 2.7.11, 8.2.3 and 9.1.2 (last sentence only) and Sections 8.4, 9.4 and 9.5 shall survive the payment of the Loans and the Notes and the termination of this Agreement. - 125 - Section 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Lender or any holder of any Note in the exercise of any power, right or privilege under any Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under any Loan Document are cumulative to and not exclusive of, any rights or remedies otherwise available. Section 9.12 Severability. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not, to the extent permitted by law, in any way be affected or impaired thereby. Section 9.13 Obligations Several; Independent Nature of the Lenders' Rights. The obligation of each Lender hereunder is several, and no Lender shall be responsible for the obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement and no action taken by Lenders pursuant hereto shall be deemed to constitute Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Notwithstanding the foregoing, each Lender agrees that no Lender shall have any right individually to realize upon the security granted by the Collateral Documents, it being understood and agreed that such rights and remedies may only be exercised by the Administrative Agent for the benefit of the Lenders. Section 9.14 Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Section 9.15 Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 9.16 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY - 126 - WITH RESPECT TO THIS AGREEMENT OR ANY NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY ACCEPTS (TO THE MAXIMUM EXTENT PERMITTED BY LAW) FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. THE COMPANY DESIGNATES AND APPOINTS THE PRENTICE HALL CORPORATION SYSTEM, ONE GULF & WESTERN PLAZA, NEW YORK, NEW YORK 10023-7773 AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY IRREVOCABLY AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE COMPANY AT ITS ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY THE COMPANY REFUSES TO ACCEPT SERVICE, THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. Section 9.17 Confidentiality. Subject to Section 9.1, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Company in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event, subject to Section 9.1, may make disclosure reasonably required by any bona fide prospective or current transferee or Participant in connection with any Note or participation therein or in any Obligation or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Company of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information so that either or both of them may seek an appropriate protective order; and provided, further, that in no event shall any Lender be obligated or required to return any materials furnished by the Company or any of its Subsidiaries. - 127 - Section 9.18 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto, and written or telephonic notification of such execution and authorization of delivery thereof has been received by the Company and the Administrative Agent and all applicable conditions to such effectiveness have been satisfied. Section 9.19 Determinations Pursuant to Collateral Documents. In each circumstance where, under any provision of a Collateral Document, the Collateral Agent shall have the right to grant or withhold any consent, exercise any remedy, make any determination or direct any action under such Collateral Document, the Collateral Agent shall act in respect of such consent, exercise of remedies, determination or action, as the case may be, only with the consent of or at the direction of the Requisite Lenders; provided that no consent of any party shall be required with respect to any consent, determination or other matter that is, in the reasonable judgment of the Collateral Agent, ministerial or administrative in nature. In each circumstance where any consent of or direction from the Requisite Lenders is required, the Collateral Agent shall send to the Lenders a notice setting forth a description in reasonable detail of the matter as to which consent or direction is requested and the Collateral Agent's proposed course of action with respect thereto. In the event the Collateral Agent shall not have received a response from any Lender within ten Business Days after the giving of such notice, such Lender shall be deemed to have agreed to the course of action proposed by the Collateral Agent. Section 9.20 Certain Obligations of Company. Nothing in this Agreement shall be construed to limit any obligation of the Company set forth in any Collateral Document. Section 9.21 Waiver of Jury Trial. Each of the Company and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or related to any of the Loan Documents or the actions of the Administrative Agent and any Lender in the negotiation, administration, performance or enforcement hereof and thereof. - 128 - Section 9.22 Lenders' ERISA Matters. 9.22.1. Lenders' Representations and Warranties. Except as otherwise provided in subsection 9.22.2, each Lender and each Transferee, solely with respect to itself, severally represents and warrants that one or more of the following is true with respect to all of the funds used to make or purchase any interest in any Loan (or one or more of the following is true with respect to each portion of the funds used to make or purchase such interest in such Loan if such funds are from more than one source): (i) no part of the funds to be used by it constitutes under the Internal Revenue Code or ERISA the assets of any Plan; or (ii) (A) the funds to be used by it constitute, under the Internal Revenue Code or ERISA, the assets of an insurance company pooled separate account, as such term is used in Prohibited Transaction Class Exemption 90-1 issued by the U.S. Department of Labor, or a "collective investment fund," as defined in Section IV of Prohibited Transaction Class Exemption 91-38 issued by the U.S. Department of Labor, in which a Plan has an interest, and (B) such Loan or interest therein is, and the subsequent holding of the Note or any agreement related thereto shall at all times thereafter be, entitled to full relief under Prohibited Transaction Class Exemption 90-1 or 91-38, as applicable; or (iii) (A) the funds to be used by it for any Loan or interest therein which constitute, under the Internal Revenue Code or ERISA, the assets of any Plan are invested in an investment fund which is managed by a "Qualified Professional Asset Manager" as such term is defined in Prohibited Transaction Class Exemption 84-14 issued by the U.S. Department of Labor, and (B) such Loan or interest therein is and the subsequent holding of the Note or any agreement related thereto shall at all times thereafter be, exempt under Prohibited Transaction Class Exemption 84-14 to the fullest extent provided therein. 9.22.2. General Account Assets. A Lender or Transferee which is an insurance company subject to state regulation that is making or purchasing an interest in a Loan with General Account Assets represents with respect to the portion of its assets constituting General Account Assets, in lieu of making a representation under subsection 9.22.1 with respect thereto, that one of the following is true: - 129 - (i) no part of the General Account Assets used to make or purchase such interest in a Loan will be from assets allocated to a segment of its general account in which one or more Plans has any interest, other than an interest which will not result in the Note relating thereto being deemed to be the assets of any such Plan; or (ii) such Lender or Transferee is an "insurance company" and such General Account Assets are assets of an "insurance company general account" as defined in Section V of Proposed Class Exemption for Certain Transactions Involving Insurance Company General Accounts issued by the U.S. Department of Labor, 59 Federal Register 43134, August 22, 1994 (Application No. D-9662) ("Proposed Prohibited Transaction Exemption D-9662") and such Loan or interest therein is, and shall at all times thereafter satisfy the requirements to be and shall be exempt under the Proposed Prohibited Transaction Exemption D-9662 to the fullest extent provided therein (assuming for this purpose that the Proposed Prohibited Transaction Exemption D-9662 was granted as a final prohibited transaction exemption by the U.S. Department of Labor on the date and in the form it was proposed). 9.22.3. Representations of Transferees. Each Person that becomes a Transferee hereunder shall be deemed to make, effective upon the acceptance of any assignment of an interest hereunder or the entering into of any participation agreement contemplated in subsection 9.1.2, the representations and warranties set forth in subsection 9.22.1 or, with respect to General Account Assets used to acquire its interest or participation, subsection 9.22.2. Such deemed representation shall be effective against, and binding on, such Transferee to the same extent as if such Transferee had executed an original counterpart of this Agreement. 9.22.4. Additional ERISA Representations. Each Lender that now or hereafter makes or maintains any Loan with any assets of any Plan (i) represents and warrants that it has evaluated for itself the merits of making or maintaining such Loan; has not solicited and has not received from the Company, MS Group or any of their Affiliates, any evaluation or other investment advice on any basis in respect of the advisability of making or maintaining such Loan; and is not relying and has not relied on the Company, MS Group or any of their Affiliates for any investment advice with respect to making or maintaining such Loan in any manner that would cause the Company, MS Group or any of their Affiliates to become a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of the Internal Revenue Code) in connection with making or maintaining such Loan and (ii) acknowledges and - 130 - confirms that none of the Company, MS Group or any of their Affiliates is acting as a "fiduciary" (within the meaning of ERISA, the Internal Revenue Code or any other applicable law or any rulings or regulations thereunder) for such Lender in connection with making or maintaining such Loan. - 131 - WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWER: FORT HOWARD CORPORATION By: ___________________________ Title: ________________________ Notice Address: Attention: EX-10.1 5 Exhibit 10.1 EXECUTION COPY STOCKHOLDERS AGREEMENT dated as of March 1, 1995, among FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), and the ------- other parties to the Stockholders and Registration Rights Agreement, dated as of August 1, 1988, as amended. WHEREAS, FH Holdings Corp., formerly a Delaware corporation ("FH Holdings Corp."), and certain of the parties hereto entered into ----------------- a Stockholders and Registration Rights Agreement, dated as of August 1, 1988 (the "1988 Agreement"), which Agreement has heretofore -------------- been amended or otherwise modified pursuant to instruments dated as of September 21, 1988, November 1, 1989 and July 31, 1990 and was amended and restated in its entirety pursuant to an instrument dated as of December 7, 1990 (such Agreement, as so amended and modified, the "1990 Stockholders Agreement"); and --------------------------- WHEREAS, the Company and the other parties hereto desire to make certain amendments to the 1990 Stockholders Agreement and to otherwise restate the provisions thereof; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the 1990 Stockholders Agreement is hereby amended and restated in its entirety as follows: ARTICLE I DEFINITIONS ----------- SECTION 1.1. Definitions. ----------- "Additional Sellers" shall have the meaning set forth in ------------------ Section 4.1(a) hereof. "Affiliate" shall have the meaning given to such term in --------- Rule 12b-2 promulgated under the Exchange Act. "Bankers Trust" means Bankers Trust New York Corporation, a ------------- New York corporation. 2 "Bankers Trust Stock Purchase Agreement" means the Stock -------------------------------------- Purchase Agreement dated as of August 1, 1988 between FH Holdings Corp. and Bankers Trust, as amended from time to time. "beneficial owner" shall have the meaning given to such term ---------------- in Rule 13d-3 promulgated under the Exchange Act. "Board of Directors" means the Board of Directors of the ------------------ Company. "Business Day" means any day except a Saturday, Sunday or ------------ other day on which commercial banks in the City of New York are authorized or obligated by law to be closed. "Cash Equivalents" means (i) marketable direct obligations ---------------- issued or unconditionally guaranteed by the United States federal government or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; or (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. "Commission" means the Securities and Exchange Commission ---------- and any successor commission or agency having similar powers. "Common Stock" means common stock of the Company, par value ------------ $.01 per share. "control" shall have the meaning given to such term in Rule ------- 12b-2 promulgated under the Exchange Act. "Direct Investors" means FPGT, Leeway and Bankers Trust. ---------------- "Duly Endorsed" means duly endorsed in blank by the person ------------- or persons in whose name a stock certificate is registered or accompanied by a duly executed stock assignment separate from the certificate with the signature(s) thereon guaranteed by a commercial bank or trust company or a member of a national securities exchange or of the NASD. 3 "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. "FPGT" means First Plaza Group Trust, as trustee for certain ---- pension funds. "First Registration Period" means the period commencing on ------------------------- the effective date of this amendment and restatement and terminating one year thereafter. "Fort Howard Equity Investors II" means Fort Howard Equity ------------------------------- Investors II, L.P., a Delaware limited partnership. "Fully Diluted" means, with respect to Shares, all ------------- outstanding Shares and Shares issuable in respect of Share Equivalents. "Holder" means each person (other than the Company or any of ------ its subsidiaries) that, as a result of such Person's ownership of Shares or Share Equivalents, is or shall have become a party to this Agreement, whether in connection with the execution and delivery of the 1988 Agreement, the 1990 Agreement or any Purchase Agreement, pursuant to Section 7.10 hereof or otherwise; provided, however, that for purposes of this Agreement, the term "Holder" shall not include any person who owns solely Share Equivalents (and has never owned Shares) on or prior to the effective date of this amendment and restatement; and provided further, that for purposes of Sections 2.1, 2.4 and 2.5 of Article II hereof, the term "Holder" shall not include any Management Investor other than Paul J. Schierl. "June 27, 1990 Letter Agreements" means those certain letter ------------------------------- agreements dated June 27, 1990 between the Company and certain Management Investors. "Leeway" means Leeway & Co., as nominee for State Street ------ Bank & Trust Co., as trustee for a master pension trust. "MEPA" means the Amended and Restated Management Equity ---- Participation Agreement dated as of August 8, 1988, by and among FH Holdings Corp. and the other parties signatory thereto, as amended from time to time, and giving effect to the June 27, 1990 Letter Agreements. "MEP" means the Fort Howard Corporation Management Equity --- Plan, as amended from time to time. 4 "Management Investor" means a party identified as a ------------------- Management Investor on a signature page to the MEPA or a person deemed to be a "Management Investor" pursuant to the terms of the June 27, 1990 Letter Agreements, or a person who purchased shares of Common Stock pursuant to the MEP prior to the effective date of this amendment and restatement. "Minimum Registration Amount" means that number of --------------------------- Registrable Securities outstanding at the following designated times which represent the following percentages of Fully Diluted Shares: (i) prior to the end of the First Registration Period, the Registrable Securities then outstanding representing not less than 15% of the Fully Diluted Shares; and (ii) following the end of the First Registration Period, the Registrable Securities then outstanding representing not less than 8% of the Fully Diluted Shares. "Minimum Registration Request Percentage" means Registrable --------------------------------------- Securities outstanding at the following designated times representing the following percentages of Fully Diluted Shares: (i) at any time during the First Registration Period, the Registrable Securities then outstanding representing at least 51% of the Fully Diluted Shares or the Registrable Securities then outstanding representing at least 5% of the Fully Diluted Shares held by Management Investors and (ii) at any time following the First Registration Period, the Registrable Securities then outstanding representing at least 8% of the Fully Diluted Shares or the Registrable Securities then outstanding representing at least 5% of the Fully Diluted Shares held by Management Investors. "Morgan Stanley" means Morgan Stanley Group Inc., a Delaware -------------- corporation, and its Affiliates, but shall not include MSLEF. "Morgan Stanley & Co." means Morgan Stanley & Co. -------------------- Incorporated, a Delaware corporation. "Morgan Stanley Group" means Morgan Stanley Group Inc., a -------------------- Delaware corporation. "MS/Fund Investors" means MSLEF and Morgan Stanley Group. ----------------- "MSLEF" means The Morgan Stanley Leveraged Equity Fund II, ----- L.P., a Delaware limited partnership. "NASD" means the National Association of Securities Dealers, ---- Inc. "Newco" shall have the meaning set forth in Section 6.2 hereof. ----- 5 "1995 Initial Public Offering" means the underwritten public ---------------------------- offering of Common Stock pursuant to a registration statement on Form S-1 filed with the Commission on November 23, 1994, as amended. "1991 Subscription Agreement" means the Subscription --------------------------- Agreement dated as of March 12, 1991, between the Company and Fort Howard Equity Investors II. "1990 Agreement" means the Agreement dated as of July 31, -------------- 1990, between the Company and Paul J. Schierl and Carol A. Schierl, as amended from time to time. "1990 Subscription Agreement" means the Subscription --------------------------- Agreement dated as of December 7, 1990, among the Company and FPGT and Leeway, as amended from time to time. "Permitted Transferees" has the meaning ascribed to it in --------------------- the 1990 Agreement. "person" means an individual, partnership, corporation, ------ limited liability partnership, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of whatever nature. "Public Offering" means an underwritten public offering of --------------- equity securities of the Company pursuant to an effective registration statement under the Securities Act, other than a registration statement on Form S-8. "Purchase Agreements" means, collectively, the MEPA, the ------------------- Agreements as defined in the MEP, the Securities Purchase Agreement, the Bankers Trust Stock Purchase Agreement, the June 27, 1990 Letter Agreements, the 1990 Agreement, the 1990 Subscription Agreement, the 1991 Subscription Agreement and all other agreements providing for the purchase of Shares heretofore entered into or which otherwise have been or hereafter will be designated by the Company as "Purchase Agreements". "Readily Marketable Securities" means those securities that ----------------------------- are (i) (A) debt or equity securities of or other interests in any person that are traded on a national securities exchange, reported on by the National Association of Securities Dealers Automated Quotation System or otherwise actively traded over-the-counter or (B) debt securities of an issuer that has debt or equity securities that are so traded or so reported on and which a nationally recognized securities firm has agreed to make a market in, and (ii) which are not subject to restrictions on transfer as a result of any applicable contractual provisions or the provisions of the Securities Act or, if subject to such restrictions under the Securities Act, are also subject to registration rights reasonably acceptable to the Holders of a majority of the Shares that are not held by the Controlling Stockholders (as determined pursuant to Section 2.5(a)). 6 "Registrable Securities" means Shares and Share Equivalents ---------------------- acquired pursuant to the Purchase Agreements or granted to Management Investors by the Company or acquired upon the exercise of Registrable Securities; provided, however, that securities shall cease to be Registrable Securities if and when (i) a registration statement with respect to the disposition of such securities shall have become effective under the Securities Act and such securities shall have been disposed of pursuant to such effective registration statement, (ii) such securities shall have been sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, (iii) such securities shall have been otherwise transferred, if new certificates or other evidences of ownership for such securities not bearing a legend restricting further transfer and not subject to any stop transfer order or other restrictions on transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act, or (iv) such securities shall have ceased to be outstanding. "Registration Expenses" means (i) all registration and --------------------- filing fees, (ii) fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) printing expenses, (iv) internal expenses (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), (v) fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested pursuant to Section 4.4(h) hereof), (vii) fees and expenses of any special experts retained by the Company in connection with such registration, (viii) reasonable fees and expenses of one counsel (who shall be reasonably acceptable to the Company) for the Holders, (ix) fees and expenses of listing the Registrable Securities on a securities exchange, (x) rating agency fees and (xi) fees and disbursements of underwriters customarily paid by issuers or sellers of securities; but shall not include any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, any out-of-pocket expenses of the Holders (or the agents who manage their accounts) or any fees and expenses of underwriter's counsel. "Securities Act" means the Securities Act of 1933, as -------------- amended. "Securities Purchase Agreement" means the Securities ----------------------------- Purchase Agreement dated as of August 1, 1988 among FH Holdings Corp., FPGT, Leeway and the other parties signatory thereto, as amended from time to time. "Share Equivalents" means securities of any kind issued by ----------------- the Company prior to the effective date of this amendment and restatement, convertible into or exchangeable for Shares or options, warrants or other rights to purchase or subscribe for shares of Common 7 Stock or securities convertible into or exchangeable for shares of Common Stock, issued by the Company prior to the effective date of this amendment and restatement and owned by a Holder. "Shares" means any share of Common Stock acquired prior to ------ the effective date of this amendment and restatement. "Third Party" means a prospective purchaser of Shares in an ----------- arm's-length transaction from a Holder where such purchaser is not an Affiliate of such Holder. ARTICLE II RESTRICTIONS ON TRANSFER ------------------------ SECTION 2.1. General Restrictions. Each Holder may, -------------------- directly or indirectly, offer, sell, assign, transfer, grant a participation in, pledge or otherwise dispose of any Shares (or solicit any offers to buy or otherwise acquire, or take a pledge of any Shares), provided that such offer, sale, assignment, transfer, grant, pledge or other disposition is in compliance with the Securities Act, the Purchase Agreement to which such Holder is a party and the restrictions contained in this Agreement. SECTION 2.2. Legends. ------- (a) Each certificate evidencing outstanding Shares that is issued to any Management Investor, other than Paul J. Schierl, shall bear a legend in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (b) Each certificate evidencing outstanding Shares that is issued to (i) any Holder other than any Holder who is a Management Investor and (ii) Paul J. Schierl, shall bear a legend in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS 8 SECURITY MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE [PURCHASE AGREEMENT], DATED AS OF [DATE], AND THE STOCKHOLDERS AGREEMENT DATED AS OF MARCH 1, 1995, AS AMENDED, COPIES OF EACH OF WHICH MAY BE OBTAINED FROM FORT HOWARD CORPORATION." (c) In the event that any Shares or Share Equivalents shall cease to be Registrable Securities, the Company shall, upon the written request of the Holder thereof, issue to such Holder a new certificate evidencing such Shares or Share Equivalents without the legend required by Section 2.2(a) or the first and second sentences of the legend required by Section 2.2(b) hereof endorsed thereon; provided, however, that, under the circumstances described in clause (ii) or clause (iii) of the definition of Registrable Securities, such request is accompanied by an opinion of counsel, reasonably acceptable to the Company, that the Shares or Share Equivalents are no longer Registrable Securities. In the event that any Shares or Share Equivalents shall cease to be subject to the restrictions on transfer set forth in this Agreement and the Purchase Agreements, the Company shall, upon the written request of the Holder thereof, issue to such Holder a new certificate evidencing such Shares or Share Equivalents without the third sentence of the legend required by Section 2.2(b) hereof endorsed thereon; provided, however, that such Holder, upon the reasonable request of the Company or its transfer agent, provides an opinion of counsel, reasonably acceptable to the Company, that the Shares or Share Equivalents are no longer subject to the restrictions on transfer set forth in this Agreement and the Purchase Agreements. SECTION 2.3. [INTENTIONALLY OMITTED] SECTION 2.4. Rights of Inclusion. ------------------- (a) (i) Subject to Section 2.5(c) hereof, no Holder or Holders shall, individually or collectively, in any one transaction or any series of similar transactions, directly or indirectly, sell or otherwise dispose of a majority of the outstanding Shares then subject to this Section 2.4 to any Third Party unless the terms and conditions of such sale or other disposition to such Third Party shall include an offer to each of the other Holders and their respective Permitted Transferees, if any (the "Section 2.4 Transfer Offerees"), to include, ----------------------------- at the option of each Section 2.4 Transfer Offeree, in the sale or other disposition to the Third Party, such number of Shares owned by each such Section 2.4 Transfer Offeree as determined in accordance with this Section 2.4(a). If any Holder or Holders receive from a Third Party a bona fide offer or offers to purchase or otherwise acquire (a "Section 2.4 Transfer Offer") that number of Shares (the -------------------------- "Section 2.4 Transfer Stock") representing an -------------------------- 9 amount greater than a majority of the outstanding Shares subject to this Section 2.4, such Holders (collectively, the "Section 2.4 ----------- Offering Holder") shall then cause the Section 2.4 Transfer Offer to - --------------- be reduced to writing and shall provide written notice (the "Section ------- 2.4 Transfer Notice") of such Section 2.4 Transfer Offer to each of - ------------------- the Section 2.4 Transfer Offerees in the manner set forth in this Section 2.4 hereof. The Section 2.4 Transfer Notice shall contain a true and correct copy of the Section 2.4 Transfer Offer. In addition, the Section 2.4 Transfer Notice shall identify the Third Party, the Section 2.4 Transfer Stock, the price contained in the Section 2.4 Transfer Offer, all the other terms and conditions of the Section 2.4 Transfer Offer and, in the case of a Transfer Offer in which the consideration payable for Shares consists in part or in whole of consideration other than cash, such information relating to such consideration as the Company may reasonably determine. The Section 2.4 Transfer Offerees shall have the right and option, within 30 days after the date the Section 2.4 Transfer Notice is given to such Section 2.4 Transfer Offerees (the "Section 2.4 Notice Period"), to ------------------------- accept the Section 2.4 Transfer Offer for up to such number of Shares as is determined in accordance with the provisions of this Section 2.4(a). Each Section 2.4 Transfer Offeree which desires to exercise such option shall provide the Section 2.4 Offering Holder with written notice (specifying the number of shares of the Section 2.4 Transfer Stock as to which such Section 2.4 Transfer Offeree is accepting the offer) and delivering to the Section 2.4 Offering Holder the certificate or certificates representing the Shares to be sold or otherwise disposed of pursuant to such offer by such Section 2.4 Transfer Offeree, together with a limited power-of-attorney authorizing the Section 2.4 Offering Holder to sell or otherwise dispose of such Shares pursuant to the terms of the Section 2.4 Transfer Offer. Delivery of such certificate or certificates representing the Shares to be sold and the limited power-of-attorney authorizing the Section 2.4 Offering Holder to sell or otherwise dispose of such Shares shall constitute an irrevocable acceptance of the Section 2.4 Transfer Offer by the Section 2.4 Transfer Offeree. (ii) Each Section 2.4 Transfer Offeree shall have the right to sell pursuant to the Section 2.4 Transfer Offer Shares equal to the product of (A) the total number of Shares then beneficially owned by such Section 2.4 Transfer Offeree, and (B) a fraction, the numerator of which shall be the total number of Shares proposed to be sold by such Section 2.4 Offering Holder, and the denominator of which shall be the total number of Shares beneficially owned by such Section 2.4 Offering Holder (the "Section 2.4 Transfer Offeree Shares"). ----------------------------------- (iii) Promptly after the consummation of the sale or other disposition of the Shares of the Section 2.4 Offering Holder and the Section 2.4 Transfer Offerees to the Third Party pursuant to the Section 2.4 Transfer Offer, the Section 2.4 Offering Holder shall notify the Section 2.4 Transfer Offerees thereof, shall remit to each of the Section 2.4 Transfer Offerees the total sales price of the Shares of such Section 2.4 Transfer Offeree sold or otherwise disposed of pursuant thereto, and shall furnish such other evidence of the 10 completion and time of completion of such sale or other disposition and the terms thereof as may be reasonably requested by the Section 2.4 Transfer Offerees. (iv) If at the termination of the Notice Period any Section 2.4 Transfer Offeree shall not have accepted the offer contained in the Section 2.4 Transfer Notice, such Section 2.4 Transfer Offeree will be deemed to have waived any of and all of its rights under this Section 2.4 with respect to the sale or other disposition of its Section 2.4 Transfer Offeree Shares to such Third Party. The Section 2.4 Offering Holder shall have 60 days in which to sell the Section 2.4 Transfer Stock and the Section 2.4 Transfer Offeree Shares, not otherwise excluded pursuant to the previous sentence, to the Third Party, at a price not higher than that contained in the Section 2.4 Transfer Notice and on terms not more favorable to the Section 2.4 Offering Holder than were contained in the Section 2.4 Transfer Notice. Promptly after any sale pursuant to this Section 2.4, the Offering Holder shall notify the Company of the consummation thereof and shall furnish such evidence of the completion thereof (including time of completion) of such sale and of the terms thereof as the Company may request. If, at the end of such 60-day period, the Section 2.4 Offering Holder has not completed the sale of all the Section 2.4 Transfer Stock and Section 2.4 Transfer Offeree Shares, not otherwise excluded pursuant to this Section 2.4(a)(iv), the Section 2.4 Offering Holder shall return to such Section 2.4 Transfer Offerees all certificates representing the Shares which such Section 2.4 Transfer Offerees delivered for sale or other disposition pursuant to this Section 2.4(a), and all the restrictions on sale or other disposition contained in this Agreement with respect to Shares owned by the Section 2.4 Offering Holder shall again be in effect. (v) Notwithstanding anything contained in this Section 2.4(a), there shall be no liability on the part of the Section 2.4 Offering Holder to any Section 2.4 Transfer Offeree in the event that the sale of Shares pursuant to Section 2.4(a)(iv) is not consummated for whatever reason. Whether to effect a sale of Shares pursuant to this Section 2.4(a) by the Section 2.4 Offering Holder is in the sole and absolute discretion of such Section 2.4 Offering Holder. (b) The provisions of Section 2.4(a) hereof shall not be applicable to any transfer of Shares (i) from any Holder effected in a transaction through a broker-dealer over the facilities of the Nasdaq National Market System or any exchange on which the Common Stock is listed or (ii) made pursuant to a Public Offering. SECTION 2.5. Rights to Compel Sale. --------------------- (a) If any Holder or Holders that collectively own a majority of the outstanding Shares then subject to this Section 2.5 (collectively, the "Controlling Stockholders") propose to sell to a ------------------------ Third Party for cash, Cash Equivalents or Readily Marketable Securities all Shares held by them and their respective Permitted Transferees, if 11 any, to a Third Party (the "Section 2.5 Transfer Offer"), then (in -------------------------- addition to the right of the remaining Holders and their respective Permitted Transferees, if any, to participate in such sale pursuant to Section 2.4 hereof) the Controlling Stockholders may, at their option, but subject to Section 2.5(d) hereof, require each and every one of the remaining Holders and their respective Permitted Transferees, if any (the "Remaining Holders"), to sell all Shares held by such ----------------- Remaining Holders to the Third Party, for the same consideration per Share and otherwise on the same terms and conditions upon which the Controlling Stockholders sell their Shares. (b) (i) The Controlling Stockholders shall cause the Section 2.5 Transfer Offer to be reduced to writing and shall provide a written notice (the "Section 2.5 Transfer Notice") of such Section --------------------------- 2.5 Transfer Offer to the Company and the Company shall provide written notice of such Section 2.5 Transfer Offer to the Remaining Holders. The Section 2.5 Transfer Notice shall contain written notice of the exercise of the Controlling Stockholders' rights pursuant to Section 2.5(a) hereof, setting forth the consideration per Share to be paid by the Third Party and the other terms and conditions of the Section 2.5 Transfer Offer. Within 20 days following the date of the Section 2.5 Transfer Notice, each of the Remaining Holders shall deliver to a representative of the Controlling Stockholders designated in the Section 2.5 Transfer Notice certificates representing the Shares held by such Remaining Holder, Duly Endorsed, together with all other documents required to be executed in connection with such Section 2.5 Transfer Offer or, if such delivery is not permitted by applicable law, an unconditional agreement to deliver such Shares pursuant to this Section 2.5(b) at the closing for such Section 2.5 Transfer Offer against delivery to such Remaining Holder of the consideration therefor. In the event that a Remaining Holder should fail to deliver such certificates to the Controlling Stockholders, the Company shall cause the books and records of the Company to show that such Shares are bound by the provisions of this Section 2.5(b) and that such Shares shall be transferred only to the Third Party upon surrender for transfer by the Remaining Holder thereof. (ii) If, within 120 days after the Controlling Stockholders give the Transfer Notice, they have not completed the sale of all the Transfer Stock, the Controlling Stockholders shall return to each of the Remaining Holders all certificates representing Shares that such Remaining Holder delivered for sale pursuant hereto, and all the restrictions on sale or other disposition contained in the Agreement with respect to Shares owned by the Controlling Stockholders shall again be in effect. (iii) Promptly after the consummation of the sale of Shares of the Controlling Stockholders and Remaining Holders pursuant to this Section 2.5, the Controlling Stockholders shall give notice thereof to the Remaining Holders, shall remit to each of the Remaining Holders the total sales price of the Shares of such Remaining Holders sold pursuant thereto, and shall furnish such other evidence of the completion and time of 12 completion of such sale or other disposition and the terms thereof as may be reasonably requested by such Remaining Holders. (c) In the event that any Remaining Holder shall be required to sell Shares pursuant to the provisions of Section 2.5 hereof, then the provisions of Section 2.4 hereof shall not be applicable to such Remaining Holder. (d) Notwithstanding the foregoing provisions of this Section 2.5, no Remaining Holder which is a trust under an employee benefit plan subject to ERISA (an "ERISA Holder") shall be obligated ------------ to sell any Shares pursuant to this Section 2.5 if such Remaining Holder determines in good faith, upon advice of counsel, that there is a material risk that such sale would constitute a prohibited or a party-in-interest transaction or would otherwise contravene ERISA and gives the Controlling Stockholders notice thereof within 20 days after receiving a Section 2.5 Transfer Notice. Notwithstanding the foregoing provisions of this Section 2.5(d), such ERISA Holder shall, if requested by the Controlling Stockholders, use reasonable commercial efforts to obtain an appropriate exemption from any such ERISA restriction or to participate in restructuring such proposed transaction in such a manner that such ERISA Holder can determine that no such material risk exists, and the Controlling Stockholder, such ERISA Holder and the Company shall cooperate with each other in such regard; provided, however, that neither of them shall be required to take any action which it determines in good faith to be contrary to its best interests. SECTION 2.6. Improper Transfer. Any attempt to sell, ----------------- assign, transfer, grant a participation in, pledge or otherwise dispose of any Shares not in compliance with this Agreement shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company's stock records to such attempted sale, assignment, transfer, grant of a participation in, pledge or other disposition. ARTICLE III CERTAIN AGREEMENTS REGARDING THE BOARD OF DIRECTORS --------------------------------------------------- SECTION 3.1. Nomination of Directors and Certain Other ----------------------------------------- Management Rights. So long as MSLEF or Fort Howard Equity Investors - ----------------- II shall own shares of Common Stock of the Company, MSLEF and Fort Howard Equity Investors II, as the case may be, each shall have the following rights with respect to the Company: (i) the right to have a designee nominated for election to the Board of Directors at any annual meeting of the Company's shareholders, provided that MSLEF or Fort Howard Equity Investors II, as the case may be, does not already have a designee as a member of the Board of Directors at the time of such annual meeting; (ii) in the event of a vacancy on the Board of Directors created by the resignation, removal or death of a director nominated by MSLEF or Fort Howard 13 Equity Investors II, as the case may be, the right to have a designee nominated for election to fill such vacancy; (iii) the right to routinely consult with the management of the Company on matters relating to the Company; (iv) the right to inspect the books and records of the Company; (v) if MSLEF and Fort Howard Equity Investors II each do not have a designee elected as a member of the Board of Directors of the Company or each do not elect to have a designee nominated, the right to have a representative of MSLEF and Fort Howard Equity Investors II attend the meetings of the Board of Directors and to participate in discussions (but not vote) at such meetings; and (vi) the right to inspect the properties and operations of the Company; provided, however, that any such nominee of MSLEF or Fort Howard Equity Investors II, as the case may be, shall be reasonably acceptable to the Board of Directors of the Company. To the extent the Company's proxy statement for any annual meeting includes a recommendation regarding the election of any other nominees to the Company's Board of Directors, the Company agrees to include a recommendation that the shareholders also vote in favor of the foregoing nominees. The rights provided to MSLEF and Fort Howard Equity Investors II in this Section 3.1 are intended to enable MSLEF and Fort Howard Equity Investors II or any partner of MSLEF and Fort Howard Equity Investors II to be operated as a "venture capital operating company" within the meaning of the regulations of the Department of Labor set forth in 29 CFR Section 2510.3-101(d), and this Section 3.1 shall be interpreted accordingly. ARTICLE IV REGISTRATION RIGHTS ------------------- SECTION 4.1. Registration on Request of Holders. ---------------------------------- (a) Subject to the Company's Right of First Refusal as provided in Section 5.1(a) hereof, upon the written request of Holders of the Minimum Registration Request Percentage of the Registrable Securities outstanding (the "Selling Investors"), requesting that the ----------------- Company effect the registration under the Securities Act of not less than the Minimum Registration Amount of Registrable Securities, and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all other Holders of Registrable Securities, and thereupon will use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by the Selling Investors of at least the Minimum Registration Amount, then held by the Selling Investors and their respective Permitted Transferees, if any; and (ii) all other Registrable Securities which the Company has been requested to register by any other Holder thereof by written request received by the Company 14 within five Business Days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities), all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; provided, however, that (A) the Company shall not be obligated to file a registration statement relating to a registration request under this Section 4.1(a) within a period of six months after the effective date of any other registration statement of the Company other than any registration statement relating to Shares issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or in connection with an acquisition by the Company of another company, (B) with respect to any registration statement filed, or to be filed, pursuant to this Section 4.1, if the Company shall furnish to the Selling Investors a certified resolution of the Board of Directors stating that in the Board of Directors' good faith judgment it would (because of the existence of, or in anticipation of, any acquisition or financing activity, or the unavailability for reasons beyond the Company's control of any required financial statements, or any other event or condition of similar significance to the Company) be significantly disadvantageous (a "Disadvantageous Condition") to the Company or ------------------------- its stockholders for such a registration statement to be maintained effective, or to be filed and become effective, and setting forth the general reasons for such judgment, the Company shall be entitled to cause such registration statement to be withdrawn and the effectiveness of such registration statement terminated, or, in the event no registration statement has yet been filed, shall be entitled not to file any such registration statement, until such Disadvantageous Condition no longer exists (notice of which the Company shall promptly deliver to the Selling Investors and any other holders selling securities pursuant to an effective registration statement) and upon receipt of any such notice of a Disadvantageous Condition such Selling Investors and any other holders selling securities pursuant to an effective registration statement (the "Additional Sellers") will ------------------ forthwith discontinue use of the prospectus contained in such registration statement and, if so directed by the Company, each such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the prospectus then covering such Registrable Securities current at the time of receipt of such notice and, in the event no registration statement has yet been filed, all drafts of the prospectus covering such Registrable Securities, and 15 (C) subject to Section 4.1(f) hereof, the Company shall not be obligated to pay any Registration Expenses in connection with more than four registrations requested in the aggregate pursuant to this Section 4.1. Unless the Holders of Registrable Securities (representing a majority of the Fully Diluted Shares) then held by the Selling Investors and the Additional Sellers and their Permitted Transferees, if any, shall otherwise consent in writing, no other person (including the Company), other than another Holder of Registrable Securities, shall be permitted to offer any securities under any registration pursuant to this Section 4.1. Promptly after the expiration of the five Business Day period referred to in Section 4.1(a)(ii) hereof, the Company will notify all the Holders to be included in the registration of the other Holders and the number of shares of Registrable Securities requested to be included therein. A majority of the Selling Investors requesting a registration under this Section 4.1(a) may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request, without liability (except as set forth in Section 4.1(c) hereof) to any of the other Selling Investors or to any other holders of Registrable Securities requested to be registered pursuant to Section 4.1(a)(ii) hereof, by providing a written notice to the Company revoking such request. In the event that the Company shall give any notice of the withdrawal of a registration statement contemplated by clause (B) above, the Company shall at such time as it in good faith deems appropriate file a new registration statement covering the Registrable Securities that were covered by such withdrawn registration statement, and such registration statement shall be maintained effective for such time as may be necessary so that the period of effectiveness of such new registration statement, when aggregated with the period during which such initial registration statement was effective, shall be such time as may be otherwise required by this Agreement. There is no limitation on the number of times that the Company may withdraw a registration statement pursuant to this Section 4.1(a). Notwithstanding anything contained in this Agreement to the contrary, nothing herein shall be construed as requiring the Company to register any of its securities other than Shares. (b) Registration Statement Form. If, pursuant to a --------------------------- registration request under this Section 4.1, (i) the Company proposes to effect registration by filing a registration statement on Form S-3 (or any successor or similar short-form registration statement), (ii) such registration is in connection with a Public Offering and (iii) the managing underwriter shall advise the Company in writing that, in its opinion, the use of another form of registration statement is of material importance to the success of such proposed offering, then such registration shall be effected on such other form. (c) Expenses. The Company will pay all Registration -------- Expenses in connection with four registrations which are requested and become effective pursuant to this Section 4.1. The Company shall not be liable for Registration Expenses in connection with a registration that shall not have become effective due to a revocation by the Selling Investors requesting such registration under this Section 4.1. In such event, the obligation to pay the 16 Registration Expenses in connection with such revoked registration shall be due and payable by the Selling Investors who initially requested and revoked such registration and the obligation of the Company to pay all Registration Expenses in connection with four registrations shall not be affected by such revoked registration. However, each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a registration requested pursuant to this Section 4.1. (d) Effective Registration Statement. A registration -------------------------------- requested pursuant to this Section 4.1 shall not be deemed to have been effected unless the registration statement relating thereto (i) has become effective under the Securities Act and any of the Registrable Securities of the Selling Investors and their Permitted Transferees, if any, included in such registration have actually been sold thereunder, and (ii) has remained effective for a period of at least 90 days (or such shorter period in which all Registrable Securities of the Selling Investors and the Additional Sellers and their respective Permitted Transferees, if any, included in such registration have actually been sold thereunder); provided, however, that if any effective registration statement requested pursuant to this Section 4.1 is discontinued in connection with a Disadvantageous Condition, such registration statement shall be at the sole expense of the Company and shall not be included as one of the four registrations which may be requested pursuant to Section 4.1 hereof; and provided further, that if after any registration statement requested pursuant to this Section 4.1 becomes effective (i) such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court solely due to the actions or omissions to act of the Company and (ii) less than 75% of the Registrable Securities included in such registration have been sold thereunder, such registration statement shall be at the sole expense of the Company and shall not be included as one of the four registrations which may be requested pursuant to Section 4.1 hereof. (e) Selection of Underwriters. If any requested ------------------------- registration pursuant to this Section 4.1 is in the form of a Public Offering, the Company will select Morgan Stanley & Co. as the manager or, if Morgan Stanley & Co. so desires, as the co-manager, that will administer the offering, provided that Morgan Stanley & Co. shall perform such services as underwriter at the then customary market rates for similar underwriting services. If Morgan Stanley & Co. declines to act as manager or co-manager of the offering, the Holders of a majority of the Registrable Securities then held by the Selling Investors and their Permitted Transferees, if any, which are to be registered pursuant to this Section 4.1 shall have the right to select the manager or co-managers that will administer the offering. (f) Pro Rata Participation in Requested Registrations. If ------------------------------------------------- a requested registration pursuant to this Section 4.1 involves a Public Offering and the managing underwriter shall advise the Company that, in its view, the number of equity securities requested to be included in such registration (including securities which the Company 17 requests to be included which are not Registrable Securities) exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold (the "Maximum Offering Size"), the Company will --------------------- include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) Demand Registrants' Securities. First, Registrable ------------------------------ Securities requested to be included in such registration pursuant to Section 4.1(a)(i) and Section 4.1(a)(ii) hereof be allocated (if necessary for the offering not to exceed the Maximum Offering Size) pro rata among the Holders requesting registration pursuant to Section 4.1(a)(i) and Section 4.1(a)(ii) hereof on the basis of the relative number of Fully Diluted Shares represented by the Registrable Securities each such Holder has requested to be included in such registration). (ii) The Issuer's Securities. Second, the equity securities ----------------------- proposed to be sold by the Company but only to the extent such allocation would not result in the offering exceeding the Maximum Offering Size. (iii) Other Holders' Securities. Third, the equity ------------------------- securities proposed to be sold by any other person to the extent that the Holders of a majority of the Registrable Securities then held by the Selling Investors and their Permitted Transferees, if any, have consented, pursuant to Section 4.1(a) hereof, to the inclusion in such registration of such securities of such other persons, shall be allocated (if necessary for the offering not to exceed the Maximum Offering Size) pro rata among all such other persons on the basis of the relative number of securities each such person has requested to be included in such registration or on such other basis as may be consented to by the Company and the Selling Investors. (g) If Registrable Securities representing at least 50% of the number of Fully Diluted Shares requested to be registered by the Selling Investors and their Permitted Transferees, if any, are not included in such registration, then the Selling Investors and their Permitted Transferees, if any, may request that the Company effect an additional registration under the Securities Act of all or part of the Selling Investors' and such Permitted Transferees', if any, Registrable Securities in accordance with the provisions of this Section 4.1, and the Company shall pay the Registration Expenses in connection with such additional registration (in addition to the four registrations referred to in Section 4.1(a) hereof). SECTION 4.2. Incidental Registration. ----------------------- (a) If the Company at any time proposes to register any of its equity securities (the "Priority Securities") under the Securities ------------------- Act (other than a registration (i) on Form S-8 or S-4 or any successor or similar forms, (ii) relating to Shares issuable upon exercise of employee stock options or in connection with any employee benefit or similar 18 plan of the Company, (iii) in connection with a direct or indirect acquisition by the Company of another company, (iv) pursuant to a registration under Section 4.1 hereof, (v) of preferred securities or convertible or exchangeable debt or equity securities, or (vi) relating to any Shares purchased by certain parties in connection with various put options and call options granted under the MEPA to the Electing Parties (as defined therein)), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will each such time, subject to the provisions of Section 4.2(b) hereof, give prompt written notice to all Holders of record of Registrable Securities of its intention to do so and of such Holders' rights under this Section 4.2, at least 30 days prior to the anticipated filing date of the registration statement relating to such registration; provided that, if such registration involves a Public Offering, no such notice shall be required if the managing underwriter of the proposed offering advises that the number of Priority Securities equals or exceeds the Maximum Offering Size. Any such notice shall offer all such Holders the opportunity to include in such registration statement such number of Registrable Securities as each such Holder may request. Upon the written request of any such Holder made within 20 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with such intended methods thereof) of the Registrable Securities so to be registered; provided that (i) if such registration involves a Public Offering, all Holders of Registrable Securities requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company; and (ii) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 4.2(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Holders of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to rights of Holders under Section 4.1 hereof). If a registration pursuant to this Section 4.2(a) involves a Public Offering, any Holder of Registrable Securities requesting to be included in such registration may elect, in writing not less than five Business Days prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 4.2 shall relieve the Company of its obligations to effect registrations upon request under Section 4.1 hereof. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 4.2, and each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a registration statement effected pursuant to this Section 4.2. 19 (b) Priority in Incidental Registrations. If a ------------------------------------ registration pursuant to this Section 4.2 involves a Public Offering and the managing underwriter advises the Company that, in its view, the number of equity securities (including all Registrable Securities) which the Company, the Holders and any other persons intend to include in such registration exceeds the Maximum Offering Size, the Company will include in such registration, in the following priority, up to the Maximum Offering Size: (i) first, all the Priority Securities (including any to be sold for the Company's own account or for other holders of Priority Securities), with such priorities among them as the Company may determine; (ii) second, all Registrable Securities requested to be included in such registration by the Holders pursuant to Section 4.2(a) hereof (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the Holders requesting registration of such Registrable Securities pursuant to Section 4.2(a) hereof on the basis of the relative number of Fully Diluted Shares represented by the Registrable Securities each such Holder has requested to be included in such registration); and (iii) third, the equity securities requested to be sold for the account of any other persons (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the persons requesting registration of such equity securities on the basis of the relative number of Fully Diluted Shares represented by the equity securities each such person has requested to be included in such registration). SECTION 4.3. Holdback Agreements. ------------------- (a) Except as otherwise provided in Sections 4.3(c) and 4.3(d) hereof, if any registration of Registrable Securities shall be in connection with a Public Offering, each Holder of Registrable Securities and their Permitted Transferees, if any, agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144, or any successor provision, under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such Public Offering) during the 7 days prior to, and during the 120-day period which begins on the effective date of such registration statement (except as part of such registration) provided that each Holder of Registrable Securities and their Permitted Transferees, if any, has received written notice of such registration at least two Business Days prior to the anticipated beginning of the 7-day period referred to above; provided, however, that this Section 4.3(a) shall apply only to transactions in Common Stock that is not held by third- party investment advisers who have discretionary power to invest the 20 assets of any Holder in publicly-traded securities. The 120-day period referred to in this Section 4.3(a) may be extended to 180 days upon the underwriters' reasonable request. (b) If any registration of Registrable Securities shall be in connection with a Public Offering, the Company agrees not to effect any public sale or distribution of any of its equity securities or of any security convertible into or exchangeable or exercisable for any equity security of the Company (other than any such sale or distribution of such securities in connection with any merger or consolidation by the Company or any subsidiary of the Company or the acquisition by the Company or a subsidiary of the Company of the capital stock or substantially all the assets of any other person or in connection with an employee stock ownership or other benefit plan) during the 7 days prior to, and during the 120-day period which begins on, the effective date of such registration statement (except as part of such registration). (c) If a registration pursuant to Section 4.2 involves a Public Offering of Priority Securities and except as otherwise provided in Section 4.3(d) hereof, each Holder and their Permitted Transferees, if any, agrees (notwithstanding the fact that none of such Holder's or Permitted Transferee's Registrable Securities are to be included as part of such offering) that, without the prior written consent of Morgan Stanley & Co. (or in the case of Morgan Stanley and its Affiliates and MSLEF, without the prior written consent of the co- managers of such offering), it will not, during the 7 days prior to, and during the 180-day period which begins on the effective date of the registration statement relating to such offering, (i) offer, pledge, sell, contract to sell, sell an option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; provided, however, that this Section 4.3(c) shall not apply to transactions in Common Stock other than the Shares that is held by a third-party investment adviser who has discretionary power to invest the assets of any Holder in publicly-traded securities; and provided further, that any Holder who is a natural person and is not a Management Investor may, notwithstanding anything to the contrary contained in this Section 4.3(c) or Section 4.3(d), transfer shares of Common Stock which are not Shares by gift, will, bequest or devise. (d) Each Holder who is not a Management Investor agrees, in connection with the 1995 Initial Public Offering and notwithstanding the fact that none of such Holder's Registrable Securities are to be included as part of such offering, that, without the prior written consent of Morgan Stanley & Co. (or in the case of Morgan Stanley and its Affiliates and MSLEF, without the prior written consent of the co- managers of such offering), it will not, during the 7 days prior to, and during the one-year period which begins on, the effective 21 date of the registration statement relating to such offering, (i) offer, pledge, sell, contract to sell, sell an option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (ii) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; provided, however, that this Section 4.3(d) shall not apply to transactions in Common Stock other than the Shares that is held by a third-party investment adviser who has discretionary power to invest the assets of any Holder in publicly-traded securities; and provided further, that any Holder who is a natural person and is not a Management Investor may, notwithstanding anything to the contrary contained in Section 4.3(c) or this Section 4.3(d), transfer shares of Common Stock which are not Shares by gift, will, bequest or devise. (e) The managers of the 1995 Initial Public Offering and of any other Public Offering to which this Section 4.3 applies are expressly made third party beneficiaries of the agreements contained in Sections 4.3(a), 4.3(c) and 4.3(d) hereof. SECTION 4.4. Registration Procedures. Whenever Holders ----------------------- request that any Registrable Securities be registered pursuant to Section 4.1 or 4.2 hereof, the Company will, subject to the provisions of such Sections, use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the Commission a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days. (b) The Company will, if so requested, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Holder and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company will furnish to such Holder and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. 22 (c) After the filing of the registration statement, the Company will promptly notify each Holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (d) The Company will use its best efforts to (i) register or qualify the Registrable Securities under such other state securities or blue sky laws of such jurisdictions in the United States as any Holder of Registrable Securities covered by such registration statement reasonably (in light of such Holder's intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the Registrable Securities owned by such Holder; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (e) The Company will immediately notify each Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to each such Holder any such supplement or amendment. (f) The Company will enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. (g) The Company will make available for inspection by any Holder of Registrable Securities covered by such registration statement, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Holder or underwriter (collectively, the "Inspectors") all financial and ---------- other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably ------- necessary to enable them to exercise their due diligence responsibility, and 23 cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Holder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such is made generally available to the public. Each Holder further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (h) The Company will furnish to each Holder of Registrable Securities covered by such registration statement and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as a majority of the Holders of the Registrable Securities included in such registration statement or the managing underwriter therefor reasonably requests. (i) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. (j) The Company will use its best efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed. The Company may require each Holder of Registrable Securities included in such registration statement to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. 24 Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.4(e) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.4(e) hereof, and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event that the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 4.4(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 4.4(e) hereof to the date when the Company shall make available to the Holders a prospectus supplemented or amended to conform with the requirements of Section 4.4(e) hereof. SECTION 4.5. Indemnification by the Company. The Company ------------------------------ agrees to indemnify and hold harmless each Holder of Registrable Securities covered by a registration statement, its officers, directors and agents, and each person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Holder or on such Holder's behalf expressly for use therein; provided, however, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that the Company has provided such prospectus and it was the responsibility of such Holder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each person who 25 controls such underwriters on substantially the same basis as that of the indemnification of the Holders provided in this Section 4.5. SECTION 4.6. Indemnification by Holders of Registrable ----------------------------------------- Securities and Underwriters. Each Holder of Registrable Securities - --------------------------- included in any registration statement agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors and agents and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Holder, but only (i) with respect to information furnished in writing by such Holder or on such Holder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any loss, claim, damage, liability or expense described in Section 4.5 results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that it was the responsibility of such Holder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Holder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 4.6. As a condition to including Registrable Securities in any registration statement filed in accordance with Article IV hereof, the Company may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. SECTION 4.7. Conduct of Indemnification Proceedings. In -------------------------------------- case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such person (an "Indemnified ----------- Party") shall promptly notify the person against whom such indemnity - ----- may be sought (the "Indemnifying Party") in writing and the ------------------ Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; provided that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying 26 Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding. SECTION 4.8. Contribution. If the indemnification provided ------------ for in this Article 4 is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) as between the Company and the Holders of Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such Holders on the one hand and the underwriters on the other from the offering of the Registrable Securities, or, if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such Holders on the one hand and of the underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each Holder of Registrable Securities covered by a registration statement on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such Holders on the one hand and the underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Holders bear to the total underwriting discounts and commissions received by the underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and the Holders on 27 the one hand and of the underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Holders or by the underwriters. The relative fault of the Company on the one hand and of each Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 4.8 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.8, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Holder were offered to the public exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each Holder's obligation to contribute pursuant to this Section 4.8 is several in the proportion that the proceeds of the offering received by such Holder bears to the total proceeds of the offering received by all the Holders and not joint. SECTION 4.9. Participation in Public Offering. No person -------------------------------- may participate in any Public Offering hereunder unless such person (a) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights. 28 SECTION 4.10. Other Indemnification. Indemnification --------------------- similar to that specified herein (with appropriate modifications) shall be given by the Company and each Holder of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. ARTICLE V RIGHT OF FIRST REFUSAL ---------------------- SECTION 5.1. Right of First Refusal. ---------------------- (a) (i) Upon receipt of a registration request made by the Selling Investors pursuant to Section 4.1(a) hereof, the Company (or any person the Company may designate, a "Section 5.1 Designee") shall -------------------- have the right (a "Right of First Refusal") to purchase, pursuant to ---------------------- the procedures set forth in this Section 5.1, all the Shares (the "First Refusal Shares") in respect of which the Company has received -------------------- such registration request. Subject to Section 5.1(a)(ii), the Company or the Section 5.1 Designee shall have the right to purchase the First Refusal Shares at a price per share equal to the Fair Market Value of the Company's common stock by giving notice in writing to such effect to the Selling Investors (the "Purchase Notice") within 10 days of the --------------- Company's receipt of such registration request. For purposes of this Section 5.1, "Fair Market Value" means the average daily closing price ----------------- of the Company's publicly traded shares on the Nasdaq National Market or such other securities exchange on which the shares may be traded (as reported in The Wall Street Journal) for the 45 trading days immediately preceding the Company's delivery of the Purchase Notice. If the Company or the Section 5.1 Designee elects not to purchase the First Refusal Shares or fails to deliver the Purchase Notice by 5:00 p.m. (New York City time) on the tenth day after the Company's receipt of such registration request, the Selling Investors shall be entitled to the demand registration rights provided in Section 4.1. If the tenth day after the Company's receipt of such registration request is not a Business Day, the Company or the Section 5.1 Designee shall be entitled to deliver the Purchase Notice by 5:00 p.m. (New York City time) on the next succeeding Business Day. (ii) A majority of the Selling Investors requesting the registration in respect of which the Company delivered the Purchase Notice may withdraw such registration request by giving notice in writing to such effect to the Company (the "Withdrawal Notice") at any ----------------- time prior to the date which is five days after the date of delivery of the Purchase Notice. (b) If the Company or the Section 5.1 Designee shall have delivered the Purchase Notice (and no Withdrawal Notice shall have been delivered), the closing of the purchase of the First Refusal Shares pursuant to this Section 5.1 shall take place in New 29 York City on the date specified in the Purchase Notice which date shall neither be earlier than 5 days nor later than 20 days after the date of delivery of the Purchase Notice. Promptly upon receipt of the Purchase Notice, if no Withdrawal Notice shall have been delivered, each Selling Investor of First Refusal Shares shall deliver to the Company the certificates for such Shares, in form for transfer, Duly Endorsed, against payment therefor. The Company or the Section 5.1 Designee, as the case may be, shall make payment on the closing date by delivering to each Selling Investor a certified check or wire transfer in immediately available funds for the purchase price of such Selling Investor's First Refusal Shares, against delivery of the certificates for such Shares, in form for transfer, Duly Endorsed. If the Company or the Section 5.1 Designee, as the case may be, shall fail to purchase the First Refusal Shares in accordance with this Section 5.1(b), the Selling Investors shall be entitled to the demand registration rights provided in Section 4.1. (c) Notwithstanding the foregoing provisions of this Section 5.1, no Selling Investor which is an ERISA Holder shall be obligated to sell any First Refusal Shares pursuant to this Section 5.1 if such Selling Investor determines in good faith, upon advice of counsel, that there is a material risk that such sale would constitute a prohibited or a party-in-interest transaction or would otherwise contravene ERISA and gives the Company notice thereof within 20 days after receiving a Purchase Notice. Notwithstanding the foregoing provisions of this Section 5.1(c), such ERISA Holder shall, if requested by the Company, use reasonable commercial efforts (which shall be, without limitation, reasonable as to time and expense) to obtain an appropriate exemption from any such ERISA restriction or to participate in restructuring such proposed transaction in such a manner that such ERISA Holder can determine that no such material risk exists, and the Company and such ERISA Holder shall cooperate with each other in such regard; provided that neither of them shall be required to take any action which it determines in good faith to be contrary to its best interests. If within 20 days of the Company's receipt of such ERISA Holder's notice, such ERISA Holder shall furnish to the Company a statement in writing that (i) after discussions with the Department of Labor, it is determined that there is a risk that such sale would constitute a prohibited or party-in-interest transaction or would otherwise contravene ERISA and (ii) because of the time and expense involved in obtaining an exemption from such ERISA restriction such sale is commercially unreasonable or contrary to such ERISA Holder's best interests, then such ERISA Holder shall be entitled to the demand registration rights provided in Section 4.1 hereof; provided that any exercise of such registration rights shall be subject to the provisions of Section 4.1, including the Minimum Registration Amount. 30 ARTICLE VI ADDITIONAL RIGHTS AND OBLIGATIONS OF HOLDERS -------------------------------------------- SECTION 6.1. Certain Matters. For purposes hereof, with --------------- respect to Shares, and options to purchase Shares, of the Company held by Paul J. Schierl, (a) Mr. Schierl shall be deemed a "Holder", (b) all references to the "MEPA" and the "Purchase Agreements" shall be deemed to include the 1990 Agreement, and (c) all references to "Management Investors" shall be deemed to include Mr. Schierl except where otherwise indicated, and except that for purposes of clauses (ii) and (iii) of Section 7.12 hereof, Mr. Schierl shall be deemed to be a "Direct Investor" and not a "Management Investor." SECTION 6.2. Reorganization. In the event the Board of -------------- Directors determines that it is in the best interest of the stockholders of the Company to establish Newco (as defined below) then, in the event that any capital stock, other securities or other interests are issued in respect of, in exchange for, or in substitution of, any Shares held by Holders by reason of any reorganization, recapitalization, reclassification, merger or consolidation involving the Company in which a newly formed corporation or partnership ("Newco") becomes the parent or holding ----- company for or the successor to the Company, each Holder hereby agrees to (i) in the event stockholder approval is required to effect such reorganization, vote all Shares beneficially owned by it in favor of such reorganization, and (ii) exchange, or cause the exchange, of Shares held by it into the applicable securities of Newco, such exchange to be made on a ratable basis among the Holders. Any references in this Agreement to "Shares" shall include any successor securities of Newco into which Shares may be exchanged in accordance with this Section 6.2 and any references to "stockholders of the Company" shall include the holders of such successor securities of Newco. All references to the Company in this Agreement shall include Newco. SECTION 6.3. Pro Rata Purchase. Notwithstanding anything ----------------- in this Agreement to the contrary, nothing herein shall prohibit the Company from offering to purchase Shares from a Holder, and consummating the purchase thereof, provided that any such offer (other than with respect to Shares held by current or former employees of the Company or any of its subsidiaries pursuant to any agreement between the Company and any such employee) is made pro rata to each Holder. 31 ARTICLE VII MISCELLANEOUS ------------- SECTION 7.1. Headings. The headings in this Agreement are -------- for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. SECTION 7.2. No Inconsistent Agreements. The Company will -------------------------- not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement. The Company has not previously entered into any agreement with respect to any of its debt or equity securities granting any registration rights to any person. SECTION 7.3. Remedies. The Company acknowledges and agrees -------- that in the event of any breach of this Agreement by it, the Holders would be irreparably harmed and could not be made whole by monetary damages. The Company accordingly agrees (i) to waive the defense in any action for specific performance that a remedy at law would be adequate, and (ii) that the Holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of this Agreement in any action instituted in the United States District Court for the Southern District of New York, or, in the event such Court would not have jurisdiction for such action, in any court of the United States or any state thereof having subject matter jurisdiction for such action. The Company consents to personal jurisdiction in any such action brought in the United States District Court for the Southern District of New York, or any such other court and to service of process upon it in the manner set forth in Section 7.6 hereof. SECTION 7.4. Frustration of Purpose. No Holder may do ---------------------- directly or indirectly, including, without limitation, through the sale of capital stock of its subsidiary or otherwise, that which is not permitted by the Agreement. The Board of Directors, in its sole discretion, shall have the right to make any determination pursuant to this Section 7.4, which determination shall be final and binding upon all the parties hereto, including, but not limited to, determinations with respect to certain sales of Shares pursuant to the rights of first refusal contained in Section 5.1 hereof and certain rights to compel the sale of Shares contained in Section 2.5 hereof. SECTION 7.5. Entire Agreement. This Agreement, together ---------------- with the Purchase Agreements referred to herein, constitute the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein, and there are no restrictions, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein or 32 therein. This Agreement and the Purchase Agreements supersede all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. SECTION 7.6. Notices. Any notice, request, instruction or ------- other document to be given hereunder by any party hereto to another party hereto shall be in writing, shall be delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, or by overnight delivery service, to the address of the party theretofore furnished to the Company or to such other address as the party to whom notice is to be given may provide in a written notice to the Company, a copy of which written notice shall be on file with the Secretary. Notice shall be effective when sent by registered or certified mail, return receipt requested, postage prepaid to the party, and when received if delivered personally or otherwise by the party to whom it is directed. SECTION 7.7. Applicable Law. The laws of the State of -------------- Delaware shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under applicable principles of conflicts of laws. SECTION 7.8. Severability. The invalidity or ------------ unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. SECTION 7.9. Termination. This Agreement shall terminate ----------- and be of no further force or effect upon the earlier of: (i) such time as both MSLEF and Fort Howard Equity Investors II cease to own any of the then outstanding Shares or (ii) the tenth anniversary of this amendment and restatement. SECTION 7.10. Additional Holders. Each employee of the ------------------ Company or any direct or indirect subsidiary of the Company who becomes a holder of Shares or Share Equivalents after August 8, 1988 shall, at the option of the Company, become a party to this Agreement and be bound by its terms and be able to enforce his rights as a Management Investor and as a Holder hereunder. Each other person which enters into a Purchase Agreement on or after August 8, 1988 and becomes a holder of Shares or Share Equivalents shall, at the option of the Company, become a party to this Agreement and be bound by its terms and be able to enforce its rights as a Holder hereunder. If the Company so determines, such employee or such other person shall enter into a supplementary agreement with the Company to such effect. Each such supplementary agreement shall become effective upon its execution by the Company and the new holder of Shares or Share Equivalents, and it shall not require the signatures or the consent of any other Holder. The supplementary agreement between the Company and any new holder of Shares or Share 33 Equivalents may modify some of the terms of this Agreement as they affect the rights and obligations of the new holder of Shares or Share Equivalents; provided that the modified terms shall not be materially adverse to any of the other Management Investors, Direct Investors or MS/Fund Investors. SECTION 7.11. Other Agreements. Nothing contained in this ---------------- Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Shares, Share Equivalents or other securities of the Company or any direct or indirect subsidiary of the Company imposed by, any other agreement including, but not limited to, the Purchase Agreements. SECTION 7.12. Successors, Assigns, Transferees. The -------------------------------- provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Notwithstanding the foregoing, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or any Holder, except as permitted by Section 2.4 or Section 5.1 hereof, without the prior written consent of (i) the Holders of a majority of the Shares then held by MSLEF and Morgan Stanley Group, (ii) the Holders of a majority of the Shares then held by the Direct Investors and the Permitted Transferees, (iii) the Holders of a majority of the Shares then held by the Management Investors and (iv) the Company; provided, however, that (A) the Company may assign any of its rights and remedies hereunder to any Affiliate of the Company, and such Affiliate may assume any of its obligations and liabilities, without obtaining the prior written consent of the Holders specified in clauses (i), (ii) and (iii) of this Section 7.12; and (B) if the provisions of this Agreement are no longer applicable to one or more of the Holders specified in clauses (i), (ii) and (iii) of this Section 7.12, then the consent of such Holder or Holders shall not be required under this Section 7.12. SECTION 7.13. Defaults. A default by any party to this -------- Agreement in such party's compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party. SECTION 7.14. Amendments; Waivers. This Agreement may not ------------------- be amended, modified or supplemented and no waivers of or consents to departures from the provisions hereof may be given unless consented to in writing by the Company and the Holders specified in clauses (i) through (iii) inclusive of Section 7.12 hereof; provided, however, that any amendment to Article II hereof shall only require the written consent of a majority of the Holders subject to Article II. SECTION 7.15. Counterparts. This Agreement may be executed ------------ in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement. 34 SECTION 7.16. Attorneys' Fees. In any action or proceeding --------------- brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. SECTION 7.17. Recapitalization, etc. In the event that any --------------------- capital stock or other securities are issued in respect of, in exchange for, or in substitution of, any Shares by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the Shares or any other change not contemplated or provided for in Section 6.2 in the capital structure of the Company, appropriate adjustments shall be made with respect to Article II hereof so as to fairly and equitably preserve, as far as practicable, the original rights and obligations of the parties hereto under this Agreement. SECTION 7.18. Effectiveness. This amendment and ------------- restatement of the 1990 Agreement shall become effective upon the execution and delivery hereof, pursuant to Section 7.14, by the Company and the Holders specified in clauses (i) through (iii) inclusive of Section 7.12 hereof, and thereupon, subject to Section 7.12, shall be binding on, and inure to the benefit of, each holder of record of Shares or Share Equivalents as of the date hereof that is a party to the 1990 Stockholders Agreement as of the date hereof, a schedule of which is maintained in the records of the Company, and their respective heirs, successors and permitted assigns, whether or not such holders, other than the signatories to this amendment and restatement, shall execute this amendment and restatement. 35 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FORT HOWARD CORPORATION By:_____________________________ Name: Title: MORGAN STANLEY GROUP INC. By:_____________________________ Name: Title: THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P. By: MORGAN STANLEY LEVERAGED EQUITY FUND II, INC., General Partner By:_____________________________ Name: Title: FORT HOWARD EQUITY INVESTORS, L.P., a Delaware limited partnership By: MORGAN STANLEY EQUITY INVESTORS INC., General Partner By:_____________________________ Name: Title: 36 FORT HOWARD EQUITY INVESTORS II, L.P. By: MORGAN STANLEY EQUITY INVESTORS INC., General Partner By:_____________________________ Name: Title: MELLON BANK, N.A., TRUSTEE for First Plaza Group Trust (as directed by General Motors Investment Management Corporation) By:_____________________________ Name: Title: LEEWAY & CO. By: STATE STREET BANK & TRUST CO., a partner By:_____________________________ Name: Title: DONALD H. DEMEUSE ------------------------------------ 37 KATHLEEN J. HEMPEL ------------------------------------ MICHAEL T. RIORDAN ------------------------------------ JAMES W. NELLEN II ------------------------------------ EX-10.7(F) 6 Exhibit 10.7(F) Fort Howard Corporation 1919 South Broadway Green Bay, Wisconsin 54304 March 1, 1995 Amended and Restated Management Equity -------------------------------------- Participation Agreement ----------------------- Dear Sirs: Reference is made to the Amended and Restated Management Equity Participation Agreement, dated as of August 8, 1988, by and among FH Holdings Corp., a Delaware corporation, and the other parties signatory thereto, as amended and supplemented from time to time, including the letter agreements dated June 27, 1990, between Fort Howard Corporation, a Delaware corporation (the "Company"), and the ------- other parties signatory thereto (collectively, the "MEPA"). ---- The provisions of the MEPA, insofar as such provisions relate to the shares of Voting Common Stock, par value $.01 per share, of the Company sold to Management Investors (as defined in the MEPA) pursuant to the provisions of the MEPA, and options to purchase shares of such Voting Common Stock granted to Management Investors pursuant to the provisions of the MEPA, are hereby amended, effective as of March 1, 1995 (the "1995 MEPA Amendment"), as follows: ------------------- 1. Section 1.1 is amended by deleting the definition of "Fair Market Value" and by substituting the following therefor: ""Fair Market Value" means, on any given date, the ----------------- closing price of the shares of Common Stock, as reported on the NASDAQ/National Market System for such date or such national securities exchange as may be designated by the Committee (as defined in the Fort Howard Corporation Management Equity Plan) or, if Common Stock was not traded on such date, on the next preceding day on which Common Stock was traded." 2. The definition of "Options" set forth in Section 1.1 is amended by deleting the last sentence thereof and by adding the following sentence to the end thereof: 2 "The exercise price of a Vested Option may be paid in the form of cash or, in the sole discretion of the Committee, in shares of Common Stock already owned by the Management Investor (valued at their fair market value as determined by the Committee in its sole discretion), in other property acceptable to the Committee or in any combination of cash, shares of Common Stock or such other property. The exercise price may also, in the Committee's sole discretion, be paid in the form of shares of Common Stock withheld by the Company from the shares that would otherwise have been received by a Management Investor upon exercise of the Vested Option (which shares shall be valued by the Committee at their fair market value, net of the applicable exercise price, as determined by the Committee in its sole discretion). In its discretion, the Committee may also permit a Management Investor to exercise a Vested Option through a "cashless exercise" procedure involving a broker or dealer approved by the Committee, provided that the -------- Management Investor has delivered an irrevocable notice of exercise (the "Notice") to the broker or dealer and such ------ broker or dealer agrees: (A) to sell immediately the number of shares of Common Stock specified in the Notice to be acquired upon exercise of the Vested Option in the ordinary course of its business, (B) to pay promptly to the Company the aggregate exercise price (plus the amount necessary to satisfy any applicable tax liability) and (C) to pay to the Management Investor the balance of the proceeds of the sale of such shares over the amount determined under clause (B) of this sentence, less applicable commissions and fees; provided, however, that the Committee may modify the -------- ------- provisions of this sentence to the extent necessary to conform the exercise of the Vested Option to Regulation T of the Exchange Act." 3. Section 1.1 is amended by deleting the definition of "Stockholders Agreement" and by substituting the following therefor: ""Stockholders Agreement" shall mean the Stockholders ---------------------- Agreement dated as of March 1, 1995, among the Company and the other parties thereto, as amended from time to time." 4. Section 1.1 is amended by deleting (i) the definition of "Transfer Restriction Period" and (ii) all definitions that are used solely in Sections 8.1, 8.2, 8.3, 8.4, 8.5 and 8.6 (as in effect prior to the amendments set forth herein). 5. Section 1.1 is amended by deleting the definition of "Vested Options" and by substituting the following therefor: ""Vested Options" shall mean all Options granted to an -------------- individual and which are outstanding on the effective date of the 1995 MEPA Amendment, which Options shall vest and become exercisable on such date; provided, however, that -------- ------- Vested Options shall not be exercisable unless the Common Stock subject to such Vested Options has been registered under the Securities Act and qualified under applicable state "blue sky" laws in connection with the offer and sale thereof, or the Company has determined that an exemption from 3 registration under the Securities Act and from qualification under such state "blue sky" laws is available." 6. Section 5.1 is amended by deleting the words "and VIII" and "except in the case of sales pursuant to Sections 2.4, 2.5 and Articles IV and V of the Stockholders Agreement". 7. Section 7.1 is amended in its entirety to read as follows: "General Restrictions on Transfer. Each Management -------------------------------- Investor agrees that he will not Sell (as defined below) any Common Stock or any interest therein (i) for the period ending 180 days after the effective date of the Registration Statement filed with the Commission on November 23, 1994, as amended, or (ii) following the expiration of such 180-day period, except in compliance with the Securities Act and any applicable state securities laws. Subject to Section 7.5 hereof, no Option (whether or not a Vested Option) or any right or interest therein may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of (collectively, "Sell"). A Vested Option can only be ---- exercised in accordance with the terms of this Agreement. No transfer of Common Stock in violation of this Agreement shall be made or recorded on the books of the Company and any such transfer shall be void and of no effect." 8. The legend set forth in Section 7.2 is amended in its entirety to read as follows: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 9. The first sentence of Section 7.4 is amended by deleting the words "pursuant to Section 7.5(a) hereof (other than paragraph (a) thereof)" and inserting the words "(other than a transfer of Vested Options pursuant to Section 7.5 hereof)" after the words "Common Stock or any interest therein". 10. Section 7.5 is amended in its entirety to read as follows: "SECTION 7.5. Certain Permitted Transfers. Each --------------------------- Management Investor shall have the right to Sell Vested Options to a Permitted Transferee (as defined below). For purposes of this Agreement, the term "Permitted Transferee" -------------------- means a Person to whom a transfer is made by will or the laws of descent and distribution upon the death of any Management Investor; provided that no transfer pursuant to -------- this Section 7.5 shall be given effect on the books 4 of the Company unless and until the transferee shall agree in writing, in form and substance satisfactory to the Company, to become, and becomes, bound by all the terms of this Agreement and, at the option of the Company, the Stockholders Agreement. Anything to the contrary contained herein notwithstanding, no transfer from a Management Investor or any Permitted Transferee shall be made or recorded on the stock transfer records of the Company if, as a result thereof, the Company would be required to register any Common Stock under the Securities Act, the Exchange Act, or any applicable state securities or "blue sky" laws or would become subject to or would be in violation of the Investment Company Act." 11. Article VIII is amended by deleting Sections 8.1, 8.2, 8.3, 8.4, 8.5 and 8.6 thereof and by renumbering Sections 8.7, 8.8, 8.9 and 8.10 (as applicable) as Sections 8.1, 8.2, 8.3 and 8.4, respectively. 12. The first sentence of Section 9.2 is amended by deleting the portion of such sentence that follows the words "in the event of such breach he shall" and by substituting the following therefor: ", in the case of any Vested Options exercised within six months of (or subsequent to) such termination of employment, promptly pay to the Company an amount in cash equal to the difference between the Fair Market Value of a share of Common Stock on the date of exercise of such Vested Options and the exercise price of such Vested Options multiplied by the number of shares of Common Stock subject to such Vested Options." 5 13. The second sentence of Section 9.2 is amended by deleting the words "clause (i) or (ii) of" and ", as applicable". FORT HOWARD CORPORATION By: ----------------------- Name: Title: Agreed: - -------------------- Donald H. DeMeuse - -------------------- Kathleen J. Hempel EX-10.11(A) 7 Exhibit 10.11(A) March 1, 1995 Fort Howard Corporation Management Equity Plan ---------------------- The Management Investors Committee of the Fort Howard Corporation Management Equity Plan (the "Plan") hereby amends, ---- effective as of March 1, 1995 (the "1995 MEP Amendment"), the ------------------ provisions of the Plan as follows: 1. Section 1.2 is amended by deleting the definition of "Fair Market Value" and by substituting the following therefor: ""Fair Market Value" means, on any given date, the ----------------- closing price of the shares of Common Stock, as reported on the NASDAQ/National Market System for such date or such national securities exchange as may be designated by the Committee or, if Common Stock was not traded on such date, on the next preceding day on which Common Stock was traded." 2. Section 1.2 is amended by deleting the definition of "Stockholders Agreement" and by substituting the following therefor: ""Stockholders Agreement" means the Stockholders ---------------------- Agreement dated as of March 1, 1995, among the Company and the other parties thereto, as amended from time to time." 3. Section 1.2 is amended by deleting (i) the definition of "Transfer Restriction Period" and (ii) all definitions that are used solely in Sections 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6 (as in effect prior to the amendments set forth herein). 4. The first sentence of Section 2.3 is amended in its entirety to read as follows: "The maximum aggregate number of shares of Common Stock that may be issued in connection with Options granted under the Plan (excluding the December 1988 Options, but after taking into account the 6.5-for-one stock split that is anticipated to occur and described in the Registration Statement filed with the Commission on November 23, 1994, as amended (the "Registration Statement")) shall be 696,150, subject to ---------------------- adjustment as set forth in Section 8.3." 2 5. Section 3.1 is amended to add the following sentence to the end thereof: "The Exercise Price may also, in the Committee's sole discretion, be paid in the form of shares of Common Stock withheld by the Company from the shares that would otherwise have been received by a Management Investor upon exercise of the Vested Option (which shares shall be valued by the Committee at their fair market value, net of the applicable Exercise Price, as determined by the Committee in its sole discretion). In its discretion, the Committee may also permit a Management Investor to exercise a Vested Option through a "cashless exercise" procedure involving a broker or dealer approved by the Committee, provided that the -------- Management Investor has delivered an irrevocable notice of exercise (the "Notice") to the broker or dealer and such ------ broker or dealer agrees: (A) to sell immediately the number of shares of Common Stock specified in the Notice to be acquired upon exercise of the Vested Option in the ordinary course of its business, (B) to pay promptly to the Company the aggregate Exercise Price (plus the amount necessary to satisfy any applicable tax liability) and (C) to pay to the Management Investor the balance of the proceeds of the sale of such shares over the amount determined under clause (B) of this sentence, less applicable commissions and fees; provided, however, that the Committee may modify the -------- ------- provisions of this sentence to the extent necessary to conform the exercise of the Vested Option to Regulation T of the Exchange Act." 6. The first sentence of Section 3.3 is amended in its entirety to read as follows: "All Options granted under the Plan shall vest and become exercisable ("Vested Options") as of the effective date of -------------- the 1995 MEP Amendment." 7. Section 5.1 is amended in its entirety to read as follows: "Stockholders Agreement. Each Management Investor who ---------------------- purchases a share of Common Stock pursuant to the Plan prior to the effective date of the 1995 MEP Amendment shall, on or prior to the first issuance of Common Stock to such Management Investor, agree to become a "Holder" for the purposes of the Stockholders Agreement and to be bound by all the terms of the Stockholders Agreement applicable to such a Holder, and to be entitled to the benefits of a Holder thereof. Notwithstanding any conflicting provision in the applicable Agreement, no Management Investor, other than the Management Investors described in the preceding sentence, shall be deemed to be a Holder for the purposes of the Stockholders Agreement with respect to any shares of Common Stock acquired upon exercise of Vested Options." 3 8. Section 5.2 is amended in its entirety to read as follows: "General Restrictions on Transfer. A Management -------------------------------- Investor may not Sell (as defined below) any Common Stock or any interest therein (i) for the period ending 180 days after the effective date of the Registration Statement or (ii) following the expiration of such 180-day period, except in compliance with the Securities Act and any applicable state securities laws. Subject to Section 5.6 hereof, no Option (whether or not a Vested Option) or any right or interest therein may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of (collectively, "Sell"). A Vested Option can only be exercised in ---- accordance with the terms of the Plan and the applicable Agreement. No transfer of Common Stock in violation of the Plan shall be made or recorded on the books of the Company and any such transfer shall be void and of no effect." 9. The legend set forth in Section 5.3 is amended in its entirety to read as follows: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 10. The first sentence of Section 5.5 is amended by deleting the words "pursuant to Section 5.6 hereof (other than paragraph (a) thereof)" and inserting the words "(other than a transfer of Vested Options pursuant to Section 5.6 hereof)" after the words "Common Stock or any interest therein". 11. Section 5.6 is amended in its entirety to read as follows: "SECTION 5.5. Certain Permitted Transfers. Each --------------------------- Management Investor shall have the right to Sell Vested Options to a Permitted Transferee (as defined below). For purposes of the Plan, the term "Permitted Transferee" means -------------------- a Person to whom a transfer is made by will or the laws of descent and distribution upon the death of any Management Investor; provided that no transfer pursuant to this Section -------- 5.5 shall be given effect on the books of the Company unless and until the transferee shall agree in writing, in form and substance satisfactory to the Company, to become, and becomes, bound by all the terms of the Plan, the applicable Agreement and, at the option of the Company, the Stockholders Agreement. Anything to the contrary contained herein notwithstanding, no transfer from a Management Investor or any Permitted Transferee shall be made or recorded on the stock transfer records of the Company if, as a result thereof, the Company would be required to register any Common Stock under the Securities Act, the Exchange Act, or 4 any applicable state securities or "blue sky" laws or would become subject to or would be in violation of the Investment Company Act." 12. Article VI is amended by deleting Sections 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6 thereof and by renumbering Sections 6.7 and 6.8 as Sections 6.1 and 6.2, respectively. 13. The first sentence of Section 7.2 is amended by (x) deleting the words "A Management Investor shall agree" and by substituting therefor "Notwithstanding any conflicting provision in the applicable Agreement, each Management Investor shall be deemed to have agreed" and (y) deleting the portion of such sentence that follows the words "in the event of such breach," and by substituting the following therefor: "in the case of any Vested Options exercised within six months of (or subsequent to) such termination of employment, promptly pay to the Company an amount in cash equal to the difference between the Fair Market Value of a share of Common Stock on the date of exercise of such Vested Options and the Exercise Price of such Vested Options multiplied by the number of shares of Common Stock subject to such Vested Options." 14. The second sentence of Section 7.2 is amended by (x) deleting the words "A Management Investor shall also agree" and by substituting therefor "Notwithstanding any conflicting provision in the applicable Agreement, each Management Investor shall be deemed to have agreed" and (y) deleting the words "clause (i) or (ii) of" and ", as applicable". Each of the foregoing amendments to the Plan shall, where applicable, be deemed to be an amendment to the corresponding provision set forth in each applicable Agreement (as defined in the Plan), and in the event of any conflict or inconsistency between the Plan, as amended, and any such Agreement, as deemed to be amended, the Plan shall govern. ------------------------------------------- Donald H. DeMeuse ------------------------------------------- Kathleen J. Hempel EX-12.2 8 EXHIBIT 12.2 FORT HOWARD CORPORATION COMPUTATION OF PRO FORMA DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES (UNAUDITED) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1994 THE COMPANY PRO FORMA ----------------- Earnings: Loss before taxes........................................................ $ (10,254) Interest expense......................................................... 286,939 One-fourth of operating lease rental expense............................. 1,881 ----------------- $ 278,566 ----------------- ----------------- Fixed Charges: Interest expense......................................................... $ 286,939 Capitalized interest..................................................... 4,230 One-fourth of operating lease rental expense............................. 1,881 ----------------- $ 293,050 ----------------- ----------------- Pro forma deficiency of earnings available to cover fixed charges(1)....... $ (14,484) ----------------- -----------------
- ------------ (1) For purposes of these computations, earnings consist of consolidated loss before taxes plus fixed charges (excluding capitalized interest). Fixed charges consist of interest on indebtedness (including capitalized interest and amortization of deferred loan costs) plus that portion (deemed to be one-fourth) of operating lease rental expense representative of the interest factor. EX-23.1 9 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this Registration Statement. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, March 1, 1995 -----END PRIVACY-ENHANCED MESSAGE-----