-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OodaJ3WmBGKbxvOO1fSyg6f/jHqQjyq5s7rFfLNWYXrgYA/B0OV4jN53h/p+rbPR K21jvd0gDtkmksPOLDB/9g== 0000950109-01-000661.txt : 20010312 0000950109-01-000661.hdr.sgml : 20010312 ACCESSION NUMBER: 0000950109-01-000661 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEAD CORP CENTRAL INDEX KEY: 0000064394 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 310535759 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-02267 FILM NUMBER: 1564553 BUSINESS ADDRESS: STREET 1: MEAD WORLD HEADQUARTERS STREET 2: COURTHOUSE PLZ NORTHEAST CITY: DAYTON STATE: OH ZIP: 45463 BUSINESS PHONE: 9374954439 10-K 1 0001.txt ANNUAL REPORT FOR YEAR ENDED 12/31/2000 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ________ Commission File No. 1-2267 THE MEAD CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0535759 (State of Incorporation) (I.R.S. Employer Identification No.) MEAD WORLD HEADQUARTERS COURTHOUSE PLAZA NORTHEAST DAYTON, OHIO 45463 (Address of principal executive offices) Registrant's telephone number, including area code: 937-495-6323 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which Registered -------------------- ------------------- Common Shares Without Par Value New York Stock Exchange and Common Share Purchase Rights Chicago Stock Exchange Pacific Exchange ------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. - ------------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] ------------------------- As of January 23, 2001, the aggregate market value of the voting shares held by non-affiliates of the Registrant was approximately $2,860,145,445 determined by multiplying the highest selling price of a Common Share on the New York Stock Exchange--Composite Transactions Tape on such date, times the amount by which the total shares outstanding exceeded the shares beneficially owned by directors and executive officers of the Registrant. Such determination shall not, however, be deemed to be an admission that any person is an "affiliate" as defined in Rule 405 under the Securities Act of 1933. The number of Common Shares outstanding at March 5, 2001 was 99,104,386. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on April 26, 2001, are incorporated by reference in Part III; definitive copies of said Proxy Statement were filed with the Securities and Exchange Commission on March 9, 2001. ================================================================================ PART I Item 1. Business Mead manufactures and sells paper, pulp, paperboard, lumber and other wood products. Mead also manufactures and distributes consumer and office supplies including time-management products. Mead was incorporated in 1930 under the laws of the state of Ohio as the outgrowth of a paper manufacturing business founded in 1846, and has its principal executive offices at Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, telephone (937) 495-6323. Except as otherwise indicated by the context, the terms "Company" or "Mead" as used herein refer to The Mead Corporation and its subsidiaries. Segment Information Segment information is also included in Note U on pages 53-55. Paper Mead's Paper division manufactures coated and uncoated papers for use by publishers of books, magazines, catalogs, and advertising brochures and by commercial printers; form bond and carbonless paper and papers for conversion by others into business forms; cut-size copier paper; and, other uncoated papers for conversion by others into such products as greeting cards. The division sells papers nationwide, both on a direct basis to publishers, printers and converters and through paper merchants. The pulp mills adjacent to the paper mills of this division produce most of the pulp required for use in the paper mills. The division owns various timberlands in Kentucky, Maine, Michigan, New Hampshire and Ohio. The Gilbert Paper division manufactures premium cotton content business correspondence papers and premium text and cover papers for printed business use. The papers are specified by graphic designers and sold principally through wholesale paper merchants in the United States and internationally. Mead's Specialty Paper division manufactures and sells, primarily through its own sales force, decorative and overlay laminating papers. The division also manufactures and sells tape papers and specialty papers used in industrial applications. The division's principal customers include manufacturers that serve the building materials, automotive and furniture industries. The Mead Pulp Sales division supplies Mead's needs for purchased pulp and is a sales agent for affiliated and nonaffiliated mills. The division sells market pulp produced by Great Lakes Pulp and Fibre, Inc. of Menominee, Michigan; American Fiber Resources of Fairmont, West Virginia; and, Mead Paper of Escanaba, Michigan and Rumford, Maine. The division also represents Metsa-Botnia of Sweden for the sale of its pulp in North America. The division sells directly to customers in North America and through contract and independent agents in all other major pulp-consuming areas of the world. Packaging and Paperboard The Mead Packaging division designs and produces multiple packaging and packaging systems primarily for the beverage take-home market. The division operates through a network of subsidiaries, affiliates and licensees in the United States, Canada, Europe, the Far East, Mexico and Latin America. Demand for most beverage packaging in North America and Europe is seasonal with inventories being built from November to March for the peak soft drink and beer sales of April through October. 1 Mead Coated Board, Inc., a wholly-owned subsidiary of Mead, operates a coated paperboard mill near Phenix City, Alabama, sawmills in Cottonton, Alabama and Greenville, Georgia, and owns various timberlands in Alabama and Georgia. The subsidiary is engaged primarily in the manufacture of coated unbleached kraft paperboard products used by the beverage packaging industry and by manufacturers of folding cartons for consumer products such as soaps, food products, hardware and apparel. The entire output of the Phenix City mill is sold by Mead Coated Board, Inc. to the Mead Coated Board division. The division sells approximately 60% of the mill output to the Mead Packaging division. The remainder is sold to folding carton manufacturers in North America and Europe. The division's customers are most concerned about physical strength properties of the paperboard and its quality for reprographics. The Mead Containerboard division sells standard and special purpose corrugated shipping containers manufactured at seven converting plants located in the Midwestern and Southeastern regions of the United States from raw materials received from outside sources and from the division's Stevenson, Alabama corrugating medium mill. The division also sells corrugating medium from the Stevenson mill to unaffiliated manufacturers of containers. The division owns various timberlands in Alabama and Tennessee. Forest Products Affiliate Northwood Panelboard Company ("Panelboard"), a partnership owned 50% by Mead and 50% by Nexfor Inc., located in Bemidji, Minnesota, has the annual capacity to produce approximately 400 million square feet of oriented strand board ("OSB") (3/8-inch basis). All of the wood products produced by Panelboard are sold through a subsidiary of Nexfor Inc. in North America. Consumer and Office Products The Mead Consumer and Office Products division manufactures and distributes a line of school supplies (including filler paper, wirebound notebooks, portfolios and looseleaf binders), a line of office supply products (including envelopes, filing supplies and vinyl folders and binders), computer accessories (including paper based products for computer use, laptop computer cases and multi-media storage devices) and a line of time management products (including planners, organizers and calendars). The division's products are distributed primarily through mass market retailers, office supply superstores, commercial stationers, and warehouse clubs. The school supply business is highly seasonal with inventories built in the winter and spring for shipment in late spring and summer, the calendar planners and time management products are shipped primarily in the second half of the year, while the home and office products and computer accessories portion of the business is generally less seasonal in nature. Manufacturing is done in seven facilities and distributed from eight distribution centers in the United States. Internationally, one manufacturing facility and distribution center is located in Canada and one manufacturing facility and distribution center is located in Mexico. Timberlands Mead obtains most of its wood requirements from private contractors or suppliers and from Company-owned timberlands. The annual wood requirement for Mead's wholly-owned operations and Northwood Panelboard Company in 2000 was approximately 10,800,000 tons, of which approximately 22% was obtained from timberlands owned or leased by Mead. The annual wood requirement for Mead's wholly-owned operations and for Northwood Panelboard Company expected in 2001 will be approximately the same. 2 As of December 31, 2000, Mead owned or controlled approximately 2,104,000 acres of timberlands in the United States. Approximately 107,000 acres of land are controlled by Mead under long-term agreements that expire at different times through 2027. International Sales and Operations Outside of the United States and Canada, Mead and its affiliates operate a paperboard sheeting facility and are engaged in the manufacture of multiple packaging systems and folding carton packaging in Europe, Asia and Latin America. Mead Specialty Paper operates a decorative laminate and specialty paper mill in England. Mead Consumer and Office Products also operates from manufacturing and distribution locations in Canada and Mexico. Mead also has sales subsidiaries, affiliates, agents or distributors in a number of countries in Europe, Asia, Australia and Latin America. Competition Mead competes on a worldwide basis in its product lines, and the markets in which Mead sells its products are highly competitive. Several factors affect Mead's competitive position, including quality, technology, product design, customer service, price and cost. The Paper division competes with numerous other major paper manufacturers both domestic and foreign. The Specialty Paper division competes primarily with North American and European based decorative laminating papermakers. The Gilbert Paper division competes with a number of other manufacturers of premium cotton, sulfite and recycled papers. The Coated Board division competes with other boxboard producers, including manufacturers of all types of coated recycled boxboard, coated solid bleached sulfate and folding boxboard. The Packaging division competes with a number of carton suppliers and machine manufacturers and other global systems-based multiple packaging suppliers, as well as suppliers of other non-boxboard packaging systems. The Containerboard division competes primarily with container producers, and corrugating and medium producers in several market areas in the United States. The Consumer and Office Products division competes with national and regional converters as well as foreign producers. Some of the competitors have broad product offerings and others are focused on narrow product segments. Employee and Labor Relations Mead employs approximately 12,700 persons within the United States and 2,380 persons outside the United States. Approximately 7,780 are production, maintenance and clerical employees represented by labor unions. Mead's 50% owned company, Panelboard, employs approximately 140 persons. Mead has approximately 28 labor agreements currently in force, of which approximately one-fifth are subject to renegotiation each year. Mead's employee relations policies are based on mutual confidence and trust. All Mead labor contract negotiations during 2000 were concluded without any strikes. Trademarks, Trade Names, Patents, and Franchises Mead has a large number of trademarks and trade names under which it conducts its business, including "Academie," "Apex," "Appli," "Aria," "AT-A-GLANCE," "Balance," "Basketwrap," "Blue Horse," "Bottle Master," "Bungee," "Cambridge," "Chief," "Clearfold," "Clip Note," "Cluster-Pak," "CNK," "Convexa," "Daydream," "DayMinder," "DEFENSA," "Duodozen," "Duoply," "Dura," "Duraline," "Esse," "Excel," "Expandables," "Exo," "Fill the Void," "First Gear," "Five Star," "FLIPDISC," "Focus," "Fuzzy," "Gilbert," "Gilclear," "Gilcrest," "Gizmos," "Hilroy," "Hobbies & Ideas," 3 "Hometown Graphics," "Info," "Intelli-Gear," "Jet-Tech," "Keith Clark," "Landmark," "Laserline," "Mailbox Collection," "Management Series," "Mead," "Mead Expression," "Mead Impressions," "Mead Mind Meld," "Mead Packaging," "Mead Papers," "Mead Ware," "MEDIAZONE," "Meta," "Montag," "Neatbook," "Neu-Tech," "Nite Writer," "OPAS," "OPTICA," "Organizer," "Oxford," "Pal-A-Round," "Paper Knowledge," "Prima," "Printloc," "Prism," "PTO," "Publishers Matte," "QuickNotes," "Realm," "Scottie," "Signature," "Smartbook," "Spiral," "Studio," "Studio Series," "Time Line," "Trans/Rite," "Trans/Tab," "Trans Ultra," "Trapper," "Trapper Keeper," "ULTRATECH," "Varsity," "Vision," "Voice," "Wallaroos," "Wrapper," "Xpanz," "Zip Tote," and many others. Mead also has a great number and variety of patents, patent rights and licenses relating to its business. While, in the aggregate, the foregoing are of material importance to Mead's business, the loss of any one or any related group of such intellectual property rights would not have a material adverse effect on the business of Mead. Environmental Laws and Regulations Mead's operations are subject to extensive regulation by various national, regional and local environmental control statutes and regulations. These regulations impose effluent and emission limitations, waste disposal and other requirements upon the operations of Mead, and require Mead to obtain and operate in compliance with the conditions of permits and similar authorizations from the appropriate governmental authorities. Mead has obtained, has applications pending, or is making application for such permits and authorizations. Mead does not anticipate that compliance with such statutes and regulations will have a material adverse effect on its competitive position. Mead's competitors are subject to the same statutes and regulations, and while individual regulatory programs may impact competitors somewhat differently, Mead expects that in the aggregate these statutes and regulations affect competitors to a relatively similar degree. During the past three years (January 1, 1998 - December 31, 2000), Mead constructed air and water pollution control and other environmental facilities at a cost of approximately $70 million. Environmental expenditures in the future are anticipated to include long-term projects for maintenance and upgrade of wastewater treatment plants, process modifications and air emission controls. Due to changes in environmental laws and regulations, the application of such laws and regulations and changes in environmental control technology, it is not possible for Mead to predict with certainty the amount of capital expenditures to be incurred for environmental purposes. Taking these uncertainties into account, Mead estimates that in the next three years it may be required to incur expenditures of approximately $54 million. Various Great Lakes states, including Michigan and Ohio, have adopted water quality regulations consistent with the federal Great Lakes Initiative ("GLI"). These state regulations have been approved in large part by the United States Environmental Protection Agency ("USEPA"), although some elements of each state's program have been disapproved and are subject to change. Mead does not expect that any significant additional capital expenditures will be necessary to comply with the requirements of the Michigan GLI regulations. The State of Ohio determined that it would not apply all GLI regulations to facilities discharging into the Ohio River Basin for the time being. Mead does not expect that any significant additional capital expenditures will be necessary to comply with any requirements of the Ohio GLI regulations applicable to the Ohio River Basin. The USEPA has undertaken several initiatives to reduce ozone-causing pollutants from large utility and industrial sources in the Midwest. These initiatives follow claims by several "downwind" Northeastern states that emissions from the Midwestern sources impair their ability to meet national ozone standards. USEPA is seeking emission reductions through several techniques, including a call for states to adopt more stringent emission controls on all or some of the sources within their boundaries (the "NOx SIP Call") and the promulgation of new federal emission standards that may be applied to specific identified sources in the 4 affected states. Ohio, Michigan and Alabama are among the states affected by these USEPA initiatives. Legal challenges to these initiatives have been filed by one or more of the affected states and various private organizations. Notwithstanding pending legal challenges, Ohio, Michigan and Alabama have proposed new regulatory programs intended to satisfy the NOx SIP Call. As proposed, a total allowable emissions level would be specified for each affected facility, which could be satisfied through a variety of actions, ranging from curtailing use of equipment to installing additional emissions control systems. Alternatively, additional emissions allowances could be acquired through a form of emissions trading with other emission sources. These state programs are not final and Mead has not determined what actions it will want or need to take to assure compliance with these new programs. No new emission limitations or standards are expected to take effect before 2004. Mead, at this time, does not expect that any significant capital expenditures beyond the expenditures stated above will be necessary in the next three years to assure compliance. Dioxin currently cannot be detected under normal operating conditions in treated effluents from Mead's three U.S. bleached paper mills. All three mills have eliminated elemental chlorine from their bleaching operations and were in compliance with the effluent requirements of pulp and paper Cluster Rules in advance of the regulatory deadlines. In 1999, USEPA announced its intention to emphasize review and enforcement of compliance with the major source air permitting program established under the Clean Air Act. The Agency identified certain industries on which it intended to focus, including the pulp and paper industry. During 1999 and 2000, USEPA issued Notices of Violation against eight other companies with kraft pulp mills in Maryland, Pennsylvania, Virginia, West Virginia and Wisconsin, alleging various violations of the Clean Air Act dating back to the late 1970's and early 1980's. In one case, USEPA has proceeded to file suit in Federal District Court. To Mead's knowledge, none of these enforcement matters have been settled or resolved. In 1999 and 2000, Mead received multiple requests for information (pursuant to Section 114 of the Clean Air Act) from USEPA concerning Mead's kraft pulp mills in Chillicothe, Ohio, Rumford, Maine, Phenix City, Alabama and Escanaba, Michigan. Mead has responded to all of the requests and is continuing to cooperate with USEPA. Mead has not received any Notices of Violations or other claims relating to these matters. Mead has been notified by the USEPA or by various state or local governments that it may be liable under federal environmental laws or under applicable state or local laws with respect to the cleanup of hazardous substances at six sites currently operated or used by Mead. Mead is also currently named as a potentially responsible party ("PRP"), or has received third party requests for contribution under federal, state or local laws with respect to at least 20 sites sold by Mead over many years or owned by contractors used by Mead for disposal purposes. Some of these proceedings are described in more detail in Part I, Item 3, "Legal Proceedings." There are other former Mead facilities and those of contractors which may contain contamination or which may have contributed to potential Superfund sites but for which Mead has not received any notice or claim. Mead's potential liability for all these sites will depend upon several factors, including the extent of contamination, the method of remediation, insurance coverage and contribution by other PRPs. Although the costs that Mead may be required to pay for remediation of all these owned and unowned sites are not certain at this time, Mead has established reserves of approximately $40 million relating to current environmental litigation and proceedings which it believes are probable and reasonably estimable. These reserves were established after considering the number of other PRPs, their ability to pay their portion of the costs, the volumetric amount, if any, of Mead's contribution, and other factors. Expenses to be charged to this reserve are not included in the anticipated capital expenditures for the next three years stated above. Mead believes that it is reasonably possible that costs associated with these owned and unowned sites may exceed current reserves by amounts that may prove insignificant or by as much as approximately $40 million. This estimate of the range of reasonably possible additional costs is less certain than the estimate upon which reserves are based. 5 The Environment Agency of the United Kingdom ("UK") is in the process of implementing Pollution Prevention and Control regulations to meet the requirements of the European Community's Integrated Pollution Prevention and Control Directive 96/91. Mead's United Kingdom mill will be expected to meet the standards contained in UK's new Technical Guidance for the Pulp and Paper Sector by June 2004. Mead expects that upgrades to the mill's wastewater treatment plant will be necessary. The capital expenditures required to comply with these standards are included in the expected capital expenditures stated above. Mead believes that most of the earlier expenditures for environmental control have been beneficial. However, Mead and the trade associations of which Mead is a member have challenged and will continue to challenge in administrative and judicial proceedings, federal and state environmental control regulations which they do not believe are beneficial to the environment or the public. In some instances, Mead and those trade associations may also seek legislative remedies to correct unnecessary or impractical requirements of existing laws. In addition to promulgated regulations, Mead follows developing environmental issues and proposed regulations that could affect Mead's operations in the future. It may take years for issues to evolve into general proposals and ultimately into specific laws or regulations. The Company reports on these matters at the time that is appropriate under rules promulgated by the Securities and Exchange Commission and consistent with generally accepted accounting principles. Item 2. Properties Mead considers that its facilities are suitable and adequate for the operations involved. With the exception of certain warehouses, general offices and timberlands which are leased, Mead owns all of the properties described herein. For additional information regarding leases see Note Q on pages 51-52. For additional information concerning Mead's timberlands and properties of affiliates, see Part I, Item 1, "Business." Mead's corporate headquarters are in Dayton, Ohio and its principal facilities are at the locations listed: Business Unit Facility Locations Principal Use - ------------- ------------------ ------------- Paper Chillicothe, Ohio Pulp mill, coated, uncoated and carbonless paper mill Fremont, Ohio Carbonless coating facility Escanaba, Michigan Pulp mill, coated paper mill Rumford, Maine Pulp mill, coated paper mill Gilbert Paper Menasha, Wisconsin Cotton and recycled content and specialty paper mill Appleton, Wisconsin Converting and distribution center 6
Business Unit Facility Locations Principal Use - ------------- ------------------ ------------- Specialty Paper South Lee, Massachusetts Decorative laminating and specialty paper Potsdam, New York mills County Devon, England Packaging Lanett, Alabama Paperboard packaging, multiple packaging Atlanta, Georgia systems for beverage and food, packaging Buena Park, California machinery manufacturing or repair facilities Chicago, Illinois Ajax, Ontario, Canada Chateauroux, France Trento, Italy Roosendaal, The Netherlands Trier-Ehrang, Germany Bristol, England Shimada, Japan Bilbao, Spain Containerboard 7 plants within the United States in Corrugated container manufacturing midwest and southern regions facilities Stevenson, Alabama Corrugating medium mill Coated Board Phenix City, Alabama Coated paperboard mill, sheeting facilities Venlo, The Netherlands and sawmills Cottonton, Alabama Greenville, Georgia Consumer and Office 7 manufacturing and 8 distribution Home, office, consumer and school products Products locations throughout the United manufacturing and distribution facilities States, one manufacturing and distribution location in Toronto, Ontario, Canada, one manufacturing location in Nuevo Laredo, Mexico, and one distribution location in Mexico City, Mexico
Item 3. Legal Proceedings In 1991, Beazer East Inc. ("Beazer") sued Mead in the United States District Court for the Western District of Pennsylvania (C.A. No. 91-0408), alleging that Mead is liable to Beazer for certain past and future environmental remediation costs incurred by Beazer at the former Woodward Facility located in Dolomite, Alabama. Mead acquired the Woodward Facility by merger in 1968, and in 1974 sold it to Koppers, Inc., which was later acquired by Beazer. In March 2000, the District Court entered an allocation order establishing Mead's share of recoverable costs at 67.5%. The Court also set a schedule for trial of all remaining issues between the parties, to be commenced at an unspecified date in 2001. Mead may not appeal the allocation order until all trial litigation is concluded. Although the extent of contamination and the method of remediation to be required are not known at this time, based on information currently 7 available to Mead, after considering established reserves, rights to contribution and potential insurance coverage, Mead does not expect this proceeding will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Tennessee Department of Environment and Conservation ("TDEC") advised Mead in 1991 that a closed coke manufacturing facility located in Chattanooga, Tennessee (the "Coke Plant Site") is a hazardous substance site within the meaning of the Tennessee Hazardous Waste Management Act, and that Mead may be a potentially responsible party. In 1994, Mead undertook a removal action at the closed coke plant site, consisting of demolition of structures, removal of asbestos, control of surface water ponding and repairs to fencing. Mead has engaged in discussions with TDEC concerning the scope of any additional remedial actions that may be required for the site, although no determinations had been made as of the end of 2000. The coke plant was owned by the Defense Plant Corporation during World War II and sold by the War Assets Administration in 1946. Woodward Iron Company, which subsequently became a division of Mead, acquired the coke plant in 1964, and Mead sold the coke plant site to third parties in 1974. Although the extent of contamination and the possible methods of remediation are not known at this time, based on information currently available to Mead, after considering established reserves, rights to contribution and potential insurance coverage, Mead does not expect this proceeding will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. In June 1996, USEPA announced plans to undertake an interim removal action involving the excavation and treatment/disposal of bulk tar deposits located in or near the Chattanooga Creek and certain waste piles located near the Coke Plant Site. Costs of the proposed removal action were estimated by USEPA at the time to be approximately $5.1 million. In July 1996, several PRPs, including Mead and the U.S. Department of Defense, received special notice letters from USEPA advising them of their potential liability for the removal action. In December 1996, USEPA issued Unilateral Administrative Orders under Section 106 of CERCLA to Mead and two other private parties. In January 1997, Mead indicated its intent to not comply with the 106 Order. Preliminary analyses by USEPA have indicated that dumping in Chattanooga Creek occurred when the coke plant was doubled in size to meet World War II government requirements. A party who, without sufficient cause, refuses to comply with an order issued under Section 106 of CERCLA may be subject to fines of up to $27,500 per day and punitive damages in an amount up to three times the costs incurred by the USEPA as a result of the failure to comply with such order. Mead believes, based on its review of the facts and the law applicable to the matter, including the absence of findings by the USEPA, that it had sufficient cause for its decision not to comply with the 106 Order. However, if the USEPA decides to bring an enforcement action against Mead as a result of its failure to comply with the 106 Order, there can be no assurance as to the outcome of such action. USEPA completed the removal action in November, 1998 and issued a Final Action Report in 1999. More contamination than expected was discovered and excavated. In a January 2000 letter, USEPA indicated that the cost of the removal action was approximately $13 million and the Agency would seek recovery of these costs from the PRPs. The letter did not address future remediation costs; however, USEPA issued a draft Feasibility Study in 1999 that estimated future costs to complete the remediation of Chattanooga Creek in the range of $6.3 million to $12.6 million. There were no significant changes or developments during 2000. Based on information currently available to Mead, after considering established reserves, rights to contribution and potential insurance coverage, Mead does not expect this proceeding will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. In August 1997, Mead filed a Complaint in the Circuit Court for Jefferson County, Alabama (Case No. CV9705117) against a number of insurance companies who had provided insurance to the Woodward Iron Company and/or Mead facilities operated under the former Industrial Products division. The Complaint 8 seeks a declaratory judgment and damages for the insurers' failure to provide a defense and coverage for claims in Beazer East Inc., the Coke Plant Site and Chattanooga Creek proceedings. In 1999, Mead received notice from the Rock-Tenn Company of a demand from the Michigan Department of Environmental Quality ("MDEQ") concerning Rock-Tenn's Otsego, Michigan mill property. In the notice to Rock-Tenn, MDEQ referred to potential liability under federal and state environmental laws for certain discharges to the Kalamazoo River, including discharges of polychlorinated biphenyls ("PCBs"), and for environmental response actions that have been or may be undertaken at the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site or the Otsego mill property because of the presence of PCBs. In 1987, Mead transferred the Otsego mill and other assets to Rock-Tenn pursuant to an Asset Purchase Agreement. Rock-Tenn alleges Mead is legally responsible for the presence of PCBs at the Otsego mill and that Rock-Tenn is entitled to indemnification from Mead for all costs and liabilities associated with the presence or discharge of PCBs. Mead disputes Rock-Tenn's allegations and legal conclusions concerning Mead's responsibility, based in part on Rock-Tenn's operations at the Otsego mill since 1987. Based on information currently available to Mead, after considering established reserves, rights to contribution and potential insurance coverage, Mead does not expect these proceedings will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. In 1999, Mead received notice from the Maine Department of Environmental Protection ("MDEP") that it was seeking an investigation and possible remediation of certain solid waste management areas at Mead's Rumford, Maine mill, including areas that may be a source of mercury contamination. Prior to Mead's acquisition of the mill in November 1996, a chlor-alkali facility using mercury operated on portions of the property. Mead has engaged in discussions with the MDEP concerning the scope and nature of any required investigation and/or remediation, but no determinations had been made as of the end of 2000. Based on information currently available to Mead, after considering rights to contribution, Mead does not expect this proceeding will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. A patent infringement proceeding entitled Riverwood International ----------------------- Corporation v. The Mead Corporation was brought against Mead in the United - ----------------------------------- States District Court for the Northern District of Georgia (Civil Action No. 1-94-CV-90 CAM) by Riverwood International Corporation. A second patent infringement proceeding against Mead filed by Riverwood with the same title and in the same court (Civil Action No. 97-CV-2767) had been stayed pending the outcome of the first proceeding. The first patent was determined to be invalid and final appeal was denied in May, 2000. The second proceeding is now active and discovery involving Riverwood's '789 and '361 patents is proceeding. Mead expects this proceeding will not have a material adverse effect on the financial condition, liquidity or results of operation of the Company based on information currently available to Mead. Additional information is included in Part I, Item 1, "Business--Environmental Laws and Regulations," and Note R on page 52. Mead is involved in various other litigation and administrative proceedings arising in the normal course of business, which, in the opinion of management, after considering established reserves, is not expected to have a material adverse effect on the financial condition, liquidity or results of operations of Mead. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 9 Executive Officers of the Company The Executive Officers of Mead as of February 1, 2001, their ages, positions and offices with Mead, and the principal occupation (unless otherwise stated, position is with Mead) of such Executive Officers during the past five years are as follows: Name Age Position and Offices ---- --- -------------------- Raymond W. Lane 52 Executive Vice President since April, 1996; prior to that Vice President, Operating Officer since July, 1994. Sue K. McDonnell 52 Vice President, General Counsel and Secretary since June, 1999; prior to that Vice President, Deputy General Counsel since November, 1996; prior to that Deputy General Counsel since 1995. Timothy R. McLevish 46 Vice President and Chief Financial Officer since December, 1999; prior to that Vice President, Finance and Treasurer since July, 1998; prior to that President of the Specialty Paper Division. Ian W. Millar 50 Executive Vice President since January, 2001 and President of the Mead Paper Division since July, 1998; prior to that President of the Mead Packaging Division. A. Robert Rosenberger 56 Vice President, Human Resources since June, 1997; prior to that Vice President of Human Resources of Mead Packaging Division since August, 1994. Jerome F. Tatar 54 Director; Chairman of the Board, Chief Executive Officer and President since November, 1997; prior to that President and Chief Operating Officer since April, 1996; prior to that Vice President, Operating Officer since July, 1994. Peter H. Vogel, Jr. 47 Vice President, Finance and Treasurer since December, 1999; prior to that Vice President - Business Affairs since February, 1999; prior to that President of the Zellerbach Division since January, 1997; prior to that President of the Gilbert Paper Division since March, 1993. Mark T. Watkins 47 Vice President, Technology since December, 2000; prior to that Vice President, Human Resources and Organizational Development of the Mead Paper Division since February, 1999; prior to that he was Vice President, Michigan Operations of Mead Paper Division. All Executive Officers of Mead are elected annually by the Board of Directors. 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Mead's Common Shares are listed on the New York, Chicago and Pacific Stock Exchanges, trading under the symbol "MEA." Information on market prices and dividends is set forth below: MARKET PRICES PER COMMON SHARE - ------------------------------ 2000 1999 ---- ---- High Low High Low ---- --- First quarter $45.1250 $28.1250 $33.312 $28.312 Second quarter 38.1250 25.1250 44.750 32.562 Third quarter 28.6875 21.6250 46.312 33.000 Fourth quarter 32.8125 21.1875 43.625 32.375 DIVIDENDS PAID PER COMMON SHARE - ------------------------------- 2000 1999 ---- ---- First quarter $.17 $.16 Second quarter .17 .16 Third quarter .17 .16 Fourth quarter .17 .17 ---- ---- Year $.68 $.65 ==== ==== The number of Common shareowners of record as of March 5, 2001, was 39,166. See Note I on pages 39-40 for information regarding the amount of retained earnings available for dividends. 11 Item 6. Selected Financial Data Five-Year Data on Operations, Liquidity, Financial Condition and Capital Resources (all dollar amounts in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Operations: Net sales $4,368.1 $3,996.1 $3,944.2 $3,912.2 $3,436.9 Earnings from continuing operations 163.6 208.1 140.1 163.0 183.8 Earnings per common share from continuing operations - assuming dilution 1.60 1.99 1.34 1.53 1.73 Liquidity: Working capital 269.0 229.7 406.9 312.7 280.1 Current ratio 1.3 1.2 1.6 1.5 1.4 Assets: Property, plant and equipment-net 3,269.9 3,357.4 3,372.7 3,273.8 3,084.6 Total assets 5,680.0 5,661.7 5,142.2 5,152.4 4,905.9 Capital: Borrowed capital - long-term debt 1,322.8 1,333.7 1,367.4 1,428.0 1,239.7 Equity capital 2,397.8 2,430.8 2,252.0 2,288.5 2,246.4 -------------------------------------------------------------- Total capital $3,720.6 $3,764.5 $3,619.4 $3,716.5 $3,486.1 Borrowed capital as a percent of total capital 35.6% 35.4% 37.8% 38.4% 35.6% Cash dividends per common share $ .68 $ .65 $ .64 $ .61 $ .59
12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations REVIEW OF OPERATIONS -------------------- OVERVIEW OF 2000 Sales revenue of $4.4 billion in 2000 increased 9% from $4.0 billion in 1999 primarily as a result of growth through acquisition in the Consumer and Office Products segment. Earnings from continuing operations were $163.6 million in 2000 compared to $208.1 million in 1999. In 1999, earnings from continuing operations included a $52.7 million after-tax gain on the sale of Mead's ownership in a pulp and lumber operation. Excluding special items in both years, earnings from continuing operations of $169.7 million or $1.66 per share in 2000 increased slightly from 1999 earnings of $165.6 million or $1.58 per share. The increase was primarily a result of growth in Consumer and Office Products. Within Mead's Paper segment, sales and earnings increased from the level of 1999 as higher sales volume and higher average selling prices for coated paper were partially offset by reduced sales of uncoated paper, a nonstrategic grade. At the end of 1999 and in the first half of 2000, the Paper division shut down some less-efficient production capacity for uncoated paper. Near the end of 2000, the division acquired a carbonless coating facility and took steps to consolidate the combined carbonless operations. Average selling prices for coated paper in 2000 were higher than in 1999, although prices declined after mid-year reflecting continued growth in supply from imports and weaker demand as the economy slowed near year-end. Inventories of coated paper were higher at year-end 2000 than year-end 1999. In the Packaging and Paperboard segment, sales revenue and earnings increased slightly from the level of 1999 as higher selling prices for corrugating medium offset a decline in packaging revenues and weaker markets for the segment's wood products business. Shipments of medium were slightly lower than in 1999, reflecting weaker demand after mid-year, which led to market-related mill downtime. Mead Packaging division's sales and earnings declined from the prior year due to weaker foreign currencies, primarily in Europe. In the Consumer and Office Products segment, sales and earnings increased over 1999 with the first full year of sales of time management products from AT-A-GLANCE, a business Mead acquired in late 1999. Sales of Mead's school supplies increased as a result of an expanded product line and growth in Mexico. Further growth was hindered by weaker overall sales reported by mass retailers and a decline in volume of commodity-based school products resulting from increased foreign competition. Integration following the major acquisition continued on schedule.
Earnings Per Share Analysis - ------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------ Continuing operations before special items $1.66 $1.58 $1.55 Special items (.06) .41 (.21) ------ ----- ----- Continuing operations 1.60 1.99 1.34 Discontinued operations (.20) Change in accounting principle (.02) ------ ----- ----- Net earnings (assuming dilution) $1.58 $1.99 $1.14 - ------------------------------------------------------------------------------------
13 SPECIAL ITEMS, ACCOUNTING PRINCIPLE CHANGE AND DISCONTINUED OPERATIONS - ---------------------------------------------------------------------- In the second half of 2000, Mead shut down the Kalamazoo, Michigan, Consumer and Office Products converting plant and the Atlanta, Georgia, container plant of the Packaging and Paperboard segment. The cost of these two shutdowns amounted to 6 cents per share ($9.5 million pretax) and included severance costs, asset write-offs and other related expenses. These charges (see Note K to the Financial Statements) were taken during the third and fourth quarters of 2000. In late 1999, the Securities and Exchange Commission ("SEC") published Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, requiring companies affected by its provisions to report the impact on any changes in sales, costs and related balance sheet amounts no later than the fourth quarter of 2000. This bulletin was amended twice in 2000. Mead's accounting practices for revenue recognition complied with the SEC's guidance in virtually all respects. In several minor areas, however, adjustments were required to comply with SEC guidance, the effect of which aggregated to 2 cents per share ($2.4 million after tax) earnings reduction as of the beginning of 2000. This adjustment is reflected as the cumulative effect of a change in accounting principle. During 1999, Mead sold several nonstrategic assets, including its 50% ownership of Northwood Inc. of Canada for $240 million (Canadian) in cash and convertible debentures of $77.5 million (Canadian). The assets of Northwood included a pulp mill and lumber and plywood facilities. Mead recorded an after-tax gain of 50 cents per share ($82.3 million pretax) from the sale. Special items in 1999 also included an after-tax charge of 11 cents per share ($18.9 million pretax) for asset write-offs and severance costs related to the shutdown of four uncoated paper machines at the company's paper mill in Rumford, Maine. The company had a 2 cents per share ($2.7 million pretax) gain in 1999 which represented a reversal of an original charge to selling and administrative expenses in 1998 (see below). These special items totaled 41 cents per share in 1999 (see table). These charges (see Note K to the Financial Statements) were taken during the second and fourth quarters of 1999. Also, during 1999, the company completed the sale of the merchandising unit of its Packaging and Paperboard segment and a sawmill that was part of its Paper segment. Proceeds from these sales were approximately the same as the carrying values of the assets and, therefore, had no impact on earnings. Mead purchased a small paper mill in County Devon, England, in the third quarter of 1999 and a small school products business in Mexico late in the fourth quarter. In the fourth quarter, Mead purchased the AT-A-GLANCE group of Cullman Ventures, Inc. for approximately $540 million, which has become a part of the Consumer and Office Products segment. During 1998, Mead recorded a charge of 13 cents per share ($22 million pretax) for an organizational change and work force reduction program that included plans to eliminate 318 positions (see Note K to the Financial Statements). As a result of lower severance outplacement costs, the company reversed 2 cents per share ($2.7 million pretax) of the original charge to selling and administrative expenses in the third quarter of 1999. Special items during 1998 included organizational changes and related work force reductions noted above, asset write-downs and asset sales. For asset write-downs, the company recorded charges of 25 cents per share ($37.7 million pretax). Asset sales resulted in gains of 17 cents per share ($28.3 million pretax). Special items in 1998 totaled 21 cents per share. 14 Also, during 1998 Mead undertook a number of initiatives that included the sale of its Distribution segment and related real estate for $288 million, which resulted in a charge of 20 cents per share ($20.4 million after tax) (see Note N to the Financial Statements). That charge is classified as "Discontinued Operations."
Paper Segment (all dollar amounts in millions) - ---------------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------------- Sales $1,926.5 $1,882.7 $1,880.4 Earnings before income taxes and special items 181.9 165.0 222.7 Special items (17.4) (16.4) -------- -------- --------- Earnings before income taxes $ 181.9 $ 147.6 $ 206.3 - ----------------------------------------------------------------------------------
Sales revenue in the Paper segment increased slightly compared to 1999. Earnings before special items improved 10% from 1999 primarily as a result of higher average selling prices for coated paper. Prices for coated paper fluctuated between 1998 and 2000 as a result of changes in market supply and demand. In 1998, rising imports of coated paper from Europe and Asia Pacific increased the overall supply in the U.S. market. Increased supply led to a decline in selling prices in coated paper by the second half of 1998 that continued through the first half of 1999. Mead took market-related downtime in the second half of 1998 and during the first three quarters of 1999 to better manage its inventory. Prices stabilized by the second half of 1999 and strengthened near year-end 1999 and first quarter of 2000. However, selling prices declined after mid-year 2000 as rising imports led to increased supply, and demand weakened with a slowing in the U.S. economy. For the year, average selling prices in 2000 were higher than in 1999, although prices at year-end 2000 fell below the level of year-end 1999. In 1999, sales revenue in the Paper segment was essentially unchanged from 1998. Earnings before special items decreased from 1998 primarily as a result of lower selling prices for all major grades of paper. Paper - ----- Mead Paper division manufactures and sells coated paper for use by publishers of books, magazines, catalogs and advertising materials and by commercial printers. The division produces and sells carbonless copy paper for use in multi-part forms. It also sells uncoated papers and market pulp. The division has three mills located in Maine, Michigan and Ohio and carbonless coating facilities in Ohio. Division sales revenue was slightly lower than in 1999 on lower sales volume of uncoated paper, a nonstrategic product line. Earnings improved over 1999 on higher average selling prices for coated paper and productivity improvements that partially offset higher costs for energy and raw materials. Shipment volume of coated paper increased 4% over 1999. Shipments of uncoated paper were much lower following the permanent shutdown of four older paper machines in the fourth quarter of 1999. Shipments of carbonless paper declined 4% from 1999, consistent with a gradual decline in the market for multi-part business forms. Average selling prices for carbonless paper were essentially unchanged from the prior year. 15 The inventory level of finished goods, primarily coated paper, was approximately 30% higher at year-end 2000 than at year-end 1999. The increase resulted from higher production levels of coated paper compared to 1999 when the division took market-related downtime. While inventories increased during the first half of 2000, the overall level began to decline after mid-year. During the year, the division improved manufacturing efficiency across its three mills, rationalized product grade lines and completed the conversion of a former uncoated paper machine to a pulp dryer. One older paper machine, which produced base stock for carbonless paper, was permanently shut down, and another uncoated paper machine was idled indefinitely. Production of base stock for carbonless paper was moved to a larger, more efficient machine, displacing production of uncoated paper. In the fourth quarter of 2000, as part of an effort to consolidate carbonless paper operations, the division acquired the carbonless coating facilities of a major business forms printer and signed a multi-year sales agreement to supply the printer with carbonless paper. The agreement is expected to increase overall sales volume. As a result of the acquisition and consolidation of assets, Mead has increased its annual production capacity for carbonless paper by 25% to 290,000 annual tons while reducing the number of coaters, facilities and paper machines involved in producing carbonless products. By consolidating facilities, the division expects to improve the productivity of its operations and maintain sufficient production capacity to meet customer needs. In 1999, division sales volume was essentially unchanged from 1998 levels as higher shipment volume was offset by lower selling prices for all grades of paper. Earnings were lower as a result of lower prices, partially offset by higher volume and improvements in productivity that led to lower unit cost. Specialty Paper - --------------- Mead Specialty Paper division manufactures a variety of decorative and overlay saturating papers for laminates used in furniture, flooring, countertops and cabinets. It also produces a variety of specialty grades, including tape papers and filter and friction papers for industrial and automotive applications. The division operates a total of four mills, two in Massachusetts and one mill each in New York and England. Division sales increased over 1999 as a result of continued volume growth of several specialty grades including wear-resistant overlay papers, filter and decor papers. Earnings were slightly higher than in 1999 as a result of higher sales volume, partially offset by higher costs for purchased pulp and energy and costs associated with integrating the County Devon, England, mill acquired in 1999. Demand for wear-resistant overlay papers continued to grow in North America, Europe and Asia Pacific, despite increased competition. Overall, order backlogs slowed in the second half of the year. In response to higher inventories, the division took market-related downtime in the fourth quarter of 2000. In 1999, division sales increased over 1998 as a result of higher shipments of several specialty grades including wear-resistant overlay papers, filter and friction papers and tape papers. Earnings were slightly higher in 1999 than in 1998 as a result of higher shipments. Gilbert Paper - ------------- Gilbert Paper division produces premium business correspondence papers and premium text and cover papers at its mill in Wisconsin. 16 Division sales increased slightly over the level of 1999 as a result of higher prices and improved sales mix. Overall sales volume was unchanged from the level of 1999. The division's sales volume continued to grow in text and cover papers, while volume declined for premium correspondence papers reflecting a gradual decline in market demand for cotton-content papers. Results for the division were lower as an increase in average selling prices was offset by higher costs for energy, purchased pulp and other raw materials, more than offsetting cost-reduction efforts by the division. Inventory levels at year-end 2000 were slightly higher than the prior year. The division took market-related downtime to balance production with demand. In 1999, the division's sales revenue declined from the level of 1998 as a result of lower shipments due to weak market conditions and a strategic decision to reduce production and sale of lower-margin products. Despite lower sales revenue, earnings improved over 1998 as a result of a more profitable sales mix, cost reductions and improved operating efficiencies.
Packaging and Paperboard Segment (all dollar amounts in millions) - --------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------- Sales $1,612.2 $1,582.5 $ 1,564.6 Earnings before income taxes and special items 177.4 169.2 153.8 Special items (3.4) .8 (11.3) --------- --------- ----------- Earnings before income taxes $ 174.0 $ 170.0 $ 142.5 - ---------------------------------------------------------------------------------
Sales and earnings in the Packaging and Paperboard segment increased compared to 1999 as higher selling prices for corrugating medium offset slightly lower sales revenue in coated paperboard and packaging. Selling prices for corrugating medium, which had declined throughout 1998, strengthened from mid-year 1999 through mid-year 2000, before declining slightly in the second half of 2000. Mead's average selling price for corrugating medium in 2000 improved 28% over the average selling price in 1999. The industry experienced stable demand and a reduction in containerboard supply in domestic markets due to publicly announced permanent reductions in production capacity by several companies following industry consolidation. In 1999, sales revenue was essentially unchanged from 1998 levels as higher sales volume and selling prices for corrugating medium offset lower sales revenue in Mead's coated paperboard and packaging businesses. Earnings before special items in 1999 increased 10% over 1998, primarily as a result of improved pricing for medium. Containerboard - -------------- Mead Containerboard division produces corrugating medium at its mill in Alabama. It also produces shipping containers at seven corrugating container plants. Division sales revenue and earnings increased in 2000 over 1999 as a result of higher selling prices for corrugating medium. Shipments of medium were slightly lower than in 1999, reflecting a weakening in demand in the second half of 2000. During the fourth quarter of 2000, the mill took 42,000 tons of 17 market-related production downtime to better manage its inventory levels. The inventory of medium declined in the fourth quarter but ended the year higher than year-end 1999. The mill operated well throughout the year. Production volume was unchanged from the prior year level, despite downtime taken late in the year. Operating costs were higher in 2000, reflecting higher costs for energy, chemicals and some raw materials. Costs for purchased recycled fiber declined from prior year levels. Prices for containers improved in 2000 over 1999 levels, while shipments of containers declined. During 2000, the company announced plans to close its container plant in Atlanta, Georgia, to improve profitability. The closing, which reduced the number of Mead container plants to seven, resulted in a pretax charge of $3.4 million in 2000. In 1999, division sales revenue increased over 1998 as a result of higher shipment volumes of corrugating medium. Earnings increased over 1998 as a result of higher shipment volume and an improvement in selling prices that began mid-year. Operating costs increased in 1999 over 1998 as a result of higher costs for purchased recycled fiber and operating difficulties related to the start-up of an expanded paper machine and chemical recovery system. The operating issues were substantially resolved by year-end. Coated Board - ------------ Mead Coated Board division manufactures coated unbleached kraft paperboard for use in multiple beverage packaging and folding cartons. The coated paperboard is produced at the Mahrt mill near Phenix City, Alabama. Approximately 60% of the paperboard production is used by Mead Packaging division's worldwide beverage packaging business. The remainder is sold to folding carton manufacturers in North America and Europe. The division also has two sawmills that produce lumber products. Sales volume of coated paperboard was essentially unchanged from 1999. Sales volume to external folding carton customers increased in North America and Europe, while volume sold to Mead's integrated packaging business declined slightly. Division sales revenue was similar to the 1999 level, as an increase in coated paperboard sales revenue offset a decline in both the pricing and sales volume of wood products at the division's sawmill operations. Earnings for the division declined from 1999 as a result of unfavorable foreign exchange rates for the division's European business, weaker demand for wood products and higher energy-related costs. Consolidation among folding carton customers and a growing supply of bleached, kraft and recycled paperboard for packaging led to competitive pressures on pricing in 2000. The Mahrt mill operated well during the year and the mill's production of coated paperboard increased over 1999. The level of finished inventory was slightly higher than at year-end 1999. In 1999, division sales revenue was essentially unchanged from 1998. Earnings increased slightly on higher sales volume of paperboard and higher selling prices for lumber at the division's sawmill operations, which offset slightly lower selling prices for coated paperboard. Packaging - --------- Mead Packaging division is a leading worldwide supplier of multiple packaging and packaging systems for the beverage and food markets. Customers include worldwide consumer products companies serving these markets. The division is a global packaging business with offices and facilities in more than 30 countries worldwide. 18 Division earnings increased during 2000 at exchange rates similar to those of 1999. However, due to a strong U.S. dollar, actual sales and earnings declined as the revenues from Mead's operations outside North America were translated from weaker foreign currencies into U.S. dollars for reporting purposes. The volume of cartons sold in Europe, Mexico, Australia and Asia continued to grow over prior years. That growth was offset by weaker volumes of soft-drink packaging in North America and a decrease in beverage packaging volume in Brazil. Customer consolidations, competitive pricing in some key markets and slower growth rates in carbonated drinks characterized market conditions for the Packaging business. Productivity improvements, combined with the reorganization of several operations during 1999, helped offset higher costs for labor and materials. The overall level of finished goods inventory was unchanged from year-end 1999. The division continued to make improvements in carton design and the placement of new packaging systems, primarily in markets outside North America. In 1999, sales volume of ongoing operations increased from 1998. However, due to the sale of two small business units and a strong U.S. dollar, sales revenue at actual exchange rates declined compared to 1998. Earnings decreased from 1998 due to the strong U.S. dollar, costs for outsourcing of some manufacturing and costs related to reorganizations taken in Europe and Asia Pacific.
Consumer and Office Products Segment (all dollar amounts in millions) - ------------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------- Sales $829.4 $530.9 $499.2 Earnings before income taxes and special items 67.8 37.9 47.4 Special items (6.1) .1 (4.6) ------ ------ ------ Earnings before income taxes $ 61.7 $ 38.0 $ 42.8 - -------------------------------------------------------------------------------------
Consumer and Office Products is a producer and distributor of school supplies, time management products such as planners and calendars, and office products and related items. Products are distributed through mass retailers, office superstores, commercial stationers and office products catalogs. The product line and distribution channels were expanded with the acquisition in November 1999 of AT-A-GLANCE and its portfolio of time management and office products. Sales revenue and earnings for the segment increased over 1999 primarily as a result of the acquisition. In 1999, school products represented the majority of segment sales. Following the acquisition, the segment's product base became more diverse with school products making up less than half of segment sales. Sales revenue from school products in 2000 increased over 1999 as a result of higher selling prices, including an expanded line of value-added school products, licensed products and products proprietary to Mead, and sales growth in the Mexican market. Sales of commodity-based school products met increased pressure from foreign competition. Further improvement in sales revenue during the back-to-school selling season was hindered somewhat by lower overall sales reported by mass retailers in the second half of the year reflecting a slowing economy. The majority of sales of school products are sold through mass retailers in the back-to-school selling season during the second and third quarters of the year. Sales of time management products are made through office superstores, commercial stationers and catalogs and occur primarily in the third and fourth quarters of the year. Time management products include planners, organizers, appointment books and desk and wall calendars. Sales of time management products increased in 2000 as a result of a full year of sales of AT-A-GLANCE products. Costs increased in 2000 for uncoated paper, a primary raw material for some paper-based products such as 19 tablets. The business was not able to pass all of the increase on to customers due to foreign competition of paper-based products. During the year, the Consumer and Office Products segment completed the shutdown of a converting plant in Kalamazoo, Michigan, as part of ongoing efforts to improve overall productivity of its converting and distribution system. Inventory and equipment from the plant were moved to other facilities. The shutdown resulted in a $6.1 million pretax charge in 2000. During the year, the integration of the AT-A-GLANCE acquisition continued on schedule. The segment formed a new management organization with members from both the former school and office products and AT-A-GLANCE organizations and consolidated some marketing functions. The segment sold some time management products through mass retail channels as a result of initial cross-marketing efforts. In 1999, sales increased compared to 1998 as a result of the acquisition of AT-A-GLANCE late in the year. In 1999, the segment expanded its manufacturing and presence in the Mexican market by acquiring the assets of a distribution company that had sold Mead's school supplies in the country for more than 10 years. SELLING AND ADMINISTRATIVE EXPENSES - ----------------------------------- Selling and administrative expenses for 2000 of $493 million increased over comparable amounts for 1999 and 1998. Of the increase, approximately $89 million related to the results of the acquisitions in 1999. The acquisitions were included for only a portion of the year in 1999. The remainder of the increase in 2000 was a result of ongoing costs to implement an enterprise resource planning ("ERP") system and general inflationary pressures. Selling and administrative costs in both 1999 and 1998 were $387 million. Included in 1998 expenses was a charge of $22 million associated with certain organizational changes and a related reduction in Mead's work force. Excluding the effect of this charge, the increase in selling and administrative expenses was $22 million in 1999 from 1998, of which the majority was November and December 1999 expenses from AT-A-GLANCE. OTHER REVENUES - -------------- Other revenues in 2000, 1999 and 1998 were $11 million, $97 million and $34 million, respectively. The most significant component of other revenue in 1999 was a pretax gain of $82 million on the sale of Mead's investment in Northwood Inc. Gains on the sale of nonstrategic assets were $4 million in 1999 and $28 million in 1998. Investment income was $8 million, $5 million and $6 million in 2000, 1999 and 1998, respectively. INTEREST AND DEBT EXPENSE - ------------------------- Interest and debt expense for 2000 was $121 million, an increase of $16 million over the 1999 level of $105 million. A higher level of total average borrowings was the primary driver of the increase. Expense levels for 1999 were lower than the $109 million for 1998, despite the increase in the total amount of borrowings at year-end 1999. During most of 1999, average debt levels were lower than during 1998. 20 FINANCIAL REVIEW ---------------- LIQUIDITY AND CAPITAL RESOURCES Mead's cash flows from operating activities were $468 million in 2000, compared to $485 million in 1999 and $423 million in 1998. An overall increase in working capital was the primary reason for the decline in 2000. During 2000, Mead continued its stock repurchase program, acquiring 4.1 million shares for $108 million. Repurchases in 1999 were 1.2 million shares for $43 million, and repurchases in 1998 were 2.6 million shares for $83 million. Cash inflows from employee exercises of stock options in 2000 aggregated to $8 million, down considerably from the $48 million in 1999 and the $13 million in 1998. During 1999, Mead spent approximately $570 million to purchase AT-A-GLANCE and two other much smaller entities. These acquisitions were financed with available funds and short-term borrowings. By the end of 1999, short-term borrowings were reduced by cash proceeds from the sale of Northwood Inc. and other subsequent cash flows from operations. Mead's total debt (including notes payable and current maturities) at year-end 2000 was $1,536 million, down slightly from $1,555 million in 1999 and up from $1,375 million in 1998. The acquisition of AT-A-GLANCE was the primary reason for the increase in debt levels between 1998 and 1999. Mead's total debt as a percentage of total capital was 39.0% at the end of 2000, compared with 39.0% for 1999 and 37.9% for 1998. Additional financing capability is afforded by a $300 million bank credit agreement that expires in November 2001 and a $300 million credit agreement that expires in November 2005. The bank credit agreements support $49 million of the company's capital lease obligations and $61 million of its short-term borrowings, leaving $490 million that can be borrowed. At the end of 2000, Mead paid a fixed or capped rate on 69% of its debt and paid a floating rate on the remaining amount. A change of 1% in the floating rate, on an annual basis, would result in a change of 3 cents per share. The estimated market value of long-term debt was $15.1 million less than book value at the end of 2000. Working capital at the end of 2000 was $269 million, compared to $230 million for 1999 and $407 million for 1998. The increase from 1999 was primarily attributable to a $72 million increase in inventory, offset by increases in accounts payable and accrued liabilities. The reduction from 1998 to 1999 was due to a $213 million increase in notes payable and current maturities and a $46 million reduction in cash, offset by approximately $69 million of working capital from the AT-A-GLANCE acquisition. Mead's current ratios at the end of 2000, 1999 and 1998 were 1.3, 1.2 and 1.6, respectively. The replacement values of inventories exceeded their last-in, first-out ("LIFO") values by $183 million at the end of 2000. Adjusted for LIFO, Mead's current ratio would be 1.4 at year-end. CAPITAL SPENDING Mead's level of capital spending in 2000 of $206 million was below the level of depreciation. Comparable amounts for 1999 and 1998 were $213 million and $384 million, respectively. A large portion of the 1998 spending related to completion of the $224 million expansion and upgrade of the Stevenson, Alabama, corrugating medium mill. That project added virgin pulp-making capabilities, a 21 wood fuel boiler and additional dryer capacity, increasing the mill's annual capacity to 840,000 tons from 640,000 tons. Capital spending projects in 2000 included completion of a pulp dryer at the Maine paper mill and various equipment upgrades. In 1999, upgrade projects were completed at the specialty paper mill in New York, the Ohio paper mill and the coated paperboard mill in Alabama. EFFECTS OF INFLATION The rate of general inflation remains at a low level and is not expected to have a significant effect on results in 2001 except for energy-related costs. Costs for energy, including natural gas, oil and electricity, and costs for certain raw materials, such as purchased pulp, increased significantly in 2000. The increase in these costs affected many of the company's businesses. Rising oil prices affect costs for transportation, fuel oil and some petroleum-derived raw materials. ENVIRONMENTAL PROCEEDINGS Mead has been notified by the United States Environmental Protection Agency ("USEPA") or by various state or local governments that it may be liable under federal environmental laws or under applicable state or local laws with respect to the cleanup of hazardous substances at six sites currently operated or used by Mead. Mead is also currently named a Potentially Responsible Party ("PRP"), or has received third-party requests for contributions under federal, state or local laws with respect to at least 20 sites sold by Mead over many years or owned by contractors used by Mead for disposal purposes. Some of the proceedings are described in more detail in Part I, Item 3, "Legal Proceedings" of Form 10-K. There are other former Mead facilities and those of contractors that may contain contamination or may have contributed to potential Superfund sites for which Mead has not received any notice or claim. Mead's potential liability for all these sites will depend upon several factors, including the extent of contamination, the method of remediation, insurance coverage and contribution by other PRPs. Although the costs that Mead may be required to pay for remediation of all these owned and unowned sites is not certain at this time, Mead has reserves of approximately $40 million related to current environmental litigation and proceedings that it believes are probable and reasonably estimable. These reserves were established after considering the number of other PRPs, their ability to pay their portion of the costs, the volumetric amount, if any, of Mead's contribution, and other factors. Expenses to be charged to this reserve are not included in the anticipated capital expenditures for the next three years stated in Part I, Item 1, "Business-Environmental Laws and Regulations" of Form 10-K. Mead believes that it is reasonably possible that costs associated with these sites may exceed current reserves by an amount that could range from an insignificant amount to as much as $40 million. The estimate of this range is less certain than the estimates upon which the reserves are based. In April 1998, USEPA promulgated regulations under the Clean Air Act and Clean Water Act (the "Cluster Rules") designed to reduce air and water discharges of specific substances from U.S. pulp and paper mills. All three of Mead's bleached paper mills have eliminated elemental chlorine from their bleaching operations and are in compliance with effluent requirements of the pulp and paper Cluster Rules well in advance of the regulatory deadlines. Various states bordering the Great Lakes in 1997, including Michigan and Ohio, adopted state regulations consistent with the Federal Great Lakes Initiative ("GLI"). These state regulations have been approved in large part by USEPA, although some elements of each state's program have been disapproved and are subject to change. However, Mead does not expect any significant additional capital expenditures 22 (beyond those previously stated in Part I, Item 1, "Business - Environmental Laws and Regulations" of Form 10-K) will be necessary to comply with these regulations. To reduce ozone-causing pollutants from large utility and industrial sources in the Midwest and South, USEPA has issued a call for certain states, including Alabama, Michigan and Ohio, to adopt more stringent emission controls on all or some of the sources within their boundaries (the "NOx SIP Call"). Although legal challenges to the NOx SIP Call have been filed, Alabama, Michigan and Ohio have proposed new regulatory programs intended to satisfy the NOx SIP Call. As proposed, a total allowable emissions level would be specified for each affected facility, which could be satisfied through a variety of actions, ranging from curtailing use of equipment to installing additional emissions control systems. Alternatively, additional emissions allowances could be acquired through a form of emissions trading with other emission sources. These state programs are not final, and Mead has not determined what actions it will want or need to take to assure compliance with these new programs. No new emission limitations or standards are expected to take effect before 2004. Mead, at this time, does not expect that any significant capital expenditures (beyond those previously stated in Part I, Item 1, "Business - Environmental Laws and Regulations" of Form 10-K) will be necessary in the next three years to comply with these regulations. DERIVATIVE DISCLOSURE Mead is exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity prices. To manage these market risk exposures, the company enters into various hedging transactions governed by corporate policies and procedures that are approved and regularly reviewed by the Finance Committee of the Board of Directors. Mead does not use financial instruments for trading purposes. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criteria for hedge accounting. This Statement will be adopted effective January 1, 2001, and will result in a cumulative after-tax reduction in net earnings of approximately $10.4 million and a reduction in other comprehensive loss of $10.3 million in the first quarter of 2001 (see Note A to the Financial Statements). INTEREST RATES Mead's objective is to reduce its interest expense through a blend of fixed and floating interest rate instruments. The company primarily funds itself with long-term debt having final maturities ranging from five to 50 years at date of issue, a portion of which has variable interest rates, and with variable interest rate commercial paper. The company uses interest rate swaps and caps in managing its mix of fixed and floating rate debt. Mead assesses its interest rate risk by estimating the potential increase in fair market value of its debt that would result from a hypothetical parallel downward shift of the yield curve. Using the portfolio valuation models available from Bloomberg(TM) which use theoretical values as well as market prices for instruments with similar characteristics, including the theoretical value of any embedded options (e.g., puts or calls), a hypothetical 100 basis point parallel downward shift of the yield curve would increase the fair market value of Mead's debt by approximately $82 million and $81 million at December 31, 2000 and 1999, respectively. 23 FOREIGN CURRENCY Mead has foreign-based operations, primarily in Canada, Mexico and Western Europe, which accounted for approximately 13% of its 2000 net sales. In addition, certain of Mead's domestic operations have sales to foreign customers. In the conduct of its foreign operations, Mead also makes intercompany sales and receives royalties and dividends denominated in many different currencies. All of this exposes Mead to the effect of changes in foreign currency exchange rates. Flows of foreign currencies into and out of Mead's domestic operations are generally stable and regularly occurring, and are recorded at fair market value in Mead's financial statements. Mead's foreign currency management policy permits Mead to enter into foreign currency hedges when these flows exceed a threshold which is a function of these cash flows and forecasted annual net income. During 2000, the company entered into foreign currency hedges to partially offset the foreign currency impact of these flows on operating earnings. Mead also issues intercompany loans to its foreign subsidiaries in their local currencies, exposing it to the effect of changes in spot exchange rates at loan issue and loan repayment dates. Generally, Mead uses forward exchange contracts with terms of less than one year to hedge these exposures. When applied to Mead's derivative and other foreign currency sensitive instruments at December 31, 2000, a 10% adverse change in currency rates would not materially affect Mead's financial position, annual results of operations or cash flows. COMMODITIES Mead is exposed to price changes in raw materials, components, and items purchased for resale. The prices of some of these items can vary significantly over time due to changes in the markets in which the company's many suppliers operate. Mead's selling prices often change in a similar fashion, although often to a greater or lesser degree. The company does use a limited amount of financial instruments to manage its exposure to commodity prices. At year-end 2000, Mead had two swap transactions hedging future purchases of old corrugated containers ("OCC") and corrugated medium sales totaling approximately $12 million over three years. The potential financial impact of these swaps was assessed by modeling a two standard deviation movement in the price of these commodities for the life of the transactions. These transactions are not expected to have a material impact on Mead's financial position or annual results of operations or cash flows based on the analysis. OUTLOOK Mead's operations throughout the world are affected by changes in supply and demand, both of which are influenced by changes in foreign currency exchange rates, interest rates, consumer confidence and other factors. While changes in demand are generally gradual and track the rate of domestic economic activity, new supply typically comes onto the market in large increments with the start-up of new productive capacity. The result can be temporary periods of oversupply that lead to price weakness, as in 1998 and 1999. Prices for several of Mead's products improved in the first half of 2000. In the second half of the year, however, weaker foreign currencies and slowing worldwide economies negatively affected selling prices for many of Mead's products. New capacity for paper and paperboard in the U.S. is expected to grow at a slower rate over the next few years than during the late 1990s. New global capacity in Europe, Asia Pacific and Canada has 24 increasingly become a factor in recent years. During 1998 and much of 1999, new global capacity led to increased supply. Weaker markets in Asia Pacific and weaker foreign currencies relative to the U.S. dollar led to an increase in imports into the United States. U.S. producers attempted to reduce inventories by taking market-related downtime. As a result, selling prices declined. In late 1999 and through the first three quarters of 2000, the supply-demand balance improved, leading to some pricing improvements for certain grades of paper and containerboard. However, in the fourth quarter of 2000, demand began to subside and prices began to decline. The impact of e-commerce to date appears to be additive to the traditional uses of coated paper which include magazines, catalogs and advertising materials. The overall market demand for carbonless copy paper used in multi-part business forms continued to decline gradually in 2000 as it did in 1999 and 1998. The sales by Mead's foreign operations are approximately 13% of overall sales, with most occurring in the packaging and coated board businesses of the Packaging and Paperboard segment and in the Consumer and Office Products segment, primarily in Europe, Mexico and Canada. Fluctuations in European and Canadian currencies can affect operating results for these segments. The impact of currency fluctuations can affect the results of Mead's individual businesses. Energy-related costs, specifically costs for natural gas, oil and purchased electricity, increased by approximately 15% in 2000 over 1999. While the company relies on self-generated sources for approximately half of its energy needs, natural gas, oil and purchased electricity represent an important component of the company's energy needs. Factors leading to the increase in energy prices include reduced supply, growing demand and deregulation of the utility industry. These factors are expected to continue to affect energy prices in 2001. The company's businesses continue to show signs of a slowing economy and the impacts of rising energy-related costs and a strong U.S. dollar. These factors had a significant impact on the company's 2000 results, especially in the more cyclical businesses of coated paper and containerboard. Looking forward to the first half of 2001, weak market conditions are likely to affect these businesses. To counter the impact of these factors, the company intends to improve productivity, align production more closely to meet demand, reduce discretionary spending, implement a hiring freeze and other cost controls, and continue to keep capital spending at levels below that of depreciation. During 2000, Mead continued the multi-year implementation of an enterprise resource planning system across the company. Mead expects the technology and the redesign of business processes will help achieve meaningful cost reductions and enhanced operating efficiencies. Mead expects to spend approximately $125 million to implement its ERP system between 1998 and 2003. Through 2000, Mead had incurred costs totaling approximately $76 million. These costs include incremental amounts for hardware and software and costs for the redeployment of company resources. The expenditures for this system will replace some expenditures that would have been spent to upgrade or replace existing systems. These costs do not include amounts incurred by operating divisions as they implement the ERP system. Some of the ERP costs are being expensed as incurred. Other costs, such as those for the purchase of systems, will be capitalized in accordance with generally accepted accounting principles. From 1998 through 2000, approximately 64% of the costs were capitalized, and 36% were expensed. When implementation is completed, the majority of costs are expected to be expensed. Over the past few years, Mead assembled an implementation team, developed a common format for the corporate-wide system and began a multi-year, phased-in implementation program. The new system is fully operational at the Coated Board division of the Packaging and Paperboard segment. The system is partially installed at all the company's major mills, specifically the component related to non-order management functions. In 25 2001, the implementations currently in process will be completed at the three larger paper mills of the Paper segment and the containerboard business of the Packaging and Paperboard segment. Implementation at additional company divisions will follow in 2002 and early 2003. FORWARD-LOOKING STATEMENTS Forward-looking statements throughout this report are based upon current expectations and are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed. These risks and uncertainties include, but are not limited to: growth in supply of different sectors of the paper and forest products industry, particularly in the U.S., Europe and Asia Pacific; demand for paper and paperboard in the U.S., Europe and Asia Pacific markets; market prices for these products; fluctuations in foreign currency, primarily in Europe; the stability of financial markets; capacity spending levels in the industry; general business and economic conditions in the U.S., Europe, Asia Pacific and Latin America; interest rates and their volatility; energy costs and availability; government actions; competitive factors; and opportunities that may be presented to and pursued by the company not known at this time. Item 7A. Quantitative and Qualitative Disclosures About Market Risk See information in Item 7. Item 8. Financial Statements and Supplementary Data Financial Statements Page ---- Financial Statements: Independent Auditors' Report........................................... 27 Statements of earnings................................................. 28 Balance sheets......................................................... 29 Statements of shareowners' equity...................................... 30 Statements of cash flows............................................... 31 Notes to financial statements.......................................... 32-55 Supplementary Data Selected quarterly financial data....................................... 56 26 INDEPENDENT AUDITORS' REPORT Board of Directors The Mead Corporation Dayton, Ohio We have audited the accompanying balance sheets of The Mead Corporation and consolidated subsidiaries (the "company") at December 31, 2000 and 1999, and the related statements of earnings, shareowners' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of The Mead Corporation and consolidated subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note A to the financial statements, effective January 1, 2000, the company changed its method of revenue recognition for provisions included in certain sales agreements. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Dayton, Ohio January 25, 2001 27 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF EARNINGS - ----------------------
Year Ended December 31 2000 1999 1998 (all amounts in millions, except per share amounts) Net sales $ 4,368.1 $ 3,996.1 $ 3,944.2 Costs and expenses: Cost of sales (Note K) 3,529.6 3,328.4 3,256.3 Selling and administrative expenses (Note K) 493.1 387.4 387.5 -------------------------------------------- 4,022.7 3,715.8 3,643.8 -------------------------------------------- Earnings from operations 345.4 280.3 300.4 Other revenues - net (Note L) 10.9 96.7 34.2 Interest and debt expense (121.0) (105.1) (109.0) -------------------------------------------- Earnings from continuing operations before income taxes 235.3 271.9 225.6 Income taxes (Note M) 82.5 98.5 83.7 -------------------------------------------- Earnings from continuing operations before equity in net earnings (loss) of investees 152.8 173.4 141.9 Equity in net earnings (loss) of investees (Note D) 10.8 34.7 (1.8) -------------------------------------------- Earnings from continuing operations 163.6 208.1 140.1 Discontinued operations (Note N) (20.4) -------------------------------------------- Earnings before cumulative effect of change in accounting principle 163.6 208.1 119.7 Cumulative effect of change in accounting principle (Note A) (2.4) -------------------------------------------- Net earnings $ 161.2 $ 208.1 $ 119.7 ============================================ Earnings per common share - basic (Note A): Earnings from continuing operations $ 1.61 $ 2.04 $ 1.36 Discontinued operations (.20) -------------------------------------------- Earnings before cumulative effect of change in accounting principle 1.61 2.04 1.16 Cumulative effect of change in accounting principle (.02) -------------------------------------------- Net earnings $ 1.59 $ 2.04 $ 1.16 ============================================ Weighted-average number of common shares outstanding 101.5 102.3 103.3 ============================================ Earnings per common share - assuming dilution (Note A): Earnings from continuing operations $ 1.60 $ 1.99 $ 1.34 Discontinued operations (.20) -------------------------------------------- Earnings before cumulative effect of change in accounting principle 1.60 1.99 1.14 Cumulative effect of change in accounting principle (.02) -------------------------------------------- Net earnings $ 1.58 $ 1.99 $ 1.14 ============================================ Weighted-average number of common shares outstanding - assuming dilution 102.3 104.6 104.9 ============================================
See notes to financial statements. 28 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- BALANCE SHEETS - --------------
December 31 2000 1999 (all dollar amounts in millions) ASSETS Current assets: Cash and cash equivalents $ 29.4 $ 56.4 Accounts receivable, less allowance for doubtful accounts of $7.6 in 2000 and $8.1 in 1999 557.3 547.7 Inventories (Note C) 561.5 489.9 Deferred tax asset (Note M) 91.5 77.5 Other current assets 41.6 58.8 ------------------------------------- Total current assets 1,281.3 1,230.3 Investments and other assets (Notes B, D and O) 1,128.8 1,074.0 Property, plant and equipment, net (Note E) 3,269.9 3,357.4 ------------------------------------- Total assets $ 5,680.0 $ 5,661.7 ------------------------------------- LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Notes payable (Note G) $ 200.3 $ 186.2 Accounts payable (Note F) 269.1 266.1 Accrued expenses and other current liabilities (Notes F and R) 530.3 513.2 Current maturities of long-term debt (Note G) 12.6 35.1 ------------------------------------- Total current liabilities 1,012.3 1,000.6 Long-term debt (Notes G and Q) 1,322.8 1,333.7 Commitments and contingent liabilities (Notes Q and R) Deferred items (Notes M and P) 947.1 896.6 Shareowners' equity (Notes I, J and T): Common shares 147.4 153.0 Additional paid-in capital 125.2 121.6 Retained earnings 2,172.9 2,178.0 Other comprehensive loss (47.7) (21.8) ------------------------------------- 2,397.8 2,430.8 ------------------------------------- Total liabilities and shareowners' equity $ 5,680.0 $ 5,661.7 -------------------------------------
See notes to financial statements. 29 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF SHAREOWNERS' EQUITY - ---------------------------------
(all dollar amounts in Other millions, except per share Comprehensive Comprehensive amounts; all share Common Shares Additional Retained Loss Earnings --------------------- amounts in thousands) Shares Amount Paid-In Capital Earnings (Note T) (Note T) ------------------------------------------------------------------------------- December 31, 1997 103,885 $154.9 $ 53.5 $2,100.6 $ (20.5) Net earnings 119.7 $ 119.7 Shares issued 587 .9 14.5 Shares purchased (2,642) (3.9) (1.7) (77.2) Cash dividends - $.64 a common share (66.2) Foreign currency translation adjustment (15.0) (15.0) Change in minimum pension liability (net of income tax benefit of $4.5) (7.6) (7.6) ------------------------------------------------------------------------------- December 31, 1998 101,830 151.9 66.3 2,076.9 (43.1) $ 97.1 ============ Net earnings 208.1 $ 208.1 Shares issued 1,978 2.9 56.4 Shares purchased (1,229) (1.8) (1.1) (40.5) Cash dividends - $.65 a common share (66.5) Foreign currency translation adjustment 17.2 (3.3) Change in minimum pension liability (net of income taxes of $.5) .8 .8 Change in unrealized gain on available-for-sale securities (net of income taxes of $1.8) (Note D) 3.3 3.3 ------------------------------------------------------------------------------- December 31, 1999 102,579 153.0 121.6 2,178.0 (21.8) $ 208.9 ============ Net earnings 161.2 $ 161.2 Shares issued 360 .5 8.8 Shares purchased (4,071) (6.1) (5.2) (96.9) Cash dividends - $.68 a common share (69.4) Foreign currency translation adjustment (11.4) (11.4) Change in minimum pension liability (net of income tax benefit of $.3) (.6) (.6) Change in unrealized loss on available-for-sale securities (net of income tax benefit of $7.4) (Note D) (13.9) (13.9) ------------------------------------------------------------------------------- December 31, 2000 98,868 $147.4 $ 125.2 $2,172.9 $ (47.7) $ 135.3 ===============================================================================
See notes to financial statements. 30 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF CASH FLOWS - ------------------------
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities: Net earnings $ 161.2 $ 208.1 $ 119.7 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, amortization and depletion of property, plant and equipment 276.4 263.2 260.3 Depreciation and amortization of other assets 60.5 44.2 41.5 Deferred income taxes 22.0 11.9 30.5 Investees - earnings and dividends (1.1) (16.1) 16.3 Gain on sale of assets (86.3) (28.3) Discontinued operations 20.4 Cumulative effect of change in accounting principle 2.4 Other (10.1) 23.0 8.9 Change in assets and liabilities, excluding effects of acquisitions and dispositions: Accounts receivable (25.5) (1.2) 17.1 Inventories (56.5) 34.0 (46.0) Other current assets 17.2 7.4 (5.6) Accounts payable and accrued liabilities 21.3 (3.6) (3.7) Cash (used in) discontinued operations (8.5) ------- ------- ------- Net cash provided by operating activities 467.8 484.6 422.6 ------- ------- ------- Cash flows from investing activities: Capital expenditures (205.9) (212.9) (384.0) Additions to equipment rented to others (28.3) (26.8) (31.1) Payments for acquired businesses, net of cash acquired (41.9) (559.0) (50.9) Proceeds from sale of assets 185.2 342.2 Other (28.1) (33.0) (33.6) ------- ------- ------- Net cash (used in) investing activities (304.2) (646.5) (157.4) ------- ------- ------- Cash flows from financing activities: Additional borrowings 10.0 15.0 160.5 Payments on borrowings (45.0) (23.4) (217.2) Notes payable 14.1 186.2 Cash dividends paid (69.4) (66.5) (66.2) Common shares issued 7.9 48.4 13.0 Common shares purchased (108.2) (43.4) (82.8) ------- ------- ------- Net cash provided by (used in) financing activities (190.6) 116.3 (192.7) ------- ------- ------- Increase (decrease) in cash and cash equivalents (27.0) (45.6) 72.5 Cash and cash equivalents at beginning of year 56.4 102.0 29.5 ------- ------- ------- Cash and cash equivalents at end of year $ 29.4 $ 56.4 $ 102.0 ------- ------- -------
See notes to financial statements. 31 THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - -------------------------------------------- A - Significant Accounting Policies CONSOLIDATION. The accompanying financial statements include the accounts of the company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated. Investments in investees are stated at cost plus the company's equity in their undistributed net earnings since acquisition. CASH AND CASH EQUIVALENTS. The company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. INVENTORIES. The inventories of finished and semi-finished products and raw materials are stated at the lower of cost or market determined primarily on the last-in, first-out (LIFO) basis. Stores and supplies are stated at average cost. OTHER ASSETS. Included in other assets are goodwill, capitalized software, equipment rented to others and other intangibles, which are being amortized using the straight-line method over their estimated useful lives of three to 20 years. The company periodically reviews goodwill balances for impairment based on the expected future cash flows of the related businesses acquired. COMPUTER SOFTWARE COSTS. The company records software development costs in accordance with the American Institute of Certified Public Accountants' Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. DEPRECIATION AND DEPLETION. Depreciation of property, plant and equipment and amortization of capital leases and land improvements are calculated using the straight-line method over the estimated useful lives of the properties. The rates used to determine timber depletion are based on projected quantities of timber available for cutting and are calculated annually. INTEREST RATE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS. Amounts currently due to or from interest rate swap counterparties are recorded in interest expense in the period in which they accrue. The premiums paid to purchase interest rate caps, as well as gains or losses on terminated interest rate swap and cap agreements, are included in long-term liabilities or assets and amortized to interest expense over the shorter of the original term of the agreements or the life of the financial instruments to which they are matched. Gains or losses on foreign currency forward contracts are recognized currently through income and generally offset the transaction losses or gains on the foreign currency cash flows which they are intended to hedge. ENVIRONMENTAL LIABILITIES. The company records accruals for environmental costs based on estimates developed in consultation with environmental consultants and legal counsel in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 5. The estimated costs to be incurred in closing existing landfills, based on current environmental requirements and technologies, are accrued over the expected useful lives of the landfills. ESTIMATES AND ASSUMPTIONS. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported revenues and expenses during a 32 period. Estimates and assumptions are also used in the disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. REVENUE RECOGNITION. The company recognizes revenue when ownership risk passes, which is generally when goods are shipped. NET EARNINGS PER COMMON SHARE. Net earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during each year. The difference between earnings per common share and earnings per common share (assuming dilution) is the result of outstanding stock options. STOCK OPTIONS. The company measures compensation cost for stock options issued to employees using the intrinsic value based method of accounting in accordance with Accounting Principles Board Opinion No. 25. RECLASSIFICATION. Certain prior year amounts have been reclassified to conform to current year presentation. The company changed the presentation of its income statement to include cost of sales and selling and administration expenses under the heading of costs and expenses, eliminating the gross margin line. This change conforms the company's presentation to more closely compare to that of other companies in its industry. Additionally, in compliance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs, the company reclassified to revenue certain shipping and handling costs billed to customers that were previously recorded as an offset to shipping and handling costs included in cost of goods sold. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. In 2000, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which addresses the timing of revenue recognition. In response to SAB 101, the company undertook a review of its revenue recognition practices and identified certain provisions included in a limited number of sales arrangements that delayed the recognition of revenue under SAB 101. During the fourth quarter 2000, the company changed its method of accounting for the provisions included in these sales agreements to be in accordance with SAB 101. The company has retroactively adopted SAB 101 as of January 1, 2000, and has recorded a cumulative effect adjustment of $2.4 million, net of tax of $1.3 million, in 2000 to reflect application of the new accounting. The cumulative effect adjustment was computed based on revenue of $15.9 million initially recognized in 1999 that was delayed to 2000 under SAB 101. The adoption of SAB 101 did not have a material impact on the net earnings of 2000. In addition, there is no material change in pro forma results assuming retroactive application of the change in accounting principle for 1999 and 1998. ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criteria for hedge accounting. This Statement will be adopted effective January 1, 2001, and will result in a cumulative after-tax reduction in net earnings of approximately $10.4 million and a reduction in other comprehensive loss of $10.3 million in the first quarter of 2001. 33 B - Acquisitions On November 1, 1999, the company acquired the AT-A-GLANCE Group of Cullman Ventures, Inc., a manufacturer of diaries, appointment books, calendars, posters, organizers and planners, for approximately $540 million in cash. The acquisition has been accounted for as a purchase, and the results of its operations are reflected in the accompanying financial statements from the date of acquisition. The acquisition resulted in goodwill of $265 million, which reflects the final allocation of the purchase price in 2000. The goodwill is being amortized on the straight-line method over 20 years. Included in the purchase price allocation are charges of $6.6 million associated with the shutdown and consolidation of operating facilities acquired as part of the AT-A-GLANCE acquisition. The adjustment included $3.1 million for lease termination costs and other contractual obligations which will derive no future benefits, and $3.5 million for severance costs including medical, dental and other personnel-related costs. The severance costs related to 146 salaried and hourly employees, of whom 76 employees had left the company on or before December 31, 2000. Payments of $1.4 million were made by December 31, 2000, related to lease termination costs and other contractual obligations; the remaining liability of $1.7 million is expected to be paid by the end of the second quarter of 2001. Severance-related amounts of $1.8 million were paid by December 31, 2000; the remaining severance-related liability of $1.7 million is expected to be paid by the end of the second quarter of 2001. To comply with disclosures required by generally accepted accounting principles related to acquisitions, the following unaudited pro forma combined results of operations are presented as though the acquisition occurred at the beginning of each period presented below. In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred under the ownership and management of the company. The following unaudited pro forma information includes adjustments for income taxes, interest expense, depreciation and amortization expense to reflect the accounting basis used to record the acquisition:
Year Ended December 31 1999 1998 (all dollar amounts in millions, except per share amounts) Net sales $ 4,281.3 $ 4,274.1 ======================= Earnings from continuing operations $ 0.4 $ 141.9 ======================= Net earnings $ 0.4 $ 121.5 ======================= Earnings per common share - basic: Earnings from continuing operations $ 2.06 $ 1.37 ======================= Net earnings $ 2.06 $ 1.17 ======================= Earnings per common share - assuming dilution: Earnings from continuing operations $ 2.01 $ 1.35 ----------------------- Net earnings $ 2.01 $ 1.16 -----------------------
The company made additional acquisitions for approximately $42 million and $27 million in cash during 2000 and 1999, respectively. These acquisitions were also accounted for as purchases. 34 C - Inventories
December 31 2000 1999 (all dollar amounts in millions) Finished and semi-finished products $ 360.1 $ 297.1 Raw materials 117.2 113.7 Stores and supplies 84.2 79.1 --------------------- $ 561.5 $ 489.9 =====================
For purposes of comparison to non-LIFO companies, inventories valued at current replacement cost would have been $182.8 million and $169.7 million higher than reported at December 31, 2000 and 1999, respectively. D - Investments and Other Assets
December 31 2000 1999 (all dollar amounts in millions) Pension asset $ 304.4 $ 285.5 Goodwill and other intangibles (net of accumulated amortization of $34.1 in 2000 and $10.0 in 1999) 427.1 387.0 Cash surrender value of life insurance, less policy loans of $57.2 in 2000 and $50.6 in 1999 157.7 147.3 Equipment rented to others, at cost (net of accumulated depreciation of $258.6 in 2000 and $265.4 in 1999) 65.3 69.4 Convertible debentures (including unrealized loss of $16.2 in 2000 and unrealized gain of $5.1 in 1999) 47.6 69.4 Capitalized software (net of accumulated amortization of $11.6 in 2000 and $11.9 in 1999) 53.8 37.6 Investment in investees 31.0 28.3 Other 41.9 49.5 ----------------------- $ 1,128.8 $ 1,074.0 =======================
During 1999, the company sold its 50%-owned investment in Northwood Inc. (see Note L). The company's remaining principal investees are the 30% ownership interest in a limited partnership that operates the cogeneration facility located at the Rumford, Maine, paper mill and the 50% ownership interest in Northwood Panelboard Company, an oriented strand board mill in Bemidji, Minnesota. The company received dividends and partnership distributions of $15.5 million, $27.1 million and $20.3 million in 2000, 1999 and 1998, respectively. The convertible debentures have a par value of $77.5 million in Canadian dollars. They are classified as available-for-sale securities and are carried at fair value with unrealized gains or losses, net of tax, reported in other comprehensive loss. Fair value of the securities is based on an independent valuation. 35 The securities are convertible to common shares of the issuer at any time, redeemable by the issuer beginning in November 2002 and mature in November 2006. E - Property, Plant and Equipment
December 31 2000 1999 (all dollar amounts in millions) Property, plant and equipment, at cost: Land and land improvements $ 159.1 $ 156.0 Buildings 642.9 638.3 Machinery and equipment 4,733.0 4,646.0 Construction in progress 107.4 82.9 ------------------------ 5,642.4 5,523.2 Less accumulated amortization and depreciation (2,762.6) (2,547.0) ------------------------ 2,879.8 2,976.2 Timber and timberlands, net of timber depletion 390.1 381.2 ------------------------ Property, plant and equipment, net $ 3,269.9 $ 3,357.4 ========================
F - Current Liabilities
December 31 2000 1999 (all dollar amounts in millions) Accounts payable: Trade $ 206.7 $ 220.2 Outstanding checks 62.4 45.9 ===================== $ 269.1 $ 266.1 ===================== Accrued expenses and other current liabilities: Accrued wages $ 105.5 $ 108.0 Accrued rebates and allowances 111.1 99.0 Taxes, other than income 33.2 40.2 Accrued interest 37.1 36.8 Other current liabilities 243.4 229.2 --------------------- $ 530.3 $ 513.2 =====================
36 G - Debt
December 31 2000 1999 (all dollar amounts in millions) Capital lease obligations $ 285.9 $ 287.4 Variable-rate Industrial Development Revenue Bonds, due from 2001 through 2033, average effective rate 4.0% 165.4 165.4 8-1/8% debentures, face amount of $150.0, due 2023 (effective rate 8.4%) 148.1 148.0 7-1/8% debentures, face amount of $150.0, due 2025 (effective rate 7.4%) 147.4 147.3 7.35% debentures, face amount of $150.0, due 2017 (effective rate 7.4%) 148.7 148.6 6.84% debentures, face amount of $150.0, due 2037 (effective rate 7.0%) 148.7 148.4 7.55% debentures, face amount of $150.0, due 2047 (effective rate 7.7%) 143.9 143.7 6.60% notes, face amount of $100.0, due 2002 (effective rate 6.9%) 99.6 99.3 Medium-term notes, 7.3% to 9.8%, face amount of $45.5 in 2000 and $78.5 in 1999, due from 2002 through 2020 (effective rate 9.9%) 44.5 76.8 Other 3.2 3.9 ---------------------- 1,335.4 1,368.8 Less current portion 12.6 35.1 ---------------------- $1,322.8 $1,333.7 ======================
Capital lease obligations consist primarily of Industrial Development Revenue Bonds and Notes with an average effective rate of 4.9%. The variable-rate Industrial Development Revenue Bonds are supported by letters of credit. The interest rates on the variable-rate tax-exempt bonds closely follow the tax-exempt commercial paper rates. Notes payable represent short-term borrowings with a weighted-average interest rate of 6.6%. The 8-1/8% and 7-1/8% debentures are callable by the company at approximately 103% beginning in 2003. The 6.84% debentures can be put to the company at par value in 2007. The company has an unused $300 million bank credit agreement that extends until November 2005 and an unused $300 million bank credit agreement that expires November 2001. These agreements support $49.5 million of the company's capital lease obligations and $61.0 million of notes payable. They contain restrictive covenants and require commitment fees in accordance with standard banking practice. The company has the ability to borrow up to $489.5 million pursuant to these agreements at December 31, 2000. Maturities of long-term debt for the next five years are $12.6 million in 2001, $135.3 million in 2002, $.7 million in 2003, $6.7 million in 2004 and $.4 million in 2005. The company has guaranteed obligations of certain affiliated operations and others totaling $26.9 million at December 31, 2000. In addition, the company has a 50% interest in a partnership with Kimberly-Clark Corporation, which has borrowed $300 million under a loan agreement with a syndicate of banks, which matures in 2003. The loan, one-half of which has been guaranteed by the company, may be prepaid at any time either in cash or by delivery of notes receivable from Georgia-Pacific Corporation held by the 37 partnership as part of the consideration from the 1988 sale of Brunswick Pulp and Paper Company, a former affiliate. It is not practicable to estimate the fair value of the above guarantees; however, the company does not expect to incur losses as a result of these guarantees. H - Financial Instruments The company uses various derivative financial instruments as part of an overall strategy to manage exposure to market risks associated with interest rate and foreign currency exchange rate fluctuations. The company uses foreign currency forward contracts to manage the foreign currency exchange rate risks associated with its international operations. The company utilizes interest rate swap and cap agreements to manage its interest rate risks on its debt instruments, including the reset of interest rates on variable-rate debt. The company does not hold or issue derivative financial instruments for trading purposes. The risk of loss to the company in the event of nonperformance by any counterparty under derivative financial instrument agreements is not considered significant by management. All counterparties are rated A or higher by Moody's and Standard and Poor's. Although the derivative financial instruments expose the company to market risk, fluctuations in the value of the derivatives are mitigated by expected offsetting fluctuations in the matched instruments. As part of an overall strategy to maintain an acceptable level of exposure to the risk of interest rate fluctuation, the company has developed a targeted mix of fixed-rate and cap-protected debt versus variable-rate debt. To efficiently manage this mix, the company may utilize interest rate swap, cap and option agreements to effectively convert the debt portfolio into an acceptable fixed-rate, capped-rate and variable-rate mix. Under interest rate swap agreements, the company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and variable-rate interest amounts calculated by reference to an agreed-upon notional principal amount. The company utilizes interest rate cap agreements to limit the impact of increases in interest rates on its floating rate debt. The interest rate cap agreements require premium payments to counterparties based upon a notional principal amount. Interest rate cap agreements entitle the company to receive from the counterparties the amounts, if any, by which the selected market interest rates exceed the strike rates stated in the agreements. The fair values of the interest rate swap and cap agreements are estimated using quotes from brokers and represent the cash requirement if the existing agreements had been settled at year-end. Selected information related to the company's interest rate swap and cap agreements is as follows:
Swap Agreements Cap Agreements December 31 2000 1999 2000 1999 (all dollar amounts in millions) Notional amount $ 84.3 $ 114.2 $ 50.0 $ 50.0 ============================================== Fair value $ (.5) $ (3.1) $ $ Carrying amount .3 (1.5) .1 .1 ---------------------------------------------- Net unrecognized gain (loss) $ (.8) $ (1.6) $ (.1) $ (.1) ==============================================
38 The company utilizes foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with transactions in the regular course of the company's international operations. The forward contracts establish the exchange rates at which the company will purchase or sell the contracted amount of specified foreign currencies at a future date. The company utilizes forward contracts which are short-term in duration (generally one month) and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. The major currency exposures hedged by the company are the Canadian dollar, British pound, Japanese yen and Euro. Selected information related to the company's foreign currency forward contracts is as follows: Foreign Currency Forward Contracts December 31 2000 1999 (all dollar amounts in millions) Notional amount $ 110.6 $ 239.7 ===================== Fair value $ .6 $ 6.9 Carrying amount .6 6.9 --------------------- Net unrecognized gain (loss) $ $ ===================== The fair value of the company's long-term debt is estimated based on quoted market prices for the same or similar issues or on current rates offered to the company for debt of the same remaining maturities. The fair value of long-term debt was $1,307.7 million and $1,295.0 million at December 31, 2000 and 1999, respectively, and the related carrying amounts were $1,322.8 million and $1,333.7 million, respectively. The carrying amount of the notes payable and the current maturities of long-term debt are reasonable estimates of their fair value. At December 31, 2000 and 1999, the company held short-term investments which are included in cash and cash equivalents. The carrying amount of these short-term investments is a reasonable estimate of fair value. See Note D for disclosure regarding the investment in convertible debentures. I - Shareowners' Equity The company has authorized 300 million no par common shares. The company has outstanding authorization from the Board of Directors to repurchase up to 10 million common shares of which 4.1 million have been repurchased at December 31, 2000. Under a Rights Agreement, each outstanding common share presently has one right attached which trades with the common share. Generally, the rights become exercisable and trade separately 10 days after a third party acquires 20% or more of the common shares or commences a tender offer for a specified percentage of the common shares. In addition, the rights become exercisable if any party becomes the beneficial owner of 10% or more of the outstanding common shares and is determined by the Board of Directors to be an adverse party. Upon the occurrence of certain additional triggering events specified in the Rights Agreement, each right would entitle its holder (other than, in certain instances, the holder of 20% or more of the common shares) to purchase common shares of the company (or, in certain circumstances, cash, property or other securities of the company) having a value of $100 for $50, the 39 initial exercise price. The rights expire in 2006 and are presently redeemable at $.005 per right. At December 31, 2000, there were 110.8 million common shares reserved for issuance under this plan. The Board of Directors has approved termination benefits for certain key executives and a severance plan for all other salaried employees and established a Benefit Trust in connection with the company's unfunded supplemental retirement plan, incentive compensation plans and supplements, deferred compensation plans and supplements, former directors retirement plan, excess earnings benefit plans, directors capital accumulation plan, executive capital accumulation plan, Section 415 excess benefit plan and executive severance agreements to preserve the benefits earned thereunder in the event of a change in control of the company. These plans would be required to be immediately funded upon occurrence of a triggering event (including a potential change in control or actual change in control). The company has preferred shares authorized but unissued as follows: 61,500 undesignated cumulative preferred, par value $100; 20 million undesignated voting cumulative preferred, without par value; 20 million cumulative preferred, without par value; and 295,540 cumulative second preferred, par value $50. At December 31, 2000, there was $845.9 million available for common dividends, which represents the maximum amount of additional indebtedness that can be incurred solely to pay common dividends while remaining in compliance with certain debt covenants. J - Stock-Based Compensation Plans Officers and key employees have been granted stock options under various stock-based compensation plans. Options to purchase 3.6 million shares are accompanied by limited rights which may be exercised in lieu of the option under certain circumstances. The exercise price of all options equals the market price of the company's stock on the date of the grant. The options and rights have a maximum term of 10 years and vest after one year or three years. There are 11.1 million shares reserved for issuance under the 1991 and 1996 Stock Option Plans. A Restricted Stock Plan provides for the issuance of restricted common shares to certain employees and to directors who are not officers or employees of the company. These shares are restricted for periods of six months to eight years. At December 31, 2000, 3,000 common shares were issued and outstanding under the plan. There are 645,000 shares reserved for issuance under this plan. There were 86,000, 39,000 and 7,000 shares granted in 2000, 1999 and 1998, respectively, at a weighted-average price of $32.08, $29.99 and $29.24, respectively. 40 The following table summarizes activity in the company's stock-based compensation plans:
(all share amounts in thousands) 2000 1999 1998 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 8,442 $ 27.95 8,574 $ 26.68 7,480 $ 24.62 Granted 1,210 31.27 1,954 30.59 1,734 34.11 Exercised (295) 19.49 (2,021) 24.98 (604) 22.12 Canceled (190) 31.33 (65) 31.89 (36) 32.97 ------ ------ ------- Outstanding at end of year 9,167 $ 28.59 8,442 $ 27.95 8,574 $ 26.68 ====== ====== ======= Exercisable at year-end 7,785 $ 27.99 6,343 $ 27.05 6,739 $ 24.77 ====== ====== ======= Weighted-average fair value of options granted during the year using the extended binomial option-pricing model $ 9.48 $ 8.58 $ 10.56 Weighted-average assumptions used for grants: Expected dividend yield 2% 2% 2% Expected volatility 29% 25% 29% Risk-free interest rate 6.6% 5.2% 5.6% Expected life of option (in years) 6.0 6.0 6.0
The following table shows various information about stock options outstanding at December 31, 2000: (all share amounts in thousands)
Options Outstanding Options Exercisable -------------------------------------------------- -------------------------------- Weighted- Number Average Weighted- Number Weighted- Outstanding at Remaining Average Exercisable at Average December 31, Contractual Exercise December 31, Exercise Range of Exercise Prices 2000 Life (in years) Price 2000 Price $13.31 - $18.32 401 .8 $ 16.82 401 $ 16.82 21.75 - 29.82 6,011 5.7 27.28 5,930 27.27 30.22 - 43.41 2,755 8.1 33.17 1,454 34.01 ----------- ----------- $13.31 - $43.41 9,167 6.2 $ 28.59 7,785 $ 27.99 =========== ===========
Total compensation costs charged to earnings from continuing operations before income taxes for all stock-based compensation awards were not significant in 2000, 1999 and 1998. Had compensation costs 41 been determined based on the fair value method of SFAS No. 123 for all plans, the company's net earnings and earnings per common share would have been reduced to the following pro forma amounts:
Year Ended December 31 2000 1999 1998 Net earnings (in millions): As reported $ 161.2 $ 208.1 $ 119.7 ========================================= Pro forma $ 153.0 $ 198.4 $ 108.7 ========================================= Earnings per common share - assuming dilution: As reported $ 1.58 $ 1.99 $ 1.14 ========================================= Pro forma $ 1.50 $ 1.90 $ 1.04 =========================================
K - Asset Write-downs and Employee Termination Costs During 2000, the company recorded a pretax charge of $9.5 million in cost of sales associated with the shutdown and disposal of one Consumer and Office Products location and the shutdown of one Packaging and Paperboard location. The charges included $1.3 million for transferring equipment to other locations, $6.8 million for severance costs including medical, dental and other benefits, and an additional $1.4 million in depreciation expense. Machinery and equipment was transferred to various Consumer and Office Products and Packaging and Paperboard locations and expensed as incurred. The severance costs related to 269 salaried and hourly employees, of whom 259 employees had left the company on or before December 31, 2000. Substantially all severance-related amounts not paid by December 31, 2000, are expected to be paid by the end of the first quarter of 2001. Of the total charge, $6.4 million was recorded in the third quarter and $3.1 million in the fourth quarter. In accordance with SFAS No. 121, the estimated useful lives of certain equipment at the Packaging and Paperboard location were reviewed and updated to reflect the shutdown of this location resulting in $1.4 million of additional depreciation in the third and fourth quarters. During 1999, the company recorded a pretax charge of $18.9 million ($17.5 million in cost of sales and $1.4 million in selling and administrative expenses) associated with the shutdown and disposal of four uncoated paper machines at the Rumford, Maine, paper mill. The charge included $13.5 million for asset write-downs and contractual obligations and $5.4 million for severance costs including medical, dental and other benefits. A review for impairment in accordance with SFAS No. 121 was performed and resulted in recognition of a $10.6 million impairment charge to adjust the carrying amount of machinery and equipment and related spare parts included in stores and supplies inventory to their estimated fair values. Also included in the $13.5 million charge is $2.6 million to write off an investment in a joint venture as a result of the permanent decline in its value. The joint venture sold products manufactured on the affected machines. A charge of $.3 million was recorded related to certain contractual obligations which will derive no future benefits. The severance costs related to 113 salaried and hourly employees who left the company and were paid by the end of the first quarter of 2000. Of the total charge, $15.6 million was recorded in the second quarter and $3.3 million in the fourth quarter. In 1998, the company recorded a pretax charge of $37.7 million primarily in cost of sales for asset write-downs and other charges. The charges were comprised of a $10.4 million reserve for stores and supplies inventory; $10.4 million for the write-off of capitalized costs related to unimplemented software in development abandoned as a result of the decision to implement an enterprise resource planning computer system; an $8.2 million charge related to the Japanese packaging operation; $4.6 million for the 42 write-off and disposal of certain plant equipment that was replaced by new equipment at the Packaging and Paperboard segment's mill in Stevenson, Alabama; $2.9 million for the write-off of a capital project in process that was not undertaken as a result of market changes; and a special assessment of $1.2 million related to customs issues. The reserve for stores and supplies was recorded upon the completion of a study in the second quarter of 1998 to determine the future utility of obsolete and excess replacement parts that are used to support the maintenance of plant machinery and equipment in the Paper and Packaging and Paperboard segments. The study identified the specific items which were to be disposed of and the company is holding those items for disposal. The reserve adjusted those items identified to their net realizable value, and the company commenced a disposal program at that time. All items were disposed of and the related reserve was utilized for its intended purpose by the end of the first quarter of 2000. As a result of the deteriorating economic environment in Japan and poor operating performance by the Japanese packaging operation, a charge was recorded in 1998 to write down certain inventory and to reflect the impairment of property, plant and equipment and goodwill. The fair value of the fixed assets and goodwill and the related write-down in value was determined based on management's assessment of the future cash flows of the operations. In the third quarter of 1998, the company adopted a plan to make organizational changes and reduce its work force, and recorded a charge of $22.0 million for employee severance and related costs in selling and administrative expenses. This plan involved terminating 318 domestic employees, primarily salaried, and was communicated to affected employees in the third quarter of 1998. The charge covered severance payments and medical, dental and other benefits. Pursuant to this plan, 291 people left the company, with the remainder of the planned terminations not occurring as a result of placement of affected employees in other open positions within the company. As a result of fewer people being terminated, lower severance benefits paid than estimated and less utilization of outplacement benefits by terminated employees, the company reversed $2.7 million of the original charge to selling and administrative expenses in the third quarter of 1999. The following is a summary related to the severance charges:
2000 1999 1998 (all dollar amounts in millions) Severance Severance Severance Charge Charge Charge Charge recorded $ $ $ 22.0 Used for intended purpose (12.1) ------------------------------------- Balance at December 31, 1998 9.9 Charge recorded 5.4 Used for intended purpose (2.7) (7.2) Charge reversed (2.7) ------------------------------------- Balance at December 31, 1999 2.7 Charge recorded 6.8 Used for intended purpose (5.5) (2.7) ------------------------------------- Balance at December 31, 2000 $ 1.3 $ $ =====================================
43 The total charges (credits) by segment for asset write-downs and employee termination costs are as follows:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Paper $ $ 17.4 $ 28.2 Packaging and Paperboard 3.4 (.8) 25.2 Consumer and Office Products 6.1 (.1) 4.6 Corporate and other (.3) 1.7 ---------------------------------- $ 9.5 $ 16.2 $ 59.7 ==================================
L - Other Revenues - Net
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Investment income $ 8.1 $ 5.4 $ 6.4 Gain on sale of Northwood 82.3 Gain on sale of assets 4.0 28.3 Other 2.8 5.0 (.5) ---------------------------------- $ 10.9 $ 96.7 $ 34.2 ==================================
During the fourth quarter of 1999, the company sold its 50%-owned investment in Northwood Inc. for $77.5 million of convertible debentures in Canadian dollars (fair value of $63.8 million in U.S. dollars at the sale date) and approximately $163.8 million of cash and recognized a gain of $82.3 million. The 1998 gain on sale of assets is comprised of $11.8 million on the sale of timberland, $13.9 million related to the sale of nonstrategic packaging businesses and $2.6 million on the sale of an undeveloped mill site in Tennessee. 44 M - Income Taxes The principal current and noncurrent deferred tax assets and (liabilities) are as follows:
December 31 2000 1999 (all dollar amounts in millions) Deferred tax liabilities: Accelerated depreciation for tax purposes $ (586.6) $ (564.8) Nontaxable pension asset (115.7) (108.5) Deferred installment gain (47.5) (47.5) Other (50.6) (64.3) ----------------------- (800.4) (785.1) Deferred tax assets: Tax credit carryforwards 40.6 Compensation and fringe benefits accruals 76.5 67.9 Postretirement benefit accrual 53.5 52.9 Loss provisions and other expenses not currently deductible 68.6 72.2 Other 44.3 30.1 ----------------------- 242.9 263.7 ----------------------- Net deferred liability $ (557.5) $ (521.4) ======================= Included in the balance sheets: Current assets - deferred tax asset $ 91.5 $ 77.5 Deferred items (649.0) (598.9) ----------------------- Net deferred liability $ (557.5) $ (521.4) =======================
45 The significant components of income tax expense are as follows:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Currently payable: Federal $ 50.9 $ 33.3 $ 9.8 Federal alternative minimum tax 2.1 11.1 State and local 4.7 5.3 3.3 Foreign 10.7 54.4 13.4 ----------------------------------------- 66.3 95.1 37.6 Change in deferred income taxes 15.6 14.2 26.0 ----------------------------------------- 81.9 109.3 63.6 Allocation to partnership earnings (5.8) (8.5) (5.7) Allocation to discontinued operations 21.3 Allocation to cumulative effect of change in accounting principle (1.3) Allocation to other comprehensive loss 7.7 (2.3) 4.5 ----------------------------------------- $ 82.5 $ 98.5 $ 83.7 -----------------------------------------
The following table summarizes the major differences between the actual income tax provision attributable to continuing operations and taxes computed at the federal statutory rates:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Federal taxes computed at statutory rate $ 82.4 $ 95.2 $ 79.0 State and local income taxes, net of federal benefit 3.0 3.4 2.9 Impact related to difference in tax rates for foreign operations 1.2 3.1 2.1 Other (4.1) (3.2) (.3) ----------------------------------------- Income taxes $ 82.5 $ 98.5 $ 83.7 ----------------------------------------- Effective tax rate 35.1% 36.2% 37.1% -----------------------------------------
Earnings from operations of foreign subsidiaries were $26.8 million, $20.0 million and $31.6 million in 2000, 1999 and 1998, respectively. At December 31, 2000, no domestic income taxes have been provided on the company's share of the undistributed net earnings of overseas operations due to management's intent to reinvest such amounts indefinitely. Those earnings totaled $127.3 million, including foreign currency translation adjustments. The aggregate amount of unrecognized deferred tax liability is approximately $6.7 million at December 31, 2000. 46 N - Discontinued Operations In 1998, the company sold its Distribution segment, Zellerbach, and related real estate for $288.0 million. Revenues of the Distribution segment were $965.0 million in 1998. The 1998 loss from discontinued operations of $20.4 million was comprised of $6.0 million of losses from operations, net of income tax benefit of $3.1 million, and a $14.4 million loss on the sale (including the loss on operations during the phase-out period of $3.2 million), net of income tax benefit of $18.2 million. O - Pension Plans The company has pension plans that cover substantially all employees. Pension benefits for bargaining employees are primarily based upon years of credited service. Benefits for salaried and most other non-bargaining employees are based upon years of service and the employee's average final earnings. The company's funding policy is to contribute amounts to the plans sufficient to meet or exceed the minimum requirements of the Employee Retirement Income Security Act. Summary information for all of the company's plans is as follows: 47
December 31 2000 1999 (all dollar amounts in millions) Change in the projected benefit obligation: Projected benefit obligation at beginning of year $ (812.0) $ (854.4) Plan obligation assumed (30.2) Service cost (23.6) (24.8) Interest cost (62.8) (53.8) Actuarial gain (loss) (48.0) 66.9 Benefits paid 89.8 101.8 Plan amendments (12.6) (16.2) Termination adjustment due to benefit enhancements (1.7) (2.1) Curtailment adjustment .7 .8 --------------------------- Projected benefit obligation at end of year (870.2) (812.0) --------------------------- Change in the plan assets: Fair value of plan assets at beginning of year 1,131.3 1,026.8 Plan assets assumed 38.1 Actual return on plan assets 54.8 165.2 Employer contributions 3.3 3.0 Benefits paid (89.8) (101.8) --------------------------- Fair value of plan assets at end of year 1,099.6 1,131.3 --------------------------- Plan assets in excess of projected benefit obligation 229.4 319.3 Reconciliation of financial status of plans to amounts recorded in the company's balance sheets: Unamortized prior service cost 49.5 41.9 Unrecorded effect of net (gain) loss arising from differences between actuarial assumptions used to determine periodic pension expense and actual experience 11.3 (82.6) Unamortized plan assets in excess of plan liabilities (overfunding) at January 1, 1986 - to be recognized as a reduction of future years' pension expense (5.8) (9.6) Adjustment for minimum pension liability (13.2) (12.3) --------------------------- Net pension asset $ 271.2 $ 256.7 =========================== Amounts recognized in the company's balance sheets consist of: Pension asset $ 304.4 $ 285.5 Other current liabilities (33.2) (28.8) Other assets 1.3 1.5 Other comprehensive loss 7.4 6.8 Benefit obligation discount rate 7.25% 8.00% =========================== Rate of compensation increase (for pay-related plans only) 5.25% 5.25% ===========================
48 The total projected benefit obligation for the company's pension plans includes $49.8 million and $40.3 million at December 31, 2000 and 1999, respectively, of the unfunded plans, of which $33.2 million and $28.8 million represent the accumulated benefit obligation. The components of net pension (income) for all pension plans are as follows:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Service cost, benefits earned during the year $ 23.6 $ 24.8 $ 22.0 Interest cost on projected benefit obligation 62.8 53.8 50.7 Expected return on plan assets (99.3) (90.4) (86.7) Amortization of prior service cost 3.8 2.6 2.8 Amortization of unrecognized net (gain) loss .6 6.6 (.3) Amortization of net transition asset (3.8) (6.4) (7.9) Termination loss 1.7 3.6 Settlement (gain) loss (1.2) 13.3 Curtailment (gain) loss (.1) .4 --------------------------------- Net pension (income) (11.9) (9.0) (2.1) Less - net pension expense allocated to discontinued operations 7.4 --------------------------------- Net pension (income) - continuing operations $(11.9) $ (9.0) $ (9.5) =================================
The plan assets consist primarily of common stocks and fixed income securities. The expected long-term rate of return on plan assets used in determining net pension income was 9% in all years. The company's pension plans require the allocation of excess plan assets to plan members if the plans are terminated, merged or consolidated following a change in control (as defined) of the company opposed by the Board of Directors. Amendment of these provisions after such a change in control would require approval of plan participants. The company also has 401(k) plans that cover substantially all U.S. employees. Expense for company matching contributions under these plans was approximately $11.9 million in 2000, $11.1 million in 1999 and $11.9 million in 1998. P - Postretirement Benefits Other than Pension The company funds certain health care benefit costs principally on a pay-as-you-go basis, with retirees paying a portion of the costs. Certain retired employees of businesses acquired by the company are covered under other health care plans that differ from current plans in coverage, deductibles and retiree contributions. 49 Summary information on the company's plans is as follows:
December 31 2000 1999 (all dollar amounts in millions) Change in the projected benefit obligation: Accumulated postretirement benefit obligation at beginning of year $(121.5) $(119.7) Plan obligation assumed (11.2) Service cost (4.0) (3.9) Interest cost (8.9) (7.5) Plan amendments 10.6 Actuarial gain (loss) (3.7) 12.3 Benefits paid 7.7 8.5 -------------------------- Accumulated postretirement benefit obligation at end of year (119.8) (121.5) -------------------------- Change in the plan assets: Fair value of plan assets at beginning of year 8.1 10.1 Actual return on plan assets .2 .9 Employer contributions 6.7 5.6 Benefits paid (7.7) (8.5) -------------------------- Fair value of plan assets at end of year 7.3 8.1 -------------------------- Accumulated postretirement benefit obligation in excess of plan assets (112.5) (113.4) Reconciliation of financial status of plans to amounts recorded in the company's balance sheets: Unrecorded effect of net (gain) arising from differences between actuarial assumptions used to determine periodic postretirement expense and actual experience (30.2) (25.9) -------------------------- Accrued postretirement benefit cost - included in deferred items $(142.7) $(139.3) ========================== Benefit obligation discount rate 7.25% 7.75% - 8.00% ==========================
50 The components of net periodic postretirement benefit cost are as follows:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Service cost, benefits attributed to employee service during the year $ 4.0 $ 3.9 $3.7 Interest cost on accumulated postretirement benefit obligation 8.9 7.5 7.6 Expected return on plan assets (.6) (.8) (.7) Curtailment gain (4.7) Amortization of unrecognized net (gain) (.5) (.5) (.7) -------------------------------- Net periodic postretirement benefit cost $11.8 $10.1 $5.2 ================================
Included in net periodic postretirement benefit cost in 1998 is a curtailment gain of $4.7 million allocated to the company's discontinued operations. The expected long-term rate of return on plan assets used in determining the net periodic postretirement benefit cost was 8.0% in each year. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation in 2000 was 8.0% declining by 1.0% per year to an ultimate rate of 5.0%. The assumed health care trend rates used in 1999 and 1998 were 9.0% and 7.4%, respectively, declining by 1.0% per year and .8% per year, respectively. If the health care cost trend rate assumptions were increased or decreased by 1.0%, the accumulated postretirement benefit obligation at December 31, 2000, would be increased or decreased by 8.6% and 8.4%, respectively. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 2000 would be an increase or decrease of 11.3% and 10.3%, respectively. Q - Leases At December 31, 2000, future minimum annual rental commitments under noncancelable lease obligations are as follows: 51
Capital Operating Leases Leases Year Ending December 31: (all dollar amounts in millions) 2001 $ 13.1 $ 30.9 2002 13.1 23.3 2003 13.1 17.1 2004 13.1 12.0 2005 13.1 9.3 Later years through 2033 595.8 38.3 --------------------- Total minimum lease payments 661.3 $ 130.9 ======= Less amount representing interest (375.4) ------- Capital lease obligations $ 285.9 =======
The majority of rent expense is for operating leases which are for office, warehouse and manufacturing facilities and delivery, manufacturing and computer equipment. A number of these leases have renewal options. Rent expense was $74.9 million, $63.3 million and $51.7 million in 2000, 1999 and 1998, respectively. R - Litigation and Other Proceedings The company is involved in various litigation generally incidental to normal operations, as well as proceedings regarding equal employment opportunity matters, among others. The company is involved in investigations regarding customs that may result in payments by the company ranging from an insignificant amount to as much as $15 million; however, no liability has been recorded relating to this matter because an obligation is not viewed as probable. The company has also been identified as a potentially responsible party in at least 20 environmental proceedings. It is not possible to determine the ultimate liability, if any, in all these matters. The company has established reserves of approximately $40 million relating to environmental liabilities, including those related to previously discontinued operations, which it believes are probable and reasonably estimable. The company believes that it is reasonably possible that costs associated with these sites may exceed current reserves by an amount that could range from an insignificant amount to as much as $40 million. The estimate of this range is less certain than the estimates upon which reserves are based. In order to establish this range, assumptions less favorable to the company among those outcomes that are considered reasonably possible were used. In the opinion of management, after consultation with legal counsel and after considering established reserves, the resolution of pending litigation and proceedings is not expected to have a material effect on the financial condition, results of operations or liquidity of the company. 52 S - Additional Information on Cash Flows
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Cash paid during the year for: Interest $ 119.4 $ 106.1 $ 111.3 Less amount capitalized (1.6) (2.8) (6.3) ---------------------------------- Interest, net of amount capitalized $ 117.8 $ 103.3 $ 105.0 ---------------------------------- Income taxes $ 76.7 $ 56.3 $ 31.8 ----------------------------------
T - Other Comprehensive Loss The difference between net earnings and comprehensive earnings relates to the changes in foreign currency translation adjustment, additional minimum pension liability and unrealized gain (loss) on available-for-sale securities. Accumulated other comprehensive loss was comprised of the following:
Year Ended December 31 2000 1999 (all dollar amounts in millions) Foreign currency translation adjustment $ (29.7) $ (18.3) Additional minimum pension liability (7.4) (6.8) Unrealized gain (loss) on available-for-sale securities (10.6) 3.3 --------------------- $ (47.7) $ (21.8) ---------------------
The 1999 foreign currency translation adjustment is comprised of $17.2 million of foreign currency translation adjustment arising during 1999 less a $20.5 million reclassification adjustment for foreign currency translation adjustment included in gain on sale of assets. U - Segment Information Industry Segments The company classifies its businesses into three industry segments. The Paper operations manufacture and sell printing, writing, carbonless copy, publishing and specialty paper primarily to domestic publishers, printers and converters. The Packaging and Paperboard operations manufacture and sell beverage and food packaging materials, corrugated shipping containers and paperboard to those markets primarily located in the United States with other operations conducted in Europe, Latin America and Asia Pacific. The Consumer and Office Products operations are conducted predominantly in North America and manufacture and distribute school, office and dated material products to retailers and commercial distributors. The company evaluates performance based on earnings from continuing operations before income taxes and equity in net earnings of investees. The accounting policies of the segments are the same as those described in the significant accounting policies (Note A). 53
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Net sales: Industry segments: Paper $ 1,926.5 $ 1,882.7 $ 1,880.4 Packaging and Paperboard 1,612.2 1,582.5 1,564.6 Consumer and Office Products 829.4 530.9 499.2 ------------------------------------ Total $ 4,368.1 $ 3,996.1 $ 3,944.2 ==================================== Earnings (loss) from continuing operations before income taxes: Industry segments: Paper $ 181.9 $ 147.6 $ 206.3 Packaging and Paperboard 174.0 170.0 142.5 Consumer and Office Products 61.7 38.0 42.8 Corporate and other (1) (182.3) (83.7) (166.0) ------------------------------------ Total $ 235.3 $ 271.9 $ 225.6 ==================================== Depreciation, depletion and amortization: Industry segments: Paper $ 122.1 $ 120.2 $ 116.8 Packaging and Paperboard 146.5 150.5 160.9 Consumer and Office Products 40.8 16.2 9.1 Corporate and other 27.5 20.5 15.0 ------------------------------------ Total $ 336.9 $ 307.4 $ 301.8 ==================================== Identifiable assets: Industry segments: Paper $ 2,206.3 $ 2,114.9 $ 2,181.3 Packaging and Paperboard 1,861.9 1,887.0 1,935.9 Consumer and Office Products 767.1 803.0 229.8 Intersegment Elimination (2.8) (4.9) (1.4) Corporate and other (2) 847.5 861.7 796.6 ------------------------------------ Total $ 5,680.0 $ 5,661.7 $ 5,142.2 ==================================== Capital expenditures: Industry segments: Paper $ 91.6 $ 82.3 $ 178.4 Packaging and Paperboard 92.3 92.4 169.9 Consumer and Office Products 8.3 14.7 10.6 Corporate and other 13.7 23.5 25.1 ------------------------------------ Total $ 205.9 $ 212.9 $ 384.0 ====================================
54 (1) Corporate and other includes the following:
Year Ended December 31 2000 1999 1998 Other revenues $ 9.9 $ 96.4 $ 11.2 Interest expense (121.0) (105.1) (109.0) Other expenses (71.2) (75.0) (68.2) --------------------------------- $(182.3) $ (83.7) $ (166.0) =================================
(2) Corporate and other consists primarily of cash and cash equivalents, property, plant and equipment, investments and other assets. Geographic Areas The company has sales from foreign subsidiaries primarily in Canada, Europe, Latin America and Asia Pacific. No individual foreign geographic area is significant to the company relative to total net sales, earnings from continuing operations before income taxes or identifiable assets. The following represents net sales and total assets of the company's foreign subsidiaries:
Year Ended December 31 2000 1999 1998 (all dollar amounts in millions) Net sales: Europe $ 292.2 $ 300.1 $ 312.8 Canada 156.3 143.5 144.4 Asia Pacific 75.1 63.4 48.6 Latin America 58.1 47.1 46.6 ---------------------------------- Total $ 581.7 $ 554.1 $ 552.4 ================================== Assets: Europe $ 216.2 $ 218.1 $ 230.2 Canada 47.6 49.6 50.5 Asia Pacific 42.3 44.8 39.4 Latin America 49.6 33.4 35.1 ---------------------------------- Total $ 355.7 $ 345.9 $ 355.2 ==================================
55 Selected Quarterly Financial Data (unaudited) (all dollar amounts in millions, except per share data)
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year Net sales: 2000 (2) $953.6 $1,151.4 $1,218.2 $1,044.9 $4,368.1 1999 (3) 909.7 1,055.3 1,032.5 998.6 3,996.1 1998 (3) 875.6 1,091.9 1,056.7 920.0 3,944.2 Gross profit: 2000 (4) 177.0 245.0 242.5 174.0 838.5 1999 147.2 169.3 163.8 187.4 667.7 1998 169.6 188.0 188.9 141.4 687.9 Earnings from continuing operations: 2000 (4) 23.2 63.9 59.8 16.7 163.6 1999 22.9 44.8 50.8 89.6 208.1 1998 33.6 40.2 35.4 30.9 140.1 Earnings before cumulative effect of accounting change: 2000 (4) 23.2 63.9 59.8 16.7 163.6 1999 22.9 44.8 50.8 89.6 208.1 1998 30.6 15.2 35.4 38.5 119.7 Net earnings: 2000 (4) 20.8 63.9 59.8 16.7 161.2 1999 22.9 44.8 50.8 89.6 208.1 1998 30.6 15.2 35.4 38.5 119.7 Per common share - basic: (1) Earnings from continuing operations: 2000 (4) .22 .62 .59 .17 1.61 1999 .22 .44 .50 .87 2.04 1998 .32 .39 .34 .30 1.36 Discontinued operations: 1998 (.03) (.24) .07 (.20) Earnings before cumulative effect of accounting change: 2000 (4) .22 .62 .59 .17 1.61 1999 .22 .44 .50 .87 2.04 1998 .29 .15 .34 .37 1.16 Cumulative effect of accounting change: 2000 (5) (.02) (.02) Net earnings: 2000 .20 .62 .59 .17 1.59 1999 .22 .44 .50 .87 2.04 1998 .29 .15 .34 .37 1.16 Per common share - assuming dilution: (1) Earnings from continuing operations: 2000 (4) .22 .62 .59 .17 1.60 1999 .22 .43 .48 .86 1.99 1998 .32 .38 .34 .30 1.34 Discontinued operations: 1998 (.03) (.24) .07 (.20) Earnings before cumulative effect of accounting change: 2000 (4) .22 .62 .59 .17 1.60 1999 .22 .43 .48 .86 1.99 1998 .29 .14 .34 .37 1.14 Cumulative effect of accounting change: 2000 (5) (.02) (.02) Net earnings: 2000 (4) .20 .62 .59 .17 1.58 1999 .22 .43 .48 .86 1.99 1998 .29 .14 .34 .37 1.14 Cash dividends per common share: 2000 .17 .17 .17 .17 .68 1999 .16 .16 .16 .17 .65 1998 .16 .16 .16 .16 .64
(1) The number of shares used in the calculation of per share data is computed based on quarterly averages; therefore, the sum of individual earnings per share may not equal the annual computation. 56 (2) Quarterly amounts for the first three quarters of 2000 have been restated from that previously reported in the company's Form 10-Q to reflect the retroactive adoption of SAB 101, as of January 1, 2000, and the reclassification to revenue of certain shipping and handling costs billed to customers that were previously recorded as an offset to shipping and handling costs included in costs of goods sold to comply with EITF 00-10.
1st Qtr 2000 2nd Qtr 2000 3rd Qtr 2000 ------------ ------------ ------------ Net sales previously reported $ 915.6 $ 1,095.9 $ 1,150.1 SAB 101 restatement (11.6) (1.9) 9.4 EITF 00-10 reclassification 49.6 57.4 58.7 -------------------------------------------- $ 953.6 $ 1,151.4 $ 1,218.2 --------------------------------------------
(3) To comply with EITF 00-10, quarterly amounts for the fourth quarters of 1999 and 1998 have been restated from that previously reported to reflect the reclassification to revenue of certain shipping and handling costs billed to customers that were previously recorded as an offset to shipping and handling costs included in costs of goods sold.
1st Qtr 1999 2nd Qtr 1999 3rd Qtr 1999 4th Qtr 1999 ------------ ------------ ------------ ------------ Net sales - Previously reported $ 863.2 $ 1,004.8 $ 982.2 $ 949.3 ---------------------------------------------------------- Net sales - As reported $ 909.7 $ 1,055.3 $ 1,032.5 $ 998.6 ----------------------------------------------------------
1st Qtr 1998 2nd Qtr 1998 3rd Qtr 1998 4th Qtr 1998 ------------ ------------ ------------ ------------ Net sales- Previously reported $ 839.0 $ 1,050.9 $ 1,009.3 $ 873.0 ---------------------------------------------------------- Net sales - As reported $ 875.6 $ 1,091.9 $ 1,056.7 $ 920.0 ----------------------------------------------------------
(4) Quarterly amounts for the first three quarters of 2000 have been restated from the previously reported in the company's Form 10-Q to reflect the retroactive adoption of SAB 101, as of January 1, 2000.
1st Qtr 2000 2nd Qtr 2000 3rd Qtr 2000 ------------ ------------ ------------ Gross profit - Previously reported $ 179.9 $ 245.5 $ 240.1 ------------------------------------------ Gross profit - As reported $ 177.0 $ 245.0 $ 242.5 ------------------------------------------ Earnings from continuing operations - Previously reported $ 25.1 $ 64.2 $ 58.3 ------------------------------------------ Earnings from continuing operations - As reported $ 23.2 $ 63.9 $ 59.8 ------------------------------------------ Earnings before cumulative effect of accounting change - Previously reported $ 25.1 $ 64.2 $ 58.3 ------------------------------------------ Earnings before cumulative effect of accounting change - As reported $ 23.2 $ 63.9 $ 59.8 ------------------------------------------ Net earnings - Previously reported $ 25.1 $ 64.2 $ 58.3 ------------------------------------------ Net earnings - As reported $ 20.8 $ 63.9 $ 59.8 ------------------------------------------ Per common share - basic: Earnings from continuing operations - Previously reported $ .24 $ .62 $ .58 ------------------------------------------ Earnings from continuing operations - As reported $ .22 $ .62 $ .59 ------------------------------------------ Earnings before cumulative effect of accounting change - Previously reported $ .24 $ .62 $ .58 ------------------------------------------ Earnings before cumulative effect of accounting change - As reported $ .22 $ .62 $ .59 ------------------------------------------ Net earnings - Previously reported $ .24 $ .62 $ .58 ------------------------------------------ Net earnings - As reported $ .20 $ 62 $ 59 ------------------------------------------ Per common share - assuming dilution: Earnings from continuing operations - Previously reported $ .24 $ .62 $ .57 ------------------------------------------ Earnings from continuing operations - As reported $ .22 $ .62 $ 59 ------------------------------------------ Earnings before cumulative effect of accounting change - Previously reported $ .24 $ .62 $ .57 ------------------------------------------ Earnings before cumulative effect of accounting change - As reported $ .22 $ .62 $ .59 ------------------------------------------ Net earnings - Previously reported $ .24 $ .62 $ .57 ------------------------------------------ Net earnings - As reported $ .20 $ .62 $ .59 ------------------------------------------
(5) Adjustment of $(.02) from that previously reported in the company's first quarter 2000 Form 10-Q to reflect the retroactive adoption of SAB 101, as of January 1, 2000. 57 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Information pursuant to this item is incorporated herein by reference to pages 3 through 6 and 24 of the Company's Proxy Statement, definitive copies of which were filed with the Securities and Exchange Commission ("Commission") on March 9, 2001. Information concerning executive officers is also included in Part I of this report following Item 4. Item 11. Executive Compensation Information pursuant to this item is incorporated herein by reference to pages 9 through 23 of the Company's Proxy Statement (excluding the "Report of Audit Committee" and "Report of Compensation Committee on Executive Compensation" on pages 11 through 16 and the "Performance Graph" on page 21), definitive copies of which were filed with the Commission on March 9, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management Information pursuant to this item is incorporated herein by reference to pages 9 through 11 of the Company's Proxy Statement, definitive copies of which were filed with the Commission on March 9, 2001. Item 13. Certain Relationships and Related Transactions Information pursuant to this item is incorporated herein by reference to pages 24 and 25 of the Company's Proxy Statement, definitive copies of which were filed with the Commission on March 9, 2001. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements The financial statements of The Mead Corporation and consolidated subsidiaries are included in Part II, Item 8. 2. Financial Statement Schedule The information required to be submitted in Schedules I through V for The Mead Corporation and consolidated subsidiaries has either been shown in the financial statements or notes thereto, or is not applicable or required under rules of Regulation S-X, and, therefore, those schedules have been omitted. 58 3. Exhibits (3) Articles of Incorporation and Bylaws: (i) Amended Articles of Incorporation of the Registrant adopted May 28, 1987. (ii) Regulations of the Registrant, as amended April 25, 1996. (4) Instruments defining the rights of security holders, including indentures: (i) Revolving Credit Agreement dated as of November 10, 2000 with Morgan Guaranty Trust Company of New York, Bank One, NA, Bank of America, N.A., and ten other banks. (ii) Indenture dated as of July 15, 1982 between the Registrant and Bankers Trust Company, as Trustee, First Supplemental Indenture dated as of March 1, 1987, Second Supplemental Indenture dated as of October 15, 1989 and Third Supplemental Indenture dated as of November 15, 1991 (incorporated by reference to Exhibit (4) (ii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). (iii) Indenture dated as of February 1, 1993 between Registrant and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit (4) (iii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). (iv) Indenture dated as of October 20, 1997 between Registrant and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4(g) of Registrant's Current Report on Form 8-K dated October 20, 1997). (v) 364-Day Credit Agreement dated November 10, 2000 with Morgan Guaranty Trust Company of New York, Bank One, NA, Bank of America, N.A., and ten other banks. The total amount of securities authorized under other long-term debt instruments does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. A copy of each such instrument will be furnished to the Commission upon request. (10) Material Contracts: (i) Restated Rights Agreement dated as of November 9, 1996 between Registrant and BankBoston, N.A., as Rights Agent, (incorporated herein by reference to Registrant's Form 8-A, dated November 13, 1996), as amended November 1, 1997 (incorporated by reference to Registrant's Form 8-A/A dated November 3, 1997), as amended December 7, 1999 (incorporated by reference to Registrant's Form 8-A/A dated December 15, 1999); as amended and restated February 16, 2000, (incorporated by reference in Registrant's Form 8-A/A dated March 6, 2000). (ii) Amended Board Purchase Agreement dated as of January 4, 1988 among the Registrant, Georgia Kraft Company and Inland Container Corporation (incorporated by reference to Exhibit (10)(iv) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 59 (iii) Indemnification Agreement dated as of January 4, 1988 among the Registrant, Mead Coated Board, Inc., Temple-Inland Inc., Inland Container Corporation I, Inland Container Corporation, GK Texas Holding Company and Georgia Kraft Company (incorporated by reference to Exhibit (10)(v) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). (iv) Lease Agreement between The Industrial Development Board of the City of Phenix City, Alabama and Mead Coated Board, Inc., dated as of December 1, 1988, as amended (incorporated by reference to Exhibit (10)(vi) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). (v) Lease Agreement between The Industrial Development Board of the City of Phenix City, Alabama and Mead Coated Board, Inc., dated as of June 1, 1993, as amended (incorporated by reference to Exhibit (10)(vii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). (vi) Lease Agreement between The Industrial Development Board of the City of Phenix City, Alabama and Mead Coated Board, Inc., dated as of September 1, 1997, as amended (incorporated by reference to Exhibit 10 (vi) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). (vii) Lease Agreement between The Industrial Development Board of the City of Stevenson, Alabama and The Mead Corporation, dated as of March 1, 1998 (incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended March 29, 1998). The following are compensatory plans and arrangements in which directors or executive officers participate: (viii) 1991 Stock Option Plan of the Registrant, as amended through June 24, 1999 (incorporated by reference to Exhibit (10)(2) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). (ix) 1996 Stock Option Plan of the Registrant as amended through June 24, 1999 (incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). (x) 1985 Supplement to Registrant's Incentive Compensation Election Plan, as amended November 17, 1987, and as further amended October 29, 1988 (incorporated by reference to Exhibit (10)(xii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xiii) to Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1998). (xi) Excess Benefit Plan of the Registrant dated January 1, 1996 (incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 1996); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xiv) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 60 (xii) Excess Earnings Benefit Plan of the Registrant dated January 1, 1996 (incorporated by reference to Exhibit (10)(4) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 1996); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xv) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). (xiii) Restated Supplemental Executive Retirement Plan effective January 1, 1997 (incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended March 30, 1997); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xvi) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). (xiv) Form of Indemnification Agreement between Registrant and each of John G. Breen, Duane E. Collins, William E. Hoglund, James G. Kaiser, Robert J. Kohlhepp, John A. Krol, Susan J. Kropf, Charles S. Mechem, Jr., Heidi G. Miller, Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence Wilson (incorporated by reference to Exhibit 10 (4) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended July 4, 1999). (xv) Form of Severance Agreement between Registrant and Jerome F. Tatar (incorporated by reference to Exhibit 10 (xvii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999); and, Amendment to Severance Agreement (incorporated by reference to Exhibit 10 (1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended July 2, 2000. (xvi) Form of Severance Agreement between Registrant and each of Elias M. Karter, Raymond W. Lane, Sue K. McDonnell, Timothy R. McLevish and other key employees (incorporated by reference to Exhibit 10 (xvii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999); and, Amendment to Severance Agreement (incorporated by reference to Exhibit 10 (2) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended July 2, 2000). (xvii) Restated Benefit Trust Agreement dated August 27, 1996 between Registrant and Society Bank, National Association (incorporated by reference to Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended September 29, 1996); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xix) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998); as amended effective October 28, 2000. (xviii) Restricted Stock Plan effective December 10, 1987, as amended through June 24, 1999 (incorporated by reference to Exhibit (10)(5) to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). (xix) Deferred Compensation Plan for Directors of the Registrant, as amended through October 29, 1988 (incorporated by reference to Exhibit (10)(xx) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xxi) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 61 (xx) 1985 Supplement to Registrant's Deferred Compensation Plan for Directors, as amended through October 29, 1988 (incorporated by reference to Exhibit (10)(xxi) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997); as amended effective June 24, 1998 (incorporated by reference to Exhibit 10 (xxii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). (xxi) Restated Directors Capital Accumulation Plan effective January 1, 2000 (incorporated by reference to Exhibit (10) (4) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended April 2, 2000). (xxii) Form of Executive Life Insurance Policy for Key Executives (incorporated by reference to Exhibit 10 (xxiii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). (xxiii) Long Term Incentive Plan effective 1999 (incorporated by reference to Exhibit 10(2) to Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended April 4, 1999). (xxiv) Long Term Incentive Plan effective 2000 (incorporated by reference to Exhibit (10) (2) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended April 2, 2000. (xxv) Annual Incentive Plan for 2000 (incorporated by reference to Exhibit (10) (1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended April 2, 2000). (xxvi) Restated Executive Capital Accumulation Plan effective January 1, 2000 (incorporated by reference to Exhibit (10) (3) of Registrant's Quarterly Report on Form 10-Q for the Quarterly Period ended April 2, 2000). (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors. (b) No current reports on Form 8-K were filed with the Commission during fiscal year 2000. 62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE MEAD CORPORATION Date: February 22, 2001 By /s/ JEROME F. TATAR -------------------------------------- Jerome F. Tatar Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: February 22, 2001 By /s/ JEROME F. TATAR ---------------------------------------- Jerome F. Tatar Director, Chairman of the Board, Chief Executive Officer and President Date: February 22, 2001 By /s/ TIMOTHY R. MCLEVISH ---------------------------------------- Timothy R. McLevish Vice President and Chief Financial Officer (principal financial officer) Date: February 22, 2001 By /s/ PETER H. VOGEL, JR. ---------------------------------------- Peter H. Vogel, Jr. Vice President, Finance and Treasurer (principal accounting officer) Date: February 22, 2001 By /s/ JOHN G. BREEN ------------------------------------------- John G. Breen Director 63 Date: February 22, 2001 By /s/ DUANE E. COLLINS ------------------------------------------- Duane E. Collins Director Date: February 22, 2001 By /s/ WILLIAM E. HOGLUND ------------------------------------------- William E. Hoglund Director Date: February 22, 2001 By /s/ JAMES G. KAISER ------------------------------------------- James G. Kaiser Director Date: February 22, 2001 By /s/ ROBERT J. KOHLHEPP ------------------------------------------- Robert J. Kohlhepp Director Date: February 22, 2001 By /s/ JOHN A. KROL ------------------------------------------- John A. Krol Director Date: February 22, 2001 By /s/ SUSAN J. KROPF ------------------------------------------- Susan J. Kropf Director Date: February 22, 2001 By /s/ CHARLES S. MECHEM, JR. ------------------------------------------- Charles S. Mechem, Jr. Director Date: February 22, 2001 By /s/ HEIDI G. MILLER ------------------------------------------- Heidi G. Miller Director 64 Date: February 22, 2001 By /s/ LEE J. STYSLINGER, JR. ------------------------------------------- Lee J. Styslinger, Jr. Director Date: February 22, 2001 By /s/ J. LAWRENCE WILSON ------------------------------------------- J. Lawrence Wilson Director 65 THE MEAD CORPORATION EXHIBITS TO FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2000 EX-3.1 2 0002.txt AMENDED ARTICLES OF INCORPORATION DATED 5/28/1987 Exhibit 3.1 Adopted May 28, 1987 AMENDED ARTICLES OF INCORPORATION of THE MEAD CORPORATION CERTIFICATE OF AMENDED ARTICLES OF INCORPORATION OF THE MEAD CORPORATION ______________ STEVEN C. MASON, President, and GEORGE J. MALY, JR., Secretary, of THE MEAD CORPORATION, a corporation for profit under the Ohio General Corporation Law, with its principal office located at Dayton, Montgomery County, Ohio, do hereby certify that a meeting of the Board of Directors of said Corporation was duly called and held on the 28th day of May, 1987, at which meeting a quorum of such Directors was present, and at such meeting there were duly adopted the resolutions set forth below adopting Amended Articles of Incorporation as permitted by Section 1701.72(B) of the Ohio Revised Code: "Resolved, That the Articles of Incorporation be, and they hereby are, amended to read as set forth in the following Amended Articles of Incorporation: AMENDED ARTICLES OF INCORPORATION FIRST: The name of said corporation is "THE MEAD CORPORATION." SECOND: The place in Ohio where the principal office of said corporation is located is Dayton, Montgomery County. THIRD: The purpose or purposes for which it is formed are: (a) To produce, mine, quarry, manufacture or otherwise acquire or exploit and to hold, own, sell or otherwise dispose of, trade in and deal in natural resources of every kind or character and the by-products or derivatives of such natural resources. (b) To manufacture, purchase or otherwise acquire and to hold, own, sell or otherwise dispose of, trade in and deal in paper, pulp, paper materials, paperboard and paper products of every kind and description, plastic and other paper substitute materials and products of every kind and description, lumber, plywood, shingles and newsprint. (c) To manufacture, purchase, or otherwise acquire and to hold, own, sell or otherwise dispose of, trade in and deal in looseleaf binders, fillers, posters and construction paper, social stationery, office products, gift items, specialty tableware and party items, art materials, institutional aids and teaching guides, and other educational and consumer products of every kind and description. (d) To manufacture, purchase, or otherwise acquire and to hold, own, sell or otherwise dispose of, trade in and deal in cement, cement-asbestos, rubber, plastics, lime, coal, coke, iron, steel, and metals and metal products of every kind or description. (e) To manufacture, purchase, or otherwise acquire and to hold, own, sell or otherwise dispose of, trade in and deal in drapery and upholstery fabrics, hardwood veneer and upholstered household and institutional furniture, and other interior furnishings of every kind and description. (f) To engage in applied research, development, product improvement, evaluation of reconnaissance and intelligence systems, and in general to engage in and deal with all types of data handling systems, precision optics, photographic process control and specialized photography of every kind and description. (g) To manufacture, buy, sell and deal in goods, wares and merchandise and personal property of every kind and description. (h) To purchase or otherwise acquire and to hold or maintain, work, develop, sell, lease, exchange, convey, mortgage, transfer, or in any manner to dispose of and deal in, within and without the State of Ohio, wherever situated, lands, leaseholds, and any interest, estate and right in real property, and any personal or mixed property, including the shares of stock and other securities of other corporations, and any franchises, rights, licenses, or privileges, necessary, convenient or appropriate for any of the purposes herein expressed. (i) To enter into, make and perform contracts of every kind for any lawful purpose, with any person, firm, association or corporation, municipality, state or government, or any political subdivision of any of the same. (j) To apply for, purchase, register, or in any manner to acquire and to hold, own, use, operate and introduce, and to sell, lease, assign, pledge, or in any manner to dispose of, and in any manner deal with patents, patent rights, licenses, copyrights, trademarks, trade names, and to acquire, own, use, or in any manner dispose of, any and all inventions, improvements and processes, labels, designs, brands, or other rights, and to work, operate or develop the same, and to carry on any business, manufacturing or otherwise which may directly or indirectly effectuate these objects or any of them. (k) To purchase or otherwise acquire the whole or any part of the property, assets, business, goodwill and rights, and to undertake and assume the whole or any part of the liabilities and obligations, of any person, firm, association or corporation, and to pay for the same in cash or in shares of any class or series, or in bonds, debentures, notes or other obligations of the Corporation, or otherwise; to hold or in any manner to dispose of the whole or any part of the property or assets so acquired, and to conduct the whole or any part of the business so acquired, and to exercise all the powers necessary or convenient in and about the conduct, management and carrying on of any such business. (l) To do any and all things necessary, convenient or expedient for the accomplishment of any of the purposes, or the furtherance of any of the powers hereinbefore set forth, either alone or in association with other corporations, firms or individuals; and, in general, to carry on any other business not forbidden by the General Corporation Law of the State of Ohio. FOURTH: The maximum number of shares which the Corporation is authorized to have outstanding is 340,357,040 shares which shall be classified as follows: 61,500 Cumulative Preferred Shares of the par value of $100 per share (hereinafter called "Preferred Shares"); 20,000,000 Voting Cumulative Preferred Shares without par value (hereinafter called "Voting Preferred Shares"); 20,000,000 Cumulative Preferred Shares without par value (hereinafter called "No Par Preferred Shares"); 295,540 Cumulative Second Preferred Shares of the par value of $50 per share (hereinafter called "Second Preferred Shares"): 300,000,000 Common Shares without par value (hereinafter called "Common Shares"). Section 1. For the purposes of this section and the express terms and provisions hereinafter set forth: I. "Affiliate" shall, as of any date, mean any corporation of which more than 50%, but less than 90%, of the outstanding shares entitling the holders thereof to elect a majority of the directors 2 (either at all times or so long as there shall be no default in the payment of dividends or otherwise in respect of any other class of shares of such corporation) shall on such date be owned by the Corporation; and "Subsidiary" shall, as of any date, mean any corporation of which 90% or more of such outstanding voting shares shall on such date be owned by the Corporation. II. "Funded Indebtedness" shall mean any indebtedness which by its terms or at the option of the debtor will mature more than 12 months from the date as of which the computation is made. III. "Consolidated Funded Indebtedness" shall mean the aggregate of all Funded Indebtedness (other than any owned by the Corporation or any Subsidiary) created, issued, re-issued, assumed or guaranteed by the Corporation or by any Subsidiary, or secured by lien or charge on, or pledge of any property of, the Corporation or a Subsidiary; subject, however, to subsection VII of this Section 1. IV. "Consolidated Net Earnings" shall mean the aggregate net earnings of the Corporation and its Subsidiaries, determined as provided in subsection VIII of this Section 1, before deductions for interest charges on Consolidated Funded Indebtedness, for outstanding stock interests in Subsidiaries not owned by the Corporation or other Subsidiaries, and for taxes on income, with due allowance for any losses sustained. V. "Consolidated Net Income" shall mean Consolidated Net Earnings, after deductions for all taxes on income, for interest charges on Consolidated Funded Indebtedness, and for such portion of Consolidated Net Income as shall be applicable to stock interests in Subsidiaries not owned by the Corporation or other Subsidiaries; all determined as provided in subsection VIII of this Section 1. Except as otherwise hereinafter specified, deductions for the aforesaid interest charges and portion of Consolidated Net Income applicable to stock interests in Subsidiaries not owned by the Corporation or other Subsidiaries shall be based, respectively, upon interest actually paid or accrued during the period in question and upon stock outstanding during such period. VI. "Consolidated Net Assets" shall mean the excess of all assets of the Corporation and its Subsidiaries (excluding organization expenses, unamortized bond discount and expense, patents, trademarks, copyrights, trade names, good will, and other like intangibles) over the sum of current liabilities and reserves of the Corporation and its Subsidiaries (other than reserves deducted from assets or included in current liabilities, reserves for contingencies the expenditures chargeable to which are within the control of the Corporation or a Subsidiary, and the amount of self-insurance reserves in excess of current claims), all as shown by a consolidated balance sheet of the Corporation and its Subsidiaries, as of a date within 90 days of the consummation of the transaction with respect to which the computation of Consolidated Net Assets is made, prepared in accordance with generally accepted accounting principles, with appropriate adjustments for (a) the estimated anticipated results of normal operations between such date and the date of consummation of such transaction, and (b) all transactions occurring during such period out of the course of normal operations. VII. In any computation of Consolidated Funded Indebtedness or Consolidated Net Assets, there shall be excluded (a) all obligations with respect to which an amount sufficient to discharge the same in full shall have been deposited, in trust for the payment thereof, and (b) all moneys so deposited for the payment of such obligations or deposited, in trust, for the retirement of shares of stock. VIII. In any computation of Consolidated Net Income or Consolidated Net Earnings (a) all inter-company items shall be eliminated, (b) no deduction shall be made from earnings for any costs or changes incident to the redemption after June 1, 1946, of shares of Cumulative Preferred Stock of the Corporation outstanding on said date, and (c) such computation shall be made in accordance with generally accepted accounting principles and, when required to be made up to the date of consummation of a proposed transaction, may be made as of a period ending not earlier than 90 days prior to 3 the consummation of such transaction, but in any such case such computation shall be adjusted by taking into consideration the estimated anticipated results from operations from the close of the period as of which such computation shall have been made up to the date of consummation of such proposed transaction. SECTION 2. The express terms and provisions of the Preferred Shares are as follows: I. Preferred Shares may be issued in series from time to time. Within the limitations and restrictions set forth in this Article FOURTH, the Board of Directors is expressly authorized, at one time or from time to time, to adopt amendments to the Articles of Incorporation in respect of any authorized and unissued Preferred Shares to fix or alter the division of such shares into series, the designation and number of shares of each series, the dividend rates, redemption rights, redemption prices, liquidation prices, sinking fund requirements, conversion rights, and restrictions on issuance of shares of the same series or of any other class or series. The express terms and provisions of Preferred Shares of different series shall be identical except that there may be variations in respect of any or all of the particulars hereinbefore set forth in this subsection I. In case the stated dividends or the amounts payable on dissolution, liquidation, or sale of assets of the Corporation are not paid in full, all Preferred Shares of all series shall participate ratably in the payment of dividends, including accumulations, if any, in proportion to the sums which would be payable thereon if all dividends thereon were paid in full, and, in any distribution of assets other than by way of dividends, in proportion to the sums which would be payable on such distribution if all sums payable thereon to holders of Preferred Shares were discharged in full. II. The holders of Preferred Shares shall be entitled to receive when and as declared out of the surplus of the Corporation, subject to any limitations prescribed by statute, cash dividends at the respective rates fixed as aforesaid by the Board of Directors for the shares of the several series of Preferred Shares, and no more. Dividends on the Preferred Shares shall be payable quarterly on the first days of March, June, September and December in each year. Dividends on each Preferred Share shall be cumulative from the first day of the dividend period in which such share is issued, except that if any share is issued after the record date fixed for determining the holders of Preferred Shares of such series entitled to the dividend for such period, dividends on such share shall be cumulative from the first day of the dividend period next following the date of issuance of such share, and except that dividends on any share of a particular series issued prior to the first dividend payment date for shares of such series shall be cumulative from such date as shall be fixed by the Board of Directors prior to the issuance thereof, but not earlier than the beginning of the current dividend period. The Preferred Shares shall rank pari passu with the Voting Preferred Shares and the No Par Preferred Shares with respect to the payment of dividends. Subject to the provisions of this Article FOURTH, the holders of all shares ranking junior to the Preferred Shares with respect to the payment of dividends shall be entitled to receive such dividends as may from time to time be declared thereon by the Board of Directors. III. Except as may be otherwise expressly provided in this Article FOURTH, the Corporation shall have the right to redeem the Preferred Shares of any one or more series at any time, either in whole or in such portions, as, from time to time, the Board of Directors may determine, upon the payment to the respective holders thereof of the "General Redemption Price" thereof. The General Redemption Price for shares of each series shall be an amount equal to the sum of (a) the redemption price fixed by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series; and (b) an amount equivalent to all accumulated and unpaid dividends on the shares to be redeemed to the date fixed for redemption (hereinafter referred to as the "Redemption Date"), whether or not such dividends shall have been earned or declared. In lieu of such payment the Corporation may deposit the General Redemption Price of the shares to be redeemed on or prior to the Redemption Date, with such responsible bank or trust company or bank and trust company in the Borough of 4 Manhattan, in the City of New York, State of New York, having a capital and surplus of not less than $5,000,000, as may be designated by the Board of Directors, in trust, for payment on or after the date of such deposit (without awaiting the Redemption Date) to the holders of the Preferred Shares then to be redeemed. If less than the whole amount of outstanding Preferred Shares of any particular series shall be redeemed at any time, the shares thereof to be redeemed shall be selected by lot. Notice of any such redemption, in whole or in part, and of any such deposit made or to be made of such General Redemption Price, shall be mailed to each holder of Preferred Shares so to be redeemed, at his address registered with the Corporation, not less than thirty days prior to the Redemption Date, and, if less than all of the said shares owned by such shareholder are to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. Such notice having been so given, or irrevocable written authority to the depositary having been given at the time of making the deposit provided for herein forthwith to give such notice, all rights of the respective holders of the said shares as shareholders of the Corporation by reason of the ownership of such shares, except the right to receive the General Redemption Price of such shares upon presentation and surrender of their respective certificates representing the said shares, shall cease from and after the Redemption Date (unless default shall be made by the Corporation in providing moneys for the payment of the General Redemption Price), or, if the General Redemption Price shall have been deposited on or prior to the Redemption Date as above permitted, from and after the date of such deposit; provided, however, that in lieu of the right to receive the General Redemption Price, any rights of conversion or exchange may be exercised up to the close of business on the Redemption Date. If after such deposit any Preferred Shares so called shall be converted or exchanged, the amount theretofore deposited with the depositary for the redemption thereof shall forthwith be paid over by it to the Corporation. Any other moneys so deposited which shall remain unclaimed by the holders of Preferred Shares so called for redemption at the end of two years after the Redemption Date shall be paid by such depositary to the Corporation, after which the holders of such Preferred Shares shall look only to the Corporation for payment of the General Redemption Price thereof, without interest. IV. Upon the dissolution, liquidation or sale of all or substantially all the assets of the Corporation, the holders of Preferred Shares shall be entitled to receive the following sums, before any payment shall be made to any other class of shares ranking junior to the Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets: (a) in case of any involuntary dissolution or liquidation or forced sale of all or substantially all the assets of the Corporation, each Preferred Share of each series shall be entitled to receive the sum of $100, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment; or (b) in case of any voluntary dissolution or liquidation or voluntary sale of all or substantially all the assets of the Corporation, each Preferred Share of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment. The Preferred Shares shall rank pari passu with the Voting Preferred Shares and the No Par Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets. After all sums payable on the Preferred Shares as herein provided upon a particular contingency shall have been paid in full, but not prior thereto, the other classes of shares ranking junior to the Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets shall be entitled to payment of all other sums then distributable, subject to the respective terms and provisions (if any) applying to such class or classes of shares, respectively. For the purposes of this subsection IV, a consolidation or merger of the Corporation with or into any other corporation, or a consolidation or merger of any other corporation with or into the Corporation shall not be deemed a dissolution, liquidation, or sale of assets. 5 V. Except as herein or by law expressly provided to the contrary, the holders of Preferred Shares shall have no right as such holders to vote at or participate in any meeting of shareholders of the Corporation or to receive any notice of any such meeting. If, however, dividends on any of the Preferred Shares shall be in arrears in an amount equal to the annual dividends thereon, the holders of all of the Preferred Shares shall be entitled to vote at all meetings of shareholders of the Corporation and to receive notice of all such meetings. Such voting rights of the holders of Preferred Shares shall continue until all accumulated and unpaid dividends on all Preferred Shares shall have been paid, whereupon all such voting rights shall cease, subject to being revived from time to time upon the reoccurrence of the conditions above described as giving rise thereto. At any meeting at which the holders of the Preferred Shares shall be entitled to vote, each vote cast pursuant to the provisions of this subsection V on behalf of the holder of a Preferred Share shall be counted as such number of votes as shall equal the quotient derived from dividing the number of Preferred Shares of all series then outstanding into the total number of votes to which at such time all outstanding shares ranking junior to the Preferred Shares with respect to the payment of dividends or distributions in liquidation may be collectively entitled, except that so long as any Second Preferred Shares shall be outstanding, the number of votes to which each Preferred Share shall be entitled shall be one-half the number of votes to which each Preferred Share would be entitled under the above provisions. For the purposes of the above computation, shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding, and such shares shall have no right whatsoever to vote at or to receive notice of any meeting other than such rights as may be expressly granted by law. VI. So long as any of the Preferred Shares shall remain outstanding, no dividend (other than dividends payable in shares ranking junior to the Preferred Shares with respect to the payment of dividends and distributions in liquidation) shall be paid, nor shall any distribution (by purchase, redemption, payment to any sinking fund, or otherwise) be made, on any shares ranking junior to the Preferred Shares with respect to the payment of dividends or distributions in liquidation, unless: (a) all dividends on all outstanding Preferred Shares, Voting Preferred Shares and No Par Preferred Shares shall have been paid, and full dividends thereon for the then current quarterly dividend period shall have been declared and a sum sufficient for the payment thereof set apart therefor; (b) the Corporation shall not be in arrears in respect of any sinking fund obligation in respect of any series of Preferred Shares, Voting Preferred Shares, or No Par Preferred Shares; (c) after giving effect to the payment of the proposed dividend or distribution, the aggregate of all such dividends and distributions paid, subsequent to December 29, 1945, shall not exceed the sum of (i) Consolidated Net Income earned after said date less the aggregate of all dividends paid on the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, all sinking fund payments with respect thereto, and all amounts credited against such payments for the voluntary purchase or redemption of Preferred Shares, Voting Preferred Shares or No Par Preferred Shares, (ii) the net proceeds of the sale subsequent to September 1, 1946, of shares ranking junior to the Preferred Shares with respect to the payment of dividends and distributions in liquidation, (iii) the principal amount of indebtedness converted, subsequent to April 1, 1967, and the stated capital of shares ranking equal with or prior to the Preferred Shares with respect to the payment of dividends and distributions in liquidation converted, subsequent to April 1, 1967, into shares ranking junior to the Preferred Shares with respect to the payment of dividends and distributions in liquidation, and (iv) $l,000,000; and (d) if such dividend or distribution be on the Common Shares, after giving effect to the payment of the proposed dividend or distribution, Consolidated Net Assets shall be at least 175% of the sum of (i) Consolidated Funded Indebtedness, (ii) the aggregate par value of (and/or, in the case of shares without par value, stated capital applicable to) the outstanding Preferred Shares 6 of all series and all other outstanding shares of the Corporation ranking equally with or prior to the Preferred Shares with respect to the payment of dividends or distributions in liquidation, including shares owned by the Corporation, and (iii) capital and surplus of Subsidiaries applicable to or represented by shares owned by others than the Corporation or its Subsidiaries. The purchase or other acquisition by a Subsidiary or Affiliate of shares of the Corporation shall be deemed a purchase or acquisition of such shares by the Corporation within the meaning of this subsection VI. VII. Without the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the Preferred Shares at the time outstanding, as a class, the Corporation shall not: (a) increase the number of authorized Preferred Shares to an amount in excess of 100,000; (b) increase the number of authorized Voting Preferred Shares to an amount in excess of 20,000,000; (c) increase the number of authorized No Par Preferred Shares to an amount in excess of 20,000,000; (d) authorize or issue any shares other than Preferred Shares, Voting Preferred Shares, No Par Preferred Shares or shares ranking junior to the Preferred Shares with respect to the payment of dividends and distributions in liquidation; (e) adopt or effect any amendment to its Articles of Incorporation which would be substantially prejudicial to the holders of Preferred Shares; provided, however, that if such amendment would be substantially prejudicial to the holders of Preferred Shares of one or more series, but less than all of the several series of Preferred Shares, or would unequally affect two or more series in a substantially prejudicial manner, the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the shares of each series so affected at the time outstanding, voting as a sub-class, shall be required in addition to the said vote or written consent of the holders of at least two-thirds of the Preferred Shares of all series at the time outstanding, voting as a class; and provided, further, that any such amendment, when effected upon such vote or consent, shall not confer upon dissenting holders of Preferred Shares any right to payment for their shares; (f) sell, convey, lease or otherwise part with all or substantially all of its assets, property or business, or consolidate or merge with or into any other corporation, or merge any other corporation into itself; provided, however, that this restriction shall not apply to a consolidation or merger to which the Corporation is a party if none of the rights or preferences of the Preferred Shares shall be adversely affected thereby; or (g) give any guarantee or similar obligation for the payment of any share or dividend by any other corporation or person; provided, however, that this restriction shall not apply to any guarantee or similar obligation for the payment of any share or dividend by any corporation which at the time the guarantee or similar obligation is given is a Subsidiary. For the purpose of determining whether such affirmative vote or written consent required by this subsection VII has been obtained, Preferred Shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding or entitled to participate in any such vote or consent. VIII. So long as any dividend on any Preferred Shares shall be in arrears and unpaid, the Corporation shall not redeem any Preferred Shares (unless all outstanding Preferred Shares shall be redeemed) or purchase any Preferred Shares, or permit any Subsidiary or Affiliate to make any such purchase, unless such redemption or purchase shall be accomplished not earlier than 30 days and not later than 90 7 days after the mailing of a written purchase offer to each holder of record of Preferred Shares at the address of such shareholder registered with the Corporation. Any such purchase offer shall be made upon terms that will result in holders of Preferred Shares of the several series being offered prices in proportion to the several dividend rates applicable thereto. IX. Preferred Shares acquired by the Corporation through the exercise by the holders thereof of any conversion privilege shall not be re-issued except as hereinafter provided. Such shares and any other Preferred Shares acquired by the Corporation otherwise than through the operation of any sinking fund and not used to reduce the amount of any sinking fund instalment shall, upon compliance with such provisions of law relating to the retirement of shares as may be applicable, have the status of authorized and unissued Preferred Shares which are unclassified into any series. Preferred Shares acquired by the Corporation through the operation of any sinking fund or which have been used to reduce the amount of any sinking fund instalment shall be cancelled and not re-issued, and the Corporation shall from time to time take appropriate corporate action to reduce the authorized number of Preferred Shares accordingly. X. No holder of Preferred Shares of any series shall, as such holder, have any preemptive rights in, or preemptive rights to purchase or subscribe to, any shares of the Corporation, or any bonds, debentures, or other securities convertible into any shares of the Corporation, other than such rights of conversion or exchange as shall be expressly granted by the Board of Directors prior to the initial issuance of the first shares of the series of which such Preferred Shares shall constitute a part; and, except as aforesaid, each and every holder of Preferred Shares, by accepting the same, thereby waives and releases any and all preemptive rights which he might otherwise have to purchase any shares which may at any time be issued by the Corporation. SECTION 3. The express terms and provisions of the Voting Preferred Shares are as follows: I. Voting Preferred Shares may be issued in series from time to time. Within the limitations and restrictions set forth in this Article FOURTH, the Board of Directors is expressly authorized, at one time or from time to time, to adopt amendments to the Articles of Incorporation in respect of any authorized and unissued Voting Preferred Shares to fix or alter the division of such shares into series, the designation and number of shares of each series, the dividend rates, redemption rights, redemption prices, liquidation prices, sinking fund requirements, conversion rights, and restrictions on issuance of shares of the same series or of any other class or series. Voting Preferred Shares may, if authorized by such amendments to the Articles of Incorporation, be convertible at the option of the holder thereof into full paid and nonassessable Common Shares of the Corporation during such period or periods at such rate or rates (which rate or rates of some or all series may be determinable in whole or in part by the payment of money to the Corporation by the holder exercising the option to convert), as may be determined by such amendments. The express terms and provisions of Voting Preferred Shares of different series shall be identical except that there may be variations in respect of any or all of the particulars hereinbefore set forth in this subsection I. In case the stated dividends or the amounts payable on dissolution, liquidation, or sale of assets of the Corporation are not paid in full, all Voting Preferred Shares of all series shall participate ratably in the payment of dividends, including accumulations, if any, in proportion to the sums which would be payable thereon if all dividends thereon were paid in full, and, in any distribution of assets other than by way of dividends, in proportion to the sums which would be payable on such distribution if all sums payable thereon to holders of Voting Preferred Shares were discharged in full. II. The holders of Voting Preferred Shares shall be entitled to receive when and as declared out of the surplus of the Corporation, subject to any limitations prescribed by statute, cash dividends at the respective rates fixed as aforesaid by the Board of Directors for the shares of the several series of Voting Preferred Shares, and no more. Dividends on the Voting Preferred Shares shall be payable quarterly on the first days of March, June, September and December in each year. Dividends on each 8 Voting Preferred Share shall be cumulative from the first day of the dividend period in which such share is issued, except that if any share is issued after the record date fixed for determining the holders of Voting Preferred Shares of such series entitled to the dividend for such period, dividends on such share shall be cumulative from the first day of the dividend period next following the date of issuance of such share, and except that dividends on any share of a particular series issued prior to the first dividend payment date for shares of such series shall be cumulative from such date as shall be fixed by the Board of Directors prior to the issuance thereof, but not earlier than the beginning of the current dividend period. The Voting Preferred Shares shall rank pari passu with the Preferred Shares and the No Par Preferred Shares with respect to the payment of dividends. Subject to the provisions of this Article FOURTH, the holders of all shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends shall be entitled to receive such dividends as may from time to time be declared thereon by the Board of Directors. III. Except as may be otherwise expressly provided in this Article FOURTH, the Corporation shall have the right to redeem the Voting Preferred Shares of any one or more series at any time, either in whole or in such portions, as, from time to time, the Board of Directors may determine, upon the payment to the respective holders thereof of the "General Redemption Price" thereof. The General Redemption Price for shares of each series shall be an amount equal to the sum of (a) the redemption price fixed by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series; and (b) an amount equivalent to all accumulated and unpaid dividends on the shares to be redeemed to the date fixed for redemption (hereinafter referred to as the "Redemption Date"), whether or not such dividends shall have been earned or declared. In lieu of such payment the Corporation may deposit the General Redemption Price of the shares to be redeemed on or prior to the Redemption Date, with such responsible bank or trust company or bank and trust company in the Borough of Manhattan, in the City of New York, State of New York, having a capital and surplus of not less than $5,000,000, as may be designated by the Board of Directors, in trust, for payment on or after the date of such deposit (without awaiting the Redemption Date) to the holders of the Voting Preferred Shares then to be redeemed. If less than the whole amount of outstanding Voting Preferred Shares of any particular series shall be redeemed at any time, the shares thereof to be redeemed shall be selected by lot. Notice of any such redemption, in whole or in part, and of any such deposit made or to be made of such General Redemption Price, shall be mailed to each holder of Voting Preferred Shares so to be redeemed, at his address registered with the Corporation, not less than thirty days prior to the Redemption Date, and, if less than all of the said shares owned by such shareholder are to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. Such notice having been so given, or irrevocable written authority to the depositary having been given at the time of making the deposit provided for herein forthwith to give such notice, all rights of the respective holders of the said shares as shareholders of the Corporation by reason of the ownership of such shares, except the right to receive the General Redemption Price of such shares upon presentation and surrender of their respective certificates representing the said shares, shall cease from and after the Redemption Date (unless default shall be made by the Corporation in providing moneys for the payment of the General Redemption Price), or, if the General Redemption Price shall have been deposited on or prior to the Redemption Date as above permitted, from and after the date of such deposit; provided, however, that in lieu of the right to receive the General Redemption Price, any rights of conversion or exchange may be exercised up to the close of business on the Redemption Date. If after such deposit any Voting Preferred Shares so called shall be so converted or exchanged, the amount theretofore deposited with the depositary for the redemption thereof shall forthwith be paid over by it to the Corporation. Any other moneys so deposited which shall remain unclaimed by the holders of Voting Preferred Shares so called for redemption at the end of two years after the Redemption Date shall be paid by such depositary to the Corporation, after which the holders of such Voting Preferred Shares shall look only to the Corporation for payment of the General Redemption Price thereof, without interest. 9 IV. Upon the dissolution, liquidation or sale of all or substantially all of the assets of the Corporation, the holders of Voting Preferred Shares shall be entitled to receive the following sums, before any payment shall be made to any other class of shares ranking junior to the Voting Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets: (a) in case of any involuntary dissolution or liquidation or forced sale of all or substantially all the assets of the Corporation, each Voting Preferred Shares of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment; or (b) in case of any voluntary dissolution or liquidation or voluntary sale of all or substantially all the assets of the Corporation, each Voting Preferred Share of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment. The Voting Preferred Shares shall rank pari passu with the Preferred Shares and the No Par Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets. After all sums payable on the Voting Preferred Shares as herein provided upon a particular contingency shall have been paid in full, but not prior thereto, the other classes of shares ranking junior to the Voting Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets shall be entitled to payment of all other sums then distributable, subject to the respective terms and provisions (if any) applying to such class or classes of shares, respectively. For the purposes of this subsection IV, a consolidation or merger of the Corporation with or into any other corporation, or a consolidation or merger of any other corporation with or into the Corporation shall not be deemed a dissolution, liquidation, or sale of assets. V. The holders of Voting Preferred Shares shall be entitled to one vote for each Voting Preferred Share held by them respectively. In addition to such general voting rights, the holders of Voting Preferred Shares shall have the following voting rights. If dividends on any of the Voting Preferred Shares shall be in arrears in an amount equal to 150% of the annual dividends thereon, the holders of the Voting Preferred Shares shall have the special right, voting as a class, to elect the number of directors hereinafter provided. The remaining directors shall be elected by the other class or classes (Preferred Shares, No Par Preferred Shares, Second Preferred Shares and/or Common Shares) entitled to vote therefor. The holders of Voting Preferred Shares shall have the right to elect that number of directors which bears the same proportion to the number of directors constituting the entire board of directors as the outstanding Voting Preferred Shares bears to the total of the outstanding Common Shares and Voting Preferred Shares, or in any event a minimum number of two directors. From and after the election of directors by the holders of Voting Preferred Shares, as aforesaid, and so long as one or more directors so elected continue to hold office, the holders of such Voting Preferred Shares shall not be entitled to exercise their general voting rights with respect to the election of the other directors. If, however, the holders of such Voting Preferred Shares do not exercise their rights to elect directors, voting as a class, they shall continue to be entitled to exercise their general voting rights with respect to the election of directors. Whenever the special voting right of the holders of Voting Preferred Shares shall have vested, such special right may be exercised initially either at a special meeting of such holders, called as hereinafter provided, or at any annual meeting of shareholders held for the purpose of electing directors, and thereafter at such annual meetings. The special right of the holders of the Voting Preferred Shares, voting as a class, to elect directors as provided herein, shall continue until such time as all dividends accumulated on the Voting Preferred Shares shall have been paid in full, at which time the right of the holders of 10 Voting Preferred Shares to exercise such special voting right shall terminate, subject to revesting in the event of each and every subsequent default of the character above-mentioned. At any time when the special voting right shall have vested in the holders of the Voting Preferred Shares as herein provided, and if such right shall not already have been initially exercised, the Secretary of the Corporation shall, upon the written request of the holders of record of at least 10% in amount of the Voting Preferred Shares then outstanding, call a special meeting of the holders of the Voting Preferred Shares for the purpose of exercising their special voting right. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of shareholders. Notwithstanding the provisions of this paragraph, no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of shareholders. At any meeting held for that purpose of electing directors at which the holders of the Voting Preferred Shares shall have the special voting right, as a class, to elect directors as provided herein, the presence in person or by proxy of the holders of 33 1/3% of the then outstanding Voting Preferred Shares shall be required and be sufficient to constitute a quorum for the exercise of such special voting right. At such meeting or adjournment thereof, (a) the absence of a quorum of the Voting Preferred Shares shall not prevent the election of the directors to be elected by the holders of the other class or classes entitled to vote therefor, and the absence of a quorum of such other class or classes shall not prevent the election of the directors to be elected by the special voting right of the holders of the Voting Preferred Shares, and (b) in the absence of a quorum of any class entitled to vote for the election of directors, a majority of the holders present in person or by proxy of such class shall have the power to adjourn the meeting for the exercise of the voting rights of such class, from time to time, without notice other than adjournment at the meeting, until a quorum shall be present. The term of office of all directors in office at any time when special voting power shall, as aforesaid, be vested in the holders of the Voting Preferred Shares, shall terminate upon the election of any directors at any meeting of shareholders held for the purpose of electing directors. Upon any termination of the special voting right of the holders of Voting Preferred Shares provided herein, the term of office of al1 directors then in office shall terminate upon the election of directors at a meeting of the holders of the other class or classes then entitled to vote, which meeting may be held at any time after such termination of the special voting right of the holders of the Voting Preferred Shares, upon notice as above provided, and shall be called by the Secretary of the Corporation upon written request of the holders of record of 10% of the aggregate number of outstanding shares of such other class or classes then entitled to vote for directors. VI. So long as any of the Voting Preferred Shares shall remain outstanding, no dividend (other than dividends payable in shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends and distributions in liquidation) shall be paid, nor shall any distribution (by purchase, redemption, payment to any sinking fund, or otherwise) be made, on any shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends or distributions in liquidation unless: (a) all dividends on all outstanding Preferred Shares, Voting Preferred Shares and No Par Preferred Shares shall have been paid, and full dividends thereon for the then current quarterly dividend period shall have been declared and a sum sufficient for the payment thereof set apart therefor; (b) the Corporation shall not be in arrears in respect of any sinking fund obligation in respect of any series of Preferred Shares, Voting Preferred Shares or No Par Preferred Shares; (c) after giving effect to the payment of the proposed dividend or distribution, the aggregate of all such dividends and distributions paid, subsequent to December 31, 1965, shall not exceed the sum of (i) Consolidated Net Income earned after said date less the aggregate of all dividends paid on the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, all sinking fund payments with respect thereto, and all amounts credited against such payments 11 for the voluntary purchase or redemption of Preferred Shares, Voting Preferred Shares or No Par Preferred Shares, (ii) the net proceeds of the sale subsequent to September 1, 1966, of shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends and distributions in liquidation, (iii) the principal amount of indebtedness converted, subsequent to April 1, 1967, and the stated capital of shares ranking equal with or prior to the Voting Preferred Shares with respect to the payment of dividends and distributions in liquidation converted, subsequent to April 1, 1967, into shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends and distributions in liquidation, and (iv) $32,000,000; and (d) if such dividend or distribution be on the Common Shares, after giving effect to the payment of the proposed dividend or distribution, Consolidated Net Assets shall be at least 175% of the sum of (i) Consolidated Funded Indebtedness, (ii) the aggregate par value of (and/or, in the case of shares without par value, stated capital applicable to) the outstanding Voting Preferred Shares of all series and all other outstanding shares of the Corporation ranking equally with or prior to the Voting Preferred Shares with respect to the payment of dividends or distributions in liquidation, including shares owned by the Corporation, and (iii) capital and surplus of Subsidiaries applicable to or represented by shares owned by others than the Corporation or its Subsidiaries. The purchase or other acquisition by a Subsidiary or Affiliate of shares of the Corporation shall be deemed a purchase or acquisition of such shares by the Corporation within the meaning of this subsection VI. VII. Without the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the Voting Preferred Shares at the time outstanding, as a class, the Corporation shall not: (a) increase the number of authorized Preferred Shares to an amount in excess of 100,000; (b) increase the number of authorized Voting Preferred Shares to an amount in excess of 20,000,000; (c) increase the number of authorized No Par Preferred Shares to an amount in excess of 20,000,000; (d) authorize or issue any shares other than Preferred Shares, Voting Preferred Shares, No Par Preferred Shares or shares ranking junior to the Voting Preferred Shares with respect to the payment of dividends and distributions in liquidation; (e) adopt or effect any amendment to its Articles of Incorporation which would be substantially prejudicial to the holders of Voting Preferred Shares; provided, however, that if such amendment would be substantially prejudicial to the holders of Voting Preferred Shares of one or more series, but less than all of the several series of Voting Preferred Shares, or would unequally affect two or more series in a substantially prejudicial manner, the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the shares of each series so affected at the time outstanding, voting as a sub-class, shall be required in addition to the said vote or written consent of the holders of at least two-thirds of the Voting Preferred Shares of all series at the time outstanding, voting as a class; and provided, further, that any such amendment, when effected upon such vote or consent, shall not confer upon dissenting holders of Voting Preferred Shares any right to payment for their shares; (f) sell, convey, lease or otherwise part with all or substantially all of its assets, property or business, or consolidate or merge with or into any other corporation, or merge any other corporation into itself; provided, however, that this restriction shall not apply to a consolidation or merger to which the Corporation is a party if none of the rights or preferences of the Voting Preferred Shares shall be adversely affected thereby; or 12 (g) give any guarantee or similar obligation for the payment of any share or dividend by any other corporation or person; provided, however, that this restriction shall not apply to any guarantee or similar obligation for the payment of any share or dividend by any corporation which at the time the guarantee or similar obligation is given is a Subsidiary. For the purpose of determining whether such affirmative vote or written consent required by this subsection VII has been obtained, Voting Preferred Shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding or entitled to participate in any such vote or consent. VIII. So long as any dividend on any Voting Preferred Shares shall be in arrears and unpaid, the Corporation shall not redeem any Voting Preferred Shares (unless all outstanding Voting Preferred Shares shall be redeemed) or purchase any Voting Preferred Shares, or permit any Subsidiary or Affiliate to make any such purchase, unless such redemption or purchase shall be accomplished not earlier than 30 days and not later than 90 days after the mailing of a written purchase offer to each holder of record of Voting Preferred Shares at the address of such shareholder registered with the Corporation. Any such purchase offer shall be made upon terms that will result in holders of Voting Preferred Shares of the several series being offered prices in proportion to the several dividend rates applicable thereto. IX. Voting Preferred Shares acquired by the Corporation through the exercise by the holders thereof of any conversion privilege shall not be re- issued except as hereinafter provided. Such shares and any other Voting Preferred Shares acquired by the Corporation otherwise than through the operation of any sinking fund and not used to reduce the amount of any sinking fund instalment shall, upon compliance with such provisions of law relating to the retirement of shares as may be applicable, have the status of authorized and unissued Voting Preferred Shares which are unclassified into any series. Voting Preferred Shares acquired by the Corporation through the operation of any sinking fund or which have been used to reduce the amount of any sinking fund instalment shall be cancelled and not re-issued, and the Corporation shall from time to time take appropriate corporate action to reduce the authorized number of Voting Preferred Shares accordingly. X. No holder of Voting Preferred Shares of any series shall, as such holder, have any preemptive rights in, or preemptive rights to purchase or subscribe to, any shares of the Corporation, or any bonds, debentures, or other securities convertible into any shares of the Corporation, other than such rights of conversion or exchange as shall be expressly granted by the Board of Directors prior to the initial issuance of the first shares of the series of which such Voting Preferred Shares shall constitute a part; and, except as aforesaid, each and every holder of Voting Preferred Shares, by accepting the same, thereby waives and releases any and all preemptive rights which he might otherwise have to purchase any shares which may at any time be issued by the Corporation. SECTION 4. The express terms and provisions of the No Par Preferred Shares are as follows: I. No Par Preferred Shares may be issued in series from time to time. Within the limitations and restrictions set forth in this Article FOURTH, the Board of Directors is expressly authorized, at one time or from time to time, to adopt amendments to the Articles of Incorporation in respect of any authorized and unissued No Par Preferred Shares to fix or alter the division of such shares into series, the designation and number of shares of each series, the dividend rates, redemption rights, redemption prices, liquidation prices, sinking fund requirements, conversion rights, and restrictions on issuance of shares of the same series or of any other class or series. No Par Preferred Shares may, if authorized by such amendments to the Articles of Incorporation, be convertible at the option of the holder thereof into full paid and nonassessable Common Shares of the Corporation during such period or periods at such rate or rates (which rate or rates of some or all series may be determinable in whole or in part by the payment of money to the Corporation by the holder exercising the option to convert), as may 13 be determined by such amendments. The express terms and provisions of No Par Preferred Shares of different series shall be identical except that there may be variations in respect of any or all of the particulars hereinbefore set forth in this subsection I. In case the stated dividends or the amounts payable on dissolution, liquidation, or sale of assets of the Corporation are not paid in full, a11 No Par Preferred Shares of all series shall participate ratably in the payment of dividends, including accumulations, if any, in proportion to the sums which would be payable thereon if all dividends thereon were paid in full, and, in any distribution of assets other than by way of dividends, in proportion to the sums which would be payable on such distribution if all sums payable thereon to holders of No Par Preferred Shares were discharged in full. II. The holders of No Par Preferred Shares shall be entitled to receive when and as declared out of the surplus of the Corporation, subject to any limitations prescribed by statute, cash dividends at the respective rates fixed as aforesaid by the Board of Directors for the shares of the several series of No Par Preferred Shares, and no more. Dividends on the No Par Preferred Shares shall be payable quarterly on the first days of March, June, September and December in each year. Dividends on each No Par Preferred Share shall be cumulative from the first day of the dividend period in which such share is issued, except that if any share is issued after the record date fixed for determining the holders of No Par Preferred Shares of such series entitled to the dividend for such period, dividends on such share shall be cumulative from the first day of the dividend period next following the date of issuance of such share, and except that dividends on any share of a particular series issued prior to the first dividend payment date for shares of such series shall be cumulative from such date as shall be fixed by the Board of Directors prior to the issuance thereof, but not earlier than the beginning of the current dividend period. The No Par Preferred Shares shall rank pari passu with the Preferred Shares and the Voting Preferred Shares with respect to the payment of dividends. Subject to the provisions of this Article FOURTH, the holders of all shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends shall be entitled to receive such dividends as may from time to time be declared thereon by the Board of Directors. III. Except as may be otherwise expressly provided in this Article FOURTH, the Corporation shall have the right to redeem the No Par Preferred Shares of any one or more series at any time, either in whole or in such portions, as, from time to time, the Board of Directors may determine, upon the payment to the respective holders thereof of the "General Redemption Price" thereof. The General Redemption Price for shares of each series shall be an amount equal to the sum of (a) the redemption price fixed by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series; and (b) an amount equivalent to all accumulated and unpaid dividends on the shares to be redeemed to the date fixed for redemption (hereinafter referred to as the "Redemption Date"), whether or not such dividends shall have been earned or declared. In lieu of such payment the Corporation may deposit the General Redemption Price of the shares to be redeemed on or prior to the Redemption Date, with such responsible bank or trust company or bank and trust company in the Borough of Manhattan, in the City of New York, State of New York, having a capital and surplus of not less than $5,000,000, as may be designated by the Board of Directors, in trust, for payment on or after the date of such deposit (without awaiting the Redemption Date) to the holders of the No Par Preferred Shares then to be redeemed. If less than the whole amount of outstanding No Par Preferred Shares of any particular series shall be redeemed at any time, the shares thereof to be redeemed shall be selected by lot. Notice of any such redemption, in whole or in part, and of any such deposit made or to be made of such General Redemption Price, shall be mailed to each holder of No Par Preferred Shares so to be redeemed, at his address registered with the Corporation, not less than thirty days prior to the Redemption Date, and, if less than all of the said shares owned by such shareholder are to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. Such notice having been so given, or irrevocable written authority to the depositary having been given at the time of making the deposit provided for herein forthwith to give such notice, all rights of the respective holders of the said shares as shareholders of the Corporation by reason of the ownership of such shares, except the right 14 to receive the General Redemption Price of such shares upon presentation and surrender of their respective certificates representing the said shares, shall cease from and after the Redemption Date (unless default shall be made by the Corporation in providing moneys for the payment of the General Redemption Price), or, if the General Redemption Price shall have been deposited on or prior to the Redemption Date as above permitted, from and after the date of such deposit; provided, however, that in lieu of the right to receive the General Redemption Price, any rights of conversion or exchange may be exercised up to the close of business on the Redemption Date. If after such deposit any No Par Preferred Shares so called shall be so converted or exchanged, the amount theretofore deposited with the depositary for the redemption thereof shall forthwith be paid over by it to the Corporation. Any other moneys so deposited which shall remain unclaimed by the holders of No Par Preferred Shares so called for redemption at the end of two years after the Redemption Date shall be paid by such depositary to the Corporation, after which the holders of such No Par Preferred Shares shall look only to the Corporation for payment of the General Redemption Price thereof, without interest. IV. Upon the dissolution, liquidation or sale of all or substantially all the assets of the Corporation, the holders of No Par Preferred Shares shall be entitled to receive the following sums, before any payment shall be made to any other class of shares ranking junior to the No Par Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets: (a) in case of any involuntary dissolution or liquidation or forced sale of all or substantially all the assets of the Corporation, each No Par Preferred Share of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment; or (b) in case of any voluntary dissolution or liquidation or voluntary sale of all or substantially all the assets of the Corporation, each No Par Preferred Share of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment. The No Par Preferred Shares shall rank pari passu with the Preferred Shares and the Voting Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets. After all sums payable on the No Par Preferred Shares as herein provided upon a particular contingency shall have been paid in full, but not prior thereto, the other classes of shares ranking junior to the No Par Preferred Shares with respect to payment upon dissolution, liquidation, or sale of assets shall be entitled to payment of all other sums then distributable, subject to the respective terms and provisions (if any) applying to such class or classes of shares, respectively. For the purposes of this subsection IV, a consolidation or merger of the Corporation with or into any other corporation, or a consolidation or merger of any other corporation with or into the Corporation shall not be deemed a dissolution, liquidation, or sale of assets. V. Except as herein or by law expressly provided to the contrary, the holders of No Par Preferred Shares shall have no right as such holders to vote at or participate in any meetings of shareholders of the Corporation or to receive any notice of any such meeting. If, however, dividends on any of the No Par Preferred Shares shall be in arrears in an amount equal to 150% of the annual dividends thereon, the holders of the No Par Preferred Shares shall be entitled to vote at all meetings of shareholders of the Corporation and to receive notice of all such meetings and shall have the right, voting as a class, to elect the number of directors hereinafter provided. The remaining directors shall be elected by the other class or classes (Preferred Shares, Voting Preferred Shares, Second Preferred Shares and/or Common Shares) entitled to vote therefor. The holders of No Par Preferred Shares shall have the right to elect that number of directors which bears the same proportion to the number 15 of directors constituting the entire board of directors as the outstanding No Par Preferred Shares bears to the total of the outstanding Common Shares and Voting Preferred Shares, or in any event, the holders of No Par Preferred Shares shall have the right to elect a minimum number of two directors. Such voting rights of the holders of No Par Preferred Shares shall continue until all accumulated and unpaid dividends on all No Par Preferred Shares shall have been paid, whereupon all such voting rights shall cease, subject to being revived from time to time upon the reoccurrence of the conditions above described as giving rise thereto. Whenever the voting right of the holders of No Par Preferred Shares shall have vested, such right may be exercised initially either at a meeting of such holders, called as hereinafter provided, or at any annual meeting of shareholders held for the purpose of electing directors, and thereafter, at such annual meetings. The right of the holders of the No Par Preferred Shares, voting as a class, to elect directors as provided herein, shall continue until such time as all dividends accumulated on the No Par Preferred Shares shall have been paid in full, at which time the right of the holders of No Par Preferred Shares to exercise such voting right shall terminate, subject to revesting in the event of each and every subsequent default of the character above-mentioned. At any time when the voting right shall have vested in the holders of the No Par Preferred Shares as herein provided, and if such right shall not already have been initially exercised, the Secretary of the Corporation shall, upon the written request of the holders of record of at least 10% in amount of the No Par Preferred Shares then outstanding, call a special meeting of the holders of the No Par Preferred Shares for the purpose of exercising their voting right. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of shareholders. Notwithstanding the provisions of this paragraph, no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of shareholders. At any meeting held for the purpose of electing directors at which the holders of the No Par Preferred Shares shall have the voting right, as a class, to elect directors as provided herein, the presence in person or by proxy of the holders of 33 1/3% of the then outstanding No Par Preferred Shares shall be required and be sufficient to constitute a quorum for the exercise of such voting right. At such meeting or adjournment thereof, (a) the absence of a quorum of the No Par Preferred Shares shall not prevent the election of the directors to be elected by the holders of the other class or classes entitled to vote therefor, and the absence of a quorum of such other class or classes shall not prevent the election of the directors to be elected by the voting right of the holders of the No Par Preferred Shares, and (b) in the absence of a quorum of any class entitled to vote for the election of directors, a majority of the holders present in person or by proxy of such class shall have the power to adjourn the meeting for the exercise of the voting rights of such class, from time to time, without notice other than adjournment at the meeting, until a quorum shall be present. The term of office of all directors in office at any time when voting power shall, as aforesaid, be vested in the holders of the No Par Preferred Shares, shall terminate upon the election of any directors at any meeting of shareholders held for the purpose of electing directors. Upon any termination of the voting right of the holders of No Par Preferred Shares provided herein, the term of office of all directors then in office shall terminate upon the election of directors at a meeting of the holders of the other class or classes then entitled to vote, which meeting may be held at any time after such termination of the voting right of the holders of the No Par Preferred Shares, upon notice as above provided, and shall be called by the Secretary of the Corporation upon written request of the holders of record of 10% of the aggregate number of outstanding shares of such other class or classes then entitled to vote for directors. VI. So long as any of the No Par Preferred Shares shall remain outstanding, no dividend (other than dividends payable in shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends and distributions in liquidation) shall be paid, nor shall any distribution (by purchase, redemption, payment to any sinking fund, or otherwise) be made, on any shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends or distributions in liquidation unless: 16 (a) all dividends on all outstanding Preferred Shares, Voting Preferred Shares and No Par Preferred Shares shall have been paid, and full dividends thereon for the then current quarterly dividend period shall have been declared and a sum sufficient for the payment thereof set apart therefor; (b) the Corporation shall not be in arrears in respect of any sinking fund obligation in respect of any series of Preferred Shares, Voting Preferred Shares or No Par Preferred Shares; (c) after giving effect to the payment of the proposed dividend or distribution, the aggregate of all such dividends and distributions paid, subsequent to December 31, 1966, shall not exceed the sum of (i) Consolidated Net Income earned after said date less the aggregate of all dividends paid on the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, all sinking fund payments with respect thereto, and all amounts credited against such payments for the voluntary purchase or redemption of Preferred Shares, Voting Preferred Shares or No Par Preferred Shares, (ii) the net proceeds of the sale subsequent to April 1, 1967, of shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends and distributions in liquidation, (iii) the principal amount of indebtedness converted, subsequent to April 1, 1967, and the stated capital of shares ranking equal with or prior to the No Par Preferred Shares with respect to the payment of dividends and distributions in liquidation converted, subsequent to April 1, 1967, into shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends and distributions in liquidation, and (iv) $33,000,000; and (d) if such dividend or distribution be on the Common Shares, after giving effect to the payment of the proposed dividend or distribution, Consolidated Net Assets shall be at least 175% of the sum of (i) Consolidated Funded Indebtedness, (ii) the aggregate par value of (and/or, in the case of shares without par value, stated capital applicable to) the outstanding No Par Preferred Shares of all series and all other outstanding shares of the Corporation ranking equally with or prior to the No Par Preferred Shares with respect to the payment of dividends or distributions in liquidation, including shares owned by the Corporation, and (iii) capital and surplus of Subsidiaries applicable to or represented by shares owned by others than the Corporation or its Subsidiaries. The purchase or other acquisition by a Subsidiary or Affiliate of shares of the Corporation shall be deemed a purchase or acquisition of such shares by the Corporation within the meaning of this subsection VI. VII. Without the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the No Par Preferred Shares at the time outstanding, as a class, the Corporation shall not: (a) increase the number of authorized Preferred Shares to an amount in excess of 100,000; (b) increase the number of authorized Voting Preferred Shares to an amount in excess of 20,000,000; (c) increase the number of authorized No Par Preferred Shares to an amount in excess of 20,000,000; (d) authorize or issue any shares other than Preferred Shares, Voting Preferred Shares, No Par Preferred Shares or shares ranking junior to the No Par Preferred Shares with respect to the payment of dividends and distributions in liquidation; (e) adopt or effect any amendment to its Articles of Incorporation which would be substantially prejudicial to the holders of No Par Preferred Shares; provided, however, that if such amendment would be substantially prejudicial to the holders of No Par Preferred Shares of one or more series, but less than all of the several series of No Par Preferred Shares, or would unequally 17 affect two or more series in a substantially prejudicial manner, the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the shares of each series so affected at the time outstanding, voting as a sub-class, shall be required in addition to the said vote or written consent of the holders of at least two-thirds of the no Par Preferred Shares of all series at the time outstanding, voting as a class; and provided, further, that any such amendment, when effected upon such vote or consent, shall not confer upon dissenting holders of No Par Preferred Shares any right to payment for their shares; (f) sell, convey, lease or otherwise part with all or substantially all of its assets, property or business, or consolidate or merge with or into any other corporation, or merge any other corporation into itself; provided, however, that this restriction shall not apply to a consolidation or merger to which the Corporation is a party if none of the rights or preferences of the No Par Preferred Shares shall be adversely affected thereby; or (g) give any guarantee or similar obligation for the payment of any share or dividend by any other corporation or person; provided, however, that this restriction shall not apply to any guarantee or similiar obligation for the payment of any share or dividend by any corporation which at the time the guarantee or similiar obligation is given is a Subsidiary. For the purpose of determining whether such affirmative vote or written consent required by this subsection VII has been obtained, No Par Preferred Shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding or entitled to participate in any such vote or consent. VIII. So long as any dividend on any No Par Preferred Shares shall be in arrears and unpaid, the Corporation shall not redeem any No Par Preferred Shares (unless all outstanding No Par Preferred Shares shall be redeemed) or purchase any No Par Preferred Shares, or permit any Subsidiary or Affiliate to make any such purchase, unless such redemption or purchase shall be accomplished not earlier than 30 days and not later than 90 days after the mailing of a written purchase offer to each holder of record of No Par Preferred Shares at the address of such shareholder registered with the Corporation. Any such purchase offer shall be made upon terms that will result in holders of No Par Preferred Shares of the several series being offered prices in proportion to the several dividend rates applicable thereto. IX. No Par Preferred Shares acquired by the Corporation through the exercise by the holders thereof of any conversion privilege shall not be re-issued except as hereinafter provided. Such shares and any other No Par Preferred Shares acquired by the Corporation otherwise than through the operation of any sinking fund and not used to reduce the amount of any sinking fund instalment shall, upon compliance with such provisions of law relating to the retirement of shares as may be applicable, have the status of authorized and unissued No Par Preferred Shares which are unclassified into any series. No Par Preferred Shares acquired by the Corporation through the operation of any sinking fund or which have been used to reduce the amount of any sinking fund instalment shall be cancelled and not re-issued, and the Corporation shall from time to time take appropriate corporate action to reduce the authorized number of No Par Preferred Shares accordingly. X. No holder of No Par Preferred Shares of any series shall, as such holder, have any preemptive rights in, or preemptive rights to purchase or subscribe to, any shares of the Corporation, or any bonds, debentures, or other securities convertible into any shares of the Corporation, other than such rights of conversion or exchange as shall be expressly granted by the Board of Directors prior to the initial issuance of the first shares of the series of which such No Par Preferred Shares shall constitute a part; and, except as aforesaid, each and every holder of No Par Preferred Shares, by accepting the same, thereby waives and releases any and all preemptive rights which he might otherwise have to purchase any shares which may at any time be issued by the Corporation. 18 SECTION 5. The express terms and provisions of the Second Preferred Shares are as follows: I. The rights and preferences of the Second Preferred Shares shall be subject in all respects to the rights and preferences of the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares in the manner and to the extent provided in this Article FOURTH. The Second Preferred Shares may be issued in series from time to time. Within the limitations and restrictions set forth in this Article FOURTH, the Board of Directors is expressly authorized, at one time or from time to time, to adopt amendments to the Articles of Incorporation in respect of any authorized and unissued Second Preferred Shares to fix or alter the division of such shares into series, the designation and number of shares of each series, the dividend rates, redemption rights, redemption prices, liquidation prices, sinking fund and market fund requirements, conversion rights, and restrictions on issuance of shares of the same series or of any other class or series. The express terms and provisions of Second Preferred Shares of different series shall be identical except that there may be variations in respect of any or all of the particulars hereinabove set forth in this subsection I. In case the stated dividends or the amounts payable on dissolution, liquidation or sale of assets of the Corporation are not paid in full, all Second Preferred Shares of all series shall participate ratably in the payment of dividends, including accumulations, if any, in proportion to the sums which would be payable thereon if all dividends thereon were paid in full, and, in any distribution of assets other than by way of dividends, in proportion to the sums which would be payable on such distribution if all sums payable thereon to holders of Second Preferred Shares were discharged in full. II. The Second Preferred Shares shall rank junior to the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares with respect to the payment of dividends. Subject to the prior rights of the holders of Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, the holders of Second Preferred Shares shall be entitled to receive when and as declared out of the surplus of the Corporation, subject to any limitations prescribed by statute, cash dividends at the respective rates fixed as aforesaid by the Board of Directors for the shares of the several series of Second Preferred Shares, and no more. Dividends on the Second Preferred Shares shall be payable quarterly on the first day of March, June, September and December in each year. Dividends on each Second Preferred Share shall be cumulative from the first day of the dividend period in which such share is issued, except that if any share is issued after the record date fixed for determining the holders of Second Preferred Shares of such series entitled to the dividend for such period, dividends on such shares shall be cumulative from the first day of the dividend period next following the date of issuance of such share, and except that dividends on any share of a particular series issued prior to the first dividend payment date for shares of such series shall be cumulative from such date as shall be fixed by the Board of Directors prior to the issuance thereof, but not earlier than the beginning of the current dividend period. Subject to the provisions of this Article FOURTH, the holders of all shares ranking junior to the Second Preferred Shares with respect to the payment of dividends shall be entitled to receive such dividends as may from time to time be declared thereon by the Board of Directors. III. Except as may be otherwise expressly provided in this Article FOURTH, the Corporation shall have the right to redeem the Second Preferred Shares of any one or more series at any time, either in whole or in such portions, as, from time to time, the Board of Directors may determine, upon the payment to the respective holders thereof of the "General Redemption Price" thereof. The General Redemption Price for shares of each series shall be an amount equal to the sum of (a) the redemption price fixed by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series; and (b) an amount equivalent to all accumulated and unpaid dividends on the shares to be redeemed to the date fixed for redemption (hereinafter referred to as the "Redemption Date"), whether or not such dividends shall have been earned or declared. In lieu of such payment the Corporation may deposit the General Redemption Price of the shares to be redeemed on or prior to the Redemption Date, with such responsible bank or trust company or bank and trust company in the Borough of Manhattan, in the City of New York, State of New York, having a capital and surplus 19 of not less than $5,000,000, as may be designated by the Board of Directors, in trust, for payment on or after the date of such deposit (without awaiting the Redemption Date) to the holders of the Second Preferred Shares then to be redeemed. If less than the whole amount of outstanding Second Preferred Shares of any particular series shall be redeemed at any time, the shares thereof to be redeemed shall be selected by lot. Notice of any such redemption, in whole or in part, and of any such deposit made or to be made of such General Redemption Price, shall be mailed to each holder of Second Preferred Shares so to be redeemed, at his address registered with the Corporation not less than thirty days prior to the Redemption Date, and, if less than all of the said shares owned by such shareholder are to be redeemed, the notice shall specify the number of shares thereof which are to be redeemed. Such notice having been so given, or irrevocable written authority to the depositary having been given at the time of making the deposit provided for herein forthwith to give such notice, all rights of the respective holders of the said shares as shareholders of the Corporation by reason of the ownership of such shares, except the right to receive the General Redemption Price of such shares upon presentation and surrender of their respective certificates representing the said shares, shall cease from and after the Redemption Date (unless default shall be made by the Corporation in providing moneys for the payment of the General Redemption Price), or, if the General Redemption Price shall have been deposited on or prior to the Redemption Date as above permitted, from and after the date of such deposit; provided, however, that in lieu of the right to receive the General Redemption Price, any rights of conversion or exchange may be exercised up to the close of business on the Redemption Date. If after such deposit any Second Preferred Shares so called shall be so converted or exchanged, the amount theretofore deposited with the depositary for the redemption thereof shall forthwith be paid over by it to the Corporation. Any other moneys so deposited which shall remain unclaimed by the holders of Second Preferred Shares so called for redemption at the end of two years after the Redemption Date shall be paid by such depositary to the Corporation, after which the holders of such Second Preferred Shares shall look only to the Corporation for payment of the General Redemption Price thereof, without interest. IV. The Second Preferred Shares shall rank junior to the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets of the Corporation. Subject to the prior rights of the holders of Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, the holders of Second Preferred Shares, upon the dissolution, liquidation or sale of all or substantially all the assets of the Corporation, shall be entitled to receive the following sums, before any payment shall be made to any other class of shares ranking junior to the Second Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets: (a) in case of any involuntary dissolution or liquidation or forced sale of all or substantially all the assets of the Corporation, each Second Preferred Share of each series shall be entitled to receive the sum of $50, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment; or (b) in case of any voluntary dissolution or liquidation or voluntary sale of all or substantially all the assets of the Corporation, each Second Preferred Share of each series shall be entitled to receive the amount fixed for such contingency by the Board of Directors for the shares of such series prior to the initial issuance of the first shares of such series, together with a sum, whether or not earned or declared, equivalent to all accumulated and unpaid dividends thereon to the date of such payment. After all sums payable on the Second Preferred Shares as herein provided upon a particular contingency shall have been paid in full but not prior thereto, the other classes of shares ranking junior to the Second Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets shall be entitled to payment of all other sums then distributable, subject to the respective terms and provisions (if any) applying to such class or classes of shares, respectively. For the purpose of this subsection IV, a con- 20 solidation or merger of the Corporation with or into any other corporation or a consolidation or merger of any other corporation with or into the Corporation shall not be deemed a dissolution, liquidation or sale of assets. V. Except as herein or by law expressly provided to the contrary, the holders of Second Preferred Shares shall have no right as such holders to vote at or participate in any meeting of shareholders of the Corporation or to receive any notice of any such meeting. If, however, dividends on any of the Second Preferred Shares shall be in arrears in an amount equal to the annual dividends thereon, the holders of all of the Second Preferred Shares shall be entitled to vote at all meetings of shareholders of the Corporation and to receive notice of all such meetings. Such voting rights of the holders of Second Preferred Shares shall continue until all accumulated and unpaid dividends on all Second Preferred Shares shall have been paid, whereupon all such voting rights shall cease, subject to being revived from time to time upon the reoccurrence of the conditions above described as giving rise thereto. At any meeting at which the holders of the Second Preferred Shares shall be entitled to vote, each vote cast pursuant to the provisions of this subsection V on behalf of the holder of a Second Preferred Share shall be counted as such number of votes as shall equal the quotient derived from dividing the number of Second Preferred Shares of all series then outstanding into one-third of the total number of votes to which at such time all outstanding shares ranking junior to the Second Preferred Shares with respect to the payment of dividends or distributions in liquidation may be collectively entitled. For the purposes of the above computation, shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding, and such shares shall have no right whatsoever to vote at or to receive notice of any meeting other than such rights as may be expressly granted by law. VI. So long as any of the Second Preferred Shares shall remain outstanding, no dividend (other than dividends payable in shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and distributions in liquidation) shall be paid, nor shall any distribution (by purchase, redemption, payment to any sinking fund, or otherwise) be made, on any shares ranking junior to the Second Preferred Shares with respect to the payment of dividends or distributions in liquidation, unless: (a) all dividends on all outstanding Second Preferred Shares shall have been paid and full dividends thereon for the then current quarterly dividend period shall have been declared and a sum sufficient for the payment thereof set apart therefor; (b) the Corporation shall not be in arrears in respect of any sinking fund obligation in respect of any series of Second Preferred Shares; and (c) after giving effect to the payment of the proposed dividend or distribution, the aggregate of all such dividends and distributions paid, subsequent to December 29, 1945, shall not exceed the sum of (i) Consolidated Net Income earned after said date, less the aggregate of all dividends and all payments into any sinking fund for the Preferred Shares, the Voting Preferred Shares, the No Par Preferred Shares or the Second Preferred Shares, and all amounts credited against any sinking fund instalment with respect to the Preferred Shares, the Voting Preferred Shares, the No Par Preferred Shares or the Second Preferred Shares for the voluntary purchase or redemption of Preferred Shares, Voting Preferred Shares, No Par Preferred Shares or Second Preferred Shares, (ii) the net proceeds of the sale subsequent to September 1, 1946 of shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and distributions in liquidation, (iii) the principal amount of indebtedness converted, subsequent to April 1, 1967, and the stated capital of shares ranking equal with or prior to the Second Preferred Shares with respect to the payment of dividends and distributions in liquidation converted, subsequent to April 1, 1967, into shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and distributions in liquidation, and (iv) $500,000. 21 The purchase or other acquisition by a Subsidiary or Affiliate of shares of the Corporation shall be deemed a purchase or acquisition of such shares by the Corporation within the meaning of this subsection VI. VII. Without the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the Second Preferred Shares at the time outstanding, as a class, the Corporation shall not: (a) increase the number of authorized Preferred Shares to an amount in excess of 100,000, or the number of authorized Voting Preferred Shares to an amount in excess of 20,000,000, or the number of authorized No Par Preferred Shares to an amount in excess of 20,000,000, or the number of authorized Second Preferred Shares to an amount in excess of 295,540; (b) authorize or issue any shares other than Preferred Shares, Voting Preferred Shares, No Par Preferred Shares, Second Preferred Shares or shares ranking junior to the Second Preferred Shares with respect to the payment of dividends and distributions in liquidation; (c) adopt or effect any amendment to its Articles of Incorporation which would be substantially prejudicial to the holders of Second Preferred Shares; provided, however, that if such amendment would be substantially prejudicial to the holders of Second Preferred Shares of one or more series, but less than all of the several series of Second Preferred Shares, or would unequally affect two or more series in a substantially prejudicial manner, the affirmative vote at a meeting, or the written consent with or without a meeting, of the holders of at least two-thirds of the shares of each series so affected at the time outstanding, voting as a sub-class, shall be required in addition to the said vote or written consent of the holders of at least two-thirds of the Second Preferred Shares of all series at the time outstanding, voting as a class; and provided, further, that any such amendment, when effected upon such vote or consent, shall not confer upon dissenting holders of Second Preferred Shares any right to payment for their shares; (d) sell, convey, lease or otherwise part with all or substantially all of its assets, property or business, or consolidate or merge with or into any other corporation, or merge any other corporation into itself; provided, however, that this restriction shall not apply to a consolidation or merger to which the Corporation is a party if none of the rights or preferences of the Second Preferred Shares shall be adversely affected thereby; or (e) give any guarantee or similar obligation for the payment of any share or dividend by any other corporation or person; provided, however, that this restriction shall not apply to any guarantee or similiar obligation for the payment of any share or dividend by any corporation which at the time the guarantee or similiar obligation is given is a Subsidiary. For the purpose of determining whether such affirmative vote or written consent required by this subsection VII has been obtained, Second Preferred Shares held by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be outstanding or entitled to participate in any such vote or consent. VIII. So long as any dividend on any Second Preferred Shares shall be in arrears and unpaid, the Corporation shall not redeem any Second Preferred Shares (unless all outstanding Second Preferred Shares shall be redeemed) or purchase any Second Preferred Shares, or permit any Subsidiary or Affiliate to make any such purchase, unless such redemption or purchase shall be accomplished not earlier than 30 days and not later than 90 days after the mailing of a written purchase offer to each holder of record of Second Preferred Shares at the address of such shareholder registered with the Corporation. Any such purchase offer shall be made upon terms that will result in holders of Second Preferred Shares of the several series being offered prices in proportion to the several dividend rates applicable thereto. IX. Second Preferred Shares acquired by the Corporation through the exercise by the holders thereof of any conversion privilege shall not be re-issued except as hereinafter provided. Such Second 22 Preferred Shares and any other Second Preferred Shares acquired by the Corporation otherwise than through the operation of any sinking fund and not used to reduce the amount of any sinking fund instalment shall, upon compliance with such provisions of law relating to the retirement of shares as may be applicable have the status of authorized and unissued Second Preferred Shares which are unclassified into any series. Second Preferred Shares acquired by the Corporation through the operation of any sinking fund which have been used to reduce the amount of any sinking fund instalment shall be cancelled and not re-issued, and the Corporation shall from time to time take appropriate corporate action to reduce the authorized number of Second Preferred Shares accordingly. X. No holder of Second Preferred Shares of any series shall, as such holder, have any preemptive rights in, or preemptive rights to purchase or subscribe to, any shares of the Corporation, or any bonds, debentures, or other securities convertible into any shares of the Corporation, other than such rights of conversion or exchange as shall be expressly granted by the Board of Directors prior to the initial issuance of the first shares of the series of which such Second Preferred Shares constitute a part; and except as aforesaid each and every holder of Second Preferred Shares, by accepting the same, thereby waives and releases any and all preemptive rights he might otherwise have to purchase any shares which may at any time be issued by the Corporation. SECTION 6. The express terms and provisions of the Common Shares are as follows: I. The rights and preferences of the Common Shares shall be subject in all respects to the rights and preferences of the Preferred Shares, the Voting Preferred Shares, the No Par Preferred Shares and the Second Preferred Shares, in the manner and to the extent provided in this Article Fourth. II. The Common Shares shall rank junior to the Preferred Shares, the Voting Preferred Shares, the No Par Preferred Shares and the Second Preferred Shares with respect to the payment of dividends. Out of the assets of the Corporation available for dividends remaining after there shall have been paid or declared and set apart for payment full dividends on all shares ranking prior to the Common Shares with respect to the payment of dividends, and subject to the restrictions or limitations contained in the express terms and provisions of all shares ranking prior to the Common Shares with respect to the payment of dividends, dividends may be declared and paid upon the Common Shares, but only when and as determined by the Board of Directors. III. The Common Shares shall rank junior to the Preferred Shares, the Voting Preferred Shares, the No Par Preferred Shares and the Second Preferred Shares with respect to payment upon dissolution, liquidation or sale of assets of the Corporation. Upon the dissolution, liquidation or sale of all or substantially all the assets of the Corporation, after there shall have been paid to or set apart for holders of all shares ranking senior to the Common Shares the full preferential amounts to which they are respectively entitled, the holders of Common Shares shall be entitled to receive pro rata all of the remaining assets of the Corporation available for distribution to its shareholders. IV. The holders of Common Shares shall be entitled to one vote for each Common Share held by them respectively. V. No present or future holder of Common Shares shall, as such holder, have any preemptive rights in, or preemptive rights to purchase or subscribe to, any shares of the Corporation, or any bonds, debentures, or other securities convertible into any shares of the Corporation. FIFTH: Subject to the restrictions and limitations set forth in Article FOURTH hereof, this Corporation may purchase shares of any class of the stock issued by it to the extent of the surplus available for cash dividends, when authorized by the affirmative vote of the Board of Directors, but no such purchase shall be made so as to favor any shareholder over any other, except as herein provided. 23 SIXTH: Subject to the restrictions and limitations set forth in Article FOURTH hereof, to the fullest extent permitted by law, the Board of Directors may, from time to time, without any vote, consent or other action of or by the shareholders, borrow or raise money, without limit as to amount, for any of the purposes of the Corporation, and may authorize the issue of bonds, debentures, notes or other obligations of any nature or in any manner for money so borrowed, and may confer upon the respective holders thereof the right to convert the principal thereof into shares of any class or series upon such terms and conditions as the Board of Directors may, in its discretion, deem advisable, and may authorize the creation of mortgages upon, or the pledge, conveyance or assignment of the whole or any part of, the property of the Corporation, real, personal or mixed, whether at the time owned or to be acquired thereafter, to secure the payment of such obligations and the interest and premium (if any) thereon, and may authorize the sale, pledge or other disposition of such obligations at such prices, upon such terms and to such persons as the Board of Directors, in its discretion, may deem advisable. SEVENTH: These Amended Articles of Incorporation supersede the existing Articles of Incorporation. FURTHER RESOLVED, That the foregoing Amended Articles of Incorporation, which shall supersede and take the place of the existing Amended Articles of Incorporation, be, and they hereby are, in all respects authorized, approved and adopted. FURTHER RESOLVED, That the President and the Secretary be, and they hereby are, authorized and directed to execute and file in the Office of the Secretary of State of the State of Ohio a certificate containing a copy of these resolutions and to execute, deliver and file any other certificate or instrument which they may deem necessary or appropriate to render effective or otherwise fully to carry out the intent and purposes of these resolutions." IN WITNESS WHEREOF, said Steven C. Mason, President, and George J. Maly, Jr., Secretary, of The Mead Corporation, acting for and on behalf of said Corporation, have hereunto subscribed their names and cause the seal of said Corporation to be hereunto affixed this 28th day of May, 1987. /s/ STEVEN C. MASON ---------------------------------- Steven C. Mason, President /s/ GEORGE J. MALY, JR. --------------------------------------- George J. Maly Jr., Secretary 24 EX-3.2 3 0003.txt REGULATIONS OF MEAD CORPORATION DATED 4/25/1996 Exhibit 3.2 Effective April 25, 1996 REGULATIONS of THE MEAD CORPORATION REGULATIONS OF THE MEAD CORPORATION ___________ ARTICLE I MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders of the Corporation, for the purpose of electing directors and transacting such other business as may be specified in the notice thereof, shall be held at such place either within or without the State of Ohio as may be specified in such notice, upon such date in the month of April of each year (other than a Saturday, Sunday or legal holiday) as the Board of Directors shall determine or, in the absence of such determination, on the fourth Thursday in April of each year. Section 2. Special Meetings. Special meetings of the shareholders may be called by (i) the Chairman of the Board or the President, or in case of the President's absence, death or disability, any Vice-President; or (ii) the directors by action at a meeting, or a majority of the directors acting without a meeting. Special meetings shall be called by the Secretary upon written request of shareholders holding of record 50% or more of all shares outstanding and entitled to vote thereat. Any such request for a special meeting shall state the purpose or purposes of the meeting. Special meetings of the shareholders may be held at such time and place, either within or without the State of Ohio, as may be designated in the notice thereof. Section 3. Notice of Meetings. Except as otherwise provided by law or unless waived, a written notice of each annual or special meeting stating the time and place and the purposes thereof shall be personally delivered or mailed to each shareholder of record entitled to notice thereof, not more than sixty days nor less than ten days before any such meeting. If mailed, such notice shall be addressed to the shareholder at his address as it appears upon the records of the Corporation. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting. Section 4. Quorum. The holders of record of shares entitling them to exercise a majority of the voting power of the Corporation, present in person or by proxy, shall constitute a quorum for all purposes, at any meeting of shareholders, except when a greater proportion is required by law, the articles of incorporation or these Regulations. At any meeting at which a quorum is present, all questions and business which shall come before the meeting shall be determined by the vote of the holders of a majority of the shares entitled to vote thereon held by shareholders present in person or by proxy at the meeting, except when a different proportion is required by law, the articles of incorporation or these Regulations. At any meeting, whether a quorum is present or not, the holders of a majority of the voting shares held by shareholders present in person or by proxy may adjourn from time to time and from place to place without notice other than by announcement at the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which could have been transacted at the meeting as originally noticed or held. ARTICLE II BOARD OF DIRECTORS Section 1. Authority of Directors. Except where the law, the articles of incorporation or these Regulations requires action to be authorized or taken by the shareholders, all of the authority of the Corporation shall be exercised, and the business and affairs of the Corporation shall be managed, by or under the direction of the directors. Section 2. Directors. Unless changed in accordance with the provisions of Section 3 of this Article II, the number of directors of the Corporation shall be fixed at fourteen. Directors shall hold office until the annual meeting next succeeding their election or until their successors are chosen and qualified; provided, however, no director shall be required to stand for election sooner than would have been otherwise required due to participation as a member of a class of directors elected in a year prior to 1996. Section 3. Change in Number of Directors. The whole number of directors and the number of directors in each class may be changed either by the affirmative vote of the holders of record of at least 75% of the voting power of the Corporation at a meeting of shareholders called for that purpose and for the purpose of electing directors, or by the affirmative vote of a majority of the directors. No reduction in the number of directors, either by the shareholders or the directors, shall of itself have the effect of shortening the term of any incumbent director. Section 4. Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election as directors of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board of Directors or by any committee or person appointed by the Board of Directors or (ii) by any shareholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 4. Any nomination other than those governed by clause (i) of the preceding sentence, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of any shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for election of directors pursuant to any then existing rule or regulation promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director. No person shall be eligible for election as a director unless nominated as set forth herein. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 2 Section 5. Removal of Directors. No director may be removed prior to the expiration of such director's term of office, except by the affirmative vote of the holders of 75% of the voting power of the Corporation entitled to vote in the election of directors; provided, however, that unless all the directors are removed, no individual director shall be removed if the votes of a sufficient number of shares are cast against his removal which, if cumulatively voted at an election of all the directors, would be sufficient to elect at least one director. Section 6. Vacancies. The remaining directors, though less than a majority of the whole authorized number of directors, may, by the vote of a majority of their number, fill any vacancy in the Board of Directors however arising for the unexpired term thereof. Any person elected to fill a vacancy in the Board of Directors shall hold office until the expiration of the term of office for the class to which he is elected and until his successor is elected and qualified. Section 7. Meetings of the Board. The Board of Directors may, by by-law or resolution, provide for regular meetings of the Board. Special meetings of the Board of Directors may be held at any time upon call of the Chairman of the Board, the President, any Vice-President, or any two members of the Board. Meetings of the Board of Directors may be held at any place either within or without the State of Ohio. Written notice of the time and place of each special meeting of the Board of Directors shall be given by mailing the same to each director at his last known address at least three days prior to the date of such meeting, or such notice may be personally delivered or telegraphed in substance to each director not less than twenty-four hours before the meeting, which notice need not specify the purposes of the meeting. Such notice may be waived in writing, either before or after the holding of such meeting, by any director, which writing shall be filed with or entered upon the records of the meeting. The attendance of any director at any such meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of such meeting. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting. Section 8. Quorum for Meetings. A majority of the directors of the Corporation shall constitute a quorum for the transaction of business. The act of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 9. Secret Ballot. Upon the oral or written request of any director, any matter to be voted upon by the Board of Directors, or any committee thereof, shall be by secret ballot and such ballots shall then be counted and reported by the secretary of the meeting. ARTICLE III COMMITTEES Section 1. Committees. The Board of Directors, by resolution adopted by a majority of the whole Board, may appoint three or more directors to constitute one or more committees of directors. The resolution establishing each such committee shall specify a designation by which it shall be known and shall fix its powers and authority. The Board of Directors may delegate to any such committee any of the authority of the Board of Directors, however conferred, other than that of filling vacancies among the directors or in any committee of the directors. 3 The Board of Directors may likewise appoint one or more directors as alternate members of any such committee, who may take the place of any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors, shall act only in the intervals between meetings of the Board of Directors, and shall be subject to the control and direction of the Board of Directors. All actions by any such committee shall be subject to revision and alteration by the Board of Directors provided that no rights of third persons shall be adversely affected by any such revision or alteration. An act or authorization of an act by any such committee within the authority delegated to it by the resolution establishing it shall be as effective for all purposes as the act or authorization of the Board of Directors. Any such committee may act by a majority of its members at a meeting or by a writing or writings signed by all of its members. The Board of Directors may likewise appoint other members of any committee who are not members of the Board of Directors who shall act in an advisory capacity but who shall have no vote upon any matter of business before the committee. ARTICLE IV OFFICERS Section 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and such other officers, subordinate officers and assistants as the Board of Directors may from time to time determine. Any two or more offices may be held by one person, except the offices of President and Vice-President. Section 2. Election of Officers. All officers of the Corporation shall be elected annually by the Board of Directors, and shall hold office at the pleasure of the Board of Directors. The Board of Directors may remove any officer at any time, with or without cause, by a majority vote. The Board of Directors may fill any vacancy in any office occurring from whatever cause. Section 3. Authority and Duties of Officers. The officers of the Corporation shall have such authority and shall perform such duties as are determined by the Board of Directors. ARTICLE V LIMITATION OF LIABILITY AND INDEMNIFICATION Section 1. Limitation of Liability. (a) No person shall be found to have violated his duties to the Corporation as a director or officer of the Corporation in any action brought against such director or officer (including actions involving or affecting any of the following: (i) a change or potential change in control of the Corporation; (ii) a termination or potential termination of his service to the Corporation as a director or officer; or (iii) his service in any other position or relationship with the Corporation), unless it is proved by clear and convincing evidence that the director or officer has not acted in good faith, in a manner he 4 reasonably believes to be in or not opposed to the best interests of the Corporation, or with the care that an ordinarily prudent person in a like position would use under similar circumstances. Notwithstanding the foregoing, nothing contained in this paragraph (a) limits relief available under Section 1701.60 of the Ohio Revised Code. (b) In performing his duties, a director or officer shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, that are prepared or presented by: (i) one or more directors, officers, or employees of the Corporation whom the director or officer reasonably believes are reliable and competent in the matters prepared or presented; (ii) counsel, public accountants, or other persons as to matters that the director or officer reasonably believes are within the person's professional or expert competence; or (iii) a committee of the directors upon which he does not serve, duly established in accordance with the provisions of these Regulations, as to matters within its designated authority, which committee the director or officer reasonably believes to merit confidence. (c) A director or officer in determining what he reasonably believes to be in the best interests of the Corporation shall consider the interests of the Corporation's shareholders and, in his discretion, may consider (i) the interests of the Corporation's employees, suppliers, creditors and customers; (ii) the economy of the state and nation; (iii) community and societal considerations; and (iv) the long-term as well as short-term interests of the Corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the Corporation. (d) A director or officer shall be liable in damages for any action he takes or fails to take as a director or officer only if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation. Notwithstanding the foregoing, nothing contained in this paragraph (d) affects the liability of directors under Section 1701.95 of the Ohio Revised Code or limits relief available under Section 1701.60 of the Ohio Revised Code. Section 2. Indemnification. (a) in case any person was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or preceding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, of is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, the Corporation shall indemnify such person against expenses, including attorney's fees, judgments, decrees, fines, penalties, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any matter the subject of a criminal action, suit, or proceeding, he had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contenders or its equivalent, shall not, itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any matter the subject of a criminal action, suit or proceeding, that he had reasonable cause to believe that his conduct was unlawful. (b) In case any person was or is a party, or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, the Corporation shall indemnify such person against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted 5 in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any of the following: (i) any claim, issue, or matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of this duty to the Corporation unless and only to the extent that the court of common pleas, or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; or (ii) any action or suit in which the only liability asserted against a director is pursuant to Section 1701.95 of the Ohio Revised Code. (c) To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in paragraphs (a) and (b) of this Section 2, or in defense of any claim, issue, or matter therein, the Corporation shall indemnify him against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the action, suit or proceeding. (d) Any indemnification under paragraphs (a) and (b) of this Section 2, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 2. Such determination shall be made as follows: (i) by a majority vote of a quorum consisting of directors of the Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (ii) if the quorum described in cause (i) of this paragraph (d) is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation, or any person to be indemnified within the past five years; (iii) by the shareholders; or (iv) by the court of common pleas or the court in which such action, suit, or proceeding was brought. Any determination made by the disinterested directors under cause (i) of this paragraph (d) or by independent legal counsel under cause (ii) of this paragraph (d) shall be promptly communicated to the person who threatened or brought the action or suit, by or in the right of the Corporation referred to in paragraph (b) of this Section 2, and within ten days after the receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. (e) (i) Unless the only liability asserted against a director in any action, suit, or proceeding referred to in paragraphs (a) and (b) of this Section 2 is pursuant to Section 1701.95 of the Ohio Revised Code, expenses, including attorney's fees, incurred by a director in defending the action, suit, or proceeding, shall be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following: (A) repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation; and (B) reasonably cooperate with the Corporation concerning the action, suit, or proceeding. (ii) Expenses, including attorney's fees, incurred by a director, trustee, officer, employee or agent in defending any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 2 may be paid by the Corporation as they are incurred in advance of the final disposition of the action, suit or proceeding as authorized by the directors in the specific case upon the receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay such amount, if it ultimately is determined that he is not entitled to be indemnified by the Corporation. 6 (f) Expenses, including attorney's fees, amounts paid in settlement, and (except in the case of an action by or in the right of the Corporation) judgments, decrees, fines and penalties, incurred in connection with any potential, threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by any person by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, may be paid or reimbursed by the Corporation, as authorized by the Board of Directors upon a determination that such payment or reimbursement is in the best interests of the Corporation; provided, however, that, unless all directors are interested, the interested directors shall not participate and a quorum shall be one-third of the disinterested directors. (g) The indemnification authorized by this Section 2 shall not be exclusive of, and shall be in addition to any other rights granted to those seeking indemnification under the articles of incorporation or these Regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (h) The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit or self- insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have indemnified him against such liability under this Section 2. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. (i) The authority of the Corporation to indemnify persons pursuant to paragraphs (a) and (b) of this Section 2 does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to paragraphs (e), (f), (g) and (h) of this Section 2. Paragraphs (a) and (b) of this Section 2 do not create any obligation to repay or return payments made by the Corporation pursuant to paragraphs (e), (f), (g) and (h) of this Section 2. Section 3. Interpretation. As used in Article V, words of the masculine gender shall include the feminine gender. ARTICLE VI SEAL The seal of the Corporation shall be circular with the words "THE MEAD CORPORATION", and "OHIO" surrounding the word "SEAL". ARTICLE VII AMENDMENTS These Regulations may be amended or repealed at any meeting of shareholders called for that purpose by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power of the Corporation on such proposal; provided, however, that Sections 2, 3, and 5 of Article II and this Article VII may not be amended, modified or repealed, and no amendment to these Regulations which is inconsistent therewith may be adopted, without the affirmative vote of the holders of record of shares entitling them to exercise 75% of the voting power of the Corporation on such proposal. 7 EX-10.1 4 0004.txt 364-DAY CREDIT AGREEMENT DATED 11/10/2000 Exhibit 10.1 EXECUTION COPY 364-DAY CREDIT AGREEMENT DATED AS OF NOVEMBER 10, 2000 A M O N G THE MEAD CORPORATION, as the Borrower THE LENDERS FROM TIME TO TIME PARTIES HERETO, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent BANK ONE, NA, as Syndication Agent and BANK OF AMERICA, N.A., as Documentation Agent ================================================================================ BANC ONE CAPITAL MARKETS, INC., as Lead Arranger and Sole Bookrunner ================================================================================ SIDLEY & AUSTIN Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS............................................................................... 1 ARTICLE II THE CREDITS.............................................................................. 14 ----------- 2.1. Commitment.................................................................................. 14 ---------- 2.2. Extension of Syndicated Loan Termination Date; Conversion to Term Loans..................... 14 ----------------------------------------------------------------------- 2.2.1. Extension of Syndicated Loan Termination Date............................................... 14 --------------------------------------------- 2.2.2. Conversion to Term Loan..................................................................... 15 ----------------------- 2.3. Required Payments; Termination.............................................................. 15 ------------------------------ 2.4. Ratable Loans............................................................................... 15 ------------- 2.5. Types of Advances........................................................................... 16 ----------------- 2.6. Facility Fee; Utilization Fee; Reductions in Aggregate Commitment........................... 16 ----------------------------------------------------------------- 2.7. Minimum Amount of Each Advance.............................................................. 16 ------------------------------ 2.8. Optional Principal Payments................................................................. 16 --------------------------- 2.9. Method of Selecting Types and Interest Periods for New Advances............................. 17 --------------------------------------------------------------- 2.10. Conversion and Continuation of Outstanding Advances......................................... 17 --------------------------------------------------- 2.11. Changes in Interest Rate, etc............................................................... 18 ----------------------------- 2.12. Rates Applicable After Default.............................................................. 18 ------------------------------ 2.13. Method of Payment........................................................................... 18 ----------------- 2.14. Noteless Agreement; Evidence of Indebtedness................................................ 19 -------------------------------------------- 2.15. Telephonic Notices.......................................................................... 19 ------------------ 2.16. Interest Payment Dates; Interest and Fee Basis.............................................. 20 ---------------------------------------------- 2.17. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions............. 20 ------------------------------------------------------------------------------- 2.18. Lending Installations....................................................................... 20 --------------------- 2.19. Non-Receipt of Funds by the Administrative Agent............................................ 20 ------------------------------------------------ 2.20. Removal or Replacement of Lender............................................................ 21 ------------------------------- ARTICLE III YIELD PROTECTION; TAXES................................................................ 21 ----------------------- 3.1. Yield Protection............................................................................ 21 ---------------- 3.2. Changes in Capital Adequacy Regulations..................................................... 22 --------------------------------------- 3.3. Availability of Types of Advances........................................................... 23 --------------------------------- 3.4. Funding Indemnification..................................................................... 23 -----------------------
i 3.5. Taxes ..................................................................................... 23 ----- 3.6. Lender Statements; Survival of Indemnity................................................... 25 ---------------------------------------- ARTICLE I V CONDITIONS PRECEDENT................................................................... 25 -------------------- 4.1. Closing.................................................................................... 25 ------- 4.2. Each Advance............................................................................... 26 ------------ ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................... 26 ------------------------------ 5.1. Existence and Standing..................................................................... 27 ---------------------- 5.2. Authorization and Validity................................................................. 27 -------------------------- 5.3. No Conflict; Government Consent ........................................................... 27 ------------------------------- 5.4. Financial Statements....................................................................... 27 -------------------- 5.5. Material Adverse Change.................................................................... 28 ----------------------- 5.6. Taxes...................................................................................... 28 ----- 5.7. Litigation and Contingent Obligations...................................................... 28 ------------------------------------ 5.8. Accuracy of Information.................................................................... 28 ----------------------- 5.9. Regulation U............................................................................... 28 ------------ 5.10. Material Agreements........................................................................ 28 ------------------- 5.11. Compliance With Laws....................................................................... 29 -------------------- 5.12. ERISA; Foreign Pension Matters............................................................. 29 ----------------------------- 5.13. Plan Assets; Prohibited Transactions....................................................... 29 ------------------------------------ 5.14. Environmental Matters...................................................................... 29 --------------------- 5.15. Investment Company Act..................................................................... 29 ---------------------- 5.16. Public Utility Holding Company Act......................................................... 29 ---------------------------------- 5.17. Insurance.................................................................................. 30 --------- ARTICLE VI COVENANTS............................................................................... 30 --------- 6.1. Financial Reporting........................................................................ 30 ------------------- 6.2. Use of Proceeds............................................................................ 31 --------------- 6.3. Notice of Default.......................................................................... 31 ----------------- 6.4. Conduct of Business........................................................................ 31 ------------------- 6.5. Taxes...................................................................................... 31 ----- 6.6. Insurance.................................................................................. 32 --------- 6.7. Compliance with Laws....................................................................... 32 -------------------- 6.8. Maintenance of Properties.................................................................. 32 -------------------------
ii 6.9. Inspection; Keeping of Books and Records.................................................... 32 ---------------------------------------- 6.10. Indebtedness................................................................................ 32 ------------ 6.11. Merger...................................................................................... 33 ------ 6.12. Sale of Assets.............................................................................. 33 -------------- 6.13. Liens....................................................................................... 33 ----- 6.14. Synthetic Leases............................................................................ 34 ---------------- 6.15. Financial Covenants......................................................................... 34 ------------------- ARTICLE VII DEFAULTS................................................................................ 35 -------- 7.1. Breach of Representations or Warranties..................................................... 35 -------------------------------------- 7.2. Failure to Make Payments When Due........................................................... 35 --------------------------------- 7.3. Breach of Covenants......................................................................... 35 ------------------- 7.4. Other Breaches.............................................................................. 35 -------------- 7.5. Default as to Other Indebtedness............................................................ 35 --------------------------------- 7.6. Voluntary Bankruptcy; Appointment of Receiver; Etc.......................................... 36 -------------------------------------------------- 7.7. Involuntary Bankruptcy; Appointment of Receiver; Etc........................................ 36 ---------------------------------------------------- 7.8. Judgments................................................................................... 36 --------- 7.9. Unfunded Liabilities........................................................................ 36 -------------------- 7.10 Other ERISA Liabilities..................................................................... 36 ----------------------- 7.11. Environmental Matters....................................................................... 36 --------------------- 7.12. Change of Control........................................................................... 37 ----------------- ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES......................................... 37 ---------------------------------------------- 8.1. Acceleration................................................................................ 37 ------------ 8.2. Amendments.................................................................................. 37 ---------- 8.3. Preservation of Rights...................................................................... 38 ---------------------- ARTICLE IX GENERAL PROVISIONS....................................................................... 38 ------------------ 9.1. Survival of Representations................................................................. 38 --------------------------- 9.2. Governmental Regulation..................................................................... 38 ----------------------- 9.3. Headings.................................................................................... 38 -------- 9.4. Entire Agreement............................................................................ 38 ---------------- 9.5. Several Obligations; Benefits of this Agreement............................................. 39 ----------------------------------------------- 9.6. Expenses; Indemnification................................................................... 39 ------------------------- 9.7. Numbers of Documents........................................................................ 39 --------------------
iii 9.8. Accounting.................................................................................... 39 ---------- 9.9. Severability of Provisions.................................................................... 40 -------------------------- 9.10. Nonliability of Lenders....................................................................... 40 ----------------------- 9.11. Confidentiality............................................................................... 40 --------------- 9.12. Nonreliance................................................................................... 41 ----------- 9.13. Disclosure.................................................................................... 41 ---------- ARTICLE X THE AGENTS.................................................................................. 41 ---------- 10.1. Appointment; Nature Relationship.............................................................. 41 -------------------------------- 10.2. Powers........................................................................................ 41 ------ 10.3. General Immunity.............................................................................. 42 ---------------- 10.4. No Responsibility for Loans, Recitals, etc.................................................... 42 ------------------------------------------ 10.5. Action on Instructions of Lenders............................................................. 42 --------------------------------- 10.6. Employment of Agents and Counsel.............................................................. 42 -------------------------------- 10.7. Reliance on Documents; Counsel................................................................ 43 ------------------------------ 10.8. Agents' Reimbursement and Indemnification..................................................... 43 ----------------------------------------- 10.9. Notice of Default............................................................................. 43 ----------------- 10.10. Rights as a Lender............................................................................ 43 ------------------ 10.11. Lender Credit Decision........................................................................ 44 ---------------------- 10.12. Successor Agents.............................................................................. 44 ---------------- 10.13. Agent and Arranger Fees....................................................................... 45 ----------------------- 10.14. Delegation to Affiliates...................................................................... 45 ------------------------ ARTICLE XI SETOFF; RATABLE PAYMENTS................................................................... 45 ------------------------ 11.1. Setoff........................................................................................ 45 ------ 11.2. Ratable Payments.............................................................................. 45 ---------------- ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS......................................... 45 ------------------------------------------------- 12.1. Successors and Assigns; Designated Lenders.................................................... 45 ------------------------------------------ 12.1.1. Successors and Assigns........................................................................ 45 ---------------------- 12.1.2. Designated Lenders............................................................................ 46 ------------------ 12.2. Participations................................................................................ 47 -------------- 12.2.1. Permitted Participants; Effect................................................................ 47 ------------------------------ 12.2.2. Voting Rights................................................................................. 47 ------------- 12.2.3. Benefit of Setoff............................................................................. 47 -----------------
iv 12.3. Assignments...................................................................................... 48 ----------- 12.3.1. Permitted Assignments............................................................................ 48 --------------------- 12.3.2. Effect; Effective Date........................................................................... 48 ---------------------- 12.4. Dissemination of Information..................................................................... 49 ---------------------------- 12.5. Tax Treatment.................................................................................... 49 ------------- ARTICLE XIII NOTICES..................................................................................... 49 ------- 13.1. Notices.......................................................................................... 49 ------- 13.2. Change of Address................................................................................ 50 ----------------- ARTICLE XIV COUNTERPARTS................................................................................. 50 ------------ ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................................. 50 ------------------------------------------------------------ 15.1. CHOICE OF LAW.................................................................................... 50 ------------- 15.2. CONSENT TO JURISDICTION.......................................................................... 50 ----------------------- 15.3. WAIVER OF JURY TRIAL............................................................................. 50 --------------------
v EXHIBITS -------- Exhibit A - Form of Borrower's Counsel's Opinion Exhibit B - Form of Compliance Certificate Exhibit C - Form of Assignment Agreement Exhibit D - Form of Promissory Note (if requested) Exhibit E - List of Closing Documents SCHEDULES --------- Pricing Schedule Commitment Schedule Schedule 5.4 - Financial Statements Schedule 5.7 - SEC Reports vi 364-DAY CREDIT AGREEMENT This 364-Day Credit Agreement, dated as of November 10, 2000, is among The Mead Corporation, the institutions from time to time parties hereto as Lenders (whether by execution of this Agreement or an assignment pursuant to Section ------- 12.3), Morgan Guaranty Trust Company of New York, a New York banking - ----- association, as Administrative Agent, Bank One, NA, a national banking association having its principal office in Chicago, Illinois, as Syndication Agent, and Bank of America, N.A., as Documentation Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Accounting Changes" is defined in Section 9.8 hereof ------------------ ----------- "Administrative Agent" means Morgan Guaranty in its capacity as contractual -------------------- representative of the Lenders pursuant to Article X, and not in its individual --------- capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. --------- "Acquisition" means any transaction, or any series of related transactions, ----------- consummated on or after the date of this Agreement, by which the Borrower or any of its Significant Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Advance" means a borrowing hereunder, (i) made by some or all of the ------- Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Syndicated Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. "Affected Lender" is defined in Section 2.20. --------------- ------------ "Agent" means any of the Administrative Agent, the Syndication Agent or the ----- Documentation Agent, as appropriate, and "Agents" means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent. "Aggregate Commitment" means the aggregate of the Commitments of all the -------------------- Lenders, as reduced from time to time pursuant to the terms hereof. As of the date hereof, the Aggregate Commitment is Three Hundred Million and 00/100 Dollars ($300,000,000). "Aggregate Outstanding Credit Exposure" means, at any time, the aggregate ------------------------------------- of the Outstanding Credit Exposure of all the Lenders. "Agreement" means this 364-Day Credit Agreement, as it may be amended, --------- restated, supplemented or otherwise modified and as in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting ------------------------------- principles as in effect in the United States from time to time, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 5.4; provided, however, that except as provided ----------- in Section 9.8, with respect to the calculation of financial ratios and other ----------- financial tests required by this Agreement, "Agreement Accounting Principles" means generally accepted accounting principles as in effect in the United States as of the date of this Agreement, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 5.4 ----------- hereof. "Alternate Base Rate" means, for any day, a fluctuating rate of interest ------------------- per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Applicable Facility Fee Rate" means, at any time, the percentage rate per ---------------------------- annum at which Facility Fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to Eurodollar Advances at any ----------------- time, the percentage rate per annum which is applicable at such time with respect to Eurodollar Advances as set forth in the Pricing Schedule. "Arranger" means Banc One Capital Markets, Inc., a Delaware corporation, -------- and its successors, in its capacity as Lead Arranger and Sole Book Runner. "Article" means an article of this Agreement unless another document is ------- specifically referenced. "Authorized Officer" means any of the chief executive officer, president, ------------------ vice president-finance, chief operating officer, chief financial officer, chief accounting officer or treasurer of the Borrower, acting singly. "Available Aggregate Commitment" means, at any time, the Aggregate ------------------------------ Commitment then in effect minus the Aggregate Outstanding Credit Exposure at such time. "Bank of America" means Bank of America, N.A., a national banking --------------- association, in its individual capacity, and its successors. 2 "Bank One" means Bank One, NA, a national banking association having its -------- principal office in Chicago, Illinois, in its individual capacity, and its successors. "Borrower" means The Mead Corporation, an Ohio corporation, and its -------- permitted successors and assigns (including, without limitation, a debtor-in- possession on its behalf). "Borrowing Date" means a date on which an Advance is made hereunder. -------------- "Borrowing Notice" is defined in Section 2.9. ---------------- ----------- "Business Day" means (i) with respect to any borrowing, payment or rate ------------ selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities, interbank wire transfers can be made on the Fedwire system and dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and interbank wire transfers can be made on the Fedwire system. "Cabin Bluff Loan and Guaranty Agreement" means the Loan and Guaranty -------------------------------------- Agreement dated as of August 23, 1988 among Cabin Bluff Partners, the Borrower and Scott Paper Company, as guarantors, and The Sumitomo Bank, Limited, New York Branch, or the Loan and Guaranty Agreement among Cabin Bluff Partners, the Borrower and Kimberly-Clark Corporation, as guarantors, the lenders party thereto, The Sumitomo Bank, Limited, New York Branch, as a lender and syndication agent, Bank of America, N.A. (successor to Bank of America National Trust and Savings Association), as a lender and documentation agent, and The Chase Manhattan Bank, as a lender and administrative agent, as the same or any substitute or replacement agreement may be amended, restated, modified or replaced from time to time. "Capitalized Lease" of a Person means any lease of Property by such Person ----------------- as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the ----------------------------- obligations of such Person under Capitalized Leases which would be shown as a capitalized liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means, as to any Person, (i) securities --------------------------- issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any investment grade commercial bank having, or which is the principal banking subsidiary of an investment grade bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having capital, surplus and undivided profits aggregating in excess of $500,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than ninety (90) days for underlying securities of the types described in 3 clause (i) above entered into with any bank meeting the qualifications specified - ---------- in clause (ii) above, provided that such repurchase obligations are secured by a ----------- first priority security interest in such underlying securities which have, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 by S&P or P-1 by Moody's and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of the assets of which are comprised of securities of the types described in clauses ------- (i) through (iv) above, and (vi) demand deposit accounts maintained in the - --- ---- ---- ordinary course of business. "Change" is defined in Section 3.2. ------ ----------- "Change in Control" means (i) the acquisition by any Person, or group of ----------------- Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of thirty-five percent (35%) or more of the outstanding shares of voting stock of the Borrower or (ii) the majority of the Board of Directors of the Borrower fails to consist of Continuing Directors. "Closing Date" means the date hereof. ------------ "Code" means the Internal Revenue Code of 1986, as amended, reformed or ---- otherwise modified from time to time, and any rule or regulation issued thereunder. "Combined Commitment" means the sum of (1) the Aggregate Commitment ------------------- hereunder (which, after the Commitments have been terminated, other than as a result of conversion pursuant to Section 2.2.2 hereof, shall be based on the ------------- Aggregate Commitment immediately prior to such termination) and (2) the "Aggregate Commitment" under and as defined in the 5-Year Credit Agreement (which, after such "Commitments" have been terminated, shall be based on the aggregate of such "Commitments" immediately prior to such termination). "Combined Utilized Amount" means the sum of (1) the Aggregate Outstanding ------------------------ Credit Exposure of all the Lenders hereunder, and (2) the "Aggregate Outstanding Credit Exposure" of all the "Lenders" under and as defined in the 5-Year Agreement. "Commitment" means, for each Lender, the obligation of such Lender to make ---------- Syndicated Loans not exceeding the amount set forth on the Commitment Schedule or in an assignment executed pursuant to Section 12.3, as it may be modified as ------------ a result of any assignment that has become effective pursuant to Section 12.3.2 -------------- or as otherwise modified from time to time pursuant to the terms hereof. "Commitment Schedule" means the Schedule identifying each Lender's ------------------- Commitment as of the Closing Date attached hereto and identified as such. "Commitment Termination Date" means the Syndicated Loan Termination Date or --------------------------- any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof (other than pursuant to Section 2.2.2). - ------------- 4 "Consent Date" is defined in Section 2.2.1. ------------ ------------- "Consolidated Net Worth" means (a) the consolidated stockholders' equity of ---------------------- the Borrower and its Subsidiaries in accordance with Agreement Accounting Principles, plus (b) without duplication, (i) an amount equal to 50% of any Convertible Preferred Stock and (ii) an amount equal to 80% of the principal amount (to the extent the aggregate principal amount of such debt instruments does not exceed $250,000,000) of any debt instrument that provides that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, minus or plus (as applicable) (c) the amount of all other comprehensive income or loss calculated in accordance with Agreement Accounting Principles. "Consolidated Total Debt" means the sum, without duplication, of (a) all ----------------------- Indebtedness of the Borrower and its consolidated Subsidiaries which, on the date of determination, would be required to be shown on the Borrower's consolidated balance sheet prepared in accordance with Agreement Accounting Principles (excluding Convertible Preferred Stock and debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower), plus (b) all Receivables Facility Attributed Indebtedness of the Borrower and its consolidated Subsidiaries on the date of determination regardless of its treatment under Agreement Accounting Principles, plus (c) all Off-Balance Sheet Liabilities of the Borrower and its consolidated Subsidiaries on the date of determination regardless of its treatment under Agreement Accounting Principles, plus (d) an amount equal to 50% of any Convertible Preferred Stock, plus (e) an amount equal to 100% of the principal amount (to the extent that the aggregate principal amount of such debt instruments exceeds $250,000,000) any debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, plus (f) an amount equal to 20% of the principal amount (to the extent that the aggregate principal amount of such debt instruments does not exceed $250,000,000) of any debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, minus (g) all Indebtedness that has been defeased. "Consolidated Total Capitalization" means at any time the sum of (i) --------------------------------- Consolidated Total Debt plus (ii) Consolidated Net Worth. "Continuing Director" means, as of any date of determination, any member of ------------------- the board of directors of the Company who (a) was a member of such board of directors on the date hereof, or (b) was nominated for election or elected to such board of directors with the approval of the required majority of the Continuing Directors who were members of such board at the time of such nomination or election. "Controlled Group" means all members of a controlled group of corporations ---------------- or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Significant Subsidiaries, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Conversion/Continuation Notice" is defined in Section 2.10. ------------------------------ ------------ 5 "Conversion Date" is defined in Section 2.2.2. --------------- ------------- "Converted Loan Termination Date" means the date that is on the second ------------------------------- anniversary of the Conversion Date (or, if such date is not a Business Day, on the immediately preceding Business Day). "Convertible Preferred Stock" means any preferred stock that, by its terms --------------------------- (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, is convertible into common stock at the option of the holder thereof, in whole or in part. "Default" means an event described in Article VII. ------- ----------- "Designated Lender" is defined in Section 12.1.2. ----------------- -------------- "Documentation Agent" means Bank of America in its capacity as the ------------------- documentation agent for the Lenders pursuant to Article X, and not in its --------- individual capacity as a Lender, and any successor Documentation Agent appointed pursuant to Article X. --------- "Environmental Laws" means any and all applicable federal, state, local and ------------------ foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which, except as otherwise provided ------------------ in Section 2.12, bears interest at the applicable Eurodollar Rate. ------------ "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the -------------------- relevant Interest Period, the applicable London interbank offered Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such London interbank offered Rate is available to the Administrative Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which Morgan Guaranty or one of its Affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 1l:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, in the approximate amount of, and for a maturity corresponding to, Morgan Guaranty's Pro Rata Share of the applicable Eurodollar Loan and having a maturity equal to such Interest Period. 6 "Eurodollar Loan" means a Syndicated Loan which, except as otherwise --------------- provided in Section 2.12, bears interest at the applicable Eurodollar Rate. ------------ "Eurodollar Rate" means, with respect to a Eurodollar Advance for the --------------- relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. "Excluded Taxes" means, in the case of each Lender or applicable Lending -------------- Installation and each Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or Agent is incorporated or organized or any political combination or subdivision or taxing authority thereof or (ii) the jurisdiction in which such Agent's or Lender's principal executive office or such Lender's applicable Lending Installation is located or in which, other than as a result of the transaction evidenced by this Agreement, such Agent or Lender otherwise is, or at any time was, engaged in business. "Exhibit" refers to an exhibit to this Agreement, unless another document ------- is specifically referenced. "Existing Credit Agreement" means that certain Credit Agreement dated as of ------------------------- November 15, 1989 among the Borrower, the lenders parties thereto, and Bank One (formerly known as The First National Bank of Chicago) and Morgan Guaranty, as co-agents thereunder, as the same has been amended, restated, supplemented or otherwise modified from time to time. "Facility Fee" is defined in Section 2.6(a). ------------ -------------- "Federal Funds Effective Rate" means, for any day, an interest rate per ---------------------------- annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding 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 at approximately 10:00 a.m. (New York time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financial Contract" of a Person means (i) any exchange-traded or over-the- ------------------ counter futures, forward, swap or option contract or (ii) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates or forward rates, including interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency, interest rate options puts or warrants. "5-Year Credit Agreement" means the 5-Year Revolving Credit Agreement dated ----------------------- as of the date hereof among the Borrower, the lenders from time to time party thereto, Morgan Guaranty, as the administrative agent thereunder, Bank One, as the syndication agent thereunder, and Bank of America, as the documentation agent thereunder, as the same may be amended, restated, supplemented or otherwise modified and as in effect from time to time. 7 "Floating Rate" means, for any day, a rate per annum equal to the Alternate ------------- Base Rate for such day, changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which, except as otherwise --------------------- provided in Section 2.12, bears interest at the Floating Rate. ------------ "Floating Rate Loan" means a Syndicated Loan which, except as otherwise ------------------ provided in Section 2.12, bears interest at the Floating Rate. ------------ "Foreign Pension Plan" means any employee pension benefit plan (as defined -------------------- in Section 3(2) of ERISA) which (i) is maintained or contributed to for the benefit of employees of the Borrower or any Subsidiary of the Borrower, (ii) is not covered by ERISA pursuant to Section 4(b)(4) thereof and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Granting Bank" is defined in Section 12.1.2. ------------- -------------- "Indebtedness" of a Person means, without duplication, (a) the obligations ------------ of such Person (i) for borrowed money, (ii) under or with respect to notes payable and drafts accepted which represent extensions of credit (whether or not representing obligations for borrowed money) to such Person, (iii) constituting reimbursement obligations with respect to letters of credit issued for the account of such Person to support the Indebtedness for borrowed money of any other Person or (iv) for the deferred purchase price of property or services other than current accounts payable arising in the ordinary course of business on terms customary in the trade, (b) the obligations of others, whether or not assumed, secured by Liens on property of such Person or payable out of the proceeds of or production from property now or hereafter owned or acquired by such Person, (c) the Capitalized Lease Obligations of such Person, (d) the obligations of such Person under guaranties by such Person of any Indebtedness (other than obligations for borrowed money incurred to finance the purchase of property leased to such Person pursuant to a Capitalized Lease of such Person) of any other Person, (e) all Receivable Facility Attributed Indebtedness of such Person, (f) all Off-Balance Sheet Liabilities of such Person, and (g) all Convertible Preferred Stock; provided, that non-recourse debt of the Borrower or -------- its Subsidiaries under the Cabin Bluff Loan and Guaranty Agreement in an amount not to exceed $150,000,000 shall not constitute Off-Balance Sheet Liability of the Borrower or its Subsidiaries. "Interest Period" means, with respect to a Eurodollar Advance, a period of --------------- one, two, three or six months or such other period agreed to by the Lenders and the Borrower, commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months or such other agreed upon date thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month or such other succeeding date, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month or such other succeeding date. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day 8 falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Lenders" means the lending institutions listed on the signature pages of ------- this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agents, the ------------------- office, branch, subsidiary or affiliate of such Lender or Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or Agent pursuant to Section 2.18. ------------ "Leverage Ratio" means, as of any date of calculation, the ratio of (i) -------------- Consolidated Total Debt outstanding on such date to (ii) Consolidated Total Capitalization as of such date. "Lien" means any lien (statutory or other), mortgage, pledge, ---- hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan Documents" means this Agreement and any Notes issued pursuant to -------------- Section 2.14 (if requested). - ------------ "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- ability of the Borrower or any of its Subsidiaries to perform its respective obligations under the Loan Documents to which it is a party, or (ii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agents or the Lenders thereunder. "Material Indebtedness" is defined in Section 7.5(y). --------------------- -------------- "Moody's" means Moody's Investors Service, Inc. and any successor thereto. ------- "Morgan Guaranty" means Morgan Guaranty Trust Company of New York, a New --------------- York banking association, in its individual capacity, and its successors. "Multiemployer Plan" means a Plan maintained pursuant to a collective ------------------ bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "Non-U.S. Lender" is defined in Section 3.5(iv). --------------- -------------- "Note" is defined in Section 2.14. ---- ------------ "Notice to Convert" is defined in Section 2.2.2. ----------------- ------------- "0bligations" means all Syndicated Loans, advances, debts, liabilities, ----------- obligations, covenants and duties owing by the Borrower to any of the Agents, any Lender, the Arranger, any affiliate of the Agents or any Lender, the Arranger, or any indemnitee under the provisions of Section 9.6 or any other ----------- provisions of the Loan Documents, in each case of any kind or nature, 9 present or future, arising under this Agreement or any other Loan Document, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower under this Agreement or any other Loan Document. "Off-Balance Sheet Liability" of a Person means (i) Receivables Facility --------------------------- Attributed Indebtedness and any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to Receivables or notes receivable sold by such Person or any of its Subsidiaries (calculated to include the unrecovered investment of purchasers or transferees of Receivables or any other obligation of the Borrower or such transferor to purchasers/transferees of interests in Receivables or notes receivable or the agent for such purchasers/transferees), (ii) any liability under any sale and leaseback transaction which is not a Capitalized Lease or (iii) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheets of such Person, but excluding from this clause (iii) Operating Leases. "Operating Lease" of a Person means any lease of Property (other than a --------------- Capitalized Lease) by such Person as lessee which has an original term (including any required renewals and any renewals effective at the option of the lessor) of one year or more. "Originator" means the Borrower and/or any of its Significant Subsidiaries ---------- in their respective capacities as parties to any Receivables Purchase Documents, as sellers or transferors of any Receivables and Related Security in connection with a Permitted Receivables Transfer. "Other Taxes" is defined in Section 3.5(ii). ----------- --------------- "Outstanding Credit Exposure" means, as to any Lender at any time, the --------------------------- aggregate principal amount of its Syndicated Loans outstanding at such time. "Participants" is defined in Section 12.2.1. ------------ -------------- "Payment Date" means the last day of each March, June, September and ------------ December, the Commitment Termination Date and the Converted Loan Termination Date, if applicable. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor ---- thereto. "Permitted Receivables Transfer" means (i) a sale or other transfer by ------------------------------ an Originator to a SPV of Receivables and Related Security for fair market value and without recourse (except for limited recourse typical of such structured finance transactions), and/or (ii) a sale or other transfer by a SPV to (a) purchasers of or other investors in such Receivables and Related Security or (b) any other Person (including a SPV) in a transaction in which purchasers or other investors purchase or are otherwise transferred such Receivables and Related Security, in each case pursuant to and in accordance with the terms of the Receivables Purchase Documents. 10 "Person" means any natural person, corporation, firm, joint venture, ------ partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan (other than a ---- Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule identifying the Applicable ---------------- Margin and Applicable Facility Fee Rate attached hereto identified as such. "Prime Rate" means the per annum rate of interest publicly announced ---------- by Morgan Guaranty in New York City form time to time as its Prime Rate, changing when and as said Prime Rate changes. "Priority Indebtedness" means, without duplication, any and all (i) --------------------- Indebtedness of any Significant Subsidiary of the Borrower, (ii) Indebtedness of the Borrower that is secured by any Lien and (iii) Receivables Facility Attributed Indebtedness of the Borrower and its Subsidiaries; provided, that -------- "Priority Indebtedness" shall not include, to the extent otherwise included as Priority Indebtedness (x) Indebtedness permitted by Section 6.10(ii)(a) and (b), ------------------- --- (y) secured Indebtedness of the Borrower or its Subsidiaries that is tax-exempt or (z) Indebtedness of a Person assumed by the Borrower or its Subsidiaries in connection with an Acquisition of such Person during the period from the effective date of such Acquisition until the date that is two hundred seventy (270) days thereafter (it being understood that the excluded items described in the foregoing clauses (x), (y) and (z) shall constitute Indebtedness for the ----------- --- --- purposes of Sections 6.15 and 7.5 of this Agreement). ------------- --- "Property" of a Person means any and all property, whether real, -------- personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Share" means, with respect to a Lender, a portion equal to a -------------- fraction the numerator of which is such Lender's Commitment and the denominator of which is the Aggregate Commitment or, after the earlier of the Conversion Date or the Commitment Termination Date, a fraction the numerator of which is such Lender's Outstanding Credit Exposure and the denominator of which is the aggregate outstanding amount of all Syndicated Loans. "Purchasers" is defined in Section 12.3.1. ---------- -------------- "Receivables and Related Security" means the Receivables and the -------------------------------- related security and collections with respect thereto which are sold or transferred by any Originator or SPV in connection with any Permitted Receivables Transfer. "Receivables Facility Attributed Indebtedness" means the amount of -------------------------------------------- obligations outstanding under a receivables purchase facility on any date of determination that would be 11 characterized as principal if such facility were structured as a secured lending transaction rather than as a purchase. "Receivables Purchase Documents" means any series of receivables ------------------------------ purchase or sale agreements generally consistent with terms contained in comparable structured finance transactions pursuant to which an Originator or Originators sell or transfer to SPVs all of their respective right, title and interest in and to certain Receivables and Related Security for further sale or transfer to other purchasers of or investors in such assets (and the other documents, instruments and agreements executed in connection therewith), as any such agreements may be amended, restated, supplemented or otherwise modified from time to time, or any replacement or substitution therefor. "Receivables Purchase Financing" means any financing consisting of a ------------------------------ securitization facility made available to the Borrower, whereby the Receivables and Related Security of the Originators are transferred to one or more SPVs, and thereafter to certain investors, pursuant to the terms and conditions of the Receivables Purchase Documents. "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 ---------------- of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having greater than ---------------- fifty percent (50%) of the Aggregate Commitment or, if the Aggregate Commitment has been terminated or after the Conversion Date, Lenders in the aggregate holding greater than fifty percent (50%) of the Aggregate Outstanding Credit Exposure. "Reserve Requirement" means, with respect to an Interest Period, the ------------------- maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on "Eurocurrency liabilities" (as defined in Regulation D). "Risk Based Capital Guidelines" is defined in Section 3.2. ----------------------------- ----------- 12 "S&P" means Standard and Poor's Ratings Services, a division of The --- McGraw-Hill Companies, Inc. and any successor thereto. "Schedule" refers to a specific schedule to this Agreement, unless -------- another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another ------- document is specifically referenced. "Significant Subsidiary" means any Subsidiary which is a "significant ---------------------- subsidiary" of the Borrower as defined in Rule l-02 of Regulation S-X under the Securities Exchange Act of 1934. "SPV" means any special purpose entity established for the purpose of --- purchasing receivables in connection with a receivables securitization transaction permitted under the terms of this Agreement. "Subsidiary" of a Person means (i) any corporation more than fifty ---------- percent (50%) of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than fifty percent (50%) of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Syndicated Loan" means, with respect to a Lender, such Lender's loan --------------- made pursuant to its commitment to lend set forth in Section 2.1 (or any ----------- conversion or continuation thereof). All references herein to Syndicated Loans shall include such loans following a conversion thereof from revolving loans to term loans pursuant to Section 2.2.2. ------------- "Syndicated Loan Termination Date" means November 9, 2001, or any -------------------------------- subsequent date to which the Syndicated Loan Termination Date has been extended pursuant to the terms of Section 2.2.1. ------------- "Syndication Agent" means Bank One in its capacity as the syndication ----------------- agent for the Lenders pursuant to Article X, and not in its individual capacity --------- as a Lender, and any successor Syndication Agent appointed pursuant to Article ------- X. - - "Taxes" means any and all present or future taxes, duties, levies, ----- imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "Transferee" is defined in Section 12.4. ---------- ------------ "Type" means, with respect to any Advance, its nature as a Floating ---- Rate Advance or a Eurodollar Advance. 13 "Unfunded Liabilities" means the amount (if any) by which the present -------------------- value of all vested and unvested accrued benefits under all Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined under and in accordance with Financial Accounting Standard Board Statement 87. "Unmatured Default" means an event which but for the lapse of time or ----------------- the giving of notice, or both, would constitute a Default. "Utilization Fee" is defined in Section 2.6(b). --------------- -------------- "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of ----------------------- the outstanding voting securities of which (other than directors' qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS ----------- 2.1. Commitment. From and including the date of this Agreement and ---------- prior to the earlier of the Conversion Date and the Commitment Termination Date, upon the satisfaction of the conditions precedent set forth in Section 4.1 and ----------- 4.2, as applicable, each Lender severally agrees, on the terms and conditions - --- set forth in this Agreement, to make Syndicated Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding its Pro Rata Share of the Available Aggregate Commitment, provided that at no time shall the Aggregate Outstanding Credit Exposure hereunder exceed the Aggregate Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Syndicated Loans at any time prior to the earlier of the Conversion Date and the Commitment Termination Date, at which time, Commitments to lend hereunder shall expire automatically. 2.2. Extension of Syndicated Loan Termination Date; Conversion to ------------------------------------------------------------ Term Loans. ---------- 2.2.1. Extension of Syndicated Loan Termination Date. The Aggregate --------------------------------------------- Commitment shall expire on the earlier of the Conversion Date and the Commitment Termination Date. Within the period beginning fifty-nine (59) days and ending thirty (30) days before the then effective Syndicated Loan Termination Date, the Borrower may request in writing that the Syndicated Loan Termination Date be extended for an additional period of 364 days, including the then effective Syndicated Loan Termination Date as one of the days in the calculation of days elapsed. Within twenty (20) days after such request (such 20/th/ day being the "Consent Date"), each Lender may, in its sole discretion, agree to such extension to a new Syndicated Loan Termination Date not more than 364 days following such Consent Date by giving written notice 14 of such agreement to the Borrower and the Administrative Agent (and the failure to provide such notice shall be deemed to be a decision not to extend). The Commitment of each Lender that declines to extend with respect to the Aggregate Commitment may, at the option of the Borrower, be replaced in accordance with Section 12.3.1 (but only to the extent a replacement Lender is then available), - -------------- or the Aggregate Commitment shall be reduced by the amount of such non-extending Lender's Commitment (it being understood that any Lender's failure to extend its Commitment shall not result in an increase to any other Lender's Commitment unless such other Lender voluntarily becomes a "Purchaser" under Section ------- 12.3.1). All Obligations due to each Lender that declines to extend its - ------ Commitment under this Section 2.2.1 shall be paid in full to the Administrative ------------- Agent for the account of each such Lender on the then effective Syndicated Loan Termination Date (without giving effect to any such requested extension thereto). The Required Lenders (prior to giving effect to any reductions as a result of non-extending Lenders) and the Borrower must agree to any extension with respect to the Syndicated Loan Termination Date for any such extension to become effective. 2.2.2. Conversion to Term Loan. Up until and including the Commitment ----------------------- Termination Date, at the Borrower's option upon written notice (a "Notice to Convert") to the Administrative Agent (who shall promptly notify each of the Lenders), the Borrower may convert the then outstanding aggregate principal amount of the Advances hereunder to a term loan. The Notice to Convert shall expressly state the date on which such conversion shall occur (such date being the "Conversion Date") and shall be irrevocable once given and shall constitute a representation and warranty by the Borrower that the conditions contained in Section 5.2 have been satisfied as of the Conversion Date. Upon delivery of such - ----------- Notice to Convert, (i) the Borrower's option to request extensions of the Syndicated Loan Termination Date under Section 2.2.1 above and to borrow and ------------- reborrow Syndicated Loans hereunder shall terminate, (ii) the Aggregate Commitment shall be reduced to zero, and (iii) the outstanding principal balance of all Syndicated Loans hereunder shall be due and payable on the Converted Loan Termination Date. All references in this Agreement to Syndicated Loans shall include such loans as converted hereunder. 2.3. Required Payments; Termination. This Agreement shall be effective ------------------------------ until the Commitment Termination Date, or if the Borrower has elected to convert the Advances hereunder to a term loan pursuant to Section 2.2.2, until the ------------- Converted Loan Termination Date. Any outstanding Syndicated Loans and all other unpaid Obligations shall be paid in full by the Borrower on the Commitment Termination Date, or, if the Borrower has elected to convert the Advances hereunder to a term loan pursuant to Section 2.2.2, the Converted Loan ------------- Termination Date. Notwithstanding the termination of this Agreement on the Commitment Termination Date or the Converted Loan Termination Date, as applicable, until all of the Obligations (other than contingent indemnity obligations) shall have been fully paid and satisfied, all of the rights and remedies under this Agreement and the other Loan Documents shall survive. 2.4. Ratable Loans. Each Advance hereunder shall consist of Syndicated ------------- Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 15 2.5. Types of Advances. The Advances may be Syndicated Loans consisting of ----------------- Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.9 and 2.10. ------------ ---- 2.6. Facility Fee; Utilization Fee; Reductions in Aggregate Commitment. ----------------------------------------------------------------- (a) Facility Fee. The Borrower agrees to pay to the Administrative Agent ------------ for the account of each Lender a facility fee (the "Facility Fee") at a per annum rate equal to the Applicable Facility Fee Rate on the average daily amount of such Lender's Commitment (regardless of usage) (or, from and after the earlier of the Conversion Date or the Commitment Termination Date, such Lender's average daily Outstanding Credit Exposure) from and including the Closing Date to but excluding the date on which this Agreement is terminated in full pursuant to Section 2.3, payable quarterly in arrears on each Payment Date hereafter. ----------- (b) Utilization Fee. If, on any date prior to the Conversion Date, the --------------- Combined Utilized Amount exceeds thirty-three percent (33%) of the Combined Commitment then in effect on such date, the Borrower will pay to the Administrative Agent for the ratable benefit of the Lenders a utilization fee (the "Utilization Fee") at a per annum rate equal to 0.10% on the Combined Utilized Amount as of such date, payable quarterly in arrears on each Payment Date. On any date from and after the Conversion Date, regardless of the amount converted, the Utilization Fee paid by the Borrower to the Administrative Agent for the ratable benefit of the Lenders shall equal 0.10% per annum on the Aggregate Outstanding Credit Exposure of all Lenders hereunder, payable quarterly in arrears on each Payment Date. In each case, to the extent such fee is applicable, the Utilization Fee shall be payable until the date on which this Agreement is terminated in full pursuant to Section 2.3. ----------- (c) Reductions in Aggregate Commitment. Prior to the Conversion Date, the ---------------------------------- Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $10,000,000, upon at least three (3) Business Days' written notice to the Administrative Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. All accrued Facility Fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Syndicated Loans hereunder (other than a termination of such obligations pursuant to Section 2.2.2). ------------- 2.7. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in ------------------------------ the minimum amount of $10,000,000 (and in multiples of $1,000,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $l,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.8. Optional Principal Payments. The Borrower may from time to time pay, --------------------------- without penalty or premium, all outstanding Floating Rate Advances, or any portion of the outstanding Floating Rate Advances in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof upon prior notice to the Administrative Agent at or before noon (New York time) on the date of such prepayment. The Borrower may from time to time pay, 16 subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, - ----------- or, in a minimum aggregate amount of $10,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon five (5) Business Days' prior notice to the Administrative Agent. 2.9. Method of Selecting Types and Interest Periods for New Advances. The --------------------------------------------------------------- Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (New York time) on the Borrowing Date of each Floating Rate Advance and three (3) Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Promptly after receipt of any Borrowing Notice, the Administrative Agent shall provide the Lenders with notice thereof. Not later than noon (New York time) on each Borrowing Date, each Lender shall make available its Syndicated Loan or Syndicated Loans in funds immediately available in New York to the Administrative Agent at its address specified pursuant to Article XIII. The ------------ Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 2.10. Conversion and Continuation of Outstanding Advances. Floating Rate --------------------------------------------------- Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section ------- 2.10 or are repaid in accordance with Section 2.8. Each Eurodollar Advance shall - ---- ----------- continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.8 or (y) the Borrower shall have given ----------- the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.7, the Borrower may elect from time to time to ----------- convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (New York time) at least three (3) Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation, 17 (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. Promptly after receipt of any Conversion/Continuation Notice, the Administrative Agent shall provide the Lenders with notice thereof. 2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear ----------------------------- interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.10, to ------------ but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.10 hereof, at a rate per annum equal to the Floating Rate ------------ for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Administrative Agent as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.9 and 2.10 and otherwise in accordance with the ------------ ---- terms hereof. No Interest Period may end after the Commitment Termination Date or, if the Borrower has elected to convert the Advances pursuant to Section ------- 2.2.2, the Converted Loan Termination Date. ----- 2.12. Rates Applicable After Default. Notwithstanding anything to the ------------------------------ contrary contained in Section 2.9 or 2.10, during the continuance of a Default ----------- ---- the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes ----------- in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default (including the Borrower's failure to pay any Syndicated Loan at maturity) the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes ----------- in interest rates), declare that any overdue portion of Advances, fees or any other Obligations hereunder shall bear interest at the Floating Rate plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or ----------- 7.7, such interest rate shall be applicable to all Advances, fees and other - --- Obligations hereunder without any election or action on the part of the Administrative Agent or any Lender. 2.13. Method of Payment. All payments of the Obligations hereunder shall ----------------- be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the ------------ Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (New York time) on the date when due and shall be applied ratably by the Administrative Agent among the Lenders. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the 18 Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at such Lender's address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by - ------------ the Administrative Agent from such Lender. 2.14. Noteless Agreement; Evidence of Indebtedness. -------------------------------------------- (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Syndicated Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Syndicated Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to clauses (i) and (ii) above shall be prima facie evidence of the existence and ----------- ---- amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Syndicated Loans be evidenced by a promissory note representing its Syndicated Loans, substantially in the form of Exhibit D (each a "Note"). In such event, the Borrower shall prepare, --------- execute and deliver to such Lender such Note payable to the order of such Lender. Thereafter, the Syndicated Loans evidenced by each such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more Notes payable to the order of the ------------ payee named therein or any assignee pursuant to Section 12.3, except to the ------------ extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Syndicated Loans once again be evidenced as described in clauses (i) and (ii) above. ----------- ---- 2.15. Telephonic Notices. The Borrower hereby authorizes the Lenders ------------------ and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith believes to be acting on behalf of the Borrower, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error. 19 2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued ---------------------------------------------- on each Floating Rate Advance shall be payable in arrears on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than six months shall also be payable on the last day of each three-month interval during such Interest Period or as otherwise agreed upon by the Lenders and the Borrower. Interest on Eurodollar Advances, Facility Fees and Utilization Fees shall be calculated for actual days elapsed on the basis of a 360-day year; interest on Floating Rate Advances shall be calculated for actual days elapsed on the basis of a 365/366-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (New York time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17. Notification of Advances, Interest Rates, Prepayments and --------------------------------------------------------- Commitment Reductions. Promptly after receipt thereof, the Administrative Agent --------------------- will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.18. Lending Installations. Each Lender may book its Syndicated Loans --------------------- at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Syndicated Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to the Administrative Agent and the Borrower in accordance with Article XIII, designate replacement or ------------ additional Lending Installations through which Syndicated Loans will be made by it and for whose account Syndicated Loan payments are to be made. 2.19. Non-Receipt of Funds by the Administrative Agent. Unless the ------------------------------------------------ Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Syndicated Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, 20 the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Syndicated Loan, including pursuant to Section 2.12. ------------ 2.20. Removal or Replacement of Lender. The Borrower shall have the right, -------------------------------- in its sole discretion, at any time and from time to time to terminate the Commitment of any Lender (an "Affected Lender"), in whole, upon at least thirty (30) days' prior notice to the Administrative Agent and such Lender, (a) if such Lender has failed or refused to make available the full amount of any Syndicated Loans as required by its Commitment hereunder, (b) if such Lender has failed or refused to consent to any amendment, waiver, supplement, restatement, discharge or termination of any provision of this Agreement when requested by the Borrower and approved by the Required Lenders prior to such amendment, waiver or termination, (c) if such Lender has been merged or consolidated with, or transferred all or substantially all of its assets to, or otherwise been acquired by any other Person, (d) if such Lender's obligation to make or continue, or convert Floating Rate Advances into, Eurodollar Advances has been suspended pursuant to Section 3.3, or (e) for any other reason, with or without ----------- cause, at any time after the second anniversary of the Closing Date; provided, however that no such Commitment reduction shall (after giving effect to any replacement of such Commitment as provided below) reduce the Aggregate Commitment by more than fifteen percent (15%) thereof; provided further, that no Default or Unmatured Default shall have occurred and be continuing at the time of such reduction; and that, concurrently with such reduction, the Borrower shall pay to such Affected Lender in same day funds on the day of such removal or replacement (A) all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrower hereunder to but excluding the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5, to the extent applicable, and (B) an amount, if ------------ --- --- any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.4 had the Syndicated Loans of such Affected ----------- Lender been prepaid on such date rather than sold to the replacement Lender. ARTICLE III YIELD PROTECTION; TAXES ----------------------- 3.1. Yield Protection. If, on or after the date of this Agreement, the ---------------- adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any applicable governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: 21 (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within fifteen (15) days of demand by such Lender, the Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. 3.2. Changes in Capital Adequacy Regulations. If a Lender determines the --------------------------------------- amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within fifteen (15) days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Syndicated Loans or its Commitment to make Syndicated Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 22 3.3. Availability of Types of Advances. If any Lender determines that --------------------------------- maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Administrative Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.4. ----------- 3.4. Funding Indemnification. If any payment of a Eurodollar Advance ----------------------- occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance but excluding in any event loss of anticipated profits. 3.5. Taxes. ----- (i) All payments by the Borrower to or for the account of any Lender or Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or Agent (as the case may be) ----------- receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within thirty (30) days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrower hereby agrees to indemnify the Agents and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by ----------- the Agents or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within thirty (30) days of the date the Agents or such Lender makes demand therefor pursuant to Section 3.6. ----------- (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not more than ten (10) Business Days after the date of this Agreement or the date on which it becomes a Lender 23 hereunder, deliver to each of the Borrower and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non- U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above (unless ----------- such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided ----------- that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Borrower shall take ----------- such steps as such Non-U.S. Lender shall reasonably request to assist such Non- U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the 24 Administrative Agent). The obligations of the Lenders under this Section ------- 3.5(vii) shall survive the payment of the Obligations and termination of this - -------- Agreement. 3.6. Lender Statements; Survival of Indemnity. To the extent reasonably ---------------------------------------- possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of ------------ --- --- Eurodollar Advances under Section 3.3, so long as such designation is not, in ----------- the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 ----------- ---- --- or 3.5. Such written statement shall set forth in reasonable detail the --- calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Syndicated Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 ------------ --- --- --- shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. The Closing. The Lenders shall not be required to make Advances ----------- hereunder and their respective Commitments shall not be effective unless (a) the representations and warranties contained in Article V (including, without --------- limitation, Sections 5.5, 5.7 and 5.8) are true and correct as of the Closing ------------ --- --- Date and (b) the Borrower has furnished to the Agents: (i) Copies of the articles or certificate of incorporation of the Borrower, together with all amendments thereto, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which it is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of the Borrower authorized to sign the Loan Documents to which it is a party and to request Syndicated Loans hereunder, upon which certificate the Agents and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. 25 (iv) An opening compliance certificate in substantially the form of Exhibit B, signed by the vice president-finance, chief financial --------- officer or treasurer of the Borrower, showing the calculations necessary to determine compliance with this Agreement as of the end of the immediately preceding fiscal quarter and stating that on the Closing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of the Borrower's general or associate general counsel, in form and substance satisfactory to the Agents and addressed to the Lenders in substantially the form of Exhibit A. --------- (vi) Any Notes requested by a Lender pursuant to Section 2.14 payable to ------------ the order of each such requesting Lender. (vii) Evidence satisfactory to the Agents that the Existing Credit Agreement shall have been or shall on the Closing be terminated (except for those provisions that expressly survive the termination thereof) and all loans outstanding and other amounts owed to the lenders or agents thereunder shall have been or shall on the Closing Date be paid in full. (viii) Such other documents as any Lender or its counsel may have reasonably requested including, without limitation, the 5-Year Credit Agreement and each other document identified on the List of Closing Documents attached hereto as Exhibit E. --------- 4.2. Each Advance. The Lenders shall not be required to make any Advance ------------ unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V (other --------- than with respect to the representations and warranties contained in Sections 5.5, 5.7 and 5.8, which shall only be made as of the ------------ --- --- Closing Date) are true and correct as of such Borrowing Date except --- to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Section 4.2(i) and (ii) have been satisfied. - -------------- ---- ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants as follows to each Lender and the Agents as of the Closing Date, on the date of the initial Syndicated Loans hereunder (if different from the Closing Date) and thereafter on the Conversion Date and on each date as required by Section 4.2 (other ----------- 26 than with respect to the representations and warranties contained in Sections -------- 5.5, 5.7 and 5.8, which shall only be made as of the Closing Date): - --- --- --- 5.1. Existence and Standing. The Borrower and each of its Significant ---------------------- Subsidiaries is a corporation, partnership or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted unless the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. 5.2. Authorization and Validity. The Borrower has the power and authority -------------------------- and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents to which the Borrower is a party constitute legal, valid and binding obligations of the Borrower enforceable against it in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery ------------------------------- by the Borrower or any of its Significant Subsidiaries of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Significant Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Significant Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Significant Subsidiaries, is required to be obtained by the Borrower or any of its Significant Subsidiaries in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by the Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4. Financial Statements. Except as publicly disclosed on or prior to the -------------------- date hereof, the December 31, 1999 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Arranger and the Lenders, copies of which are attached hereto as Schedule 5.4, were prepared in ------------ accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present, the consolidated financial 27 condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations and cash flows for the fiscal year then ended. 5.5. Material Adverse Change. Except as publicly disclosed on or prior to ----------------------- the date hereof, since December 31, 1999 and up to the Closing Date there has been no change in the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Borrower and its Subsidiaries have filed all United States ----- federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Significant Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles or where it would not have a Material Adverse Effect. The United States income tax returns of the Borrower and its Significant Subsidiaries as of December 31, 1995 have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1995. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. There is no litigation, ------------------------------------- arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Significant Subsidiaries which has not been disclosed in the Borrower's Annual Report on Form 10-K dated December 31, 1999 or the Borrower's Quarterly Report on Form 10-Q dated July 2, 2000, copies of which are attached hereto as Schedule 5.7, which could reasonably be expected to have a ------------ Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Syndicated Loans. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, neither the Borrower nor any of its Significant Subsidiaries have any material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. ----------- 5.8. Accuracy of Information. No information, schedule, exhibit or report ----------------------- furnished by the Borrower or any of its Significant Subsidiaries in writing to the Arranger, any Agent or Lender (including, without limitation, the September 2000 Confidential Information Memorandum entitled "The Mead Corporation $600,000,000 Senior Unsecured Credit Facilities") in connection with the negotiation of, or compliance with, the Loan Documents, when taken as a whole, contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.9. Regulation U. Margin stock (as defined in Regulation U) constitutes ------------ less than twenty-five (25%) of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.10. Material Agreements. Neither the Borrower nor any Significant ------------------- Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. 28 5.11. Compliance With Laws. The Borrower and its Significant Subsidiaries -------------------- have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.12. ERISA; Foreign Pension Matters. (a) Each Plan and each Foreign ------------------------------ Pension Plan complies in all material respects with all applicable requirements of law and regulations, (b) there are no Unfunded Liabilities in respect of the Plans, (c) the present value of the aggregate unfunded liabilities to provide the accrued benefits under all Foreign Pension Plans does not exceed the fair market value of the assets held in trust or other funding vehicles for accrued benefits under all Foreign Pension Plans, (d) no Reportable Event has occurred with respect to any Plan, (e) neither the Borrower nor any other member of the Controlled Group has withdrawn from any Multiemployer Plan or initiated steps to do so, and (f) no steps have been taken to terminate any Plan, other than such non-compliance, unfunded liabilities, Reportable Events, withdrawals, and terminations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.13. Plan Assets; Prohibited Transactions. The Borrower is an "operating ------------------------------------ company" within the meaning of 29 C.F.R. (S) 2510.3-101 and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.14. Environmental Matters. In the ordinary course of its business, the --------------------- officers of the Borrower consider the effect of Environmental Laws on the business of the Borrower and its Significant Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrower and its Subsidiaries due to Environmental Laws. On the basis of this consideration, the Borrower has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Except as publicly disclosed on or prior to the date hereof, neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.15. Investment Company Act. Neither the Borrower nor any Subsidiary is an ---------------------- "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.16. Public Utility Holding Company Act. Neither the Borrower nor any ---------------------------------- Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 29 5.17. Insurance. The Property of the Borrower and its Significant --------- Subsidiaries is insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as is consistent with sound business practice. ARTICLE VI COVENANTS --------- During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and each ------------------- Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within one hundred twenty (120) days after the close of each of its fiscal years, an audit report certified by independent certified public accountants acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including a balance sheet as of the end of such period, related statements of income, shareholders' equity and cash flows and unqualified as to the Borrower's status as a going concern. (ii) Within sixty (60) days after the close of the first three (3) quarterly periods of each of its fiscal years, for itself and its Subsidiaries, a consolidated unaudited balance sheet as at the close of each such period and consolidated statements of income, shareholders' equity and cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its vice president-finance, chief financial officer, chief accounting officer or treasurer. (iii) Together with the financial statements required under Sections 6.1 ------------ (i) and (ii), a compliance certificate in substantially the form of --- ---- Exhibit B signed by its vice president-finance, chief financial --------- officer, chief accounting officer or treasurer showing the calculations necessary to determine compliance with this Agreement, indicating the Borrower's then current rating by S&P and Moody's and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within thirty (30) days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the vice president- finance, chief financial officer or treasurer of the Borrower, describing said Reportable Event or material unfunded liability and the action which the Borrower proposes to take with respect thereto. (v) As soon as possible and in any event within thirty (30) days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Significant Subsidiaries is or may be liable to any Person as a result of the 30 release by the Borrower, any of its Significant Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Significant Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (vii) Promptly upon the filing thereof, copies of all registration statements or other regular reports not otherwise provided pursuant to this Section 6.1 which the Borrower or any of its Significant ----------- Subsidiaries files with the Securities and Exchange Commission. (viii) Prior to the execution thereof, draft copies of the Receivables Purchase Documents and, promptly after execution thereof, copies of all material amendments thereto. (ix) Such other information (including non-financial information) as any Agent or Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each Significant --------------- Subsidiary to, use the proceeds of the Advances for general corporate purposes; provided, that in no event shall the proceeds of the Advances be used by the - -------- Borrower or any Significant Subsidiary to consummate acquisitions on a hostile basis. The Borrower shall use the proceeds of Advances in compliance with all applicable legal and regulatory requirements and any such use shall not result in a violation of any such requirements, including, without limitation, Regulation U, the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations promulgated thereunder. 6.3. Notice of Default. The Borrower will, and will cause each Significant ----------------- Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. The Borrower will, and will cause each ------------------- Significant Subsidiary to, carry on and conduct its business in a manner appropriate for market conditions and, except as otherwise permitted by Section ------- 6.11, do all things necessary to remain duly incorporated or organized, validly - ---- existing and (to the extent such concept applies to such entity) in good standing as a corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.5. Taxes. Borrower will, and will cause each Significant Subsidiary ----- to, file on a timely basis complete and correct United States federal and applicable foreign, state and local tax 31 returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6. Insurance. The Borrower will, and will cause each Significant --------- Subsidiary to, maintain insurance policies and programs on their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. 6.7. Compliance with Laws. The Borrower will, and will cause each -------------------- Significant Subsidiary to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.8. Maintenance of Properties. The Borrower will, and will cause ------------------------- each Significant Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.9. Inspection; Keeping of Books and Records. The Borrower will, and ---------------------------------------- will cause each Significant Subsidiary to, permit the Agents and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Significant Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as any Agent or Lender may designate. The Borrower shall keep and maintain, and cause each of its Significant Subsidiaries to keep and maintain, in all material respects, proper books of record and account in which entries in conformity with Agreement Accounting Principles shall be made of all dealings and transactions in relation to their respective businesses and activities. If a Default has occurred and is continuing, the Borrower, upon the Administrative Agent's request, shall turn over copies of any such records to the Administrative Agent or its representatives. 6.10. Indebtedness. ------------ (i) Priority Indebtedness. The Borrower will not, nor will it permit --------------------- any Significant Subsidiary to, create, incur or suffer to exist any Priority Indebtedness unless, at the time of the creation, incurrence or assumption of such Priority Indebtedness and after giving effect thereto, the aggregate amount of all such Priority Indebtedness does not exceed an amount equal to thirty percent (30%) of the Consolidated Net Worth of the Borrower and its Subsidiaries at such time. 32 (ii) Additional Limitations on Subsidiary Indebtedness. The ------------------------------------------------- Borrower will not permit any Significant Subsidiary to create, incur or suffer to exist any Indebtedness, except: (a) Indebtedness existing on the date hereof and extensions, renewals or refinancings thereof. (b) Indebtedness owed to the Borrower or any other Subsidiary. (c) Other Indebtedness to the extent that the amount of such Indebtedness does not at any time exceed an amount which would cause a Default or Umnatured Default to occur or be continuing hereunder, including, without limitation, under Sections -------- 6.10(i) and 6.15. ------- ---- (iii) Additional Limitations on Borrower Indebtedness. The Borrower ----------------------------------------------- will not create, incur or suffer to exist any Indebtedness except to the extent that the amount of such Indebtedness does not at any time exceed an amount which would cause a Default or Unmatured Default to occur or be continuing hereunder, including, without limitation, Sections 6.10(i) and 6.15. ---------------- ---- 6.11. Merger. The Borrower will not merge or consolidate with or ------ into any other Person, unless the Borrower is the surviving entity. 6.12. Sale of Assets. The Borrower will not lease, sell or otherwise -------------- dispose of all or substantially all of the Property of the Borrower and its Significant Subsidiaries, taken as a whole, to any other Person. 6.13. Liens The Borrower will not, nor will it permit any Subsidiary ----- to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than sixty (60) days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. 33 (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or its Subsidiaries. (v) Liens existing on the date hereof and renewals, extensions and replacements thereof. (vi) Liens securing Indebtedness permitted by Section 6.10 ------------ (including, without limitation, Liens arising under the Receivables Purchase Documents). (vii) Lessor's interests under Capitalized Leases and Operating Leases. (viii) Liens existing on the property of a corporation or other business entity immediately prior to its being consolidated with or merged into the Borrower or a Subsidiary or its becoming a Subsidiary, or Liens existing on any property acquired by the Borrower or a Subsidiary at the time such is so acquired (whether or not the Indebtedness secured thereby shall have been assumed), provided that (i) no such Lien was created or assumed in contemplation of such consolidation or merger or such entity's becoming a Subsidiary or such acquisition of property and (ii) each such Lien shall only cover the acquired property and, if required by the terms of the instrument originally creating such Lien, property which is an improvement to or is acquired for specific use in connection with such acquired property. (ix) Purchase money Liens upon specific items of inventory or other goods and proceeds thereof granted in favor of any Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business. (x) Liens securing Indebtedness of the Borrower or its Subsidiaries that is tax-exempt. (xi) Liens not otherwise permitted by Sections 6.13(i) through (x) ---------------- --- provided that at all times the aggregate principal amount of all outstanding Indebtedness which is secured as permitted by this Section 6.13(xi) does not exceed 20% of Consolidated Net ---------------- Worth. 6.14. Synthetic Leases. The Borrower and its consolidated ---------------- Subsidiaries will not, at any time, incur liabilities under any financing lease or so-called "synthetic lease" transaction other than such liabilities which shall not exceed an aggregate amount equal to $100,000,000 at such time. 6.15. Financial Covenants. The Borrower will not permit the Leverage ------------------- Ratio, determined as of the end of each of its fiscal quarters, to exceed sixty percent (60%). 34 ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute a Default: 7.1. Breach of Representations or Warranties. Any representation or --------------------------------------- warranty made or deemed made by or on behalf of the Borrower or any of its Significant Subsidiaries to the Lenders or the Agents under or in connection with this Agreement, any Syndicated Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be false in any material respect on the date as of which made. 7.2. Failure to Make Payments When Due. Nonpayment of principal of any --------------------------------- Syndicated Loan when due, or nonpayment of interest upon any Syndicated Loan or of any Facility Fee, Utilization Fee or other Obligations under any of the Loan Documents within five (5) Business Days after the same becomes due. 7.3. Breach of Covenants. The breach by the Borrower of any of the ------------------- terms or provisions of Sections 6.1 through 6.15. ------------ ---- 7.4. Other Breaches. The breach by the Borrower (other than a breach -------------- which constitutes a Default under another Section of this Article VII) of any of ----------- the terms or provisions of this Agreement or any other Loan Document which is not remedied within thirty (30) days the occurrence thereof. 7.5. Default as to Other Indebtedness. Failure of the Borrower or any -------------------------------- of its Significant Subsidiaries to pay when due (x) any Indebtedness under the 5-Year Credit Agreement or (y) any other Indebtedness or Financial Contracts which, individually or in the aggregate exceeds $50,000,000 (the Indebtedness and Financial Contracts described in this clause (y) being referred to as ---------- "Material Indebtedness"); or the default by the Borrower or any of its Significant Subsidiaries in the performance (beyond the applicable grace period with respect thereto, if any) of any term, provision or condition contained in the 5-Year Credit Agreement or any agreement under which any such Material Indebtedness was created or is governed, or any other event shall occur or condition exist, (i) the effect of which default or event is to cause, or to permit the lenders under the 5-Year Credit Agreement or the holder or holders of such Material Indebtedness to cause, the 5-Year Credit Agreement or such Material Indebtedness to become due prior to its stated maturity; or the Indebtedness under the 5-Year Credit Agreement or any Material Indebtedness of the Borrower or any of its Significant Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof or (ii) if such default or event shall occur under any Receivables Purchase Documents, the effect of which default or event is to cause the replacement of, or to permit the investors thereunder to replace, the Person then acting as servicer for the related Receivables Purchase Facility; or the Borrower or any of its Significant Subsidiaries shall fail to pay, or shall admit in writing its inability to pay, its debts generally as they become due. 35 7.6. Voluntary Bankruptcy; Appointment of Receiver; Etc. The Borrower --------------------------------------------------- or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6, or (vi) fail to contest in good faith any appointment or ----------- proceeding described in Section 7.7. ----------- 7.7. Involuntary Bankruptcy; Appointment of Receiver; Etc. Without the ---------------------------------------------------- application, approval or consent of the Borrower or any of its Significant Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Significant Subsidiaries, or a proceeding described in Section 7.6(iv) shall be instituted against the --------------- Borrower or any of its Significant Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) consecutive days. 7.8. Judgments. The Borrower or any of its Significant Subsidiaries --------- shall fail within thirty (30) days to pay, bond or otherwise discharge one or more judgments or orders for the payment of money (except to the extent covered by insurance as to which the insurer has not disclaimed coverage) in excess of $25,000,000 (or the equivalent thereof in currencies other than U.S. dollars) in the aggregate. 7.9. Unfunded Liabilities. The sum of the Unfunded Liabilities of all -------------------- Plans and the present value of the aggregate unfunded liabilities to provide the accrued benefits under all Foreign Pension Plans is equal to an amount that could reasonably be expected to have a Material Adverse Effect, or any Reportable Event shall occur in connection with any Plan which could reasonably be expected to result in the imposition of a lien on the assets of the Company or any Subsidiary. 7.10. Other ERISA Liabilities. The Borrower or any other member of the ----------------------- Controlled Group has incurred withdrawal liability or become obligated to make contributions to a Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group, could reasonably be expected to have a Material Adverse Effect. 7.11. Environmental Matters. The Borrower or any of its Significant --------------------- Subsidiaries shall (i) be the subject of any proceeding or investigation pertaining to the release by the Borrower, any of its Significant Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, or (ii) violate any Environmental Law, which, in the case of an 36 event described in clause (i) or clause (ii), has or could reasonably be ---------- ----------- expected to have a Material Adverse Effect. 7.12. Change of Control. Any Change in Control shall occur. ----------------- ARTICLE VII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 ------------ ----------- --- occurs with respect to the Borrower, the obligations of the Lenders to make Syndicated Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Syndicated Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. If, within thirty (30) days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Syndicated Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any ----------- --- judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the ---------- ------------ Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the final maturity of any Syndicated Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon (except as expressly permitted by the terms of Section 2.2). ----------- (ii) Change the percentage specified in the definition of Required Lenders or any other percentage of Lenders specified to be the applicable percentage in this Agreement to act on specified matters or amend the definitions of "Required Lenders" or "Pro Rata Share" or any other provision requiring that payments be made to or from the Lenders on the basis of their Pro Rata Shares or on a similar basis. 37 (iii) Extend the Commitment Termination Date, the Syndicated Loan Termination Date, the Converted Loan Termination Date or change the amount or otherwise extend the term of the Commitment of any Lender hereunder (except as expressly permitted by the terms of Section 2.2). ----------- (iv) Permit the Borrower to assign its rights or obligations under this Agreement. (v) Amend this Section 8.2. ----------- No amendment of any provision of this Agreement relating to any Agent shall be effective without the written consent of such Agent. The Administrative Agent may waive payment of the fee required under Section 12.3.2 without obtaining -------------- the consent of any other party to this Agreement. 8.3. Preservation of Rights. No delay or omission of the Lenders or ---------------------- Agents to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Syndicated Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Syndicated Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing ----------- specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agents and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. Survival of Representations. All representations and warranties --------------------------- of the Borrower contained in this Agreement shall survive the making of the Syndicated Loans herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement ----------------------- to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Headings. Section headings in the Loan Documents are for -------- convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4. Entire Agreement. The Loan Documents embody the entire ---------------- agreement and understanding among the Borrower, the Agents and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agents and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. ------------- 38 9.5. Several Obligations; Benefits of this Agreement. The respective ----------------------------------------------- obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agents are authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.10, 10.11, and 10.13 to the extent ------------ ---- ----- ----- specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the ------------------------- Administrative Agent and the Arranger for any costs, internal charges and out- of-pocket expenses (including reasonable attorneys' fees, time charges and expenses of attorneys for the Administrative Agent and Arranger, which attorneys may or may not be employees of the Administrative Agent or the Arranger, and expenses of and fees for other advisors and professionals engaged by the Administrative Agent or the Arranger) paid or incurred by the Administrative Agent or the Arranger in connection with the investigation, preparation, negotiation, documentation, execution, delivery, syndication, distribution (including, without limitation, via the internet) review, amendment, modification, administration and collection of the Loan Documents. The Borrower also agrees to reimburse the Agents, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees, time charges and expenses of attorneys for the Agents, the Arranger and the Lenders, which attorneys may be employees of the Agents, the Arranger or the Lenders) paid or incurred by the Agents, the Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Borrower hereby further agrees to indemnify the Agents, the Arranger, each Lender, their respective affiliates, and each of their directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Agents, the Arranger, any Lender or any affiliate is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Syndicated Loan hereunder, except to the extent that any of the foregoing is due to the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section 9.6 shall survive the ----------- termination of this Agreement. 9.7. Numbers of Documents. All statements, notices, closing -------------------- documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders, to the extent that the Administrative Agent deems necessary. 9.8. Accounting. Except as provided to the contrary herein, all ---------- accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. If any changes in generally accepted 39 accounting principles are hereafter required or permitted and are adopted by the Borrower or any of its Significant Subsidiaries with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the financial covenants, tests, restrictions or standards herein or in the related definitions or terms used therein ("Accounting Changes"), the parties hereto agree, at the Borrower's request, to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such changes with the desired result that the criteria for evaluating the Borrower's and its Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made; provided, however, until such provisions are amended in a manner reasonably satisfactory to the Administrative Agent and the Required Lenders, no Accounting Change shall be given effect in such calculations and all financial statements and reports required to be delivered hereunder shall be prepared in accordance with Agreement Accounting Principles without taking into account such Accounting Changes. In the event such amendment is entered into, all references in this Agreement to Agreement Accounting Principles shall mean generally accepted accounting principles as of the date of such amendment. 9.9. Severability of Provisions. Any provision in any Loan Document -------------------------- that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10. Nonliability of Lenders. The relationship between the Borrower ----------------------- on the one hand and the Lenders and the Agents on the other hand shall be solely that of borrower and lender. None of the Agents, the Arranger or any Lender shall have any fiduciary responsibilities to the Borrower. None of the Agents, the Arranger or any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower agrees that none of the Agents, the Arranger or any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. None of the Agents, the Arranger or any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect, consequential or punitive damages suffered by the Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11. Confidentiality. Each Lender agrees to hold any confidential --------------- information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or to a Transferee or prospective Transferee (provided such Transferee or prospective Transferee agrees to abide by the confidentiality provisions of this Section 9.1l), (iii) to regulatory ------------ officials upon request to disclose, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a 40 party, (vi) to such Lender's direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) permitted by Section 12.4. ------------ 9.12. Nonreliance. Each Lender hereby represents that it is not ----------- relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Syndicated Loans provided for herein. 9.13. Disclosure. The Borrower and each Lender hereby acknowledge and ---------- agree that Morgan Guaranty, Bank One, Bank of America and/or its respective Affiliates from time to time may hold investments in, make other loans to or have other relationships with the Borrower and its Affiliates. ARTICLE X THE AGENTS ---------- 10.1. Appointment; Nature of Relationship. Morgan Guaranty is hereby ----------------------------------- appointed by each of the Lenders as the Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. Bank One is hereby appointed by each of the Lenders as the Syndication Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Syndication Agent to act as the contractual representative of such lender with the rights and duties expressly set forth herein and in the other Loan Documents. Bank of America is hereby appointed by each of the Lenders as the Documentation Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Documentation Agent to act as the contractual representative of such lender with the rights and duties expressly set forth herein and in the other Loan Documents. Each Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined --------- term "Administrative Agent", "Syndication Agent" and "Documentation Agent", it is expressly understood and agreed that no Agent shall have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that each Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In their capacities as the Lenders' contractual representative, the Agents (i) do not hereby assume any fiduciary duties to any of the Lenders, (ii) are "representatives" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) are acting as independent contractors, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against any Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2. Powers. Each Agent shall have and may exercise such powers ------ under the Loan Documents as are specifically delegated to such Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agents shall have no implied duties 41 to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the applicable Agents. 10.3. General Immunity. No Agent or any of its respective directors, ---------------- officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is due to the gross negligence or willful misconduct of such Person. 10.4. No Responsibility for Loans, Recitals, etc. No Agent or any of ------------------------------------------ its respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except ---------- receipt of items required to be delivered solely to the Agents; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Borrower or any guarantor of any of the Obligations or of any of the Borrower's or any such guarantor's respective Subsidiaries. The Agents shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to any Agent at such time, but is voluntarily furnished by the Borrower to such Agent (either in its capacity as an Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. Each Agent shall in all cases --------------------------------- be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Agents shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. Each Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. Any Agent may execute any of -------------------------------- its respective duties as an Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning the contractual arrangement between such Agent and the Lenders and all matters pertaining to such Agent's duties hereunder and under any other Loan Document. 42 10.7. Reliance on Documents; Counsel. Each Agent shall be entitled to rely ------------------------------ upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by such Agent, which counsel may be employees of such Agent. 10.8. Agents' Reimbursement and Indemnification. The Lenders agree to ----------------------------------------- reimburse and indemnify the Administrative Agent and the Syndication Agent ratably in proportion to the Lenders' respective Pro Rata Shares of the Aggregate Commitment or, after the Commitment Termination Date or the Conversion Date (whichever is earlier) of the Outstanding Credit Exposure (i) for any amounts not reimbursed by the Borrower for which such Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by such Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by such Agent in connection with any dispute between such Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against such Agent in connection with any dispute between such Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing resulted from the gross negligence or willful misconduct of the Administrative Agent or the Syndication Agent, as applicable, (ii) any indemnification required pursuant to Section 3.5(vii) ---------------- shall, notwithstanding the provisions of this Section 10.8, be paid by the ------------ relevant Lender in accordance with the provisions thereof and (iii) no Lender shall be liable for any of the foregoing to the extent any of the foregoing arose as a result of the syndication of the Aggregate Commitments by the Syndication Agent. The obligations of the Lenders under this Section 10.8 shall ------------ survive payment of the Obligations and termination of this Agreement. 10.9. Notice of Default. No Agent shall be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Unmatured Default hereunder unless such Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that any Agent receives such a notice, such Agent shall give prompt notice thereof to the Lenders. 10.10. Rights as a Lender. In the event any Agent is a Lender, such Agent ------------------ shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Syndicated Loans as any Lender and may exercise the same as though it were not an Agent, and the term "Lender" or "Lenders" shall, at any time when any Agent is a Lender, unless the context otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this 43 Agreement or any other Loan Document, with the Borrower or any of its Significant Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. 10.11. Lender Credit Decision. Each Lender acknowledges that it has, ---------------------- independently and without reliance upon any Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12. Successor Agents. Any Agent may resign at any time by giving written ---------------- notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five (45) days after the retiring Agent gives notice of its intention to resign. Any Agent may be removed at any time with or without cause by written notice received by such Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent that, provided such resignation or removal occurs prior to a Default, shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Required Lenders within thirty (30) days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. Notwithstanding the previous sentence, any Agent may at any time without the consent of the Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as its successor Agent hereunder. If an Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of such Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of an Agent, the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X --------- shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as an Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Administrative Agent by merger, or the Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then (a) the ------------- term "Prime Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent and (b) the references to "Morgan Guaranty" in the definition of "Eurodollar Base Rate" and in the last 44 sentence of Section 2.13 shall be deemed to be a reference to such successor ------------ Administrative Agent in its individual capacity. 10.13. Agent and Arranger Fees. The Borrower agrees to pay to the ----------------------- Syndication Agent and the Arranger, for their respective accounts, the fees agreed to by the Borrower, the Syndication Agent and the Arranger pursuant to that certain letter agreement dated September 15, 2000, or as otherwise agreed from time to time. 10.14. Delegation to Affiliates. The Borrower and the Lenders agree that ------------------------ any Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the applicable Agent is entitled under Articles -------- IX and X. - -- - ARTICLE XI SETOFF; RATABLE PAYMENTS ------------------------ 11.1. Setoff. In addition to, and without limitation of, any rights of the ------ Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender to the extent such Obligations are then due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has ---------------- payment made to it upon its Syndicated Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that ----------- --- --- --- received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Syndicated Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Syndicated Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Syndicated Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. Successors and Assigns; Designated Lenders. ------------------------------------------ 12.1.1. Successors and Assigns. The terms and provisions of the Loan ---------------------- Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective 45 successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. The ------------ parties to this Agreement acknowledge that clause (ii) of this Section 12.1.1 ----------- -------------- relates only to absolute assignments and does not prohibit assignments creating security interests, including, without limitation, (x) any pledge or assignment by any Lender of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank or (y) in the case of a Lender which is a fund, any pledge or assignment of all or any portion of its rights under this Agreement and any Note to its trustee in support of its obligations to its trustee; provided, however, that no such pledge or assignment creating a security interest shall release the transferor Lender from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 12.3. The Administrative Agent may treat the Person which made any ------------ Syndicated Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3; provided, ------------ however, that the Administrative Agent may in its discretion (but shall not be required to) follow instructions from the Person which made any Syndicated Loan or which holds any Note to direct payments relating to such Syndicated Loan or Note to another Person. Any assignee of the rights to any Syndicated Loan or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Syndicated Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder or assignee of the rights to such Syndicated Loan. 12.1.2. Designated Lenders. Notwithstanding anything to the contrary ------------------ contained herein, any Lender (each such Lender, a "Granting Bank") may grant to a conduit or similar funding vehicle affiliated with or managed by such Granting Bank (each a "Designated Lender"), identified as such in writing from time to time by the applicable Granting Bank to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Bank would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided, that (i) nothing herein shall constitute a -------- commitment by any Designated Lender to make any Advance, (ii) if a Designated Lender elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the applicable Granting Bank shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by any Designated Lender hereunder shall utilize the Syndicated Loan Commitment of the applicable Granting Bank to the same extent, and as if, such Advance were made by such Granting Bank. Each party hereto hereby agrees that no Designated Lender shall be liable for any indemnity or other similar payment obligation under this Agreement (all liability for which shall remain with the applicable Granting Bank). All notices hereunder to any Granting Bank or the related Designated Lender, and all payments in respect of the Obligations due to such Granting Bank or the related Designated Lender, shall be made to such Granting Bank. In addition, each Granting Bank shall vote as a Lender hereunder without giving effect to any assignment under this Section 12.1.2, and no Designated Lender -------------- shall have any vote as a Lender under this Agreement for any purpose. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any Designated Lender, it will not institute against, or join any other 46 person in instituting against, such Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 12.1.2, any Designated Lender -------------- may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing or administrative fee therefor, assign all or a portion of its interests in any Advances to the Granting Bank or to any financial institutions (consented to by the Borrower and the Administrative Agent in accordance with the terms of Section 12.3.1 -------------- providing liquidity and/or credit support to or for the account of such Designated Lender to support the funding or maintenance of Advances and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such Designated Lender. This Section 12.1.2 may not be amended without the written consent of each -------------- Granting Bank affected thereby. 12.2. Participations. -------------- 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary ------------------------------ course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Syndicated Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Syndicated Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, ------------- without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Syndicated Loan or Commitment in which such Participant has an interest which (i) extends the final maturity of any Syndicated Loan or forgives all or a portion of the principal amount thereof, or reduces the rate or extends the time of payment of interest or fees on any such Syndicated Loan or the related Commitment or (ii) extends the Commitment Termination Date, the Syndicated Loan Termination Date or the Converted Loan Termination Date (in the case of clause (i) or (ii), other than as expressly ---------- ---- permitted by Section 2.2). ----------- 12.2.3. Benefit of Setoff. The Borrower agrees that each Participant shall ----------------- be deemed to have the right of setoff provided in Section 11.1 in respect of its ------------ participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents (it being understood that no Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount ------------ of participating interests sold to each Participant). The Lenders agree to share with each 47 Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to - ------------ the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. ------------ 12.3. Assignments. ----------- 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of --------------------- its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in such other form as may be agreed to by the parties --------- thereto. The consent of the Borrower and the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender, an Affiliate thereof or a Designated Lender, provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. Each such assignment with respect to a Purchaser which is not a Lender, an Affiliate thereof or a Designated Lender shall (unless each of the Borrower and the Administrative Agent otherwise consents) be in an amount not less than the lesser of (i) $10,000,000 and integral multiples of $1,000,000 in excess thereof or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or, after the earlier of the Conversion Date or the Commitment Termination Date, the remaining amount of the assigning Lender's Outstanding Credit Exposure. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Administrative ---------------------- Agent of an assignment, together with any consents required by Section 12.3.1, -------------- and (ii) payment of a $3,500 fee to the Administrative Agent for processing such assignment (unless such fee is waived by the Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Syndicated Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Syndicated Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, -------------- the transferor Lender, the Administrative Agent and the Borrower shall, if the transferor Lender or the Purchaser desires that its Syndicated Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments (or, after the earlier of the Conversion Date or the Commitment Termination Date, their respective Outstanding Credit Exposure), as adjusted pursuant to such assignment. 48 12.4. Dissemination of Information. The Borrower authorizes each Lender to ---------------------------- disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries, including without limitation any information contained in any Reports; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.11 of this ------------ Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to ------------- any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv). --------------- ARTICLE XIII NOTICES ------- 13.1. Notices. Except as otherwise permitted by Section 2.15 with respect ------- ------------ to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower, the Agents or any Lender party hereto as of the Closing Date, at its respective address or facsimile number set forth on the signature pages hereof; provided that notices to the Administrative Agent -------- delivered under Article II shall be delivered to the following address: ---------- JP Morgan Services 500 Stanton Christiana Road Newark, Delaware 19713-2107 Attention: Devon Brown Phone: (302) 634-1863 Fax: (302) 634-1094 , (y) in the case of any Lender that becomes a party hereto pursuant to Section ------- 12.3, at its address or facsimile number set forth in the applicable assignment - ---- or, if none is provided therein, in its administrative questionnaire or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower in accordance with the provisions of this Section 13.1. Each such ------------ notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. ---------- 49 13.2. Change of Address. The Borrower, the Agents and any Lender may ----------------- each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agents and the Lenders and each party has notified the Agents by facsimile transmission or telephone that it has taken such action. ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL ------------------------------------------------------------ 15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A ------------- CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS ----------------------- TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENTS OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENTS OR ANY LENDER OR ANY AFFILIATE OF THE AGENTS OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK OR THE CITY IN WHICH THE PRINCIPAL OFFICE OF SUCH AGENT, LENDER OR AFFILIATE, AS THE CASE MAY BE, IS LOCATED. 15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENTS AND EACH LENDER -------------------- HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER 50 (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. [Signature Pages Follow] 51 IN WITNESS WHEREOF, the Borrower, the Lenders and the Agents have executed this Agreement as of the date first above written. THE MEAD CORPORATION, as the Borrower /s/ PETER H. VOGEL, JR. ------------------------------ Name: Peter H. Vogel, Jr. Title: Vice President, Finance and Treasurer Mead World Headquarters Courthouse Plaza Northeast Dayton, Ohio 45463 Attention: Treasurer Phone: (937) 495-6323 Fax: (937) 228-5555 S-1 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as the Administrative Agent and as a Lender /s/ CARL J. MEHLDAU, JR. --------------------------------- Name: Carl J. Mehldau, Jr. Title: Associate 60 Wall Street New York, New York 10260-0060 Attention: Carl J. Mehldau, Jr. Phone: (212) 648-1537 Fax: (212) 648-5018 E-mail: mehldau_carl@jpmorgan.com S-2 BANK ONE, NA, as the Syndication Agent and as a Lender /s/ PAUL A. HARRIS ---------------------------- Name: Paul A. Harris Title: Managing Director 100 East Broad Street 7/th/ Floor Columbus, Ohio 43215 Attention: Paul A. Harris Phone: (614) 248-1780 Fax: (614) 248-5518 E-mail: paul_a_harris@mail.bankone.com S-3 BANK OF AMERICA, N.A., as the Documentation Agent and as a Lender /s/ MICHAEL BALOK ----------------------------------- Name: Michael Balok Title: Managing Director 555 California Street 12/th/ Floor CA5-705-12-12 San Francisco, California 94104 Attention: Michael Balok Phone: (415) 622-2018 Fax: (415) 622-4585 E-mail: mike.balok@bankofamerica.com S-4 CITICORP USA, INC., as a Lender /s/ WOLFGANG VIRAGH ------------------------------ Name: Wolfgang Viragh Title: Vice President 399 Park Avenue 8/th/ Floor/Zone 11 New York, New York 10043 Attention: Wolfgang Viragh Phone: (212) 559-6236 Fax: (212) 793-0289 E-mail: wolfgang.viragh@citicorp.com S-5 DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, as a Lender /s/ HANS-JOSEF THIELE --------------------------------- Name: Hans-Josef Thiele Title: Director /s/ ROBERT W. CASEY, JR. --------------------------------- Name: Robert W. Casey, Jr. Title: Managing Director 31 West 52/nd/ Street 24/th/ Floor New York, New York 10019 Attention: Hans-Josef Thiele Phone: (212) 469-8649 Fax: (212) 469-2930 E-mail: Hans-Josef.Thiele@db.com S-6 MELLON BANK, N.A., as a Lender /s/ MARK F. JOHNSTON --------------------------------- Name: Mark F. Johnston Title: Vice President One Mellon Center, Room 370 Pittsburgh, Pennsylvania 15258-0001 Attention: Mark F. Johnston Phone: (412) 236-2793 Fax: (412) 236-1914 E-mail: johnston.mf@mellon.com S-7 THE SUMITOMO BANK, LIMITED, as a Lender /s/ EDWARD D. HENDERSON, JR. ------------------------------------ Name: Edward D. Henderson, Jr. Title: Senior Vice President 277 Park Avenue New York, New York 10172 Attention: Rohn Laudenschlager Phone: (212) 224-4226 Fax: (212) 224-4384 E-mail: S-8 SOCIETE GENERALE, as a Lender /s/ JERRY PARISI ------------------------------------- Name: Jerry Parisi Title: Managing Director 1221 Avenue of the Americas New York, New York 10020 Attention: Jerry Parisi Phone: (212) 278-5448 Fax: (212) 278-7997 E-mail: jerry.parisi@us.socgen.com S-9 WACHOVIA BANK, N.A., as a Lender /s/ BRADFORD L. WATKINS --------------------------------- Name: Bradford L. Watkins Title: Vice President 191 Peachtree Street, 28/th/ Floor Atlanta, Georgia 30319 Attention: Bradford L. Watkins Phone: (404) 332-1093 Fax: (404) 332-6898 E-mail: Brad.Watkins@Wachovia.com S-10 THE ROYAL BANK OF SCOTLAND plc, as a Lender /s/ MARIA AMARAL-LEBLANC ----------------------------------- Name: Maria Amaral-LeBlanc Title: Vice President 101 Park Avenue 10/th/ Floor New York, New York 10178 Attention: Maria Amaral-LeBlanc Phone: (212) 401-3746 Fax: (212) 401-3456 E-mail: maria.amaral-leblanc@rbos.com S-11 NATIONAL CITY BANK, as a Lender /s/ JEFFREY L. HAWTHORNE --------------------------------- Name: Jeffrey L. Hawthorne Title: Senior Vice President 155 E. Broad Street Columbus, Ohio 4325l-0019 Attention: Jeffrey L. Hawthorne Phone: (614) 463-7298 Fax: (614) 463-7172 E-mail: jeffrey.hawthorne@national-city.com S-12 PNC BANK, NATIONAL ASSOCIATION, as a Lender /s/ WARREN F. WEBER ----------------------------------- Name: Warren F. Weber Title: Vice President 201 East Fifth Street Cincinnati, Ohio 45202 Attention: Warren F. Weber Phone: (513) 651-8619 Fax: (513) 651-8951 E-mail: Warren.Weber@PNCBank.com S-13 THE BANK OF NEW YORK, as a Lender /s/ THOMAS MCCROHAN ---------------------------------- Name: Thomas McCrohan Title: Vice President One Wall Street, 21/st/ Floor New York, New York 10286 Attention: Thomas McCrohan Phone: (212) 635-1313 Fax: (212) 635-7978 E-mail: tmccrohan@bankofny.com S-14 PRICING SCHEDULE
=============================================================================================================== Level I Level II Level III Level IV Level V Status Status Status Status Status - --------------------------------------------------------------------------------------------------------------- Applicable 0.24% 0.305% 0.40% 0.50% 0.65% Margin (Eurodollar Rate) - ---------------------------------------------------------------------------------------------------------------- Applicable 0.06% 0.07% 0.10% 0.125% 0.15% Facility Fee Rate
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Borrower's -------------- Moody's Rating is A2 or better and the Borrower's S&P Rating is A or better. "Level II Status" exists at any date if, on such date, (i) the Borrower has --------------- not qualified for Level I Status and (ii) the Borrower's Moody's Rating is A3 or better or the Borrower's S&P Rating is A- or better. "Level III Status" exists at any date if, on such date, (i) the Borrower ---------------- has not qualified for Level I Status or Level II Status and (ii) the Borrower's Moody's Rating is Baa1 or better or Borrower's S&P rating is BBB+ or better. "Level IV Status" exists at any date if, on such date, (i) the Borrower has --------------- not qualified for Level I Status, Level II Status or Level III Status and (ii) the Borrower's Moody's Rating is Baa2 or better or Borrower's S&P Rating is BBB or better. "Level V Status" exists at any date if, on such date, the Borrower has -------------- not qualified for Level I Status, Level II Status, Level III Status or Level IV Status. "Moody's Rating" means, at any time, the rating issued by Moody's and then -------------- in effect with respect to the Borrower's senior unsecured long-term debt securities without third-party credit enhancement. "S&P Rating" means, at any time, the rating issued by S&P and then in ---------- effect with respect to the Borrower's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means Level I Status, Level II Status, Level III Status, Level IV ------ or Level V Status. The Applicable Margin and Applicable Facility Fee Rate shall be determined in accordance with the foregoing table based on the Borrower's Status as determined from its then- current Moody's Rating and S&P Rating (subject to the last paragraph of this Pricing Schedule). The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Borrower has no Moody's Rating and no S&P Rating, Level V Status shall exist. In the event that a split occurs between the two ratings, then the rating corresponding to the higher of the two ratings shall apply. However, if the split is greater than one level, then the pricing shall be based upon the rating one level above the lowest of the two ratings. Upon the Administrative Agent's receipt of the officer's compliance certificate delivered pursuant to Section 6.1 (iii) and reporting the then- ----------------- current Moody's Rating and S&P Rating for the Borrower, the Applicable Margin and Applicable Facility Fee Rate shall be adjusted, if necessary, such adjustment being effective five (5) Business Days following such receipt. COMMITMENT SCHEDULE - -------------------------------------------------------------------------------- LENDER COMMITMENT ------ ---------- - -------------------------------------------------------------------------------- Morgan Guaranty Trust Company of New $ 35,166,667.00 York - ------------------------------------------------------------------------------- Bank One, NA $ 35,166,666.50 - ------------------------------------------------------------------------------- Bank of America, N.A. $ 35,166,666.50 - ------------------------------------------------------------------------------- Citicorp USA, Inc. $ 23,500,000.00 - ------------------------------------------------------------------------------- Deutsche Bank AG New York Branch and/or $ 23,500,000.00 Cayman Islands Branch - ------------------------------------------------------------------------------- Mellon Bank, N.A. $ 23,500,000.00 - ------------------------------------------------------------------------------- The Sumitomo Bank, Limited $ 23,500,000.00 - ------------------------------------------------------------------------------- Societe Generale $ 16,750,000.00 - ------------------------------------------------------------------------------- Wachovia Bank, N.A. $ 16,750,000.00 - ------------------------------------------------------------------------------- The Royal Bank of Scotland Plc $ 16,750,000.00 - ------------------------------------------------------------------------------- National City Bank $ 16,750,000.00 - ------------------------------------------------------------------------------- PNC Bank, National Association $ 16,750,000.00 - ------------------------------------------------------------------------------- The Bank of New York $ 16,750,000.00 - ------------------------------------------------------------------------------- AGGREGATE COMMITMENT $ 300,000,000.00 - ------------------------------------------------------------------------------- EX-10.2 5 0005.txt 5-YEAR REVOLVING CREDIT AGREEMENT DATED 11/10/2000 Exhibit 10.2 EXECUTION COPY 5-YEAR REVOLVING CREDIT AGREEMENT DATED AS OF NOVEMBER l0, 2000 AMONG THE MEAD CORPORATION, as the Borrower THE LENDERS FROM TIME TO TIME PARTIES HERETO, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent BANK ONE, NA, as Syndication Agent and BANK OF AMERICA, N.A., as Documentation Agent ================================================================================ BANC ONE CAPITAL MARKETS, INC., as Lead Arranger and Sole Bookrunner ================================================================================ SIDLEY & AUSTIN Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 TABLE OF CONTENTS
Page ----- ARTICLE I DEFINITIONS.................................................................................... 1 ARTICLE II THE CREDITS.................................................................................... 14 ----------- 2.1. Commitment..................................................................................... 14 ---------- 2.2. Swing Line Loans............................................................................... 14 ---------------- 2.2.1. Amount of Swing Line Loans..................................................................... 14 -------------------------- 2.2.2. Borrowing Notice............................................................................... 15 ---------------- 2.2.3. Making of Swing Line Loans..................................................................... 15 -------------------------- 2.2.4. Repayment of Swing Line Loans.................................................................. 15 ----------------------------- 2.3. Required Payments; Termination................................................................. 16 ------------------------------ 2.4. Ratable Loans.................................................................................. 16 ------------- 2.5. Types of Advances.............................................................................. 16 ----------------- 2.6. Facility Fee; Utilization Fee; Reductions in Aggregate Commitment.............................. 16 ----------------------------------------------------------------- 2.7. Minimum Amount of Each Advance................................................................. 17 ------------------------------ 2.8. Optional Principal Payments.................................................................... 17 --------------------------- 2.9. Method of Selecting Types and Interest Periods for New Advances................................ 18 --------------------------------------------------------------- 2.10. Conversion and Continuation of Outstanding Advances............................................ 18 --------------------------------------------------- 2.11. Changes in Interest Rate, etc.................................................................. 19 ----------------------------- 2.12. Rates Applicable After Default................................................................. 19 ------------------------------ 2.13. Method of Payment.............................................................................. 19 ----------------- 2.14. Noteless Agreement; Evidence of Indebtedness................................................... 2O -------------------------------------------- 2.15. Telephonic Notices............................................................................. 20 ------------------ 2.16. Interest Payment Dates; Interest and Fee Basis................................................. 21 ---------------------------------------------- 2.17. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions................ 21 ------------------------------------------------------------------------------- 2.18. Lending Installations.......................................................................... 21 --------------------- 2.19. Non-Receipt of Funds by the Administrative Agent............................................... 21 ------------------------------------------------ 2.20. Replacement of Lender.......................................................................... 22 --------------------- ARTICLE III YIELD PROTECTION; TAXES........................................................................ 22 ----------------------- 3.1. Yield Protection............................................................................... 22 ---------------- 3.2. Changes in Capital Adequacy Regulations........................................................ 23 ---------------------------------------
i 3.3. Availability of Types of Advances.......................................................... 24 --------------------------------- 3.4. Funding Indemnification.................................................................... 24 ----------------------- 3.5. Taxes...................................................................................... 24 ----- 3.6. Lender Statements; Survival of Indemnity................................................... 26 ---------------------------------------- ARTICLE IV CONDITIONS PRECEDENT....................................................................... 26 -------------------- 4.1. Closing.................................................................................... 26 ------- 4.2. Each Advance............................................................................... 27 ------------ ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................. 27 ------------------------------ 5.1. Existence and Standing..................................................................... 28 ---------------------- 5.2. Authorization and Validity................................................................. 28 -------------------------- 5.3. No Conflict; Government Consent............................................................ 28 ------------------------------- 5.4. Financial Statements....................................................................... 28 -------------------- 5.5. Material Adverse Change.................................................................... 29 ----------------------- 5.6. Taxes...................................................................................... 29 ----- 5.7. Litigation and Contingent Obligations...................................................... 29 ------------------------------------- 5.8. Accuracy of Information.................................................................... 29 ----------------------- 5.9. Regulation U............................................................................... 29 ------------ 5.10. Material Agreements........................................................................ 29 ------------------- 5.11. Compliance With Laws....................................................................... 30 -------------------- 5.12. ERISA; Foreign Pension Matters............................................................. 30 ------------------------------ 5.13. Plan Assets; Prohibited Transactions....................................................... 30 ------------------------------------ 5.14. Environmental Matters...................................................................... 30 --------------------- 5.15. Investment Company Act..................................................................... 30 ---------------------- 5.16. Public Utility Holding Company Act......................................................... 30 ---------------------------------- 5.17. Insurance.................................................................................. 31 --------- ARTICLE VI COVENANTS.................................................................................. 31 --------- 6.1. Financial Reporting........................................................................ 31 ------------------- 6.2. Use of Proceeds............................................................................ 32 --------------- 6.3. Notice of Default.......................................................................... 32 ----------------- 6.4. Conduct of Business........................................................................ 32 ------------------- 6.5. Taxes...................................................................................... 32 ----- 6.6. Insurance.................................................................................. 33 ---------
ii 6.7. Compliance with Laws........................................................................ 33 -------------------- 6.8. Maintenance of Properties................................................................... 33 ------------------------- 6.9. Inspection; Keeping of Books and Records.................................................... 33 ---------------------------------------- 6.10. Indebtedness................................................................................ 33 ------------ 6.11. Merger...................................................................................... 34 ------ 6.12. Sale of Assets.............................................................................. 34 -------------- 6.13. Liens....................................................................................... 34 ----- 6.14. Synthetic Leases............................................................................ 35 ---------------- 6.15. Financial Covenants......................................................................... 35 ------------------- ARTICLE VII DEFAULTS................................................................................... 36 -------- 7.1 Breach of Representations or Warranties..................................................... 36 --------------------------------------- 7.2. Failure to Make Payments When Due........................................................... 36 --------------------------------- 7.3. Breach of Covenants......................................................................... 36 ------------------- 7.4. Other Breaches.............................................................................. 36 -------------- 7.5. Default as to Other Indebtedness............................................................ 36 -------------------------------- 7.6. Voluntary Bankruptcy; Appointment of Receiver; Etc.......................................... 37 -------------------------------------------------- 7.7. Involuntary Bankruptcy; Appointment Receiver; Etc........................................... 37 ------------------------------------------------- 7.8. Judgments................................................................................... 37 --------- 7.9. Unfunded Liabilities........................................................................ 37 -------------------- 7.10. Other ERISA Liabilities..................................................................... 37 ----------------------- 7.11 Environmental Matters....................................................................... 37 --------------------- 7.12 Change of Control........................................................................... 38 ----------------- ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES............................................. 38 ---------------------------------------------- 8.1. Acceleration................................................................................ 38 ------------ 8.2. Amendments.................................................................................. 38 ---------- 8.3. Preservation of Rights...................................................................... 39 ---------------------- ARTICLE IX GENERAL PROVISIONS........................................................................... 39 ------------------ 9.1. Survival of Representations................................................................. 39 --------------------------- 9.2. Governmental Regulation..................................................................... 39 ----------------------- 9.3. Headings.................................................................................... 39 -------- 9.4. Entire Agreement............................................................................ 39 ---------------- 9.5. Several Obligations; Benefits of this Agreement............................................. 39 -----------------------------------------------
iii 9.6. Expenses; Indemnification................................................................... 40 ------------------------- 9.7. Numbers of Documents........................................................................ 40 -------------------- 9.8. Accounting.................................................................................. 40 ---------- 9.9. Severability of Provisions.................................................................. 41 -------------------------- 9.10. Nonliability of Lenders..................................................................... 41 ----------------------- 9.11. Confidentiality............................................................................. 41 --------------- 9.12. Nonreliance................................................................................. 42 ----------- 9.13. Disclosure.................................................................................. 42 ---------- ARTICLE X THE AGENTS.................................................................................... 42 ---------- 10.1. Appointment; Nature of Relationship......................................................... 42 ----------------------------------- 10.2. Powers...................................................................................... 42 ------ 10.3. General Immunity............................................................................ 43 ---------------- 10.4. No Responsibility for Loans, Recitals, etc.................................................. 43 ------------------------------------------ 10.5. Action on Instructions of Lenders........................................................... 43 --------------------------------- 10.6. Employment of Agents and Counsel............................................................ 43 -------------------------------- 10.7. Reliance on Documents; Counsel.............................................................. 43 ------------------------------ 10.8. Agents' Reimbursement and Indemnification................................................... 44 ----------------------------------------- 10.9. Notice of Default........................................................................... 44 ----------------- 10.10. Rights as a Lender.......................................................................... 44 ------------------ 10.11. Lender Credit Decision...................................................................... 45 ---------------------- 10.12. Successor Agents............................................................................ 45 ---------------- 10.13. Agent and Arranger Fees..................................................................... 45 ----------------------- 10.14. Delegation to Affiliates.................................................................... 46 ------------------------ ARTICLE XI SETOFF; RATABLE PAYMENTS..................................................................... 46 ------------------------ 11.1. Setoff...................................................................................... 46 ------ 11.2. Ratable Payments............................................................................ 46 ---------------- ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS........................................... 46 ------------------------------------------------- 12.1. Successors and Assigns; Designated Lenders.................................................. 46 ------------------------------------------ 12.1.1. Successors and Assigns...................................................................... 46 ---------------------- 12.1.2. Designated Lenders.......................................................................... 47 ------------------ 12.2. Participations.............................................................................. 48 -------------- 12.2.1. Permitted Participants; Effect.............................................................. 48 ------------------------------
iv 12.2.2. Voting Rights............................................................................... 48 ------------- 12.2.3. Benefit of Setoff........................................................................... 48 ----------------- 12.3. Assignments................................................................................. 48 ----------- 12.3.1. Permitted Assignments....................................................................... 48 --------------------- 12.3.2. Effect; Effective Date...................................................................... 49 ---------------------- 12.4. Dissemination of Information................................................................ 49 ---------------------------- 12.5. Tax Treatment............................................................................... 49 ------------- ARTICLE XIII NOTICES.................................................................................... 50 ------- 13.1. Notices..................................................................................... 50 ------- 13.2. Change of Address........................................................................... 50 ----------------- ARTICLE XIV COUNTERPARTS................................................................................ 50 ------------ ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................................. 51 ------------------------------------------------------------ 15.1. CHOICE OF LAW............................................................................... 51 -------------- 15.2. CONSENT TO JURISDICTION..................................................................... 51 ----------------------- 15.3. WAIVER OF JURY TRIAL........................................................................ 51 --------------------
v EXHIBITS -------- Exhibit A - Form of Borrower's Counsel's Opinion Exhibit B - Form of Compliance Certificate Exhibit C - Form of Assignment Agreement Exhibit D - Form of Promissory Note (if requested) Exhibit E - List of Closing Documents SCHEDULES --------- Pricing Schedule Commitment Schedule Schedule 5.4 - Financial Statements Schedule 5.7 - SEC Reports vi 5-YEAR REVOLVING CREDIT AGREEMENT This 5-Year Revolving Credit Agreement, dated as of November 10, 2000, is among The Mead Corporation, the institutions from time to time parties hereto as Lenders (whether by execution of this Agreement or an assignment pursuant to Section 12.3), Morgan Guaranty Trust Company of New York, a New ------------ York banking association, as Administrative Agent, Bank One, NA, a national banking association having its principal office in Chicago, Illinois, as Syndication Agent, and Bank of America, N.A., as Documentation Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Accounting Changes" is defined in Section 9.8 hereof. ------------------ ----------- "Administrative Agent" means Morgan Guaranty in its capacity as -------------------- contractual representative of the Lenders pursuant to Article X, and not in its --------- individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. --------- "Acquisition" means any transaction, or any series of related ----------- transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Significant Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Advance" means a borrowing hereunder, (i) made by some or all of the ------- Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. The term "Advance" shall include Swing Line Loans unless otherwise expressly provided. "Affected Lender" is defined in Section 2.20. --------------- ------------ "Agent" means any of the Administrative Agent, the Syndication Agent ----- or the Documentation Agent, as appropriate, and "Agents" means, collectively, the Administrative Agent, the Syndication Agent and the Documentation Agent. "Aggregate Commitment" means the aggregate of the Commitments of all -------------------- the Lenders, as reduced from time to time pursuant to the terms hereof. As of the date hereof, the Aggregate Commitment is Three Hundred Million and 00/100 Dollars ($300,000,000). "Aggregate Outstanding Credit Exposure" means, at any time, the ------------------------------------- aggregate of the Outstanding Credit Exposure of all the Lenders. "Agreement" means this 5-Year Revolving Credit Agreement, as it may be --------- amended, restated, supplemented or otherwise modified and as in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting ------------------------------- principles as in effect in the United States from time to time, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 5.4; provided, however, that except as provided ----------- in Section 9.8, with respect to the calculation of financial ratios and other ----------- financial tests required by this Agreement, "Agreement Accounting Principles" means generally accepted accounting principles as in effect in the United States as of the date of this Agreement, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 5.4 hereof. ----------- "Alternate Base Rate" means, for any day, a fluctuating rate of ------------------- interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Applicable Facility Fee Rate" means, at any time, the percentage rate ---------------------------- per annum at which Facility Fees are accruing on the Aggregate Commitment (without regard to usage) at such time as set forth in the Pricing Schedule. "Applicable Margin" means, with respect to Eurodollar Advances at any ----------------- time, the percentage rate per annum which is applicable at such time with respect to Eurodollar Advances as set forth in the Pricing Schedule. "Arranger" means Banc One Capital Markets, Inc., a Delaware -------- corporation, and its successors, in its capacity as Lead Arranger and Sole Book Runner. "Article" means an article of this Agreement unless another document ------- is specifically referenced. "Authorized Officer" means any of the chief executive officer, ------------------ president, vice president-finance, chief operating officer, chief financial officer, chief accounting officer or treasurer of the Borrower, acting singly. "Available Aggregate Commitment" means, at any time, the Aggregate ------------------------------ Commitment then in effect minus the Aggregate Outstanding Credit Exposure at such time. "Bank of America" means Bank of America, N.A., a national banking --------------- association, in its individual capacity, and its successors. 2 "Bank One" means Bank One, NA, a national banking association having -------- its principal office in Chicago, Illinois, in its individual capacity, and its successors. "Borrower" means The Mead Corporation, an Ohio corporation, and its -------- permitted successors and assigns (including, without limitation, a debtor-in-possession on its behalf). "Borrowing Date" means a date on which an Advance is made hereunder. -------------- "Borrowing Notice" is defined in Section 2.9. ---------------- ----------- "Business Day" means (i) with respect to any borrowing, payment or ------------ rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities, interbank wire transfers can be made on the Fedwire system and dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and interbank wire transfers can be made on the Fedwire system. "Cabin Bluff Loan and Guaranty Agreement" means the Loan and Guaranty --------------------------------------- Agreement dated as of August 23, 1988 among Cabin Bluff Partners, the Borrower and Scott Paper Company, as guarantors, and The Sumitomo Bank, Limited, New York Branch, or the Loan and Guaranty Agreement among Cabin Bluff Partners, the Borrower and Kimberly-Clark Corporation, as guarantors, the lenders party thereto, The Sumitomo Bank, Limited, New York Branch, as a lender and syndication agent, Bank of America, N.A. (successor to Bank of America National Trust and Savings Association), as a lender and documentation agent, and The Chase Manhattan Bank, as a lender and administrative agent, as the same or any substitute or replacement agreement may be amended, restated, modified or replaced from time to time. "Capitalized Lease" of a Person means any lease of Property by such ----------------- Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the ----------------------------- obligations of such Person under Capitalized Leases which would be shown as a capitalized liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Cash Equivalent Investments" means, as to any Person, (i) securities --------------------------- issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any investment grade commercial bank having, or which is the principal banking subsidiary of an investment grade bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having capital, surplus and undivided profits aggregating in excess of $500,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than ninety (90) days for underlying securities of the types described in 3 clause (i) above entered into with any bank meeting the qualifications specified - ---------- in clause (ii) above, provided that such repurchase obligations are secured by a ----------- first priority security interest in such underlying securities which have, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 by S&P or P-1 by Moody's and in each case maturing not more than one year after the date of acquisition by such Person, (v) investments in money market funds substantially all of the assets of which are comprised of securities of the types described in clauses ------- (i) through (iv) above, and (vi) demand deposit accounts maintained in the - --- ---- ordinary course of business. "Change" is defined in Section 3.2. ------ ------------ "Change in Control" means (i) the acquisition by any Person, or group ----------------- of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of thirty-five percent (35%) or more of the outstanding shares of voting stock of the Borrower or (ii) the majority of the Board of Directors of the Borrower fails to consist of Continuing Directors. "Closing Date" means the date hereof. ------------ "Code" means the Internal Revenue Code of 1986, as amended, reformed ---- or otherwise modified from time to time, and any rule or regulation issued thereunder. "Combined Commitment" means the sum of (1) the Aggregate Commitment ------------------- hereunder (which, after the Commitments have been terminated, shall be based on the Aggregate Commitment immediately prior to such termination) and (2) the "Aggregate Commitment" under and as defined in the 364-Day Credit Agreement (which, after such "Commitments" have been terminated, other than as a result of a conversion pursuant to Section 2.2.2 thereof, shall be based on the ------------- aggregate of such "Commitments" immediately prior to such termination). "Combined Utilized Amount" means the sum of (1) the Aggregate ------------------------- Outstanding Credit Exposure of all the Lenders hereunder, and (2) the "Aggregate Outstanding Credit Exposure" of all the "Lenders" under and as defined in the 364-Day Credit Agreement. "Commitment" means, for each Lender, the obligation of such Lender to ---------- make Revolving Loans not exceeding the amount set forth on the Commitment Schedule or in an assignment executed pursuant to Section 12.3, as it may be ------------ modified as a result of any assignment that has become effective pursuant to Section 12.3.2 or as otherwise modified from time to time pursuant to the terms -------------- hereof. "Commitment Schedule" means the Schedule identifying each Lender's ------------------- Commitment as of the Closing Date attached hereto and identified as such. "Consolidated Net Worth" means (a) the consolidated stockholders' ---------------------- equity of the Borrower and its Subsidiaries in accordance with Agreement Accounting Principles, plus (b) without duplication, (i) an amount equal to 50% of any Convertible Preferred Stock and (ii) an 4 amount equal to 80% of the principal amount (to the extent the aggregate principal amount of such debt instruments does not exceed $250,000,000) of any debt instrument that provides that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, minus or plus (as applicable) (c) the amount of all other comprehensive income or loss calculated in accordance with Agreement Accounting Principles. "Consolidated Total Debt" means the sum, without duplication, of (a) ----------------------- all Indebtedness of the Borrower and its consolidated Subsidiaries which, on the date of determination, would be required to be shown on the Borrower's consolidated balance sheet prepared in accordance with Agreement Accounting Principles (excluding Convertible Preferred Stock and debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower), plus (b) all Receivables Facility Attributed Indebtedness of the Borrower and its consolidated Subsidiaries on the date of determination regardless of its treatment under Agreement Accounting Principles, plus (c) all Off-Balance Sheet Liabilities of the Borrower and its consolidated Subsidiaries on the date of determination regardless of its treatment under Agreement Accounting Principles, plus (d) an amount equal to 50% of any Convertible Preferred Stock, plus (e) an amount equal to 100% of the principal amount (to the extent that the aggregate principal amount of such debt instruments exceeds $250,000,000) any debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, plus (f) an amount equal to 20% of the principal amount (to the extent that the aggregate principal amount of such debt instruments does not exceed $250,000,000) of any debt instruments that provide that the indebtedness evidenced thereby will be satisfied by performance of a mandatory obligation to purchase capital stock of the Borrower, minus (g) all Indebtedness that has been defeased. "Consolidated Total Capitalization" means at any time the sum of (i) --------------------------------- Consolidated Total Debt plus (ii) Consolidated Net Worth. "Continuing Director" means, as of any date of determination, any ------------------- member of the board of directors of the Company who (a) was a member of such board of directors on the date hereof, or (b) was nominated for election or elected to such board of directors with the approval of the required majority of the Continuing Directors who were members of such board at the time of such nomination or election. "Controlled Group" means all members of a controlled group of ---------------- corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Significant Subsidiaries, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Conversion/Continuation Notice" is defined in Section 2.10. ------------------------------ ------------ "Conversion Date" has the meaning assigned to such term in the 364-Day --------------- Credit Agreement. "Convertible Preferred Stock" means any preferred stock that, by its --------------------------- terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the 5 happening of any event, is convertible into common stock at the option of the holder thereof, in whole or in part. "Default" means an event described in Article VII. ------- ----------- "Designated Lender" is defined in Section 12.1.2. ----------------- -------------- "Documentation Agent" means Bank of America in its capacity as the ------------------- documentation agent for the Lenders pursuant to Article X, and not in its --------- individual capacity as a Lender, and any successor Documentation Agent appointed pursuant to Article X. --------- "Environmental Laws" means any and all applicable federal, state, ------------------ local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means an Advance which, except as otherwise ------------------ provided in Section 2.12, bears interest at the applicable Eurodollar Rate. ------------ "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for -------------------- the relevant Interest Period, the applicable London interbank offered Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 1l:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such London interbank offered Rate is available to the Administrative Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which Morgan Guaranty or one of its Affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 1l:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, in the approximate amount of, and for a maturity corresponding to, Morgan Guaranty's Pro Rata Share of the applicable Eurodollar Loan and having a maturity equal to such Interest Period. "Eurodollar Loan" means a Loan which, except as otherwise provided in --------------- Section 2.12, bears interest at the applicable Eurodollar Rate. - ------------ "Eurodollar Rate" means, with respect to a Eurodollar Advance for the --------------- relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. 6 "Excluded Taxes" means, in the case of each Lender or applicable -------------- Lending Installation and each Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or Agent is incorporated or organized or any political combination or subdivision or taxing authority thereof or (ii) the jurisdiction in which such Agent's or Lender's principal executive office or such Lender's applicable Lending Installation is located or in which, other than as a result of the transaction evidenced by this Agreement, such Agent or Lender otherwise is, or at any time was, engaged in business. "Exhibit" refers to an exhibit to this Agreement, unless another ------- document is specifically referenced. "Existing Credit Agreement" means that certain Credit Agreement dated ------------------------- as of November 15, 1989 among the Borrower, the lenders parties thereto, and Bank One (formerly known as The First National Bank of Chicago) and Morgan Guaranty, as co-agents thereunder, as the same has been amended, restated, supplemented or otherwise modified from time to time. "Facility Fee" is defined in Section 2.6(a). ------------ -------------- "Facility Termination Date" means November 10,2005 or any earlier date ------------------------- on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate ---------------------------- per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding 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 at approximately 10:00 a.m. (New York time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financial Contract" of a Person means (i) any exchange-traded or ------------------ over-the-counter futures, forward, swap or option contract or (ii) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates or forward rates, including interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency, interest rate options puts or warrants. "Floating Rate" means, for any day, a rate per annum equal to the ------------- Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means an Advance which, except as otherwise --------------------- provided in Section 2.12, bears interest at the Floating Rate. ------------ "Floating Rate Loan" means a Loan which, except as otherwise provided ------------------ in Section 2.12, bears interest at the Floating Rate. ------------ "Foreign Pension Plan" means any employee pension benefit plan (as -------------------- defined in Section 3(2) of ERISA) which (i) is maintained or contributed to for the benefit of employees of the 7 Borrower or any Subsidiary of the Borrower, (ii) is not covered by ERISA pursuant to Section 4(b)(4) thereof and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "Granting Bank" is defined in Section 12.1.2. ------------- -------------- "Indebtedness" of a Person means, without duplication, (a) the ------------ obligations of such Person (i) for borrowed money, (ii) under or with respect to notes payable and drafts accepted which represent extensions of credit (whether or not representing obligations for borrowed money) to such Person, (iii) constituting reimbursement obligations with respect to letters of credit issued for the account of such Person to support the Indebtedness for borrowed money of any other Person or (iv) for the deferred purchase price of property or services other than current accounts payable arising in the ordinary course of business on terms customary in the trade, (b) the obligations of others, whether or not assumed, secured by Liens on property of such Person or payable out of the proceeds of or production from property now or hereafter owned or acquired by such Person, (c) the Capitalized Lease Obligations of such Person, (d) the obligations of such Person under guaranties by such Person of any Indebtedness (other than obligations for borrowed money incurred to finance the purchase of property leased to such Person pursuant to a Capitalized Lease of such Person) of any other Person, (e) all Receivable Facility Attributed Indebtedness of such Person, (f) all Off-Balance Sheet Liabilities of such Person, and (g) all Convertible Preferred Stock; provided, that non-recourse debt of the Borrower or -------- its Subsidiaries under the Cabin Bluff Loan and Guaranty Agreement in an amount not to exceed $150,000,000 shall not constitute Off-Balance Sheet Liability of the Borrower or its Subsidiaries. "Interest Period" means, with respect to a Eurodollar Advance, a --------------- period of one, two, three or six months or such other period agreed to by the Lenders and the Borrower, commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months or such other agreed upon date thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month or such other succeeding date, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month or such other succeeding date. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Lenders" means the lending institutions listed on the signature pages ------- of this Agreement and their respective successors and assigns. Unless otherwise specified, the term "Lenders" includes Morgan Guaranty in its capacity as Swing Line Lender. "Lending Installation" means, with respect to a Lender or the Agents, -------------------- the office, branch, subsidiary or affiliate of such Lender or Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or Agent pursuant to Section 2.18. ------------ 8 "Leverage Ratio" means, as of any date of calculation, the ratio of(i) -------------- Consolidated Total Debt outstanding on such date to (ii) Consolidated Total Capitalization as of such date. "Lien" means any lien (statutory or other), mortgage, pledge, ---- hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means a Revolving Loan or a Swing Line Loan, as applicable. ---- "Loan Documents" means this Agreement and any Notes issued pursuant to -------------- Section 2.14 (if requested). - ------------ "Material Adverse Effect" means a material adverse effect on (i) the ----------------------- ability of the Borrower or any of its Subsidiaries to perform its respective obligations under the Loan Documents to which it is a party, or (ii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agents or the Lenders thereunder. "Material Indebtedness" is defined in Section 7.5(y). --------------------- -------------- "Moody's" means Moody's Investors Service, Inc. and any successor ------- thereto. "Morgan Guaranty" means Morgan Guaranty Trust Company of New York, a --------------- New York banking association, in its individual capacity, and its successors. "Multiemployer Plan" means a Plan maintained pursuant to a collective ------------------ bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "Non-U.S. Lender" is defined in Section 3.5(iv). --------------- --------------- "Note" is defined in Section 2.14. ---- ------------ "Obligations" means all Loans, advances, debts, liabilities, ----------- obligations, covenants and duties owing by the Borrower to any of the Agents, any Lender, the Arranger, any affiliate of the Agents or any Lender, the Arranger, or any indemnitee under the provisions of Section 9.6 or any other ----------- provisions of the Loan Documents, in each case of any kind or nature, present or future, arising under this Agreement or any other Loan Document, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower under this Agreement or any other Loan Document. 9 "Off-Balance Sheet Liability" of a Person means (i) Receivables --------------------------- Facility Attributed Indebtedness and any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to Receivables or notes receivable sold by such Person or any of its Subsidiaries (calculated to include the unrecovered investment of purchasers or transferees of Receivables or any other obligation of the Borrower or such transferor to purchasers/transferees of interests in Receivables or notes receivable or the agent for such purchasers/transferees), (ii) any liability under any sale and leaseback transaction which is not a Capitalized Lease or (iii) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheets of such Person, but excluding from this clause ------ (iii) Operating Leases. - ----- "Operating Lease" of a Person means any lease of Property (other than --------------- a Capitalized Lease) by such Person as lessee which has an original term (including any required renewals and any renewals effective at the option of the lessor) of one year or more. "Originator" means the Borrower and/or any of its Significant ---------- Subsidiaries in their respective capacities as parties to any Receivables Purchase Documents, as sellers or transferors of any Receivables and Related Security in connection with a Permitted Receivables Transfer. "Other Taxes" is defined in Section 3.5(ii). ----------- -------------- "Outstanding; Credit Exposure" means, as to any Lender at any time, ---------------------------- the sum of(i) the aggregate principal amount of its Revolving Loans outstanding at such time, plus (ii) an amount equal to its share of the obligations to purchase participations in Swing Line Loans. "Participants" is defined in Section 12.2.1. ------------ -------------- "Payment Date" means the last day of each March, June, September and ------------ December and the Facility Termination Date. "PBGC" means the Pension Benefit Guaranty Corporation, or any ---- successor thereto. "Permitted Receivables Transfer" means (i) a sale or other transfer by ------------------------------ an Originator to a SPV of Receivables and Related Security for fair market value and without recourse (except for limited recourse typical of such structured finance transactions), and/or (ii) a sale or other transfer by a SPV to (a) purchasers of or other investors in such Receivables and Related Security or (b) any other Person (including a SPV) in a transaction in which purchasers or other investors purchase or are otherwise transferred such Receivables and Related Security, in each case pursuant to and in accordance with the terms of the Receivables Purchase Documents. "Person" means any natural person, corporation, firm, joint venture, ------ partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan (other than a ---- Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 10 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Pricing Schedule" means the Schedule identifying the Applicable ---------------- Margin and Applicable Facility Fee Rate attached hereto identified as such. "Prime Rate" means the per annum rate of interest publicly announced ---------- by Morgan Guaranty in New York City form time to time as its Prime Rate, changing when and as said Prime Rate changes. "Priority Indebtedness" means, without duplication, any and all (i) --------------------- Indebtedness of any Significant Subsidiary of the Borrower, (ii) Indebtedness of the Borrower that is secured by any Lien and (iii) Receivables Facility Attributed Indebtedness of the Borrower and its Subsidiaries; provided, that -------- "Priority Indebtedness" shall not include, to the extent otherwise included as Priority Indebtedness (x) Indebtedness permitted by Section 6.10(ii)(a) and (b), --------------------------- (y) secured Indebtedness of the Borrower or its Subsidiaries that is tax-exempt or (z) Indebtedness of a Person assumed by the Borrower or its Subsidiaries in connection with an Acquisition of such Person during the period from the effective date of such Acquisition until the date that is two hundred seventy (270) days thereafter (it being understood that the excluded items described in the foregoing clauses (x), (y) and (z) shall constitute Indebtedness for the ----------- --- --- purposes of Sections 6.15 and 7.5 of this Agreement). ------------ --- "Property" of a Person means any and all property, whether real, -------- personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Share" means, with respect to a Lender, a portion equal to a -------------- fraction the numerator of which is such Lender's Commitment and the denominator of which is the Aggregate Commitment or, if the Aggregate Commitment has been terminated, a fraction the numerator of which is such Lender's Outstanding Credit Exposure and the denominator of which is the sum of the aggregate outstanding amount of all Revolving Loans plus the aggregate outstanding amount of all Swing Line Loans. "Purchasers" is defined in Section 12.3.1. ---------- -------------- "Receivables and Related Security" means the Receivables and the -------------------------------- related security and collections with respect thereto which are sold or transferred by any Originator or SPV in connection with any Permitted Receivables Transfer. "Receivables Facility Attributed Indebtedness" means the amount of -------------------------------------------- obligations outstanding under a receivables purchase facility on any date of determination that would be characterized as principal if such facility were structured as a secured lending transaction rather than as a purchase. "Receivables Purchase Documents" means any series of receivables ------------------------------ purchase or sale agreements generally consistent with terms contained in comparable structured finance transactions pursuant to which an Originator or Originators sell or transfer to SPVs all of their respective right, title and interest in and to certain Receivables and Related Security for further 11 sale or transfer to other purchasers of or investors in such assets (and the other documents, instruments and agreements executed in connection therewith), as any such agreements may be amended, restated, supplemented or otherwise modified from time to time, or any replacement or substitution therefor. "Receivables Purchase Financing" means any financing consisting of a ------------------------------ securitization facility made available to the Borrower, whereby the Receivables and Related Security of the Originators are transferred to one or more SPVs, and thereafter to certain investors, pursuant to the terms and conditions of the Receivables Purchase Documents. "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 ---------------- of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event,provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders in the aggregate having greater than ---------------- fifty percent (50%) of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding greater than fifty percent (50%) of the Aggregate Outstanding Credit Exposure. "Reserve Requirement" means, with respect to an Interest Period, the ------------------- maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on "Eurocurrency liabilities" (as defined in Regulation D). "Revolving Loan" means, with respect to a Lender, such Lender's loan -------------- made pursuant to its commitment to lend set forth in Section 2.1 (or any ----------- conversion or continuation thereof). "Risk Based Capital Guidelines" is defined in Section 3.2. ----------------------------- ----------- "S&P" means Standard and Poor's Ratings Services, a division of The --- McGraw-Hill Companies, Inc. and any successor thereto. 12 "Schedule" refers to a specific schedule to this Agreement, unless -------- another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another ------- document is specifically referenced. "Significant Subsidiary" means any Subsidiary which is a "significant ---------------------- subsidiary" of the Borrower as defined in Rule l-02 of Regulation S-X under the Securities Exchange Act of 1934. "SPV" means any special purpose entity established for the purpose of --- purchasing receivables in connection with a receivables securitization transaction permitted under the terms of this Agreement. "Subsidiary" of a Person means (i) any corporation more than fifty ---------- percent (50%) of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than fifty percent (50%) of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Swing Line Borrowing Notice" is defined in Section 2.2.2. --------------------------- ------------- "Swing Line Commitment" means the obligation of the Swing Line Lender --------------------- to make Swing Line Loans up to a maximum principal amount of $25,000,000 at any one time outstanding. "Swing Line Lender" means Morgan Guaranty or such other Lender which ----------------- may succeed to its rights and obligations as Swing Line Lender pursuant to the terms of this Agreement. "Swing Line Loan" means a Loan made available to the Borrower by the ---------------- Swing Line Lender pursuant to Section 2.2. ----------- "Syndication Agent" means Bank One in its capacity as the syndication ----------------- agent for the Lenders pursuant to Article X, and not in its individual capacity --------- as a Lender, and any successor Syndication Agent appointed pursuant to Article ------- X. - - "Taxes" means any and all present or future taxes, duties, levies, ----- imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "364-Day Credit Agreement" means the 364-Day Credit Agreement dated as ------------------------ of the date hereof among the Borrower, the lenders from time to time party thereto, Morgan Guaranty, as the administrative agent thereunder, Bank One, as the syndication agent thereunder, and Bank of America, as the documentation agent thereunder, as the same may be amended, restated, supplemented or otherwise modified and as in effect from time to time. 13 "Transferee" is defined in Section 12.4. ---------- ------------ "Type" means, with respect to any Advance, its nature as a Floating ---- Rate Advance or a Eurodollar Advance. "Unfunded Liabilities" means the amount (if any) by which the present -------------------- value of all vested and unvested accrued benefits under all Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined under and in accordance with Financial Accounting Standard Board Statement 87. "Unmatured Default" means an event which but for the lapse of time or ----------------- the giving of notice, or both, would constitute a Default. "Utilization Fee" is defined in Section 2.6(b). --------------- -------------- "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of ----------------------- the outstanding voting securities of which (other than directors' qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS ----------- 2.1. Commitment. From and including the date of this Agreement and ---------- prior to the Facility Termination Date, upon the satisfaction of the conditions precedent set forth in Section 4.1 and 4.2, as applicable, each Lender severally ----------- --- agrees, on the terms and conditions set forth in this Agreement, to make Revolving Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding its Pro Rata Share of the Available Aggregate Commitment, provided that at no time shall the Aggregate Outstanding Credit Exposure hereunder exceed the Aggregate Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any time prior to the Facility Termination Date. The Commitments to lend hereunder shall expire automatically on the Facility Termination Date. 2.2. Swing Line Loans. ---------------- 2.2.1. Amount of Swing Line Loans. Upon the satisfaction of the -------------------------- conditions precedent set forth in Section 4.2 and, if such Swing Line Loan is to ----------- be made on the Closing Date, the satisfaction of the conditions precedent set forth in Section 4.1 as well, from and including the date of this Agreement and ----------- prior to the Facility Termination Date, the Swing Line Lender agrees, 14 on the terms and conditions set forth in this Agreement, to make Swing Line Loans, in U.S. dollars, to the Borrower from time to time in an aggregate principal amount not to exceed the Swing Line Commitment, provided that the Aggregate Outstanding Credit Exposure shall not at any time exceed the Aggregate Commitment, and provided further that at no time shall the sum of (i) the Swing Line Lender's share of the obligations to participate in the Swing Line Loans, plus (ii) the outstanding Revolving Loans made by the Swing Line Lender pursuant to Section 2.1, exceed the Swing Line Lender's Commitment at such time. Subject ----------- to the terms of this Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans at any time prior to the Facility Termination Date. 2.2.2. Borrowing Notice. The Borrower shall deliver to the ---------------- Administrative Agent and the Swing Line Lender irrevocable notice (a "Swing Line Borrowing Notice") not later than 2:00 p.m. (New York time) on the Borrowing Date of each Swing Line Loan, specifying (i) the applicable Borrowing Date (which date shall be a Business Day), and (ii) the aggregate amount of the requested Swing Line Loan which shall be an amount not less than $5,000,000 and integral multiples of $l,000,000 in excess thereof. The Swing Line Loans shall bear interest at the applicable rate quoted by the Swing Line Lender and agreed to by the Borrower. 2.2.3. Making of Swing Line Loans. Promptly after receipt of a Swing -------------------------- Line Borrowing Notice, the Administrative Agent shall notify each Lender by fax, or other similar form of transmission, of the requested Swing Line Loan. Not later than 2:00 p.m. (New York time) on the applicable Borrowing Date, the Swing Line Lender shall make available the Swing Line Loan, in funds immediately available in New York, to the Administrative Agent at its address specified pursuant to Article XIII. The Administrative Agent will promptly make the funds ------------ so received from the Swing Line Lender available to the Borrower on the Borrowing Date at the Administrative Agent's aforesaid address. 2.2.4. Repayment of Swing Line Loans. Each Swing Line Loan shall be ----------------------------- paid in full by the Borrower on or before the fifth (5th) Business Day after the Borrowing Date for such Swing Line Loan. In addition, the Swing Line Lender (i) may at any time in its sole discretion with respect to any outstanding Swing Line Loan, or (ii) shall on the fifth (5th) Business Day after the Borrowing Date of any Swing Line Loan, require each Lender (including the Swing Line Lender) to make a Revolving Loan in the amount of such Lender's Pro Rata Share of such Swing Line Loan (including, without limitation, any interest accrued and unpaid thereon), for the purpose of repaying such Swing Line Loan. Not later than noon (New York time) on the date of any notice received pursuant to this Section 2.2.4, each Lender shall make available its required Revolving Loan, in - ------------- funds immediately available in New York to the Administrative Agent at its address specified pursuant to Article XIII. Revolving Loans made pursuant to ------------ this Section 2.2.4 shall initially be Floating Rate Loans and thereafter may be ------------- continued as Floating Rate Loans or converted into Eurodollar Loans in the manner provided in Section 2.10 and subject to the other conditions and ------------ limitations set forth in this Article II. Unless a Lender shall have notified ---------- the Swing Line Lender, prior to its making any Swing Line Loan, that any applicable condition precedent set forth in Sections 4.1 or 4.2 had not then ------------ --- been satisfied, such Lender's obligation to make Revolving Loans pursuant to this Section 2.2.4 to repay Swing Line Loans shall be unconditional, continuing, ------------- irrevocable and absolute and shall not be affected by any circumstances, including, without limitation, (a) any set-off, counterclaim, recoupment, defense 15 or other right which such Lender may have against any Agent, the Swing Line Lender or any other Person, (b) the occurrence or continuance of a Default or Unmatured Default, (c) any adverse change in the condition (financial or otherwise) of the Borrower, or (d) any other circumstances, happening or event whatsoever. In the event that any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.2.4, the ------------- Administrative Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to such Lender hereunder until the Administrative Agent receives such payment from such Lender or such obligation is otherwise fully satisfied. In the event that any Revolving Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under any bankruptcy, insolvency or similar laws with respect to the Borrower), then each Lender shall forthwith purchase (as of the date such borrowing would otherwise have occurred) from the Swing Line Lender a participation interest in the unreimbursed drawing in an amount equal to such Lender's Pro Rata Share of such unreimbursed drawing. In addition to the foregoing, if for any reason any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.2.4, such Lender shall be deemed, at the option of the Administrative - ------------- Agent, to have unconditionally and irrevocably purchased from the Swing Line Lender, without recourse or warranty, an undivided interest and participation in the applicable Swing Line Loan in the amount of such Revolving Loan, and such interest and participation may be recovered from such Lender together with interest thereon at the Federal Funds Effective Rate for each day during the period commencing on the date of demand and ending on the date such amount is received. On the Facility Termination Date, the Borrower shall repay in full the outstanding principal balance of the Swing Line Loans. 2.3. Required Payments; Termination. Any outstanding Advances and ------------------------------ all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date. Notwithstanding the termination of this Agreement on the Facility Termination Date, until all of the Obligations (other than contingent indemnity obligations) shall have been fully paid and satisfied, all of the rights and remedies under this Agreement and the other Loan Documents shall survive. 2.4. Ratable Loans. Each Advance hereunder (other than any Swing ------------- Line Loan) shall consist of Revolving Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. 2.5. Types of Advances. The Advances may be Revolving Loans ----------------- consisting of Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.9 and 2.10, or ------------ ---- Swing Line Loans selected by the Borrower in accordance with Section 2.2. ----------- 2.6. Facility Fee; Utilization Fee: Reductions in Aggregate ------------------------------------------------------ Commitment. - ---------- (a) Facility Fee. The Borrower agrees to pay to the Administrative ------------ Agent for the account of each Lender a facility fee (the "Facility Fee") at a per annum rate equal to the Applicable Facility Fee Rate on the average daily amount of such Lender's Commitment (regardless of usage) from and including the Closing Date to but excluding the date on which this 16 Agreement is terminated in full pursuant to Section 2.3, payable quarterly in arrears on each Payment Date hereafter. (b) Utilization Fee. If, on any date prior to the Conversion Date, --------------- the Combined Utilized Amount exceeds thirty-three percent (33%) of the Combined Commitment then in effect on such date, the Borrower will pay to the Administrative Agent for the ratable benefit of the Lenders a utilization fee (the "Utilization Fee") at a per annum rate equal to 0.10% on the Combined Utilized Amount as of such date, payable quarterly in arrears on each Payment Date. If, on any date from and after the Conversion Date, the Aggregate Outstanding Credit Exposure of all the Lenders hereunder exceeds thirty-three percent (33%) of the Aggregate Commitment hereunder (which, after the Commitments have been terminated, shall be based on the Aggregate Commitment immediately prior to such termination) on such date, the Utilization Fee paid by the Borrower to the Administrative Agent for the ratable benefit of the Lenders shall equal 0.10% per annum on the Aggregate Outstanding Credit Exposure of all Lenders hereunder, payable quarterly in arrears on each Payment Date. In each case, to the extent such fee is applicable, the Utilization Fee shall be payable until the date on which this Agreement is terminated in full pursuant to Section ------- 2.3. - --- (c) Reductions in Aggregate Commitment. The Borrower may ---------------------------------- permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $l0,000,000, upon at least three (3) Business Days' written notice to the Administrative Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. All accrued Facility Fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. 2.7. Minimum Amount of Each Advance. Each Eurodollar Advance shall ------------------------------ be in the minimum amount of $10,000,000 (and in multiples of $1,000,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment. 2.8. Optional Principal Payments. The Borrower may from time to time --------------------------- pay, without penalty or premium, all outstanding Floating Rate Advances, or any portion of the outstanding Floating Rate Advances in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof upon prior notice to the Administrative Agent at or before noon (New York time) on the date of such prepayment. The Borrower may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but ----------- without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $10,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon five (5) Business Days' prior notice to the Administrative Agent. The Borrower may at any time pay, without penalty or premium, all outstanding Swing Line Loans, or, in a minimum amount of $5,000,000 and increments of $1,000,000 in excess thereof, any portion of the outstanding Swing Line Loans, with notice to the Administrative Agent and the Swing Line Lender by 2:00 p.m. (New York time) on the date of repayment. 17 2.9. Method of Selecting Types and Interest Periods for New ------------------------------------------------------ Advances. Other than with respect to Swing Line Loans (which shall be governed - -------- by Section 2.2), the Borrower shall select the Type of Advance and, in the case ----------- of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (New York time) on the Borrowing Date of each Floating Rate Advance and three (3) Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Promptly after receipt of any Borrowing Notice, the Administrative Agent shall provide the Lenders with notice thereof. Not later than noon (New York time) on each Borrowing Date, each Lender shall make available its Revolving Loan or Revolving Loans in funds immediately available in New York to the Administrative Agent at its address specified pursuant to Article XIII. The ------------ Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 2.10. Conversion and Continuation of Outstanding Advances. Floating --------------------------------------------------- Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.10 or are repaid in accordance with Section 2.8. Each Eurodollar - ------------ ----------- Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.8 or (y) the ----------- Borrower shall have given the Administrative Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.7, the Borrower may elect ----------- from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (New York time) at least three (3) Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation, (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and 18 (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. Promptly after receipt of any Conversion/Continuation Notice, the Administrative Agent shall provide the Lenders with notice thereof. 2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall ----------------------------- bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.10, to ------------ but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.10 hereof, at a rate per annum equal to the Floating Rate ------------ for such day. Each Swing Line Loan shall bear interest on the outstanding principal amount thereof, for each day from and including the day such Swing Line Loan is made to but excluding the date it is paid, at a rate per annum equal to the applicable rate quoted by the Swing Line Lender and agreed to by the Borrower. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined by the Administrative Agent as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.9 and 2.10 and otherwise in accordance with the ------------ ---- terms hereof. No Interest Period may end after the Facility Termination Date. 2.12. Rates Applicable After Default. Notwithstanding anything to the ------------------------------ contrary contained in Section 2.9 or 2.10, during the continuance of a Default ----------- ---- the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes ----------- in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default (including the Borrower's failure to pay any Loan at maturity) the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest - ----------- rates), declare that any overdue portion of Advances, fees or any other Obligations hereunder shall bear interest at the Floating Rate plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or ----------- 7.7, such interest rate shall be applicable to all Advances, fees and other - --- Obligations hereunder without any election or action on the part of the Administrative Agent or any Lender. 2.13. Method of Payment. All payments of the Obligations hereunder ----------------- shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article XIII, or at any other Lending Installation ------------ of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (New York time) on the date when due and shall (except with respect to repayments of Swing Line Loans) be applied ratably by the Administrative Agent among the Lenders. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type 19 of funds that the Administrative Agent received at such Lender's address specified pursuant to Article XIII or at any Lending Installation specified in a ------------ notice received by the Administrative Agent from such Lender. 2.14. Noteless Agreement; Evidence of Indebtedness. -------------------------------------------- (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to clauses (i) and (ii) above shall be prima facie evidence of the existence and - ----------- ---- amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note or, in the case of the Swing Line Lender, promissory notes representing its Revolving Loans and Swing Line Loans, respectively, substantially in the form of Exhibit D, with appropriate changes for notes --------- evidencing Swing Line Loans (each a "Note"). In such event, the Borrower shall prepare, execute and deliver to such Lender such Note or Notes payable to the order of such Lender. Thereafter, the Loans evidenced by each such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more Notes payable to the order of the - ------------ payee named therein or any assignee pursuant to Section 12.3, except to the ------------ extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in clauses (i) and (ii) above. ----------- --- 2.15. Telephonic Notices. The Borrower hereby authorizes the Lenders ------------------ and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith believes to be acting on behalf of the Borrower, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error. 20 2.16. Interest Payment Dates; Interest and Fee Basis. Interest accrued ---------------------------------------------- on each Floating Rate Advance and Swing Line Loan shall be payable in arrears on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance or Swing Line Loan is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than six months shall also be payable on the last day of each three-month interval during such Interest Period or as otherwise agreed upon by the Lenders and the Borrower. Interest on Eurodollar Advances, Swing Line Loans, Facility Fees and Utilization Fees shall be calculated for actual days elapsed on the basis of a 360-day year; interest on Floating Rate Advances shall be calculated for actual days elapsed on the basis of a 365/366-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (New York time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.17. Notification of Advances, Interest Rates, Prepayments and --------------------------------------------------------- Commitment Reductions. Promptly after receipt thereof, the Administrative Agent - --------------------- will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Swing Line Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.18. Lending Installations. Each Lender may book its Loans at any --------------------- Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to the Administrative Agent and the Borrower in accordance with Article XIII, designate replacement or additional Lending ------------ Installations through which Loans will be made by it and for whose account Loan payments are to be made. 2.19. Non-Receipt of Funds by the Administrative Agent. Unless the ------------------------------------------------ Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, 21 the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan, including pursuant to Section 2.12. ------------ 2.20. Removal or Replacement of Lender. The Borrower shall have the -------------------------------- right, in its sole discretion, at any time and from time to time to terminate the Commitment of any Lender (an "Affected Lender"), in whole, upon at least thirty (30) days' prior notice to the Administrative Agent and such Lender, (a) if such Lender has failed or refused to make available the full amount of any Loans as required by its Commitment hereunder, (b) if such Lender has failed or refused to consent to any amendment, waiver, supplement, restatement, discharge or termination of any provision of this Agreement when requested by the Borrower and approved by the Required Lenders prior to such amendment, waiver or termination, (c) if such Lender has been merged or consolidated with, or transferred all or substantially all of its assets to, or otherwise been acquired by any other Person, (d) if such Lender's obligation to make or continue, or convert Floating Rate Advances into, Eurodollar Advances has been suspended pursuant to Section 3.3, or (e) for any other reason, with or without ----------- cause, at any time after the second anniversary of the Closing Date; provided, however that no such Commitment reduction shall (after giving effect to any replacement of such Commitment as provided below) reduce the Aggregate Commitment by more than fifteen percent (15%) thereof; provided further, that no Default or Unmatured Default shall have occurred and be continuing at the time of such reduction; and that, concurrently with such reduction, the Borrower shall pay to such Affected Lender in same day funds on the day of such removal or replacement (A) all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrower hereunder to but excluding the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5, to the extent applicable, and (B) an amount, if ------------ --- --- any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.4 had the Loans of such Affected Lender been ----------- prepaid on such date rather than sold to the replacement Lender. ARTICLE III YIELD PROTECTION; TAXES ----------------------- 3.1. Yield Protection. If, on or after the date of this Agreement, ---------------- the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any applicable governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: 22 (i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within fifteen (15) days of demand by such Lender, the Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. 3.2. Changes in Capital Adequacy Regulations. If a Lender determines --------------------------------------- the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within fifteen (15) days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi- governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 23 3.3. Availability of Types of Advances. If any Lender determines that --------------------------------- maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Administrative Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.4. ----------- 3.4. Funding Indemnification. If any payment of a Eurodollar Advance ----------------------- occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance but excluding in any event loss of anticipated profits. 3.5. Taxes ----- (i) All payments by the Borrower to or for the account of any Lender or Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or Agent (as the case may be) ----------- receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within thirty (30) days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("Other Taxes"). (iii) The Borrower hereby agrees to indemnify the Agents and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Agents or such Lender and any liability (including ----------- penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within thirty (30) days of the date the Agents or such Lender makes demand therefor pursuant to Section ------- 3.6. --- (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not more than ten (10) Business Days after the date of this Agreement or the date on which it becomes a Lender 24 hereunder, deliver to each of the Borrower and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non- U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above ----------- (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the ----------- United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the ----------- Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the 25 Administrative Agent). The obligations of the Lenders under this Section ------- 3.5(vii) shall survive the payment of the Obligations and termination of this - -------- Agreement. 3.6. Lender Statements; Survival of Indemnity. To the extent ----------------------------------------- reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the ------------ --- --- unavailability of Eurodollar Advances under Section 3.3, so long as such ----------- designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Administrative Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in ------------ ---- --- --- reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, ------------ 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of - --- --- --- this Agreement. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. Closing. The Lenders shall not be required to make Advances ------- hereunder and their respective Commitments shall not be effective unless (a) the representations and warranties contained in Article V (including, without --------- limitation, Sections 5.5, 5.7 and 5.8) are true and correct as of the Closing ------------ --- --- Date and (b) the Borrower has furnished to the Agents: (i) Copies of the articles or certificate of incorporation of the Borrower, together with all amendments thereto, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing the execution of the Loan Documents to which it is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of the Borrower authorized to sign the Loan Documents to which it is a party and to request Loans hereunder, upon which certificate the Agents and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. 26 (iv) An opening compliance certificate in substantially the form of Exhibit B, signed by the vice president-finance, chief financial officer or treasurer of the Borrower, showing the calculations necessary to determine compliance with this Agreement as of the end of the immediately preceding fiscal quarter and stating that on the Closing Date no Default or Unmatured Default has occurred and is continuing. (v) A written opinion of the Borrower's general or associate general counsel, in form and substance satisfactory to the Agents and addressed to the Lenders in substantially the form of Exhibit A. --------- (vi) Any Notes requested by a Lender pursuant to Section 2.14 payable ------------ to the order of each such requesting Lender. (vii) Evidence satisfactory to the Agents that the Existing Credit Agreement shall have been or shall on the Closing be terminated (except for those provisions that expressly survive the termination thereof) and all loans outstanding and other amounts owed to the lenders or agents thereunder shall have been or shall on the Closing Date be paid in full. (viii) Such other documents as any Lender or its counsel may have reasonably requested including, without limitation, the 364-Day Credit Agreement and each other document identified on the List of Closing Documents attached hereto as Exhibit E. --------- 4.2. Each Advance. The Lenders shall not (except as otherwise set ------------ forth in Section 2.2.4 with respect to Revolving Loans for the purpose of ------------- repaying Swing Line Loans) be required to make any Advance unless on the applicable Borrowing Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V (other --------- than with respect to the representations and warranties contained in Sections 5.5, 5.7 and 5.8, which shall only be made ------------- --- --- as of the Closing Date) are true and correct as of such --- Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. Each Borrowing Notice or Swing Line Borrowing Notice, as the case may be, with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Section 4.2(i) and -------------- (ii) have been satisfied. - ---- ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants as follows to each Lender and the Agents as of the Closing Date, on the date of the initial Loans hereunder (if different from the Closing Date) and 27 thereafter on each date as required by Section 4.2 (other than with respect to ----------- the representations and warranties contained in Sections 5.5, 5.7 and 5.8, which ------------- --- --- shall only be made as of the Closing Date): 5.1. Existence and Standing. The Borrower and each of its Significant ---------------------- Subsidiaries is a corporation, partnership or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted unless the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. 5.2. Authorization and Validity. The Borrower has the power and -------------------------- authority and legal right to execute and deliver the Loan Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents to which the Borrower is a party constitute legal, valid and binding obligations of the Borrower enforceable against it in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and ------------------------------- delivery by the Borrower or any of its Significant Subsidiaries of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Significant Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Significant Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Significant Subsidiaries, is required to be obtained by the Borrower or any of its Significant Subsidiaries in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by the Borrower of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4. Financial Statements. Except as publicly disclosed on or prior -------------------- to the date hereof, the December 31, 1999 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Arranger and the Lenders, copies of which are attached hereto as Schedule 5.4, were prepared in ------------ accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present, the consolidated financial 28 condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations and cash flows for the fiscal year then ended. 5.5. Material Adverse Change. Except as publicly disclosed on or ----------------------- prior to the date hereof, since December 31, 1999 and up to the Closing Date there has been no change in the business, Property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes. The Borrower and its Subsidiaries have filed all United ----- States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Significant Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with Agreement Accounting Principles or where it would not have a Material Adverse Effect. The United States income tax returns of the Borrower and its Significant Subsidiaries as of December 31, 1995 have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1995. No tax liens have been filed and no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. There is no litigation, ------------------------------------- arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Significant Subsidiaries which has not been disclosed in the Borrower's Annual Report on Form 1O-K dated December 31, 1999 or the Borrower's Quarterly Report on Form 10-Q dated July 2, 2000, copies of which are attached hereto as Schedule 5.7, which could reasonably be expected to have a ------------ Material Adverse Effect or which seeks to prevent, enjoin or delay the making of any Loans. Other than any liability incident to any litigation, arbitration or proceeding which could not reasonably be expected to have a Material Adverse Effect, neither the Borrower nor any of its Significant Subsidiaries have any material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. ----------- 5.8. Accuracy of Information. No information, schedule, exhibit or ----------------------- report furnished by the Borrower or any of its Significant Subsidiaries in writing to the Arranger, any Agent or Lender (including, without limitation, the September 2000 Confidential Information Memorandum entitled "The Mead Corporation $600,000,000 Senior Unsecured Credit Facilities") in connection with the negotiation of, or compliance with, the Loan Documents, when taken as a whole, contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.9. Regulation U. Margin stock (as defined in Regulation U) ------------ constitutes less than twenty-five (25%) of the value of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.10. Material Agreements. Neither the Borrower nor any Significant ------------------- Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. 29 5.11. Compliance With Laws. The Borrower and its Significant -------------------- Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect. 5.12. ERISA; Foreign Pension Matters. (a) Each Plan and each Foreign ------------------------------ Pension Plan complies in all material respects with all applicable requirements of law and regulations, (b) there are no Unfunded Liabilities in respect of the Plans, (c) the present value of the aggregate unfunded liabilities to provide the accrued benefits under all Foreign Pension Plans does not exceed the fair market value of the assets held in trust or other funding vehicles for accrued benefits under all Foreign Pension Plans, (d) no Reportable Event has occurred with respect to any Plan, (e) neither the Borrower nor any other member of the Controlled Group has withdrawn from any Multiemployer Plan or initiated steps to do so, and (f) no steps have been taken to terminate any Plan, other than such non-compliance, unfunded liabilities, Reportable Events, withdrawals, and terminations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.13. Plan Assets; Prohibited Transactions. The Borrower is an ------------------------------------ "operating company" within the meaning of 29 C.F.R. (S) 2510.3-101 and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.14. Environmental Matters. In the ordinary course of its business, --------------------- the officers of the Borrower consider the effect of Environmental Laws on the business of the Borrower and its Significant Subsidiaries, in the course of which they identify and evaluate potential risks and liabilities accruing to the Borrower and its Subsidiaries due to Environmental Laws. On the basis of this consideration, the Borrower has concluded that Environmental Laws cannot reasonably be expected to have a Material Adverse Effect. Except as publicly disclosed on or prior to the date hereof, neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.15. Investment Company Act. Neither the Borrower nor any ---------------------- Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.16. Public Utility Holding Company Act. Neither the Borrower nor any ---------------------------------- Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 30 5.17. Insurance. The Property of the Borrower and its Significant --------- Subsidiaries is insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as is consistent with sound business practice. ARTICLE VI COVENANTS --------- During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and ------------------- each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within one hundred twenty (120) days after the close of each of its fiscal years, an audit report certified by independent certified public accountants acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and its Subsidiaries, including a balance sheet as of the end of such period, related statements of income, shareholders' equity and cash flows and unqualified as to the Borrower's status as a going concern. (ii) Within sixty (60) days after the close of the first three (3) quarterly periods of each of its fiscal years, for itself and its Subsidiaries, a consolidated unaudited balance sheet as at the close of each such period and consolidated statements of income, shareholders' equity and cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its vice president-finance, chief financial officer, chief accounting officer or treasurer. (iii) Together with the financial statements required under Sections -------- 6.1(i) and (ii), a compliance certificate in substantially the ------ ---- form of Exhibit B signed by its vice president-finance, chief --------- financial officer, chief accounting officer or treasurer showing the calculations necessary to determine compliance with this Agreement, indicating the Borrower's then current rating by S&P and Moody's and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) As soon as possible and in any event within thirty (30) days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the vice president-finance, chief financial officer or treasurer of the Borrower, describing said Reportable Event or material unfunded liability and the action which the Borrower proposes to take with respect thereto. (v) As soon as possible and in any event within thirty (30) days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Significant Subsidiaries is or may be liable to any Person as a result of the 31 release by the Borrower, any of its Significant Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Significant Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect. (vi) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (vii) Promptly upon the filing thereof, copies of all registration statements or other regular reports not otherwise provided pursuant to this Section 6.1 which the Borrower or any of its ----------- Significant Subsidiaries files with the Securities and Exchange Commission. (viii) Prior to the execution thereof, draft copies of the Receivables Purchase Documents and, promptly after execution thereof, copies of all material amendments thereto. (ix) Such other information (including non-financial information) as any Agent or Lender may from time to time reasonably request. 6.2. Use of Proceeds. The Borrower will, and will cause each --------------- Significant Subsidiary to, use the proceeds of the Advances for general corporate purposes; provided, that in no event shall the proceeds of the -------- Advances be used by the Borrower or any Significant Subsidiary to consummate acquisitions on a hostile basis. The Borrower shall use the proceeds of Advances in compliance with all applicable legal and regulatory requirements and any such use shall not result in a violation of any such requirements, including, without limitation, Regulation U, the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations promulgated thereunder. 6.3. Notice of Default. The Borrower will, and will cause each ----------------- Significant Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. The Borrower will, and will cause each ------------------- Significant Subsidiary to, carry on and conduct its business in a manner appropriate for market conditions and, except as otherwise permitted by Section ------- 6.11, do all things necessary to remain duly incorporated or organized, validly - ---- existing and (to the extent such concept applies to such entity) in good standing as a corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.5. Taxes. The Borrower will, and will cause each Significant ----- Subsidiary to, file on a timely basis complete and correct United States federal and applicable foreign, state and local tax 32 returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with Agreement Accounting Principles, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.6. Insurance. The Borrower will, and will cause each Significant --------- Subsidiary to, maintain insurance policies and programs on their Property in such amounts and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. 6.7. Compliance with Laws. The Borrower will, and will cause each -------------------- Significant Subsidiary to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.8. Maintenance of Properties. The Borrower will, and will cause each ------------------------- Significant Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.9. Inspection; Keeping of Books and Records. The Borrower will, and will ---------------------------------------- cause each Significant Subsidiary to, permit the Agents and the Lenders, by their respective representatives and agents, to inspect any of the Property, books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Significant Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as any Agent or Lender may designate. The Borrower shall keep and maintain, and cause each of its Significant Subsidiaries to keep and maintain, in all material respects, proper books of record and account in which entries in conformity with Agreement Accounting Principles shall be made of all dealings and transactions in relation to their respective businesses and activities. If a Default has occurred and is continuing, the Borrower, upon the Administrative Agent's request, shall turn over copies of any such records to the Administrative Agent or its representatives. 6.10. Indebtedness. ------------ (i) Priority Indebtedness. The Borrower will not, nor will it permit any --------------------- Significant Subsidiary to, create, incur or suffer to exist any Priority Indebtedness unless, at the time of the creation, incurrence or assumption of such Priority Indebtedness and after giving effect thereto, the aggregate amount of all such Priority Indebtedness does not exceed an amount equal to thirty percent (30%) of the Consolidated Net Worth of the Borrower and its Subsidiaries at such time. 33 (ii) Additional Limitations on Subsidiary Indebtedness. The Borrower will ------------------------------------------------- not permit any Significant Subsidiary to create, incur or suffer to exist any Indebtedness, except: (a) Indebtedness existing on the date hereof and extensions, renewals or refinancings thereof. (b) Indebtedness owed to the Borrower or any other Subsidiary. (c) Other Indebtedness to the extent that the amount of such Indebtedness does not at any time exceed an amount which would cause a Default or Unmatured Default to occur or be continuing hereunder, including, without limitation, under Sections 6.10(i) and 6.15. ---------------- ---- (iii) Additional Limitations on Borrower Indebtedness. The Borrower will ----------------------------------------------- not create, incur or suffer to exist any Indebtedness except to the extent that the amount of such Indebtedness does not at any time exceed an amount which would cause a Default or Unmatured Default to occur or be continuing hereunder, including, without limitation, Sections 6.10(i) and 6.15. ---------------- ---- 6.11. Merger. The Borrower will not merge or consolidate with or into any ------ other Person, unless the Borrower is the surviving entity. 6.12. Sale of Assets. The Borrower will not lease, sell or otherwise -------------- dispose of all or substantially all of the Property of the Borrower and its Significant Subsidiaries, taken as a whole, to any other Person. 6.13. Liens. The Borrower will not, nor will it permit any Subsidiary to, ----- create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Significant Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than sixty (60) days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Agreement Accounting Principles shall have been set aside on its books. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. 34 (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or its Subsidiaries. (v) Liens existing on the date hereof and renewals, extensions and replacements thereof. (vi) Liens securing Indebtedness permitted by Section 6.10 (including, ------------ without limitation, Liens arising under the Receivables Purchase Documents). (vii) Lessor's interests under Capitalized Leases and Operating Leases. (viii) Liens existing on the property of a corporation or other business entity immediately prior to its being consolidated with or merged into the Borrower or a Subsidiary or its becoming a Subsidiary, or Liens existing on any property acquired by the Borrower or a Subsidiary at the time such is so acquired (whether or not the Indebtedness secured thereby shall have been assumed), provided that (i) no such Lien was created or assumed in contemplation of such consolidation or merger or such entity's becoming a Subsidiary or such acquisition of property and (ii) each such Lien shall only cover the acquired property and, if required by the terms of the instrument originally creating such Lien, property which is an improvement to or is acquired for specific use in connection with such acquired property. (ix) Purchase money Liens upon specific items of inventory or other goods and proceeds thereof granted in favor of any Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business. (x) Liens securing Indebtedness of the Borrower or its Subsidiaries that is tax-exempt. (xi) Liens not otherwise permitted by Sections 6.13(i) through (x) ---------------- --- provided that at all times the aggregate principal amount of all outstanding Indebtedness which is secured as permitted by this Section 6.13(xi) does not exceed 20% of Consolidated Net Worth. ---------------- 6.14. Synthetic Leases. The Borrower and its consolidated Subsidiaries ---------------- will not, at any time, incur liabilities under any financing lease or so-called "synthetic lease" transaction other than such liabilities which shall not exceed an aggregate amount equal to $100,000,000 at such time. 6.15. Financial Covenants. The Borrower will not permit the Leverage ------------------- Ratio, determined as of the end of each of its fiscal quarters, to exceed sixty percent (60%). 35 ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute a Default: 7.1. Breach of Representations or Warranties. Any representation or --------------------------------------- warranty made or deemed made by or on behalf of the Borrower or any of its Significant Subsidiaries to the Lenders or the Agents under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be false in any material respect on the date as of which made. 7.2. Failure to Make Payments When Due. Nonpayment of principal of any --------------------------------- Loan when due, or nonpayment of interest upon any Loan or of any Facility Fee, Utilization Fee or other Obligations under any of the Loan Documents within five (5) Business Days after the same becomes due. 7.3. Breach of Covenants. The breach by the Borrower of any of the terms ------------------- or provisions of Sections 6.1 through 6.15. ------------ ---- 7.4. Other Breaches. The breach by the Borrower (other than a breach which -------------- constitutes a Default under another Section of this Article VII) of any of the ----------- terms or provisions of this Agreement or any other Loan Document which is not remedied within thirty (30) days the occurrence thereof. 7.5. Default as to Other Indebtedness. Failure of the Borrower or any of -------------------------------- its Significant Subsidiaries to pay when due (x) any Indebtedness under the 364- Day Credit Agreement or (y) any other Indebtedness or Financial Contracts which, individually or in the aggregate exceeds $50,000,000 (the Indebtedness and Financial Contracts described in this clause (y) being referred to as "Material ---------- Indebtedness"); or the default by the Borrower or any of its Significant Subsidiaries in the performance (beyond the applicable grace period with respect thereto, if any) of any term, provision or condition contained in the 364-Day Credit Agreement or any agreement under which any such Material Indebtedness was created or is governed, or any other event shall occur or condition exist, (i) the effect of which default or event is to cause, or to permit the lenders under the 364-Day Credit Agreement or the holder or holders of such Material Indebtedness to cause, the 364-Day Credit Agreement or such Material Indebtedness to become due prior to its stated maturity; or the Indebtedness under the 364-Day Credit Agreement or any Material Indebtedness of the Borrower or any of its Significant Subsidiaries shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof or (ii) if such default or event shall occur under any Receivables Purchase Documents, the effect of which default or event is to cause the replacement of, or to permit the investors thereunder to replace, the Person then acting as servicer for the related Receivables Purchase Facility; or the Borrower or any of its Significant Subsidiaries shall fail to pay, or shall admit in writing its inability to pay, its debts generally as they become due. 36 7.6. Voluntary Bankruptcy; Appointment of Receiver; Etc. The Borrower or -------------------------------------------------- any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or partnership action to authorize or effect any of the foregoing actions set forth in this Section 7.6, or (vi) fail ----------- to contest in good faith any appointment or proceeding described in Section 7.7. ----------- 7.7. Involuntary Bankruptcy; Appointment of Receiver; Etc. Without the ---------------------------------------------------- application, approval or consent of the Borrower or any of its Significant Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Significant Subsidiaries, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower --------------- or any of its Significant Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) consecutive days. 7.8. Judgments. The Borrower or any of its Significant Subsidiaries shall --------- fail within thirty (30) days to pay, bond or otherwise discharge one or more judgments or orders for the payment of money (except to the extent covered by insurance as to which the insurer has not disclaimed coverage) in excess of $25,000,000 (or the equivalent thereof in currencies other than U.S. dollars) in the aggregate. 7.9. Unfunded Liabilities. The sum of the Unfunded Liabilities of all -------------------- Plans and the present value of the aggregate unfunded liabilities to provide the accrued benefits under all Foreign Pension Plans is equal to an amount that could reasonably be expected to have a Material Adverse Effect, or any Reportable Event shall occur in connection with any Plan which could reasonably be expected to result in the imposition of a lien on the assets of the Company or any Subsidiary. 7.10. Other ERISA Liabilities. The Borrower or any other member of the ----------------------- Controlled Group has incurred withdrawal liability or become obligated to make contributions to a Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group, could reasonably be expected to have a Material Adverse Effect. 7.11. Environmental Matters. The Borrower or any of its Significant --------------------- Subsidiaries shall (i) be the subject of any proceeding or investigation pertaining to the release by the Borrower, any of its Significant Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, or (ii) violate any Environmental Law, which, in the case of an 37 event described in clause (i) or clause (ii), has or could reasonably be --------- ---------- expected to have a Material Adverse Effect. 7.12. Change of Control. Any Change in Control shall occur. ----------------- ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs ------------ ----------- --- with respect to the Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders (or the Administrative Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. If, within thirty (30) days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or - ----------- --- decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the ---------- ------------ Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the final maturity of any Loan or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Change the percentage specified in the definition of Required Lenders or any other percentage of Lenders specified to be the applicable percentage in this Agreement to act on specified matters or amend the definitions of "Required Lenders" or "Pro Rata Share" or any other provision requiring that payments be made to or from the Lenders on the basis of their Pro Rata Shares or on a similar basis. (iii) Extend the Facility Termination Date, or change the amount or otherwise extend the term of the Commitment of any Lender hereunder. 38 (iv) Permit the Borrower to assign its rights or obligations under this Agreement. (v) Amend this Section 8.2. ----------- No amendment of any provision of this Agreement relating to any Agent shall be effective without the written consent of such Agent. No amendment of any provision of this Agreement relating to the Swing Line Lender or any Swing Line Loans shall be effective without the written consent of the Swing Line Lender. The Administrative Agent may waive payment of the fee required under Section ------- 12.3.2 without obtaining the consent of any other party to this Agreement. - ------ 8.3. Preservation of Rights. No delay or omission of the Lenders or Agents ---------------------- to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only ----------- to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agents and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. Survival of Representations. All representations and warranties of --------------------------- the Borrower contained in this Agreement shall survive the making of the Loans herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the ----------------------- contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Headings. Section headings in the Loan Documents are for convenience -------- of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.4. Entire Agreement. The Loan Documents embody the entire agreement and ---------------- understanding among the Borrower, the Agents and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agents and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. ------------- 9.5. Several Obligations; Benefits of this Agreement. The respective ----------------------------------------------- obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agents are authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of 39 its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.6, 9.10, 10.11, and 10.13 to the extent specifically ------------ ---- ----- ----- set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the ------------------------- Administrative Agent and the Arranger for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees, time charges and expenses of attorneys for the Administrative Agent and Arranger, which attorneys may or may not be employees of the Administrative Agent or the Arranger, and expenses of and fees for other advisors and professionals engaged by the Administrative Agent or the Arranger) paid or incurred by the Administrative Agent or the Arranger in connection with the investigation, preparation, negotiation, documentation, execution, delivery, syndication, distribution (including, without limitation, via the internet) review, amendment, modification, administration and collection of the Loan Documents. The Borrower also agrees to reimburse the Agents, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees, time charges and expenses of attorneys for the Agents, the Arranger and the Lenders, which attorneys may be employees of the Agents, the Arranger or the Lenders) paid or incurred by the Agents, the Arranger or any Lender in connection with the collection and enforcement of the Loan Documents. (ii) The Borrower hereby further agrees to indemnify the Agents, the Arranger, each Lender, their respective affiliates, and each of their directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor whether or not the Agents, the Arranger, any Lender or any affiliate is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder, except to the extent that any of the foregoing is due to the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section 9.6 shall survive the termination of this Agreement. ----------- 9.7. Numbers of Documents. All statements, notices, closing documents, and -------------------- requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders, to the extent that the Administrative Agent deems necessary. 9.8. Accounting. Except as provided to the contrary herein, all accounting ---------- terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. If any changes in generally accepted accounting principles are hereafter required or permitted and are adopted by the Borrower or any of its Significant Subsidiaries with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the financial covenants, tests, restrictions or standards herein or in the related definitions or terms used therein 40 ("Accounting Changes"), the parties hereto agree, at the Borrower's request, to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such changes with the desired result that the criteria for evaluating the Borrower's and its Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made; provided, however, until such provisions are amended in a manner reasonably satisfactory to the Administrative Agent and the Required Lenders, no Accounting Change shall be given effect in such calculations and all financial statements and reports required to be delivered hereunder shall be prepared in accordance with Agreement Accounting Principles without taking into account such Accounting Changes. In the event such amendment is entered into, all references in this Agreement to Agreement Accounting Principles shall mean generally accepted accounting principles as of the date of such amendment. 9.9. Severability of Provisions. Any provision in any Loan Document that -------------------------- is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.10. Nonliability of Lenders. The relationship between the Borrower on the ----------------------- one hand and the Lenders and the Agents on the other hand shall be solely that of borrower and lender. None of the Agents, the Arranger or any Lender shall have any fiduciary responsibilities to the Borrower. None of the Agents, the Arranger or any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower agrees that none of the Agents, the Arranger or any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. None of the Agents, the Arranger or any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect, consequential or punitive damages suffered by the Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. 9.11. Confidentiality. Each Lender agrees to hold any confidential --------------- information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or to a Transferee or prospective Transferee (provided such Transferee or prospective Transferee agrees to abide by the confidentiality provisions of this Section 9.1l), (iii) to regulatory ------------ officials upon request to disclose, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender's direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) permitted by Section 12.4. ------------ 41 9.12. Nonreliance. Each Lender hereby represents that it is not relying on ----------- or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. 9.13. Disclosure. The Borrower and each Lender hereby acknowledge and agree ---------- that Morgan Guaranty, Bank One, Bank of America and/or its respective Affiliates from time to time may hold investments in, make other loans to or have other relationships with the Borrower and its Affiliates. ARTICLE X THE AGENTS ---------- 10.1. Appointment; Nature of Relationship. Morgan Guaranty is hereby ----------------------------------- appointed by each of the Lenders as the Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. Bank One is hereby appointed by each of the Lenders as the Syndication Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Syndication Agent to act as the contractual representative of such lender with the rights and duties expressly set forth herein and in the other Loan Documents. Bank of America is hereby appointed by each of the Lenders as the Documentation Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Documentation Agent to act as the contractual representative of such lender with the rights and duties expressly set forth herein and in the other Loan Documents. Each Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined --------- term "Administrative Agent", "Syndication Agent" and "Documentation Agent", it is expressly understood and agreed that no Agent shall have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that each Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In their capacities as the Lenders' contractual representative, the Agents (i) do not hereby assume any fiduciary duties to any of the Lenders, (ii) are "representatives" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) are acting as independent contractors, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against any Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 10.2. Powers. Each Agent shall have and may exercise such powers under the ------ Loan Documents as are specifically delegated to such Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agents shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the applicable Agents. 42 10.3. General Immunity. No Agent or any of its respective directors, ---------------- officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is due to the gross negligence or willful misconduct of such Person. 10.4. No Responsibility for Loans, Recitals, etc. No Agent or any of its ------------------------------------------ respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except ---------- receipt of items required to be delivered solely to the Agents; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Borrower or any guarantor of any of the Obligations or of any of the Borrower's or any such guarantor's respective Subsidiaries. The Agents shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to any Agent at such time, but is voluntarily furnished by the Borrower to such Agent (either in its capacity as an Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. Each Agent shall in all cases be --------------------------------- fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Agents shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. Each Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. Any Agent may execute any of its -------------------------------- respective duties as an Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning the contractual arrangement between such Agent and the Lenders and all matters pertaining to such Agent's duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. Each Agent shall be entitled to rely ------------------------------ upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document 43 believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by such Agent, which counsel may be employees of such Agent. 10.8. Agents' Reimbursement and Indemnification. The Lenders agree to ----------------------------------------- reimburse and indemnify the Administrative Agent and the Syndication Agent ratably in proportion to the Lenders' respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Borrower for which such Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by such Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by such Agent in connection with any dispute between such Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against such Agent in connection with any dispute between such Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing resulted from the gross negligence or willful misconduct of the Administrative Agent or the Syndication Agent, as applicable, (ii) any indemnification required pursuant to Section 3.5(vii) shall, notwithstanding the provisions of this Section 10.8, be - ---------------- ------------ paid by the relevant Lender in accordance with the provisions thereof and (iii) no Lender shall be liable for any of the foregoing to the extent any of the foregoing arose as a result of the syndication of the Aggregate Commitments by the Syndication Agent. The obligations of the Lenders under this Section 10.8 ------------ shall survive payment of the Obligations and termination of this Agreement. 10.9. Notice of Default. No Agent shall be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Unmatured Default hereunder unless such Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that any Agent receives such a notice, such Agent shall give prompt notice thereof to the Lenders. 10.10. Rights as a Lender. In the event any Agent is a Lender, such ------------------ Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not an Agent, and the term "Lender" or "Lenders" shall, at any time when any Agent is a Lender, unless the context otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Significant Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. 44 10.11. Lender Credit Decision. Each Lender acknowledges that it has, ---------------------- independently and without reliance upon any Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.12. Successor Agents. Any Agent may resign at any time by giving ---------------- written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five (45) days after the retiring Agent gives notice of its intention to resign. Any Agent may be removed at any time with or without cause by written notice received by such Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent that, provided such resignation or removal occurs prior to a Default, shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Required Lenders within thirty (30) days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. Notwithstanding the previous sentence, any Agent may at any time without the consent of the Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as its successor Agent hereunder. If an Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of such Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of an Agent, the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X shall continue in effect for the benefit of --------- such Agent in respect of any actions taken or omitted to be taken by it while it was acting as an Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Administrative Agent by merger, or the Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then (a) the term "Prime Rate" as used in this Agreement ------------- shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent and (b) the references to "Morgan Guaranty" in the definition of "Eurodollar Base Rate" and in the last sentence of Section 2.13 ------------ shall be deemed to be a reference to such successor Administrative Agent in its individual capacity. 10.13. Agent and Arranger Fees. The Borrower agrees to pay to the ----------------------- Syndication Agent and the Arranger, for their respective accounts, the fees agreed to by the Borrower, the 45 Syndication Agent and the Arranger pursuant to that certain letter agreement dated September 15, 2000, or as otherwise agreed from time to time. 10.14. Delegation to Affiliates. The Borrower and the Lenders agree ------------------------ that any Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the applicable Agent is entitled under Articles -------- IX and X. - -- - ARTICLE XI SETOFF; RATABLE PAYMENTS ------------------------ 11.1. Setoff. In addition to, and without limitation of, any rights of ------ the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender to the extent such Obligations are then due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, ---------------- has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any - ----------- --- --- --- other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT: ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. Successors and Assigns: Designated Lenders. ------------------------------------------ 12.1.1. Successors and Assigns. The terms and provisions of the Loan ---------------------- Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. The parties to this Agreement acknowledge that clause (ii) of ------------ ----------- this Section 12.1.1 relates only to absolute assignments and does not prohibit -------------- assignments creating security interests, including, without limitation, (x) any pledge or assignment by any Lender of 46 all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank or (y) in the case of a Lender which is a fund, any pledge or assignment of all or any portion of its rights under this Agreement and any Note to its trustee in support of its obligations to its trustee; provided, however, that no such pledge or assignment creating a security interest shall release the transferor Lender from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 12.3. The Administrative ------------ Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3; provided, however, that the Administrative Agent may in its - ------------ discretion (but shall not be required to) follow instructions from the Person which made any Loan or which holds any Note to direct payments relating to such Loan or Note to another Person. Any assignee of the rights to any Loan or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder or assignee of the rights to such Loan. 12.1.2. Designated Lenders. Notwithstanding anything to the contrary ------------------ contained herein, any Lender (each such Lender, a "Granting Bank") may grant to a conduit or similar funding vehicle affiliated with or managed by such Granting Bank (each a "Designated Lender"), identified as such in writing from time to time by the applicable Granting Bank to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Bank would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided, that (i) nothing herein shall constitute a -------- commitment by any Designated Lender to make any Advance, (ii) if a Designated Lender elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the applicable Granting Bank shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by any Designated Lender hereunder shall utilize the Revolving Loan Commitment of the applicable Granting Bank to the same extent, and as if, such Advance were made by such Granting Bank. Each party hereto hereby agrees that no Designated Lender shall be liable for any indemnity or other similar payment obligation under this Agreement (all liability for which shall remain with the applicable Granting Bank). All notices hereunder to any Granting Bank or the related Designated Lender, and all payments in respect of the Obligations due to such Granting Bank or the related Designated Lender, shall be made to such Granting Bank. In addition, each Granting Bank shall vote as a Lender hereunder without giving effect to any assignment under this Section 12.1.2, and no Designated Lender -------------- shall have any vote as a Lender under this Agreement for any purpose. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any Designated Lender, it will not institute against, or join any other person in instituting against, such Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 12.1.2, any Designated Lender may (i) with notice to, but without the - -------------- prior written consent of, the Borrower and the Administrative Agent and without paying any processing or administrative fee therefor, assign all or a portion of its interests in any Advances to the Granting Bank or to 47 any financial institutions (consented to by the Borrower and the Administrative Agent in accordance with the terms of Section 12.3.1 providing liquidity and/or -------------- credit support to or for the account of such Designated Lender to support the funding or maintenance of Advances and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such Designated Lender. This Section 12.1.2 may not be amended -------------- without the written consent of each Granting Bank affected thereby. 12.2. Participations. -------------- 12.2.1. Permitted Participants; Effect. Any Lender may, in the ------------------------------ ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to ------------- approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which (i) extends the final maturity of any Loan or forgives all or a portion of the principal amount thereof, or reduces the rate or extends the time of payment of interest or fees on any such Loan or the related Commitment or (ii) extends the Facility Termination Date. 12.2.3. Benefit of Setoff. The Borrower agrees that each Participant ----------------- shall be deemed to have the right of setoff provided in Section 11.1 in respect ------------ of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents (it being understood that no Lender shall retain the right of setoff provided in Section 11.1 with respect to the ------------ amount of participating interests sold to each Participant). The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount ------------ received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. ------------ 12.3. Assignments. ----------- 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course --------------------- of its business and in accordance with applicable law, at any time assign to one or more banks or other entities 48 ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in --------- such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender, an Affiliate thereof or a Designated Lender, provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. Each such assignment with respect to a Purchaser which is not a Lender, an Affiliate thereof or a Designated Lender shall (unless each of the Borrower and the Administrative Agent otherwise consents) be in an amount not less than the lesser of (i) $10,000,000 and integral multiples of $l,000,000 in excess thereof or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or outstanding Loans (if the applicable Commitment has been terminated). 12.3.2. Effect; Effective Date. Upon (i) delivery to the ---------------------- Administrative Agent of an assignment, together with any consents required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Administrative Agent for - -------------- processing such assignment (unless such fee is waived by the Administrative Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor -------------- Lender, the Administrative Agent and the Borrower shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The Borrower authorizes each ---------------------------- Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries, including without limitation any information contained in any Reports; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.11 of this ------------ Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is ------------- transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or 49 any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv). --------------- ARTICLE XIII NOTICES ------- 13.1. Notices. Except as otherwise permitted by Section 2.15 with ------- ------------ respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower, the Agents or any Lender party hereto as of the Closing Date, at its respective address or facsimile number set forth on the signature pages hereof; provided that notices to the Administrative Agent -------- delivered under Article II shall be delivered to the following address: ---------- JP Morgan Services 500 Stanton Christiana Road Newark, Delaware 19713-2107 Attention: Devon Brown Phone: (302) 634-1863 Fax: (302) 634-1094 , (y) in the case of any Lender that becomes a party hereto pursuant to Section ------- 12.3, at its address or facsimile number set forth in the applicable assignment - ---- or, if none is provided therein, in its administrative questionnaire or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower in accordance with the provisions of this Section 13.1. Each such ------------- notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Administrative Agent under Article II shall not be effective until received. ---------- 13.2. Change of Address. The Borrower, the Agents and any Lender may ----------------- each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agents and the Lenders and each party has notified the Agents by facsimile transmission or telephone that it has taken such action. 50 ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL ------------------------------------------------------------ 15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A ------------- CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS ----------------------- TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENTS OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENTS OR ANY LENDER OR ANY AFFILIATE OF THE AGENTS OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK OR THE CITY IN WHICH THE PRINCIPAL OFFICE OF SUCH AGENT. LENDER OR AFFILIATE, AS THE CASE MAY BE, IS LOCATED. 15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENTS AND EACH LENDER -------------------- HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. [Signature Pages Follow] 51 IN WITNESS WHEREOF, the Borrower, the Lenders and the Agents have executed this Agreement as of the date first above written. THE MEAD CORPORATION, as the Borrower /s/ PETER H. VOGEL, JR. --------------------------------- Name: Peter H. Vogel, Jr. Title: Vice President, Finance and Treasurer Mead World Headquarters Courthouse Plaza Northeast Dayton, Ohio 45463 Attention: Treasurer Phone: (937) 495-6323 Fax: (937) 228-5555 S-l MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as the Administrative Agent, the Swing Line Lender and as a Lender /s/ CARL J. MEHLDAU, JR. ---------------------------------- Name: Carl J. Mehldau, Jr. Title: Associate 60 Wall Street New York, New York 10260-0060 Attention: Carl J. Mehldau, Jr. Phone: (212) 648-1537 Fax: (212) 648-5018 E-mail: mehldau_carl@jpmorgan.com S-2 BANK ONE, NA, as the Syndication Agent and as a Lender /s/ PAUL A. HARRIS -------------------------------- Name: Paul A. Harris Title: Managing Director 100 East Broad Street 7/th/ Floor Columbus, Ohio 43215 Attention: Paul A. Harris Phone: (614) 248-1780 Fax: (614) 248-5518 E-mail: paul_a_harris@mail.bankone.com S-3 BANK OF AMERICA, N.A., as the Documentation Agent and as a Lender /s/ MICHAEL BALOK ---------------------------- Name: Michael Balok Title: Managing Director 555 California Street 12/th/ Floor CA5-705-12-12 San Francisco, California 94104 Attention: Michael Balok Phone: (415) 622-2018 Fax: (415) 622-4585 E-mail: mike.balok@bankofamerica.com S-4 CITICORP USA, INC., as a Lender /s/ WOLFGANG VIRAGH -------------------------- Name: Wolfgang Viragh Title: Vice President 399 Park Avenue 8th Floor/Zone 11 New York, New York 10043 Attention: Wolfgang Viragh Phone: (212) 559-6236 Fax: (212) 793-0289 E-mail: wolfgang.viragh@citicorp.com S-5 DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, as a Lender /s/ HANS-JOSEF THIELE ----------------------------- Name: Hans-Josef Theile Title: Director /s/ ROBERT W. CASEY, JR. ----------------------------- Name: Robert W. Casey, Jr. Title: Managing Director 31 West 52/nd/ Street 24/th/ Floor New York, New York 10019 Attention: Hans-Josef Thiele Phone: (212) 469-8649 Fax: (212) 469-2930 E-mail: Hans-Josef.Thiele@db.com S-6 MELLON BANK, N.A., as a Lender /s/ MARK F. JOHNSTON ------------------------------ Name: Mark F. Johnston Title: Vice President One Mellon Center, Room 370 Pittsburgh, Pennsylvania 15258-0001 Attention: Mark F. Johnston Phone: (412) 236-2793 Fax: (412) 236-1914 E-mail: johnston.mf@mellon.com S-7 THE SUMITOMO BANK, LIMITED, as a Lender /s/ EDWARD D. HENDERSON, JR. ---------------------------------- Name: Edward D. Henderson, Jr. Title: Senior Vice President 277 Park Avenue New York, New York 10172 Attention: Rohn Laudenschlager Phone: (212) 224-4226 Fax: (212) 224-4384 E-mail: S-8 SOCIETE GENERALE, as a Lender /s/ JERRY PARISI -------------------------------- Name: Jerry Parisi Title: Managing Director 1221 Avenue of the Americas New York, New York 10020 Attention: Jerry Parisi Phone: (212) 278-5448 Fax: (212) 278-7997 E-mail: jerry.parisi@us.socgen.com S-9 WACHOVIA BANK, N.A., as a Lender /s/ BRADFORD L. WATKINS ---------------------------------------- Name: Bradford L. Watkins Title: Vice President 191 Peachtree Street, 28/th/ Floor Atlanta, Georgia 30319 Attention: Bradford L. Watkins Phone: (404) 332-1093 Fax: (404) 332-6898 E-mail: Brad.Watkins@Wachovia.com S-10 THE ROYAL BANK OF SCOTLAND plc, as a Lender /s/ MARIA AMARAL-LEBLANC ----------------------------------------- Name: Maria Amaral-LeBlanc Title: Vice President 101 Park Avenue 10/th/ Floor New York, New York 10178 Attention: Maria Amaral-LeBlanc Phone: (212) 401-3746 Fax: (212) 401-3456 E-mail: maria.amaral-leblanc@rbos.com S-11 NATIONAL CITY BANK, as a Lender /s/ JEFFREY L. HAWTHORNE ---------------------------------------- Name: Jeffrey L. Hawthorne Title: Senior Vice President 155 E. Broad Street Columbus, Ohio 4325l-0019 Attention: Jeffrey L. Hawthorne Phone: (614) 463-7298 Fax: (614) 463-7172 E-mail: jeffrey.hawthorne@national-city.com S-12 PNC BANK, NATIONAL ASSOCIATION, as a Lender /s/ WARREN F. WEBER ------------------------------- Name: Warren F. Weber Title: Vice President 201 East Fifth Street Cincinnati, Ohio 45202 Attention: Warren F. Weber Phone: (513) 651-8619 Fax: (513) 651-8951 E-mail: Warren.Weber@PNCBank.com S-13 THE BANK OF NEW YORK, as a Lender /s/ THOMAS McCROHAN ------------------------------ Name: Thomas McCrohan Title: Vice President One Wall Street, 21/st/ Floor New York, New York 10286 Attention: Thomas McCrohan Phone: (212) 635-1313 Fax: (212) 635-7978 E-mail: tmccrohan@bankofny.com S-14 PRICING SCHEDULE ================================================================================ Level I Level II Level III Level IV Level V Status Status Status Status Status - -------------------------------------------------------------------------------- Applicable 0.22% 0.285% 0.375% 0.475% 0.60% Margin (Eurodollar Rate) - -------------------------------------------------------------------------------- Applicable 0.08% 0.09% 0.125% 0.15% 0.20% Facility Fee Rate For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Borrower's -------------- Moody's Rating is A2 or better and the Borrower's S&P Rating is A or better. "Level II Status" exists at any date if, on such date, (i) the --------------- Borrower has not qualified for Level I Status and (ii) the Borrower's Moody's Rating is A3 or better or the Borrower's S&P Rating is A- or better. "Level III Status" exists at any date if, on such date, (i) the ---------------- Borrower has not qualified for Level I Status or Level II Status and (ii) the Borrower's Moody's Rating is Baa1 or better or Borrower's S&P rating is BBB+ or better. "Level IV Status" exists at any date if, on such date, (i) the --------------- Borrower has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Borrower's Moody's Rating is Baa2 or better or Borrower's S&P Rating is BBB or better. "Level V Status" exists at any date if, on such date, the Borrower has -------------- not qualified for Level I Status, Level II Status, Level III Status or Level IV Status. "Moody's Rating" means, at any time, the rating issued by Moody's and -------------- then in effect with respect to the Borrower's senior unsecured long-term debt securities without third-party credit enhancement. "S&P Rating" means, at any time, the rating issued by S&P and then in ---------- effect with respect to the Borrower's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means Level I Status, Level II Status, Level III Status, ------ Level IV or Level V Status. The Applicable Margin and Applicable Facility Fee Rate shall be determined in accordance with the foregoing table based on the Borrower's Status as determined from its then- current Moody's Rating and S&P Rating (subject to the last paragraph of this Pricing Schedule). The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Borrower has no Moody's Rating and no S&P Rating, Level V Status shall exist. In the event that a split occurs between the two ratings, then the rating corresponding to the higher of the two ratings shall apply. However, if the split is greater than one level, then the pricing shall be based upon the rating one level above the lowest of the two ratings. Upon the Administrative Agent's receipt of the officer's compliance certificate delivered pursuant to Section 6.1(iii) and reporting the then- ---------------- current Moody's Rating and S&P Rating for the Borrower, the Applicable Margin and Applicable Facility Fee Rate shall be adjusted, if necessary, such adjustment being effective five (5) Business Days following such receipt. COMMITMENT SCHEDULE - -------------------------------------------------------------------------------- LENDER COMMITMENT ------ ---------- - -------------------------------------------------------------------------------- Morgan Guaranty Trust Company of New $ 35,166,667.00 York - -------------------------------------------------------------------------------- Bank One, NA $ 35,166,666.50 - -------------------------------------------------------------------------------- Bank of America, N.A. $ 35,166,666.50 - -------------------------------------------------------------------------------- Citicorp USA, Inc. $ 23,500,000.00 - -------------------------------------------------------------------------------- Deutsche Bank AG New York Branch and/or $ 23,500,000.00 Cayman Islands Branch - -------------------------------------------------------------------------------- Mellon Bank, N.A. $ 23,500,000.00 - -------------------------------------------------------------------------------- The Sumitomo Bank, Limited $ 23,500,000.00 - -------------------------------------------------------------------------------- Societe Generale $ 16,750,000.00 - -------------------------------------------------------------------------------- Wachovia Bank, N.A. $ 16,750,000.00 - -------------------------------------------------------------------------------- The Royal Bank of Scotland Plc $ 16,750,000.00 - -------------------------------------------------------------------------------- National City Bank $ 16,750,000.00 - -------------------------------------------------------------------------------- PNC Bank, National Association $ 16,750,000.00 - -------------------------------------------------------------------------------- The Bank of New York $ 16,750,000.00 - -------------------------------------------------------------------------------- AGGREGATE COMMITMENT $300,000,000.00 - -------------------------------------------------------------------------------- EX-21 6 0006.txt SUBSIDIARIES OF MEAD CORPORATION Exhibit 21 SUBSIDIARIES OF THE MEAD CORPORATION* State or Jurisdiction Name of Incorporation - ---- --------------------- AT-A-GLANCE, INC. New York Escanaba Paper Company Michigan Forest Kraft Company Delaware MB Pulp Company Delaware MCB Woodlands and Services, Inc. Alabama Mead Coated Board, Inc. Delaware Mead Export, Inc. Bridgetown, Barbados Mead Foreign Holdings, Inc. Ohio Mead International Ireland Dublin, Ireland Mead Oxford Corporation Delaware Mead Packaging International, Inc. Ohio Mead Panelboard, Inc. Ohio ______________ * The names of additional subsidiaries have been omitted because the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Subsidiaries which are consolidated into the above-listed subsidiaries are also omitted. EX-23 7 0007.txt CONSENT OF DELOITTE & TOUCHE Exhibit 23 CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in (i) the Form S-8 Registration Statements (Nos. 33-59007 and 333-36724) pertaining to The Mead Corporation Employees Stock Purchase Plan, (ii) the Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 2-90746) pertaining to the 1984 Stock Option Plan, (iii) the Form S-8 Registration Statements (Nos. 33-37961 and 33-47580) pertaining to the Mead Salaried Savings Plan, (iv) the Form S-3 Registration Statements (Nos. 33-14759 and 33-34009) pertaining to Common Shares of Selling Shareholders, (v) the Form S-8 Registration Statement (No. 33-40118) pertaining to the 1991 Stock Option Plan, (vi) the Form S-8 Registration Statement (No. 33-03047) pertaining to the 1996 Stock Option Plan, (vii) the Form S-3 Registration Statement (No. 333-16221) pertaining to transferred stock options, (viii) the Form S-8 Registration Statement (No. 333-61285) pertaining to The Mead Corporation Executive Capital Accumulation Plan, and (ix) the Form S-8 Registration Statement (No. 33-53421) pertaining to the Mead Savings Plan for Bargaining Unit Employees, and Prospectus pertaining to Common Shares of Selling Shareholders, included in such Registration Statement, of our report dated January 25, 2001, appearing in the Annual Report on Form 10-K of The Mead Corporation for the year ended December 31, 2000. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Dayton, Ohio March 7, 2001 -----END PRIVACY-ENHANCED MESSAGE-----