-----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, EnpgUD+d9dGz8+vqIaADC78Fj/jCiTGPhF5QW1Y96ZavKK/5N80VoT6mn0EoRNZt 1hiyHeYLzW7vB/Z+uclNOA== 0000893220-98-000563.txt : 19980319 0000893220-98-000563.hdr.sgml : 19980319 ACCESSION NUMBER: 0000893220-98-000563 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLATFELTER P H CO CENTRAL INDEX KEY: 0000041719 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 230628360 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03560 FILM NUMBER: 98568419 BUSINESS ADDRESS: STREET 1: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 BUSINESS PHONE: 7172254711 MAIL ADDRESS: STREET 2: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 10-K405 1 P.H. GLATFELTER COMPANY FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1997 1-3560 P. H. GLATFELTER COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 23-0628360 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 228 South Main Street Spring Grove, Pennsylvania 17362 (Address of principal executive offices) (Zip Code) Registrant's telephone number, (717) 225-4711 including area code Securities registered pursuant to Section 12(b) of the Act: Common Stock American Stock Exchange Inc. (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by non-affiliates at February 25, 1998 was $451,502,914. Common Stock outstanding at February 25, 1998: 42,164,404 Shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in this Report on Form 10-K. 1. Proxy Statement dated March 13, 1998 (Part III) 2 PART I Item 1. Business. The Registrant, a paper manufacturing company, began operations in Spring Grove, Pennsylvania in 1864 and was incorporated as a Pennsylvania corporation in 1905. On January 30, 1979 the Registrant acquired by merger Bergstrom Paper Company with paper mills located in Wisconsin and Ohio. The Ohio mill was sold on September 10, 1984. On May 7, 1987 the Registrant acquired all of the outstanding capital stock of Ecusta Corporation ("Ecusta") with a paper mill located in Pisgah Forest, North Carolina and other operations in North Dakota, Canada and Australia. Ecusta was merged into and became a division of the Registrant on June 30, 1987. On January 2, 1998 the Registrant acquired S&H Papier-Holding GmbH ("S&H") with a paper mill located in Germany, a 50% ownership interest in a paper mill in France and other operations in the Philippines, France and the United States. The Registrant's paper mills are located in Spring Grove, Pennsylvania, Pisgah Forest, North Carolina and Neenah, Wisconsin. It manufactures printing papers and tobacco and other specialty papers. The Registrant sells its products throughout the United States and in a number of foreign countries. Net export sales in 1997, 1996 and 1995 were $61,992,000, $55,532,000 and $54,961,000, respectively. Most of the Registrant's printing paper products are directed at the uncoated free-sheet portion of the industry. The Registrant's printing paper products are used principally for the printing of case bound and quality paperback books, commercial and financial printing and envelope converting. Printing papers are manufactured in each of the Registrant's mills. In 1997, sales of paper for book publishing and commercial printing generally were made through wholesale paper merchants, whereas sales of paper to financial printers and converters generally were made directly. During 1994, one of the Registrant's wholesale paper merchants, Central National- Gottesman Inc. (which buys paper through its division, Lindenmeyr Book Publishing) acquired substantially all of the assets of Perkins & Squier, another of the Registrant's wholesale paper merchants. As a result, during 1997, 1996 and 1995, Central National-Gottesman Inc. accounted for 12%, 12% and 14% of the Registrant's net sales, respectively. The Registrant's tobacco and other specialty papers are used for cigarette manufacturing and other specialty uses such as the manufacture of playing cards, stamps, labels and surgical 3 gowns. Sales of these papers are generally made directly to the converter of the paper. Tobacco papers are manufactured in the Pisgah Forest mill. Other specialty papers are manufactured in each of the Registrant's mills. A significant portion of the Pisgah Forest mill's sales are made to a limited number of major tobacco companies. The current legal and regulatory pressures on the tobacco industry in the United States could have an adverse effect on the future tobacco paper sales and profitability of the Pisgah Forest mill. Under such conditions, the Registrant would attempt to replace any lost sales and profitability with increases in international tobacco paper sales and with sales of lightweight printing and other specialty papers. Set forth below is the amount (in thousands) and percentage of net sales contributed by each of the Registrant's two classes of similar products during each of the years ended December 31, 1997, 1996 and 1995. Years Ended December 31, 1997 1996 1995 ---- ---- ---- Net Sales % Net Sales % Net Sales % --------- - --------- - --------- - Printing Papers $354,076 62% $355,328 63% $421,868 68% Tobacco and Other Specialty Papers 212,996 38% 210,756 37% 201,841 32% ------- --- ------- --- ------- --- Total $567,072 100% $566,084 100% $623,709 100% The competitiveness of the markets in which the Registrant sells its products varies. There are numerous concerns in the United States manufacturing printing papers and no one company holds a dominant position. Capacity in the uncoated free-sheet industry, which includes uncoated printing papers, is not expected to increase significantly for the next few years. In the tobacco papers business, while there is only one significant domestic competitor, there are numerous international competitors. The Registrant is a major tobacco papers supplier to the domestic tobacco products industry. During 1997, domestic tobacco papers sales were adversely affected by a shift in cigarette production by some domestic producers to international locations. The Registrant was able to replace the lost sales volume of domestic tobacco papers sales with international tobacco paper sales. The Registrant's ability 2 4 to compete in the international tobacco papers market should be enhanced by its 1998 acquisition of S&H. Service, product performance and technological advances are important competitive factors in all of the Registrant's businesses. The Registrant believes its reputation in these areas continues to be excellent. Backlogs are generally not significant in the Registrant's business, as substantially all of the Registrant's customer orders are produced within 30 days of receipt. A backlog of unmade customer orders is monitored primarily for purposes of scheduling production to optimize paper machine performance. From time to time, the Registrant may determine that the backlog of unmade orders, along with high finished goods inventory levels, may be insufficient to warrant a full schedule of paper machine production. In these circumstances, certain paper machines may be temporarily shut-down until backlog and inventory levels warrant a resumption of operations. The principal raw material used at the Spring Grove mill is pulpwood. In 1997, the Registrant acquired approximately 78% of its pulpwood from saw mills and independent logging contractors and 22% from Company-owned timberlands. Hardwood and softwood purchases constituted 52% and 48% of the pulpwood acquired, respectively. Hardwoods are still available within a relatively short distance of the Registrant's Spring Grove mill. Softwood is obtained primarily from Maryland, Delaware and Virginia. In order to protect its sources of pulpwood, the Registrant actively promotes conservation and forest management among suppliers and woodland owners. In addition, its subsidiary, The Glatfelter Pulp Wood Company, has acquired, and is acquiring, woodlands, particularly softwood growing land, with the objective of having a significant portion of the Registrant's softwood requirement available from Company-owned woodlands. The Spring Grove pulp mill converts the pulpwood into wood pulp for use in its papermaking operations. In addition to the pulp it produces, the Spring Grove mill purchases market pulp from others. The principal raw material used by the Neenah mill is high-grade recycled wastepaper. The quality of different types of high-grade wastepaper varies significantly depending on the amount of contamination. Wastepaper prices were relatively stable throughout 1997. It is anticipated that there will be an adequate supply of wastepaper in the future. During December 1996, the Neenah mill completed a project increasing its capacity to recycle lower quality high grade wastepapers. Although this project did not increase the mill's total de-inking capacity, it has reduced costs. 3 5 The major raw materials used at the Ecusta mill are purchased wood pulp and processed flax straw, which is derived from linseed flax plants. The current supply of wood pulp and flax straw is sufficient for the present and anticipated future operations at the Ecusta mill. Ecusta receives a majority of its processed flax straw from the Registrant's Canadian operation. Wood pulp consumed which was purchased from others comprised approximately 120,000 short tons or 26% of the total 1997 fiber requirements of the Registrant. The average cost of market pulp during 1997 did not change significantly from 1996. Pulp prices have decreased in early 1998. The Registrant anticipates that further pulp price decreases may occur before possible increases in the second half of 1998. The Registrant's Spring Grove mill generates all of its steam requirements and is 100% self-sufficient in electrical energy generation. The mill also produces excess electricity which is sold to the local power company under a long-term co-generation contract. Such net energy sales were $9,189,000 in 1997. Principal fuel sources used by the Spring Grove mill are coal, spent chemicals, bark and wood waste, and oil, which were used to produce approximately 55%, 37%, 7% and 1%, respectively, of the total energy internally generated at the Spring Grove mill in 1997. The Pisgah Forest mill generates all of its steam requirements and a majority of its electrical requirements (62% in 1997) and purchases the remainder of its electric power requirements. Coal was used to produce essentially all of the mill's internally generated energy during 1997. The Neenah mill generates all of its steam requirements and a portion of its electric power requirements (13% in 1997) and purchases the remainder of its electric power requirements. Gas was used to produce 89% of the mill's internally generated energy during 1997 with fuel oil being used to generate the remainder. At December 31, 1997, the Registrant had 3,076 active full-time employees. Hourly employees at the Registrant's mills are represented by different locals of the United Paperworkers International Union, AFL-CIO (the "Union"). In October 1996 a five-year labor agreement covering approximately 1,035 employees at the Pisgah Forest mill was ratified. Under this agreement, wages increased by 3% in 1997. A five-year labor agreement covering approximately 320 employees at the Neenah mill was ratified in August 1997. Under this agreement, wages increased 3% in 1997 and will increase by 3% per year for the duration of the agreement. A five-year labor agreement covering approximately 740 employees in Spring Grove expired in January 4 6 1998. Under this agreement, wages increased by 3% in 1997. The hourly employees covered by this agreement are continuing to work under the provisions of the expired agreement. Negotiations between the Union and the Registrant continue. On January 2, 1998, the Registrant acquired S&H, the specialty paper division of the Schoeller and Hoesch Group. S&H primarily manufactures specialty papers and has the leading position in the world tea bag papers market. S&H also manufactures other specialty papers, including tobacco, metalized, stencil filter and casing papers, as well as some printing papers. S&H employs approximately 940 people. The acquisition of S&H represents a significant step in the Registrant's long-term strategic plan, which emphasizes growth in technically engineered specialty paper markets. It provides the Registrant with a strong business position in the world tea bag paper market and a presence in other long fiber markets such as stencil, filter and casing papers. It also strengthens the Registrant's tobacco paper business by providing a manufacturing presence in Europe and a significant share of the European tobacco papers market, plus the ability to manufacture and market ultraporous plug wrap, a growing segment of the world tobacco papers market. ENVIRONMENTAL MATTERS The Registrant is subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of air and water emissions and noise from its mills, as well as disposal of solid waste generated by its operations. It has been the Registrant's experience over many years that directives with respect to the abatement of pollution have periodically been made increasingly stringent. During the past twenty years or more, the Registrant has taken a number of measures and spent substantial sums of money both for the installation of facilities and operating expenses in order to abate air, water and noise pollution and to alleviate the problem of disposal of solid waste. The Registrant anticipates that environmental regulation of the Registrant's operations will continue to become more burdensome and that capital and operating expenditures will continue, and perhaps increase, in the future. In addition, the Registrant may incur obligations to remove or mitigate any adverse effects on the environment resulting from its operations, including the restoration of natural resources, and liability for personal injury and damage to property, including natural resources. For further information with respect to such compliance, reference is made to Item 3 of this report. Compliance with government environmental regulations is a matter of high priority to the Registrant. In order to meet 5 7 environmental requirements, the Registrant has undertaken certain projects, the most significant of which relates to the modernization of the Spring Grove pulpmill. The pulpmill modernization project, which began in 1990, was completed during the fourth quarter of 1994 for a total cost of $171,000,000 (exclusive of capitalized interest). During 1997, the Registrant expended approximately $8,000,000 on environmental capital projects. The Registrant estimates that $9,000,000 and $12,000,000 will be expended for environmental capital projects in 1998 and 1999, respectively. Since capital expenditures for pollution abatement generally do not increase the productivity or efficiency of the Registrant's mills, the Registrant's earnings have been and will be adversely affected to the extent that selling prices have not been and cannot be increased to offset additional incremental operating costs, including depreciation, resulting from such capital expenditures and to offset additional interest expense on the amounts expended for environmental purposes. Because other paper companies located in the United States are generally subject to the same environmental regulations, the Registrant does not believe that its competitive position in the U.S. paper industry will be materially adversely affected by its capital expenditures for, or operating costs of, pollution abatement facilities for its present mills or the limitations which environmental compliance may place on its operations. The Registrant, along with six other companies which operate or formerly operated facilities along the Fox River in Wisconsin, has been in discussions with the Wisconsin Department of Natural Resources ("DNR") and the United States Fish and Wildlife Service (the "USFWS") regarding the alleged discharge of polychlorinated biphenyls ("PCBs") and other hazardous substances to the Fox River below Lake Winnebago (the "lower Fox River") and the Bay of Green Bay. On January 30, 1997, the Registrant and the six other companies entered into an agreement with the State of Wisconsin (the "Wisconsin Agreement") which was intended to establish a framework for the final resolution of claims for natural resources damages and other relief which the State asserts against the companies. Under the Wisconsin Agreement, the companies will provide in the aggregate $10 million in work and funds to facilitate natural resources damages assessment activities, including, among other things, modeling and risk assessment, as well as field scale demonstration of sediment dredging and the enhancement of certain environmental amenities. The State has indicated that the $10 million in work and funds is expected to be spent over a four year period although the bulk of the amount may be spent in 1998. The final allocated portion of the $10 million which the Registrant will be required to pay is unknown at present. The State will act as "lead authorized official" under federal law for purposes of any assessment of damages to natural resources within Wisconsin, except those within the 6 8 administrative jurisdiction of a federal agency. The USFWS, together with the National Oceanic and Atmospheric Administration and two Indian tribes, however, is conducting its own assessment despite the State's status. In general, the parties to the Wisconsin Agreement have agreed to toll all limitations periods and to forbear from litigation during the term of the agreement. The parties intend to conclude a final resolution of all of the State's claims during the course of, or after completion of, the work called for by the agreement. By letter dated January 31, 1997, and received by the Registrant on February 3, 1997, the USFWS provided 60 days' notice of the intention of the United States Departments of the Interior and Commerce to commence an action for natural resources damages against the Registrant and the six other companies referred to above similarly relating to the discharge of hazardous substances into the lower Fox River. The Registrant does not know the amount which the federal trustees will claim as natural resources damages, but the Registrant believes that it will be substantial. Beginning as of March 1, 1997, the Registrant and six other companies entered into a series of agreements with the United States which provided that all limitation periods were tolled and the parties would forbear from litigation; the last tolling and forbearance period expired on December 2, 1997. On July 11, 1997, the Wisconsin DNR, the United States Department of the Interior, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of Wisconsin, the National Oceanic and Atmospheric Administration and the United States Environmental Protection Agency (the "EPA") entered into a Memorandum of Agreement (the "MOA") which provides for coordination and cooperation among those parties in addressing the release or threat of release of hazardous substances into the lower Fox River, Green Bay and Lake Michigan environment. The MOA sets forth a mutual goal of remediating and/or responding to hazardous substance releases and threats of releases, and restoring injured and potentially injured natural resources. The MOA further states that, based on current information, removal of the PCB-contaminated sediments in the lower Fox River is expected to be the principal, but not exclusive, action undertaken to achieve restoration and rehabilitation of injured natural resources. The MOA anticipates funding from the Registrant and the six other companies, all of which are identified as potentially responsible parties. The EPA has announced its intention to include the lower Fox River/Bay of Green Bay on the National Priorities List maintained pursuant to the Comprehensive Environmental Response, Compensation and Liability Act. The EPA rejected the potentially responsible parties' offer to perform a remedial investigation and feasibility study ("RI/FS") for the site and the Wisconsin DNR will take the lead in performing the RI/FS. The Registrant 7 9 believes that this development increases the likelihood that this matter will end up in litigation. The Registrant cannot now predict the cost of the remedy which will be selected for the site, in part because the Registrant cannot predict the remedy for the site and the Registrant cannot predict its share of that cost. The Registrant, with advice from its environmental consultants, continues to believe that an aggressive effort, as currently proposed by the governmental authorities, to remove PCB-contaminated sediments, many of which are buried under cleaner material or are otherwise unlikely to move, would be environmentally detrimental and therefore inappropriate. Furthermore, the Registrant's share of the cost of such removal, depending on the amount of sediments to be removed, could exceed its available resources. The Registrant believes it will be able to persuade the parties to the MOA or a court against removal of a substantial amount of PCB-contaminated sediments. There can be no assurance, however, that the Registrant will be successful in arguing that removal of a substantial amount of PCB-contaminated sediments is inappropriate, that it would prevail in any resulting litigation or that its share of the cost of any such removal would not have a material adverse effect on the Registrant's consolidated financial condition, liquidity and results of operation. The amount and timing of future expenditures for environmental compliance, clean-up, remediation and personal injury, natural resource damage and property damage liability, including but not limited to those related to the lower Fox River and the Bay of Green Bay, cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the extent and timing of any technological advances for pollution control, the remedial actions which may be required and the number and financial resources of any other responsible parties. The Registrant continues to evaluate its exposure and the level of its reserves including, but not limited to, its share of the Wisconsin Agreement, its negotiations with the State concerning the lower Fox River and Bay of Green Bay and the unknown amount which could be claimed by the federal trustees as natural resource damages related to the lower Fox River. The Registrant believes that it is insured against certain losses related to the lower Fox River, depending on the nature and amount thereof. Coverage, which is currently being investigated under reservation of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. The Registrant does not expect that the insurers' investigation as to coverage will be completed prior to the time these factors become known. The Registrant's current assessment, after consultation with legal counsel, is that future expenditures for these matters are not likely to have a material adverse impact on the Registrant's 8 10 consolidated financial condition or liquidity, but could have a material adverse effect on the Registrant's consolidated results from operations in a given year; however, there can be no assurances that the Registrant's reserves will be adequate or that a material adverse effect on the Registrant's consolidated financial condition or liquidity will not occur at some future time. Item 2. Properties. The Registrant's executive offices are located in Spring Grove, Pennsylvania, 11 miles southwest of York. The Registrant's paper mills are located in Spring Grove, Pisgah Forest, North Carolina, Neenah, Wisconsin and Gernsbach, Germany. The Registrant also has a 50% ownership interest in a paper mill in Odet, France. The Spring Grove facilities include seven uncoated paper machines with a daily capacity ranging from 12 to 304 tons and an aggregate annual capacity of about 300,000 tons of finished paper. The machines have been rebuilt and modernized from time to time. During 1997, the Spring Grove mill completed its Gravure Coater ("G-Coater") capital project. The Registrant views the G-Coater as an important strategic project which will allow it to expand its more profitable specialty paper product group. The G-Coater, along with Spring Grove's off-line combi-blade coater, gives the Registrant a potential annual production capacity for coated paper of approximately 53,000 tons. Since uncoated paper is used in producing coated paper, this does not represent an increase in the Spring Grove mill capacity. The Spring Grove facilities also include a pulpmill, which has a production capacity of approximately 650 tons of bleached pulp per day. The Registrant expects its Spring Grove mill to complete the construction of a precipitated calcium carbonate ("PCC") plant during the first quarter of 1998. This plant will allow the Spring Grove mill to produce PCC, which the Registrant believes will be of a higher quality than that which is currently used. The Spring Grove mill will be able to replace its purchased PCC and other high-cost raw materials with its own-made PCC, resulting in significant cost savings to the Registrant. The Pisgah Forest facilities include twelve paper machines, stock preparation equipment, a modified kraft bleached flax pulpmill with thirteen rotary digesters, a precipitated calcium carbonate plant and a small recycled pulping operation. The annual light weight paper capacity is approximately 99,000 tons. Nine paper machines are essentially identical while the newer, larger three machines have design variations specific for the products produced. Converting equipment includes winders, calendars, slitters, perforators and printing presses. Due to 9 11 current high finished tobacco paper goods inventory levels, the Registrant has temporarily shut down one of Pisgah Forest's smaller machines for an indefinite period of time. The Neenah facilities, consisting of a paper manufacturing mill, converting plant and offices, are located at two sites. The Neenah mill includes three paper machines, with an aggregate annual capacity of approximately 158,000 tons and a wastepaper de-inking and bleaching plant with an annual capacity of approximately 97,000 tons. The converting plant contains a paper processing area and warehouse space. As noted in Item 1, on January 2, 1998, the Registrant acquired S&H, which owns and operates a paper mill in Gernsbach, Germany and has a 50% ownership interest of a paper mill in Odet, France. S&H also has a pulpmill in the Philippines which supplies abaca pulp to its paper mills. In addition, S&H owns and operates the facilities in Wisches, France and Summerville, South Carolina. The Gernsbach facility includes five uncoated paper machines with a daily light weight paper capacity ranging from 12 to 32 tons and an aggregate annual light weight capacity of about 37,000 tons. In addition, the Gernsbach facility has the capacity to annually produce 8,200 tons of metallized papers using a lacquering machine and two metallizers. The base paper used to manufacture the metallized paper is purchased. The Odet facility includes two paper machines with a total daily light weight capacity of approximately 10 tons and an aggregate annual light weight capacity of approximately 3,900 tons of finished paper. The Philippine pulpmill has an aggregate annual capacity of approximately 7,200 tons of abaca pulp. Of this amount, approximately 7,000 tons are supplied to the Gernsbach and Odet paper mills with the remainder being sold to outside parties. The Gernsbach and Odet paper mills obtain approximately 97% of their abaca pulp from the Philippine pulpmill. The Glatfelter Pulp Wood Company, a subsidiary of the Registrant, owns and manages approximately 111,000 acres of land, most of which is timberland. The Registrant owns substantially all of the properties used in its papermaking operations, except for certain land leased from the City of Neenah under leases expiring in 2050, on which wastewater treatment, storage and other facilities and a parking lot are located. All of the Registrant's properties, other than those which are leased, are free from any material liens or encumbrances. In conjunction with a financing transaction between the Registrant and one of its subsidiaries completed in February 1997, however, the Registrant secured the indebtedness to the subsidiary incurred in the transaction with mortgages on real estate assets having a value of approximately $300 million. The Registrant considers that all of its buildings 10 12 are in good structural condition and well-maintained and its properties are suitable and adequate for present operations. Item 3. Pending Legal Proceedings. For a discussion of potential legal proceedings involving the lower Fox River, see "Environmental Matters" in Part I of this report. The Registrant does not believe that the other environmental matters discussed below will have a material adverse effect on its business or consolidated financial position or results of operations. On May 16, 1989, the Pennsylvania Environmental Hearing Board approved and entered an Amended Consent Adjudication between the Registrant and the Pennsylvania Department of Environmental Resources, now known as the Department of Environmental Protection ("DEP") in connection with the Registrant's permit to discharge effluent into the West Branch of the Codorus Creek. The Amended Consent Adjudication establishes limitations on in-stream color, and requires the Registrant to conduct certain studies and to submit certain reports regarding internal and external measures to control the discharge of color and certain other adverse byproducts of chlorine bleaching to the West Branch of the Codorus Creek. During 1990 and again in 1991, the Pennsylvania DEP proposed to reissue the Registrant's wastewater discharge permit on terms with which the Registrant does not agree. The Pennsylvania DEP issued a new proposed permit on March 4, 1997, which addressed to the Registrant's satisfaction several issues raised in its earlier comments, although the Registrant submitted comments pertaining to certain remaining concerns. The EPA formally objected to this proposed permit, and the Pennsylvania DEP agreed to issue a revised proposed permit which would attempt to address the EPA's objections and the other comments the Pennsylvania DEP had received. The Pennsylvania DEP sent a revised draft permit to the Registrant on December 24, 1997. On February 26, 1998, the Pennsylvania DEP withdrew the December 1997 draft in favor of a new draft in order better to satisfy the EPA. The Registrant plans to submit comments to the Pennsylvania DEP on the revised draft, and expects to litigate any terms which remain unacceptable in the final permit. If any other party elects to appeal reissuance of the permit, the Registrant would expect to defend the appeal. The Registrant continues to lawfully operate under its earlier permit, the expiration of which is administratively extended, while this renewal proceeding remains pending. The Wisconsin DNR has reissued the Registrant's wastewater discharge permit for the Neenah mill on terms unacceptable to the Registrant. The Registrant has requested an adjudicatory hearing on the terms of that permit. In the interim, the Wisconsin DNR sent the Registrant a draft of a renewed permit on what appear to be acceptable terms. Clean 11 13 Water Action Council of Northeast Wisconsin, a local environmental group, has submitted adverse comments and required a hearing to oppose issuance of the permit. The Registrant cannot determine the impact that the new Pennsylvania or Wisconsin wastewater discharge permits will have on the Registrant if they contain objectionable terms because it is too soon to determine what material terms will be in the permits' final form. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Executive Officers of the Registrant. Executive Officers Office Age - ------------------ ------ --- T. C. Norris Chairman, President and Chief 59 Executive Officer (a) G. H. Glatfelter II Senior Vice President (b) 46 R. P. Newcomer Senior Vice President and Chief 49 Financial Officer (c) E. J. Gillis Vice President - Marketing, 50 Glatfelter Paper Division (d) R. S. Lawrence Vice President - General Manager, 58 Ecusta Paper Division (e) R. L. Miller Vice President - Administration 51 (f) J. F. Myers Vice President - Manufacturing 59 Technology (g) C. M. Smith Controller and Assistant Secretary 39 (h) R. S. Wood Secretary and Treasurer (i) 40 Officers are elected to serve at the pleasure of the Board of Directors. Except in the case of officers elected to fill a new position or a vacancy occurring at some other date, officers are elected at the annual meeting of the Board held immediately after the annual meeting of shareholders. 12 14 - -------------------- (a) Mr. Norris became Chairman of the Board, President and Chief Executive Officer in April 1988. (b) Mr. Glatfelter became Senior Vice President in September 1995. From May 1993 to September 1995, he was Vice President - General Manager, Glatfelter Paper Division. Prior to May 1993, he was General Manager, Glatfelter Paper Division. (c) Mr. Newcomer became Senior Vice President and Chief Financial Officer in May 1997. From September 1995 to April 1997 he was Senior Vice President, Treasurer and Chief Financial Officer. From April 1995 to September 1995, he was Vice President, Treasurer and Chief Financial Officer and from May 1993 to April 1995, he was Vice President and Treasurer. Prior to May 1993, he was Assistant Controller. (d) Mr. Gillis became Vice President - Marketing, Glatfelter Paper Division in May 1993. Prior to May 1993, he was Vice President - Sales, Glatfelter Paper Division. (e) Mr. Lawrence became Vice President - General Manager, Ecusta Paper Division in May 1993. Prior to May 1993, he was Director of Planning, Acquisitions and Governmental Affairs. (f) Mr. Miller became Vice President - Administration in September 1995. From August 1994 to September 1995, he was Director of Planning, Acquisitions and Governmental Affairs. He was Director, Marketing Services from May 1993 to August 1994. Prior to May 1993, he was Director, Customer Services. (g) Dr. Myers became Vice President - Manufacturing Technology in April 1989. (h) Mr. Smith became Controller and Assistant Secretary in December 1997. From May 1993 to December 1997, he was Controller. Prior to May 1993, he was a Financial Analyst. (i) Mr. Wood became Secretary and Treasurer in May 1997. Prior to May 1997, he was Secretary and Assistant Treasurer. 13 15 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. Common Stock Prices and Dividends Paid Information The table below shows the high and low prices of the Registrant's common stock on the American Stock Exchange (Ticket Symbol "GLT") and the dividends paid per share for each quarter during the past two years. 1997 1996 Quarter High Low Dividends High Low Dividends 1st $18 3/8 16 1/4 $.175 $18 15 5/8 $.175 2nd 20 15 3/8 .175 18 3/8 16 1/4 .175 3rd 23 3/8 17 3/8 .175 18 5/8 16 3/4 .175 4th 22 11/16 17 .175 19 5/8 16 3/4 .175 As of December 31, 1997 the Registrant had 3,891 shareholders of record. A number of the shareholders of record are nominees. Item 6. Selected Financial Data. Nine-Year Summary of Selected Consolidated Financial Data Year Ended December 31 (in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Net sales $567,072 $566,084 $623,709 $478,302 $473,509 $540,057 $ 567,764 $625,429 $598,777 Income (loss) 45,284 60,399 65,828 (118,251)(a) 20,409(c) 56,544 76,049 88,332 92,864 before accounting changes Basic earnings 1.07 1.41 1.50 (2.67)(a) .46(c) 1.28 1.68 1.90 1.94 (loss) per share before accounting changes Diluted earnings 1.07 1.41 1.49 (2.67)(a) .46(c) 1.27 1.67 1.88 1.93 (loss) per share before accounting changes Total assets 937,583 715,310 673,107 650,810(b) 842,087(d) 648,464 630,115 598,842 550,015 Debt 348,665 150,000 150,000 174,100 150,000 10,100 __ __ 1,100 Cash dividends $. 70 $ .70 $ .70 $ .70 $ .70 $ .70 $ .60 $ .575 $ .50 declared per common share - ------------------------------------------------------------------------------------------------------------------
(a) After impact of an after tax charge for a writedown of impaired assets (unusual items) of $127,981,000. (b) After impact of writedown of impaired assets (unusual items) of $208,949,000. (c) After impact of an after tax charge for rightsizing and restructuring (unusual items) of $8,430,000 and the effect of an increased federal corporate income tax rate of $3,587,000. (d) Includes an increase of $61,062,000 resulting from the adoption of Statement of Financial Accounting Standards No. 109. 14 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS P. H. Glatfelter Company and Subsidiaries OVERVIEW The Company classifies its sales into two product groups: 1) printing papers; and 2) tobacco and other specialty papers. The Spring Grove, Pennsylvania and Neenah, Wisconsin mills produce printing and specialty papers. The Pisgah Forest mill (hereinafter referred to as "Ecusta") produces printing papers and tobacco and other specialty papers. Most of the Company's printing paper products are directed at the uncoated free-sheet portion of the industry. Demand for the Company's printing papers was strong during 1997. High demand and full order backlogs allowed the Company to schedule its production equipment more efficiently, which in turn resulted in improved production and record-setting output. Despite the increase in demand, pricing for the Company's printing papers remained under adverse market pressure for much of the year and on average, pricing was lower in 1997 than in 1996. The Company was able to implement modest price increases for certain of its products during the second and third quarter of 1997 and maintained that pricing through the fourth quarter. The near-term prospects for costs of the Company's principal raw material, market pulp, as well as pricing of the Company's products, remain unclear. Overall, demand for the Company's tobacco and other specialty papers was fairly stable in 1997. Domestic tobacco paper sales were adversely affected by a shift in cigarette production by some domestic producers to international locations. As a result, the Company's sales of tobacco papers to the international market grew in 1997 while domestic paper sales declined. Domestic cigarette consumption declined slightly while international cigarette consumption continued to increase. A significant portion of Ecusta's sales is made to a limited number of global tobacco companies. The current legal and regulatory pressures on the tobacco industry in the U.S. could have an adverse effect on the future of tobacco paper sales and the profitability of Ecusta. Under such conditions, the Company would attempt to replace any lost sales and profitability with further increases in international tobacco paper sales and with sales of lightweight printing and other specialty papers. The U.S. pulp and paper industry entered 1998 during a period of market uncertainty. The financial problems in Southeast Asia, coupled with relatively weak world pulp markets, are providing a climate in which it is most difficult to predict the future direction of the international and U.S. paper markets. The Company's orientation toward specialty products, especially with its January 2, 1998 acquisition of the specialty paper division of the Schoeller and Hoesch Group, should help mitigate the negative impact if there were to be a downturn in the international and U.S. pulp and paper markets. Specialty papers' demand and prices have historically not fluctuated with international and U.S. pulp markets to the same extent as commodity papers. 1997 COMPARED TO 1996 Net sales in 1997 increased $988,000, or 0.2%, compared to 1996. Each of the Company's operating facilities achieved increased sales volume which was offset by lower average net selling prices. Printing paper sales remained relatively flat in 1997 compared to 1996. An increase in sales volume of 7.0% was offset by a decrease in average net selling price of 6.9%. The increase in sales volume was principally due to an increase in demand for the Company's products. Despite the increase in demand for the Company's printing papers, pricing for such papers remained under adverse market pressure. Tobacco and other specialty paper sales also remained relatively flat in 1997 as compared to the prior year, increasing by 1.1%. Tobacco paper sales volume increased by 1.3%, as an increase in international tobacco paper sales volume of 19.6% more than offset a decrease in domestic tobacco paper sales volume of 11.1%. The average net selling prices for tobacco papers decreased slightly as increases in the average net selling price for domestic tobacco papers were more than offset by a decrease in the average net selling prices of international tobacco papers. International tobacco paper prices were negatively impacted by the strengthening of the U.S. dollar versus most foreign currencies. International tobacco paper prices also decreased in part due to the acceptance of lower-priced, less-profitable business in order to fill machine capacity. Volume increased due to productivity increases, but was offset to a large extent by downtime taken at Ecusta for market-related reasons, as well as for maintenance and equipment improvements. Average net selling prices for other specialty papers remained virtually unchanged during the year as compared to 1996 and volume increased marginally in 1997 over 1996. Profit from operations before interest income and expense and taxes was $84,492,000 in 1997 compared to $105,639,000 in 1996. This decrease was the result of a decrease in average net selling prices, a weakening in the product sales mix to less profitable products and an increase in the Company's cost of products sold. The cost of products sold increased due to the increased sales volume; however, the cost of sales per unit did not change significantly. Raw material prices did not significantly affect the Company's relative performance in 1997 as compared to 1996 as per ton costs for the Company's principal raw materials, market pulp and wastepaper, did not change significantly. The mix of products sold weakened in 1997 versus 1996, particularly at the Ecusta mill. The mill sold a higher amount of lower-priced, lower-margin printing 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS P. H. Glatfelter Company and Subsidiaries papers and international tobacco papers. Gross margin per ton decreased by 22.2% in 1997, a direct result of the change in product mix and lower average net selling prices for certain of the Company's products noted above. Selling, general and administrative expenses increased by $1,319,000, primarily as a result of increased spending on certain legal matters as well as various other professional fees. The Company also increased its spending on information systems to address certain needs, including the impact of "Year 2000" on its existing computer systems and software. Selling, general and administrative expenses were 6.5% and 6.3% of net sales for 1997 and 1996, respectively. Interest on debt increased by $9,392,000 and net income from investments and other increased by $6,211,000. This was primarily a result of various financing transactions entered into by the Company during 1997 as detailed below in "Financial Condition." RESULTS BY MILL The Spring Grove mill's profit from operations decreased by $5,053,000 in 1997 compared to 1996. Net sales increased by $6,847,000, primarily due to increased sales volume more than offsetting lower average net selling prices. Cost of sales increased by 5.3% principally due to higher production volume. During 1997, the Spring Grove mill achieved high productivity rates and established several production records. The mill also began operation of its gravure coater ("G-Coater") in December of 1997. Although the G-Coater did not significantly impact the mill's results during 1997, it will allow the Spring Grove mill to produce a wider range of value-added products for its customers in 1998 and beyond and is expected to improve the mill's profit performance. Profits from operations at the Neenah mill were $7,909,000 lower in 1997 than in 1996. Average net selling prices decreased by 6.9% in 1997 versus 1996, more than offsetting an increase in sales volume. Neenah's comparative earnings were not significantly affected by changes in raw material prices, as they remained relatively constant from year to year. Since the mill's fixed costs were spread among a greater number of tons, cost of products sold per ton decreased; however, total cost of products sold increased due to higher production volume. The Ecusta mill, whose profit from operations decreased by $10,464,000, also experienced strong productivity gains during 1997. Despite some paper machine downtime related to both market conditions and paper machine improvements, sales volume increased by 4.1%. Ecusta's average net selling price decreased by 4.7%. This average selling price decrease was caused by a shift in product mix to lower-priced, lower-margin printing papers as well as decreases in the average selling prices of international tobacco papers discussed above. Ecusta's cost of products sold per ton increased by 2.5%. This increase was primarily due to an increase in market pulp costs. Ecusta achieved significant volume discounts on purchased market pulp during 1996 which were not repeated in 1997. 1996 COMPARED TO 1995 Net sales in 1996 decreased $57,625,000, or 9.2%, compared to 1995. This decrease was principally caused by a decrease in average selling prices at the Spring Grove and Neenah mills. The sales volume at all the Company's mills was also down slightly in 1996 compared to 1995. Printing paper sales decreased by $66,540,000, or 15.8%, in 1996 compared to 1995. The annual average net printing paper selling price decreased 12.2% in 1996 from 1995 due to the decrease in demand for printing papers. Demand for these papers was slow early in the year, improved in the second and third quarters, and then slowed again in the fourth quarter. Net tobacco and other specialty paper sales increased $8,915,000, or 4.4%, in 1996 compared to 1995. The Company had a slight decrease in tobacco paper sales in 1996 compared to 1995. Tobacco paper sales volume was down 3.4% in 1996 versus 1995; however, demand was sufficient for the Company to improve its sales mix for these papers. This resulted in a slight increase in average tobacco paper selling price in 1996 compared to 1995. Other specialty paper sales increased by 12.5% in 1996 compared to 1995 as sales volume increased by 7.3%. The average selling price of other specialty papers increased by 4.9%, in part due to improved product mix. Profit from operations before interest income and expense and taxes was $105,639,000 in 1996 compared to $116,501,000 in 1995. This decrease was the result of decreased sales volume and selling prices. Despite these decreases, gross margin increased from 22.7% in 1995 to 23.2% in 1996. The increase in gross margin was primarily a result of lower costs for market pulp, pulp substitutes and wastepaper. These cost reductions particularly benefited the Ecusta and Neenah mills which rely more on purchased fiber than the Spring Grove mill. The Company's 1996 gross margins also increased due to favorable changes in product mix. On average, tobacco and other specialty paper sales, which increased in 1996, have a higher margin than printing paper sales. These raw material price decreases and changes in product mix more than offset the unfavorable impact of lower production during 1996 compared to 1995. The Company's lower production resulted in higher fixed costs per ton as fixed costs were absorbed over fewer tons produced. 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS P. H. Glatfelter Company and Subsidiaries Selling, general and administrative expenses were $886,000 lower in 1996 than in 1995. This decrease was primarily the result of lower profit sharing and incentive expenses, which were partially offset by increased miscellaneous general and administrative expenses. Selling, general and administrative expenses were 6.3% and 5.8% of net sales for 1996 and 1995, respectively. Interest on debt in 1996 decreased $957,000 from 1995. This decrease was primarily the result of reduced short-term bank borrowings. The Company had average net short-term borrowings of $20,000 and $9,447,000 during 1996 and 1995, respectively at an average interest rate of 6.1% and 6.2%, respectively. The Company had no short-term borrowings at the end of 1996. Interest on debt also decreased as a result of a lower variable interest rate on the Company's interest rate swap agreement which has a total notional principal amount of $50,000,000. RESULTS BY MILL The Spring Grove mill's profit from operations decreased by $27,073,000 in 1996 compared to 1995. Net sales decreased $32,738,000 in 1996 compared to 1995 due primarily to a decrease in average selling price. Sales volume was less than 1% lower in 1996 than 1995. Cost of sales decreased slightly, primarily due to lower raw material costs, offsetting increases in other costs including depreciation. Selling, general and administrative expenses also decreased, primarily due to lower profit sharing and incentive expenses. Despite a decrease in net sales of $24,205,000 in 1996 compared to 1995, profit from operations at the Neenah mill showed an increase of $2,404,000. The net sales decrease was primarily the result of lower average selling price. Sales volume was approximately 2% lower in 1996 than 1995. Neenah's cost of sales decreased by $27,147,000, primarily due to significantly lower wastepaper, pulp and pulp substitute costs. Wastepaper costs were extremely high in 1995 and the 1996 costs represented a return to historical levels. Profit from operations at Ecusta increased $13,807,000 in 1996 compared to 1995. Net sales were flat in 1996 compared to 1995. A slight increase in average selling price due to improved product mix offset a slight reduction in sales volume. Ecusta's cost of sales decreased significantly during the year, primarily as a result of decreased pulp costs. During 1996, the Ecusta mill purchased a significant amount of pulp at low cost, much of which remained in the Company's inventory at the end of 1996. FINANCIAL CONDITION LIQUIDITY During 1997, the Company's cash and cash equivalents increased by $35,117,000. This increase in cash and cash equivalents was principally due to cash generated by operations of $85,203,000 and borrowings of $48,665,000 to facilitate, in part, the acquisition of S&H Papier - Holding GmbH on January 2, 1998, offset by additions to property, plant and equipment of $60,503,000, dividend payments of $29,601,000 and purchases of common stock for the treasury of $11,304,000, the purpose of which was to enhance shareholder value. In February 1997, the Company formed GWS Valuch, Inc. ("GWS Valuch"), a corporation organized under the laws of the State of Delaware, with the intention that GWS Valuch would qualify as a real estate investment trust. The Company invested approximately $122,500,000 to acquire approximately 99.9% of the voting Class A common stock of GWS Valuch. GWS Valuch also issued shares of step-down preferred stock ("Step-Down Preferred Stock"), having a liquidation preference of $150,000,000 and an initial dividend of approximately 13.9%, to other investors. This dividend included an amortization component of the Step-Down Preferred Stock, resulting in an effective yield of approximately 8.1%. GWS Valuch has been consolidated in the Company's financial statements since the date of formation. In connection with this transaction, the Company deposited $154,757,000, which included amounts to pay semiannual interest, into a trust to defease certain covenants under the Company's indenture dated as of January 15, 1993, under which the Company's $150,000,000 principal amount of 5 7/8% Notes due March 1, 1998, are outstanding. As of December 31, 1997, approximately $153,000,000 remains in the trust. This amount, along with interest to be earned, will be held to maturity and used to pay the total amount of principal and interest due on the 5 7/8% Notes on March 1, 1998. Subsequent to the above transactions, the Internal Revenue Service announced that it intended to issue regulations with retroactive effect on transactions using self-amortizing investments in conduit financing entities. As a result of this announcement, the likelihood that the Company could lose certain tax benefits arising from GWS Valuch's Step-Down Preferred Stock financing increased substantially. Accordingly, on July 2, 1997, using the proceeds of a short-term unsecured loan in the principal amount of $144,675,000, the Company purchased approximately 145,000 shares of Class A common stock of GWS Valuch. The funds received were used by GWS Valuch to redeem all 150,000 outstanding shares of the Step-Down Preferred Stock. On July 22, 1997, the Company issued $150,000,000 principal amount of 6 7/8% Notes due July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on January 15 and July 15 of each year. The 6 7/8% Notes are redeemable, in whole or in part, 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS P. H. Glatfelter Company and Subsidiaries at the option of the Company at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness of the Company. The net proceeds from the sale of the 6 7/8% Notes were used to repay the $144,675,000 principal amount of the short-term unsecured loan described above and approximately $501,000 of related interest. The remaining balance of the net proceeds was applied to general corporate purposes. On December 22, 1997, the Company entered into a $200 million multi-currency revolving credit facility ("Revolving Credit Facility") with a syndicate of major lending institutions. The Revolving Credit Facility enables the Company to borrow up to the equivalent of $200 million in certain currencies in the form of revolving credit loans with a final maturity date of December 22, 2002 and with interest periods principally determined, at the Company's option, on a daily or one to six month basis. Interest on the revolving credit loans is at variable rates, based, at the Company's option, on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable margins. Margins are based on the higher of the Company's debt ratings as published by Standard & Poor's and Moody's. On December 30, 1997, the Company borrowed, under the Revolving Credit Facility, DM 87,500,000 (approximately $48,665,000) in anticipation of its January 2, 1998 acquisition of S & H Papier - Holding GmbH ("S&H"), the specialty paper division of the Schoeller and Hoesch Group. These proceeds were used to capitalize two German subsidiaries in order to facilitate the S&H acquisition. These funds were borrowed at a three-day rate of 5.075% and invested in overnight securities until January 2, 1998. On January 2, 1998, the Company borrowed an additional DM 182,500,000 (approximately $101,500,000) under the Revolving Credit Facility. These funds, along with the DM 87,500,000 borrowed on December 30, 1997, were used to complete the acquisition of S&H. In order to offset some of the variable rate characteristics of the total borrowings under the Revolving Credit Facility, the Company, during 1998, entered into two interest rate swap agreements, each having total notional principal amounts of DM 52,600,000 (approximately $29,300,000). Under the agreements, the Company pays fixed rates of 4.18% and 4.45% for periods of two and three years, respectively, and receives a floating rate of the six-month DM London Interbank Offered Rate ("LIBOR"). The six-month DM LIBOR applicable for the first half of 1998 is approximately 3.8%. The Company expects to meet all its near-term cash needs from a combination of internally generated funds, cash, cash equivalents, marketable securities and the Revolving Credit Agreement or other bank lines of credit. CAPITAL RESOURCES During 1997, the Company expended $60,503,000 for capital projects. Most of these expenditures were for maintenance-related capital projects; however, these expenditures include spending related to the gravure coater ("G-Coater") and the precipitated calcium carbonate ("PCC") plant. The Company views the G-Coater as an important strategic project which will allow it to expand its more profitable specialty paper product group. The Company expects that this new piece of equipment will have a positive impact on its profitability. The total cost of this project is expected to be $15,000,000. Of this amount, $11,500,000 was expended during 1997 and approximately $3,000,000 is expected to be expended in 1998. The PCC plant, which is scheduled to begin operations late in the first quarter of 1998, will allow the Spring Grove mill to produce PCC, which it believes will be of a higher quality than that which is currently used. The Spring Grove mill will be able to replace its purchased PCC and other high-cost raw materials with its own-made PCC, resulting in significant cost savings to the Company. The total cost of this project is expected to be $9,500,000. Of this amount, $6,000,000 was expended during 1997 and approximately $2,700,000 is expected to be expended in 1998. ACQUISITION OF SCHOELLER & HOESCH On January 2, 1998, the Company acquired S & H Papier - Holding GmbH ("S&H"), the specialty paper division of the Schoeller and Hoesch Group. S&H, a German company, owns and operates a paper mill in Gernsbach, Germany and has a 50% ownership interest of a paper mill in Odet, France. S&H also has a pulpmill in the Philippines which supplies abaca pulp to its paper mills. In addition, S&H owns and operates other facilities in Wisches, France and Summerville, South Carolina. S&H primarily manufactures specialty papers and has the leading market position in world tea bag paper. S&H also manufactures other specialty papers, including tobacco, metalized, stencil, filter and casing papers, as well as some printing papers. The acquisition of S&H represents a significant step in the Company's long-term strategic plan, which emphasizes growth in technically engineered specialty paper markets. It provides the Company with a strong business position in the world tea bag paper market and a presence in other long fiber markets such as stencil, filter and casing papers. It also strengthens the Company's tobacco papers business by providing a manufacturing presence in Europe and a significant share of the European tobacco papers market, plus the ability to manufacture and market ultraporous plug wrap, a growing segment of the world tobacco papers market. ENVIRONMENTAL MATTERS The Company is subject to loss contingencies resulting from regulation by various federal, state, local and for- 18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS P. H. Glatfelter Company and Subsidiaries eign governmental authorities with respect to the environmental impact of air and water emissions and noise from its mills, as well as its disposal of solid waste generated by its operations. In order to comply with environmental laws and regulations, the Company has incurred substantial capital and operating expenditures over the past several years. During 1997, 1996 and 1995, the Company incurred approximately $14,800,000, $15,200,000 and $14,600,000, respectively, in operating costs related to complying with environmental laws and regulations. The Company anticipates that environmental regulation of the Company's operations will continue to become more burdensome and that capital and operating expenditures will continue, and perhaps increase, in the future. In addition, the Company may incur obligations to remove or mitigate any adverse effects on the environment resulting from its operations, including the restoration of natural resources, and liability for personal injury and damage to property, including natural resources. In particular, the Company continues to negotiate with the State of Wisconsin regarding natural resources restoration and damages related to the discharge of polychlorinated biphenyls ("PCBs") and other hazardous substances to the lower Fox River, on which the Company's Neenah mill is located. The cost of such restoration and damages is presently unknown but could be substantial and perhaps exceed the Company's available resources as discussed in Note 7 to the Company's consolidated financial statements. Management's current assessment, after consultation with legal counsel, is that such expenditures are not likely to have a material adverse effect on the Company's consolidated financial condition or liquidity, but could have a material adverse effect on the Company's consolidated results from operations in a given year; however, there can be no assurance that the Company's reserves will be adequate or that a material adverse effect on the Company's consolidated financial condition or liquidity will not occur at some future time. YEAR 2000 During 1997, the Company began reviewing its embedded technology, computer systems and software to determine which are not "Year 2000" compliant. The Company has established plans and processes for evaluating and managing the risks associated with this problem in order to ensure that all necessary modifications and/or replacements of existing embedded technology, computer systems and software are completed on a timely basis. The Company has also established task forces to, among other things, gather information concerning the Year 2000 compliance status of suppliers and customers. Nearly all of the Company's business systems use internally developed software. As a result, some of the Company's internal information systems personnel have been dedicated toward modifying these systems to be Year 2000 compliant by mid-year 1999. To date, the Company is on schedule to meet that deadline. The Company is assessing other areas of the business where Year 2000 noncompliance could negatively impact the Company, in particular, embedded technology in process control systems. Solutions to the embedded technology issue may involve interaction with the original system vendors, possible replacement of systems or use of outside professional services to modify the embedded technologies. It is not expected that such modifications and/or replacements will have a material adverse effect in 1998 or 1999 on the Company's consolidated financial statements. The Company's use of its own information systems personnel to make the business systems Year 2000 compliant has and will continue to delay some other strategic information systems development and implementation which would have otherwise benefitted the Company in various ways and to varying extents. The Company does not believe that it will be at a competitive disadvantage as a result of these delays. In the event that any of the Company's significant suppliers or customers do not successfully achieve Year 2000 compliance on a timely basis, the Company's business or operations could be adversely affected. FORWARD-LOOKING STATEMENTS Any statements set forth in this annual report or otherwise made in writing or orally by the Company with regard to its expectations as to financial results and other aspects of its business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company makes such statements based on assumptions which it believes to be reasonable, there can be no assurance that actual results will not differ materially from the Company's expectations. Accordingly, the Company hereby identifies the following important factors, among others, which could cause its results to differ from any results which might be projected, forecasted or estimated by the Company in any such forward looking statements: (i) variations in demand for its products; (ii) changes in the cost or availability of raw materials used by the Company, in particular market pulp, pulp substitutes and wastepaper; (iii) changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases; (iv) the gain or loss of significant customers; (v) cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damage related thereto, such as the cost of natural resource restoration or damages related to the presence of PCBs in the lower Fox River on which the Company's Neenah mill is located; (vi) significant changes in cigarette consumption, both domestically and internationally; (vii) enactment of adverse state or federal legislation or changes in government policy or regulation; (viii) adverse results in litigation; and (ix) disruptions in production and/or increased costs due to labor disputes. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not Applicable. 19 21 Item 8. Financial Statements and Supplementary Data. CONSOLIDATED STATEMENTS OF INCOME P. H. Glatfelter Company and Subsidiaries For the Years Ended December 31, 1997, 1996 and 1995
(in thousands except per share amounts) 1997 1996 1995 -------- -------- -------- NET SALES $567,072 $566,084 $623,709 OTHER INCOME: Interest on investments and other -- net 7,785 1,574 1,376 Energy sales -- net (Note 1(k)) 9,189 8,559 9,455 Gain from property dispositions, etc. -- net 3,166 977 1,852 -------- -------- -------- Total 587,212 577,194 636,392 -------- -------- -------- COSTS AND EXPENSES: Cost of products sold 458,126 434,491 482,139 Selling, general and administrative expenses 36,809 35,490 36,376 Interest on debt (Note 10) 18,700 9,308 10,265 -------- -------- -------- Total costs and expenses 513,635 479,289 528,780 -------- -------- -------- INCOME BEFORE INCOME TAXES 73,577 97,905 107,612 -------- -------- -------- INCOME TAX PROVISION (Note 6): Current 25,453 20,604 18,123 Deferred 2,840 16,902 23,661 -------- -------- -------- Total 28,293 37,506 41,784 -------- -------- -------- NET INCOME $ 45,284 $ 60,399 $ 65,828 ======== ======== ======== BASIC EARNINGS PER SHARE (Notes 1(b) and 3) $ 1.07 $ 1.41 $ 1.50 DILUTED EARNINGS PER SHARE (Notes 1(b) and 3) $ 1.07 $ 1.41 $ 1.49
The accompanying notes are an integral part of these consolidated financial statements. 20 22 CONSOLIDATED BALANCE SHEETS P. H. Glatfelter Company and Subsidiaries December 31, 1997 and 1996
(in thousands except share information) 1997 1996 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents (Notes 1(c) and 2) $ 66,919 $ 31,802 Marketable securities (Note 1(f)) 155,174 811 Accounts receivable (less allowance for doubtful accounts: 1997, $1,973; 1996, $1,913) 50,187 49,703 Inventories (Note 1(d)) 101,232 101,231 Prepaid expenses 2,967 4,522 --------- --------- Total current assets 376,479 188,069 PLANT, EQUIPMENT AND TIMBERLANDS -- NET (Notes 1(e) and 7) 475,189 455,190 OTHER ASSETS (Notes 1(f) and 4) 85,915 72,051 --------- --------- Total assets $ 937,583 $ 715,310 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 10) $ 150,000 $ -- Short-term debt (Note 2) 48,665 -- Accounts payable 36,218 35,249 Dividends payable 7,390 7,444 Federal, state and local taxes 5,106 4,305 Accrued compensation, other expenses and deferred income taxes 41,506 39,185 --------- --------- Total current liabilities 288,885 86,183 LONG-TERM DEBT (Note 10) 150,000 150,000 DEFERRED INCOME TAXES (Notes 1(g) and 6) 101,995 99,139 OTHER LONG-TERM LIABILITIES (Notes 1(l), 3 and 5) 56,287 48,958 --------- --------- Total liabilities 597,167 384,280 --------- --------- COMMITMENTS AND CONTINGENCIES (Notes 7 and 8) SHAREHOLDERS' EQUITY (Note 3): Common stock, $.01 par value; authorized -- 120,000,000 shares; issued (including shares in treasury: 1997, 12,212,372; 1996, 11,822,152) -- 54,361,980 shares 544 544 Capital in excess of par value 42,623 41,601 Retained earnings 478,073 462,337 --------- --------- Total 521,240 504,482 Less cost of common stock in treasury (180,824) (173,452) --------- --------- Total shareholders' equity 340,416 331,030 --------- --------- Total liabilities and shareholders' equity $ 937,583 $ 715,310 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 21 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY P. H. Glatfelter Company and Subsidiaries For the Years Ended December 31, 1997, 1996 and 1995
Common Capital in Total Shares Common Excess of Par Retained Treasury Shareholders' (in thousands except shares outstanding) Outstanding Stock Value Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1995 44,199,829 $544 $39,838 $396,635 $(141,283) $295,734 Net income 65,828 65,828 Cash dividends declared (30,701) (30,701) Delivery of treasury shares: Employee stock purchase and 401(k) plans 174,929 955 2,402 3,357 Employee stock options exercised -- net 16,754 128 138 266 Purchase of stock for treasury (956,200) (19,078) (19,078) ------------ ------ ------- ------- --------- ---------- Balance, December 31, 1995 43,435,312 544 40,921 431,762 (157,821) 315,406 Net income 60,399 60,399 Cash dividends declared (29,824) (29,824) Delivery of treasury shares: Restricted stock awards 72,193 223 1,054 1,277 Employee stock purchase and 401(k) plans 151,265 447 2,207 2,654 Employee stock options exercised -- net 12,131 10 176 186 Purchase of stock for treasury (1,131,073) (19,068) (19,068) ------------ ------ ------- ------- --------- ---------- Balance, December 31, 1996 42,539,828 544 41,601 462,337 (173,452) 331,030 Net income 45,284 45,284 Cash dividends declared (29,548) (29,548) Delivery of treasury shares: Restricted stock awards 13,350 217 196 413 Employee stock purchase and 401(k) plans 150,940 545 2,219 2,764 Employee stock options exercised -- net 103,690 260 1,517 1,777 Purchase of stock for treasury (658,200) (11,304) (11,304) ------------ ------ ------- -------- --------- ---------- BALANCE, DECEMBER 31, 1997 42,149,608 $544 $42,623 $478,073 $(180,824) $340,416 ============ ====== ======= ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 22 24 CONSOLIDATED STATEMENTS OF CASH FLOWS P. H. Glatfelter Company and Subsidiaries For the Years Ended December 31, 1997, 1996 and 1995
(in thousands) 1997 1996 1995 ----------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 45,284 $ 60,399 $ 65,828 Items included in net income not using (providing) cash: Depreciation and depletion 35,796 33,570 32,599 Expense related to employee stock purchase and 401(k) plans 1,270 1,224 975 Loss (gain) on disposition of fixed assets (2,121) 169 (476) Changes in assets and liabilities: Accounts receivable (484) 2,349 (3,140) Inventories (1) (14,153) (5,247) Other assets and prepaid expenses (12,309) (14,885) (13,252) Accounts payable, accrued compensation, other expenses, deferred income taxes and other long-term liabilities 14,111 3,555 17,096 Federal, state and local taxes 801 4,070 (2,254) Deferred income taxes -- noncurrent 2,856 18,457 20,369 ----------------- -------------- --------------- Net cash provided by operating activities 85,203 94,755 112,498 ----------------- -------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale (purchase) or maturity of investments -- net (154,363) 1,153 6,114 Proceeds from disposal of fixed assets 3,749 102 987 Additions to plant, equipment and timberlands (57,664) (37,477) (25,777) Increase (decrease) in liabilities related to fixed asset acquisitions (2,839) 1,833 (6,716) ----------------- -------------- --------------- Net cash used in investing activities (211,117) (34,389) (25,392) ----------------- -------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing (repayment) of short-term debt -- net 48,665 -- (24,100) Borrowing of long-term debt 150,000 -- -- Dividends paid (29,601) (29,977) (30,839) Purchases of common stock (11,304) (19,068) (19,078) Employees' contribution -- common stock issued under employee benefit plans 3,271 1,617 2,642 ----------------- -------------- --------------- Net cash provided by (used in) financing activities 161,031 (47,428) (71,375) ----------------- -------------- --------------- Net increase in cash and cash equivalents 35,117 12,938 15,731 CASH AND CASH EQUIVALENTS: At beginning of year 31,802 18,864 3,133 ----------------- -------------- --------------- At end of year $ 66,919 $ 31,802 $ 18,864 ================= ============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 14,293 $ 9,684 $ 10,366 Income taxes 24,650 20,480 21,571
The accompanying notes are an integral part of these consolidated financial statements. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries For the Years Ended December 31, 1997, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Nature of Operations and Principles of Consolidation P. H. Glatfelter Company and subsidiaries are principally manufacturers of printing papers and tobacco and other specialty papers. Headquartered in Spring Grove, Pennsylvania, the Company's paper mills are located in Spring Grove, Pisgah Forest, North Carolina and Neenah, Wisconsin. The Company's products are marketed in most parts of the United States and in many foreign countries, either through wholesale paper merchants, brokers and agents or direct to customers. The accounts of the Company, and its wholly-owned, significant subsidiaries, are included in the consolidated financial statements. All inter-company transactions have been eliminated. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to those classifications used in 1997. On January 2, 1998, the Company acquired S & H Papier - Holding GmbH ("S&H"), the specialty paper division of the Schoeller and Hoesch Group. The results of S&H, a German company, are not included in the consolidated financial statements for the years ended December 31, 1997, 1996 and 1995. See Note 2 for further discussion of the acquisition, including disclosure of pro forma information. (b) Basic and Diluted Earnings per Share Effective December 31, 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 specifies the computation, presentation and disclosure requirements of earnings per share and supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires presentation of basic and diluted earnings per share on the face of the Company's Consolidated Statements of Income and a reconciliation of the computation of basic earnings per share to diluted earnings per share in the notes to the consolidated financial statements. Basic earnings per share exclude the dilutive impact of common stock equivalents and are computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share include the effect of potential dilution from the issuance of common stock, pursuant to common stock equivalents, using the treasury stock method. SFAS No. 128 is required to be adopted for financial statements ending after December 15, 1997. Early adoption was not permitted. Concurrent with the adoption, all prior years' earnings per share information has been restated, resulting in no material differences.
1997 1996 1995 -------------------------- -------------------------- -------------------------- Net Income Shares Net Income Shares Net Income Shares (Numerator) (Denominator) (Numerator) (Denominator) (Numerator) (Denominator) ----------- ---------- ----------- ---------- ----------- ---------- Basic earnings per share factors $45,284,000 42,220,200 $60,399,000 42,717,834 $65,828,000 43,953,766 Effect of potentially dilutive employee incentive plans: Restricted stock awards -- 31,059 -- 80,191 -- 161,652 Performance stock awards -- 95,879 -- 69,287 -- 26,520 Employee stock options -- 95,102 -- 42,783 -- 116,736 ----------- ---------- ----------- ---------- ----------- ---------- Diluted earnings per share factors $45,284,000 42,442,240 $60,399,000 42,910,095 $65,828,000 44,258,674 =========== ========== =========== ========== =========== ========== Basic earnings per share $1.07 $1.41 $1.50 Diluted earnings per share $1.07 $1.41 $1.49
24 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries (c) Cash and Cash Equivalents The Company considers all highly liquid financial instruments with effective maturities at date of purchase of three months or less to be cash equivalents. (d) Inventories Inventories are stated at the lower of cost or market. Raw materials and in-process and finished inventories are valued using the last-in, first out (LIFO) method, and the supplies inventory is valued principally using the average cost method. Inventories at December 31 are summarized as follows: 1997 1996 --------- --------- (in thousands) Raw materials $ 35,980 $ 36,355 In-process and finished 31,724 33,073 Supplies 33,528 31,803 --------- --------- Total $101,232 $101,231 ========= ========= If the Company had valued all inventories using the average cost method, inventories would have been $2,839,000 and $2,571,000 higher than reported at December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, the recorded value of the above inventories exceeded inventories for income tax purposes by approximately $20,700,000 and $20,400,000, respectively. (e) Plant, Equipment and Timberlands Depreciation is computed for financial reporting on the straight-line method over the estimated useful lives of the respective assets and for income taxes principally on accelerated methods over lives established by statute or Treasury Department procedures. Provision is made for deferred income taxes applicable to this difference. See Notes 1(g) and 6. The range of estimated service lives used to calculate financial reporting depreciation for principal items of property, plant and equipment are as follows: Buildings 10 - 45 Years Machinery and equipment 7 - 35 Years Other 4 - 40 Years Depletion of the cost of timber is computed on a unit rate of usage by growing area based on estimated quantities of recoverable material. Maintenance and repairs are charged to income and major renewals and betterments are capitalized. At the time property is retired or sold, the cost and related reserve are eliminated and any resultant gain or loss is included in income. Property, plant and equipment accounts are summarized as follows: 1997 1996 --------- --------- (in thousands) Land and buildings $ 116,186 $ 112,973 Machinery and equipment 916,063 870,116 Other 29,553 28,286 Less accumulated depreciation (617,576) (585,954) --------- --------- Total 444,226 425,421 Construction in progress 13,149 12,342 Timberlands, less depletion 17,814 17,427 --------- --------- Plant, equipment and timberlands -- net $ 475,189 $ 455,190 ========= ========= (f) Investments in Debt and Equity Securities Long-term investments, which are due over a 17-year period and are classified as held-to-maturity, are included in "Other assets" on the Consolidated Balance Sheets at December 31, 1997 and 1996. The investments consist of approximately $12,100,000 and $11,900,000 in U. S. Treasury and government obligations in 1997 and 1996, respectively. The estimated fair value of the investments in such securities approximated the amortized cost, and therefore, there were no significant unrealized gains or losses as of December 31, 1997 and 1996. Investments in municipal debt and equity securities of $2,089,000, classified as held-to-maturity, and $811,000, classified as available-for-sale, are reported as "Marketable securities" on the Consolidated Balance Sheets at December 31, 1997 and 1996, respectively. The fair market value for such securities approximates cost. See Note 10 for a description of other investments reported as "Marketable securities." (g) Income Tax Accounting The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. (h) Fair Market Value of Financial Instruments The amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, marketable securities, accounts receivable, other assets, short-term debt and long-term debt approximate fair value. (i) Valuation of Long-Lived Assets The Company evaluates long-lived assets for impairment on an annual basis in conjunction with the preparation of the annual budget or when a specific event indicates that the carrying value of an asset may not be 25 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries recoverable. Recoverability is assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. (j) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates and assumptions. Management believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable based upon currently available facts and known circumstances but recognizes that actual results may differ from those estimates and assumptions. See Note 7. (k) Revenue Recognition The Company recognizes revenue on product sales upon shipment and on energy sales when electricity is delivered to its customer. Certain costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance, are netted against the energy sales for presentation on the Consolidated Statements of Income. The Company's current contract to sell excess electricity it produces expires in the year 2010 and requires that the customer purchase all of the Company's excess electricity up to a certain level. The price for the electricity is determined pursuant to a formula and varies depending upon the amount sold in any given year. (l) Environmental Liabilities Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and that the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Accrued environmental liabilities are classified as "Other long-term liabilities" on the Consolidated Balance Sheets. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs extend the life of the property, increase its capacity and/or mitigate or prevent contamination from future operations. (m) Stock-Based Compensation The Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not require, companies to record compensation cost for stock-based compensation plans at fair value. The Company has elected to continue to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, as permitted by SFAS No. 123. Compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation expense for restricted stock awards is equal to the quoted market price of the Company's stock at the date of grant and is recorded ratably over the period in which forfeiture provisions lapse. Compensation expense for performance stock awards is recognized over the performance period based on changes in quoted market prices of the Company's stock and the likelihood of achieving the performance goals. See Note 3. (n) Derivative Financial Instruments The Company uses interest rate swap agreements to manage its exposure to fluctuations in interest rates. Amounts to be paid or received under interest rate swap agreements are recognized as interest expense or interest income during the period in which they accrue. The Company does not hold any derivative financial instruments for trading purposes. The credit risks associated with the Company's interest rate swap agreements are controlled through the evaluation and monitoring of creditworthiness of the counterparties. Although the Company may be exposed to losses in the event of nonperformance by counterparties, the Company does not expect such losses, if any, to be significant. (o) New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement, which establishes standards for reporting and disclosure of comprehensive income, is effective for interim and annual periods beginning after December 15, 1997. Reclassification of financial information for earlier periods presented for comparative purposes is required under SFAS No. 130. As this statement only requires additional disclosures in the Company's consolidated financial statements, its adoption will not have any impact on the Company's consolidated financial position or results of operations. The Company will adopt SFAS No. 130 in 1998. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). This statement, which establishes standards for the reporting of information about operating segments on an annual basis and requires the reporting of selected condensed information about operating segments in interim financial statements, is effective for fiscal years beginning after 26 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries December 15, 1997. Reclassification of segment information for earlier periods presented for comparative purposes is required under SFAS No. 131. The Company is evaluating whether the adoption of this statement will result in any changes to its presentation of financial data for interim and annual periods in 1998. 2. ACQUISITION OF THE SPECIALTY PAPER DIVISION OF THE SCHOELLER AND HOESCH GROUP Effective January 2, 1998, the Company acquired all of the outstanding common stock of S&H Papier - Holding GmbH ("S&H"), the specialty paper division of the Schoeller and Hoesch Group, from RQPO Beteiligungs GmbH & Co. Papier KG ("RQPO") and EVOBESTRA Vermogensverwaltungsgesellschaft mbH, for approximately DM 270 million ($150 million), subject to certain adjustments, in cash. The principal partners in RQPO are Deutsche Beteiligungs AG and S&H management. The Company will account for the S&H acquisition under the purchase method of accounting and S&H will be consolidated with the Company beginning in January 1998. S&H was founded in 1881 in Gernsbach, Germany, where its corporate offices and major paper production facilities are located. S&H has a 50% ownership interest in a paper mill in Odet, France. S&H also has an abaca pulpmill in the Philippines and other facilities in France and the United States. S&H produces a range of paper products, including tea bag and other long fiber products such as stencil, filter and casing paper, as well as tobacco papers and printing papers. The purchase price of S&H, including certain transaction costs, will be allocated to the assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The excess of the purchase price over the fair value of net assets acquired will be recorded principally as goodwill, and amortized on a straight-line basis over 20 years. To finance the acquisition, on December 22, 1997, the Company entered into a $200 million multi-currency revolving credit facility ("Revolving Credit Facility") with a syndicate of major lending institutions. The Revolving Credit Facility enables the Company to borrow up to the equivalent of $200 million in certain currencies in the form of revolving credit loans with a final maturity date of December 22, 2002 and with interest periods determined, at the Company's option, on a daily or one to six month basis. Interest on the revolving credit loans is at variable rates based, at the Company's option, on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable margins. Margins are based on the higher of the Company's debt ratings as published by Standard & Poor's and Moody's. On December 30, 1997, the Company borrowed DM 87,500,000 (approximately $48,665,000) under the Revolving Credit Facility at a three-day rate of 5.075%. These proceeds were used to capitalize two German subsidiaries in order to facilitate the S&H acquisition and are included in "Cash and cash equivalents" on the Consolidated Balance Sheet. The borrowings are classified as "Short-term debt" on the Consolidated Balance Sheet at December 31, 1997. On January 2, 1998, the Company borrowed the remaining DM 182,500,000 (approximately $101,500,000) necessary to complete the acquisition. To offset some of the variable rate characteristics of the total borrowing under the Revolving Credit Facility, in January 1998, the Company entered into two interest rate swap agreements, each having total notional principal amounts of DM 52,600,000 (approximately $29,300,000). Under the agreements, the Company pays fixed rates of 4.18% and 4.45% for periods of two and three years, respectively, and receives a floating rate of the six-month DM London Interbank Offered Rate ("LIBOR"). The six-month DM LIBOR applicable for the first half of 1998 is approximately 3.8%. The following summarized unaudited combined pro forma information for the years ended December 31, 1997 and 1996 has been presented as if the S&H acquisition had occurred on January 1, 1996. This unaudited pro forma information is based on the historical results of operations adjusted for acquisition costs and, in the opinion of management, is not necessarily indicative of what the results would have been had the Company operated S&H since January 1, 1996 (dollars in thousands, except per share data). Unaudited Pro Forma Information Year Ended December 31 1997 1996 ------------------------ Net sales $738,547) $754,405 Net income 51,483 61,371 Basic earnings per share 1.22 1.44 Diluted earnings per share 1.21 1.43 3. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND EMPLOYEE STOCK PURCHASE PLANS On April 23, 1997, the common shareholders amended the 1992 Key Employee Long-Term Incentive Plan ("1992 Plan") to authorize, among other things, the issuance of up to 5,000,000 shares of the Company's common stock to eligible participants. The 1992 Plan provides for incentive stock options, non-qualified stock options, restricted stock awards, performance shares and performance units. The Company's 1988 Restricted Common Stock Award Plan ("1988 Plan") was amended in 1992 to provide that no further awards of common shares may be made thereunder. 27 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries Restricted Stock Awards During 1988 and 1991, 755,000 and 76,000 shares of common stock, respectively, were awarded under the 1988 Plan. Awarded shares are subject to forfeiture, in whole or in part, if the recipient ceases to be an employee within a specified period of time. The Company may reduce the number of shares otherwise required to be delivered by an amount which would have a fair market value equal to the taxes withheld by the Company on delivery. The Company may also, at its sole discretion, elect to pay to the recipients in cash an amount equal to the fair market value of the shares that would otherwise be required to be delivered. On May 1, 1996, in lieu of delivering 60,303 shares, the Company elected to pay in cash an amount equal to the fair value of such shares. Also on May 1, 1996, 72,193 shares were delivered from treasury (after reduction of 49,504 shares for taxes). On May 1, 1997, 13,350 shares were delivered from treasury (after reduction of 6,650 shares for taxes). The Company expensed $166,000, $283,000 and $615,000 related to the restricted stock awards in 1997, 1996 and 1995, respectively. Shares awarded under the 1988 Plan cease to be subject to forfeiture as follows: 20,000 in each of 1998 and 1999. Performance Shares On May 1, 1995, January 1, 1996, January 1, 1997 and January 1, 1998, the Company awarded, under the 1992 Plan, 59,620, 44,860, 40,060 and 45,740 shares, respectively, subject to certain conditions, to certain key employees to be issued in whole or in part depending on the Company's degree of success in achieving certain financial performance goals during defined four-year performance periods. The May 1, 1995, January 1, 1996, January 1, 1997 and January 1, 1998 awards are for the performance periods ending December 31, 1998, 1999, 2000 and 2001, respectively, and if earned will be distributed the following year. The Company expensed $722,000, $504,000 and $186,000 related to these awards in 1997, 1996 and 1995, respectively. The fair market value of the shares granted during 1998, 1997, 1996 and 1995 was $18.38, $17.88, $17.16 and $17.81, respectively. Non-Qualified Stock Options The following summarizes the activity with respect to non-qualified options under the 1992 Plan to purchase shares of common stock for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 -------------------------------------------------------------------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Exer. Price Shares Exer. Price Shares Exer. Price -------------------------------------------------------------------------------------- Outstanding at beginning of year 1,403,640 $17.42 1,235,910 $17.48 1,115,000 $17.42 Options granted 352,750 18.25 202,030 16.91 229,660 17.81 Options exercised (105,225) 17.20 (12,300) 15.44 (39,025) 17.42 Options canceled (30,000) 17.41 (22,000) 17.48 (69,725) 17.61 ------------ --------- --------- Outstanding at end of year 1,621,165 17.61 1,403,640 17.42 1,235,910 17.48 Exercisable at end of year 1,001,813 17.49 816,046 17.39 556,362 17.17
The exercise price for the options outstanding as of December 31, 1997 is between $15.44 and $18.78. Such options will expire on average in 6.9 years. An additional 294,360 options became exercisable January 1, 1998, at a weighted average exercise price of $17.75. The weighted average fair value of options granted during 1997, 1996 and 1995 was $4.92, $4.24 and $4.46, respectively, on the date of grant. The fair value of each option on the date of grant is estimated using the Black-Scholes option pricing model with expected lives of ten years and the following weighted average assumptions: 1997 1996 1995 ------------------------------------------ Risk-free interest rate 6.43% 6.12% 6.12% Expected dividend yield 3.86% 3.99% 3.99% Expected volatility 24.7% 24.0% 24.0% Options typically become exercisable for 25% of the shares of common stock issuable on exercise thereof, beginning January 1 of the year following the date of grant, assuming six months has passed, with options for an additional 25% of such shares becoming exercisable on January 1 of each of the next three years. Options not exercisable in this format are exercisable in full either six months or one year from the date of grant. All options expire on the earlier of termination or, in some instances, a defined period subsequent to termination of employment, or ten years from the date of grant. 28 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries The exercise price represents the quoted market price of the Company's common stock on the date of grant, or the average quoted market prices of the Company's common stock on the first day before and after the date of grant for which quoted market price information was available if such information was not available on the date of grant. Pro Forma Information The Company accounts for these plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized for the non-qualified stock options and for which compensation cost has been recognized for stock awards, as described above. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share for the years ended December 31, 1997, 1996 and 1995 would have been reduced to the following pro forma amounts: 1997 1996 1995 ------- ------- ------- (in thousands except per share information) Net income: As reported $45,284 $60,399 $65,828 Pro forma 45,195 60,289 65,793 Earnings per share: Reported -- basic $1.07 $1.41 $1.50 Reported -- diluted 1.07 1.41 1.49 Pro forma -- basic 1.07 1.41 1.50 Pro forma -- diluted 1.06 1.41 1.49 Employee Stock Purchase Plans Under the employee stock purchase plans, eligible hourly employees may acquire shares of the Company's common stock at its fair market value. Employees may contribute up to 10% of their compensation, as defined. For employee contributions up to 6% of their compensation, the Company shall contribute, as specified in the plans, 15% of the employee's contribution. 1998 Activity On January 1, 1998, the Company granted to certain key employees non-qualified options to purchase an aggregate of 211,010 shares of common stock. Options to purchase 100,000 shares are exercisable on January 1, 1999. Subject to certain conditions, the remaining stock options are exercisable as to 25% of such shares beginning on January 1, 1999 and an additional 25% of such shares beginning on January 1 of each of the next three years. These stock options, which expire on December 31, 2007, were granted at an exercise price of $18.375 per share, representing the average of the quoted market prices of the Company's common stock on Wednesday, December 31, 1997 and Friday, January 2, 1998. 4. RETIREMENT PLANS The Company has trusteed noncontributory defined benefit pension plans covering substantially all of its employees. The benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. Plan provisions and funding met the requirements of the Employee Retirement Income Security Act of 1974. Pension income of $10,063,000, $9,246,000 and $6,623,000 was recognized in 1997, 1996 and 1995, respectively. 29 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries The following table sets forth the status of the Company's defined benefit pension plans at December 31, 1997 and 1996:
1997 1996 ------------------------- ------------------------ Overfunded Underfunded Overfunded Underfunded Plans Plans Plans Plans --------- --------- --------- --------- (in thousands) Actuarial present value of accumulated benefit obligation: Vested employees $(150,686) $ (11,937) $(112,164) $ (38,165) Nonvested employees (8,930) (530) (5,583) (3,614) --------- --------- --------- --------- Total $(159,616) $ (12,467) $(117,747) $ (41,779) ========= ========= ========= ========= Projected benefit obligation for services rendered to date $(178,645) $ (12,944) $(134,657) $ (42,202) Plan assets at fair value (primarily stocks, bonds and cash equivalents) 413,807 -- 311,567 23,854 --------- --------- --------- --------- Plan assets in excess of (less than) projected benefit obligation 235,162 (12,944) 176,910 (18,348) Unrecognized net (gain) loss from past experience different from that assumed (156,571) 2,001 (101,050) (420) Unrecognized prior service cost 16,507 -- 6,910 9,142 Unrecognized net (asset) liability at January 1 (12,789) 1,863 (14,901) 2,251 --------- --------- --------- --------- Prepaid (accrued) pension cost $ 82,309 $ (9,080) $ 67,869 $ (7,375) ========= ========= ========= =========
The net prepaid pension cost is included in "Other assets" on the Consolidated Balance Sheets at December 31, 1997 and 1996. Net pension income includes the following components:
1997 1996 1995 -------- -------- -------- (in thousands) Service cost -- benefits earned during period $ (4,605) $ (4,076) $ (3,671) Interest cost on projected benefit obligation (13,008) (11,708) (10,951) Actual return on plan assets 84,622 51,210 68,583 Net amortization and deferral (56,946) (26,180) (47,338) -------- -------- -------- Net pension income $ 10,063 $ 9,246 $ 6,623 ======== ======== ========
The assumptions used in computing the information above were as follows:
1997 1996 1995 ------------ ----------- ------------ Discount rate -- pension expense 7.5% 7.5% 8.0% Expected long-term rate of return on plan assets 9.0% 9.0% 8.5% Discount rate -- projected benefit obligation 7.5% 7.5% 7.5% Future compensation growth rate 3.5% 3.5% 3.5%
During 1995, the Company established a 401(k) plan for all salaried employees. Salaried employees may contribute up to 15% of their salary to this plan, subject to certain restrictions. The Company will contribute up to 50% of the employee's contribution, but not more than 3% of the employee's compensation, as defined, in the form of shares of the Company's common stock into the Company stock fund maintained under the 401(k) plan. During 1997, 1996 and 1995, the Company contributed shares of its common stock valued at $1,093,000, $1,048,000 and $235,000, respectively, to the 401(k) plan. 30 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries 5. OTHER POSTRETIREMENT BENEFITS The Company provides certain health care benefits to eligible retired employees. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to retirees over age 65 to help defray the costs of Medicare. The plan is not funded; claims are paid as incurred. The following table sets forth the plan's status as of December 31:
1997 1996 -------- -------- (in thousands) Accumulated postretirement benefit obligation: Retirees $ 8,640 $ 9,024 Fully eligible active plan participants 5,883 5,414 Other active plan participants 12,927 13,392 -------- -------- Accumulated postretirement benefit obligation 27,450 27,830 Unrecognized net loss (3,673) (4,594) Unrecognized prior service cost 1,573 1,356 -------- -------- Accrued postretirement benefit cost $ 25,350 $ 24,592 ======== ========
Accrued postretirement benefit costs are principally included in "Other long-term liabilities" on the Consolidated Balance Sheets at December 31, 1997 and 1996. Net periodic postretirement benefit cost includes the following components:
1997 1996 1995 ------ ------ ------ (in thousands) Service cost $ 732 $ 732 $ 730 Interest on accumulated benefit obligation 2,036 2,003 2,171 Net amortization and deferral 54 75 112 ------ ------ ------ Net periodic postretirement benefit cost $2,822 $2,810 $3,013 ====== ====== ======
The Company assumes increases in the per capita cost of covered health benefits of 7.0% for 1998 decreasing to 6.0% in 1999 and 5.5% in 2000 and beyond. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% in 1997, 1996 and 1995. If the health care cost trend rate increased by 1.0%, the accumulated postretirement benefit obligation as of December 31, 1997 would have been approximately $2,131,000 greater and the net periodic postretirement benefit cost would have been approximately $268,000 greater. 6. INCOME TAXES Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. The effects of income taxes are measured based on effective tax law and rates. The following are domestic and foreign components of pre-tax income:
1997 1996 1995 -------- -------- -------- (in thousands) United States $ 69,331 $ 94,457 $104,989 Foreign 4,246 3,448 2,623 -------- -------- -------- Total pre-tax income $ 73,577 $ 97,905 $107,612 ======== ======== ========
The income tax provision consists of the following:
1997 1996 1995 -------- -------- -------- (in thousands) Current: Federal $ 23,590 $ 17,816 $ 15,851 State 626 1,801 1,711 Foreign 1,237 987 561 -------- -------- -------- Total current tax provision 25,453 20,604 18,123 -------- -------- -------- Deferred: Federal 2,358 14,570 20,234 State 444 2,297 3,823 Foreign 38 35 (396) -------- -------- -------- Total deferred tax provision 2,840 16,902 23,661 -------- -------- -------- Total income tax provision $ 28,293 $ 37,506 $ 41,784 ======== ======== ========
31 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries The net deferred tax amounts reported on the Company's Consolidated Balance Sheets as of December 31 are as follows:
1997 1996 ------------------------------------------------------------------ --------------- Federal State Foreign Total Total --------------- -------------- --------------- --------------- --------------- (in thousands) Current liability $ 2,643 $ 497 $ -- $ 3,140 $ 3,152 Long-term liability $ 85,387 $15,982 $626 $101,995 $ 99,139
The following are components of the net deferred tax balances as of December 31:
1997 1996 ----------------------------------------------------- -------- Federal State Foreign Total Total -------- -------- -------- -------- -------- (in thousands) Deferred tax assets: Current $ 4,377 $ 825 $ -- $ 5,202 $ 5,035 Long-term 20,902 3,936 -- 24,838 23,827 -------- -------- -------- -------- -------- $ 25,279 $ 4,761 $ -- $ 30,040 $ 28,862 ======== ======== ======== ======== ======== Deferred tax liabilities: Current $ 7,020 $ 1,322 $ -- $ 8,342 $ 8,187 Long-term 106,289 19,918 626 126,833 122,966 -------- -------- -------- -------- -------- $113,309 $ 21,240 $ 626 $135,175 $131,153 ======== ======== ======== ======== ========
The tax effects of temporary differences as of December 31 are as follows:
1997 1996 -------- -------- Deferred tax assets: (in thousands) Reserves $ 10,662 $ 8,693 Compensation 8,020 7,335 Postretirement benefits 9,816 9,558 Federal alternative minimum tax credit -- 1,168 Other 1,542 2,108 -------- -------- $ 30,040 $ 28,862 ======== ======== Deferred tax liabilities: Property $ 97,643 $ 97,406 Pension 27,866 23,433 Inventories 8,115 8,031 Other 1,551 2,283 -------- -------- $135,175 $131,153 ======== ========
A reconciliation between the provision for income taxes, computed by applying the statutory federal income tax rate of 35%, to income before income taxes, and the actual provision for income taxes follows:
1997 1996 1995 -------- -------- -------- (in thousands) Federal income tax provision at statutory rate $ 25,752 $ 34,267 $ 37,664 State income taxes, net of federal income tax benefit 696 2,663 4,201 Tax effect of exempt earnings of foreign sales corporation (552) (431) (422) Other 2,397 1,007 341 -------- -------- -------- Actual provision for income taxes $ 28,293 $ 37,506 $ 41,784 ======== ======== ========
32 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries 7. COMMITMENTS AND CONTINGENCIES The Company is subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of air and water emissions and noise from its mills, as well as its disposal of solid waste generated by its operations. In order to comply with environmental laws and regulations, the Company has incurred substantial capital and operating expenditures over the past several years. The Company anticipates that environmental regulation of the Company's operations will continue to become more burdensome and that capital and operating expenditures will continue and perhaps increase, in the future. In addition, the Company may incur obligations to remove or mitigate any adverse effects on the environment resulting from its operations, including the restoration of natural resources, and liability for personal injury and damage to property, including natural resources. Because other paper companies located in the United States are generally subject to the same environmental regulations, the Company does not believe that its competitive position in the United States paper industry will be materially adversely affected by its capital expenditures for, or operating costs of, pollution abatement facilities for its present mills or the limitations which environmental compliance may place on its operations. The Pennsylvania Department of Environmental Protection ("DEP") has proposed to reissue the Company's wastewater discharge permit for the Spring Grove mill. Various federal agencies have demanded that the permit contain additional terms with which the Company does not agree. The Pennsylvania DEP has indicated that it will issue a new permit in response to the agencies' demands. In addition, the Wisconsin Department of Natural Resources ("DNR") has reissued in draft the Company's wastewater discharge permit for the Neenah mill on terms which are acceptable to the Company but as to which certain local residents have objected. The Company cannot determine the impact that the new permits will have on the Company if they contain objectionable terms because it is too soon to determine what material terms will be in the permits' final forms. The Company, along with six other companies which operate or formerly operated facilities along the Fox River in Wisconsin, has been in discussions with the Wisconsin DNR and the United States Fish and Wildlife Service ("USFWS") regarding the alleged discharge of polychlorinated biphenyls ("PCBs") and other hazardous substances to the Fox River below Lake Winnebago ("the lower Fox River") and the Bay of Green Bay. On January 30, 1997, the Company and the six other companies entered into an agreement with the State of Wisconsin (the "Wisconsin Agreement") which was intended to establish a framework for the final resolution of claims for natural resources damages and other relief which the State asserts against the companies. Under the agreement, the companies will provide in the aggregate $10 million in work and funds to facilitate natural resources damages assessment activities, including, among other things, modeling and risk assessment, as well as field scale demonstration of sediment dredging and the enhancement of certain environmental amenities. The State has indicated that the $10 million in work and funds is expected to be spent over a four-year period, although the bulk of the amount may be spent in 1998. The final allocated portion of the $10 million which the Company is required to pay is unknown at present. The State has agreed to act as "lead authorized official" under federal law for purposes of any assessment of damages to natural resources within Wisconsin, except those within the administrative jurisdiction of a federal agency. The USFWS, together with the National Oceanic and Atmospheric Administration and two Indian tribes, however, is conducting its own assessment despite the State's status. In general, the parties to the Wisconsin Agreement have agreed to toll all limitations periods and to forbear from litigation during the term of the agreement. The parties intend to conclude a final resolution of all of the State's claims during the course of, or after completion of, the work called for by the agreement. By letter dated January 31, 1997, and received by the Company on February 3, 1997, the USFWS provided 60 days' notice of the intention of the United States Departments of the Interior and Commerce to commence an action for natural resources damages against the Company and the six other companies referred to above similarly relating to the discharge of hazardous substances into the lower Fox River. The Company does not know the amount which the federal trustees will claim as natural resources damages, but the Company believes that it will be substantial. Beginning as of March 1, 1997, the Company and the six other companies entered into a series of agreements with the United States which provided that all limitation periods were tolled and the parties would forbear from litigation; the last tolling and forbearance period expired on December 2, 1997. On July 11, 1997, the Wisconsin DNR, the United States Department of the Interior, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of Wisconsin, the National Oceanic and Atmospheric Administration and the United States Environmental Protection Agency ("EPA") entered into a Memorandum of Agreement ("MOA") which provides for coordination and cooperation among those parties in addressing the release or threat of release of hazardous substances into the lower Fox River, Green Bay and Lake Michigan environment. The MOA sets forth a mutual goal of remediating and/or responding to hazardous substance releases and threats of releases, and restoring injured and potentially injured natural resources. The 33 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries MOA further states that, based on current information, removal of the PCB-contaminated sediments in the lower Fox River is expected to be the principal, but not exclusive, action undertaken to achieve restoration and rehabilitation of injured natural resources. The MOA anticipates funding from the Company and the six other companies, all of which are identified as potentially responsible parties. The EPA has announced its intention to include the lower Fox River and the Bay of Green Bay sites on the National Priorities List maintained pursuant to the Comprehensive Environmental Response, Compensation and Liability Act. The EPA rejected the potentially responsible parties' offer to perform a remedial investigation and feasibility study ("RI/FS") for the site and either the EPA or the Wisconsin DNR will perform the RI/FS. The Company believes that this development increases the likelihood that this matter will end up in litigation. The Company cannot now predict the cost of the remedy which will be selected for the site, in part because the Company cannot predict the remedy for the site and the Company cannot predict its share of that cost. The Company, with advice from its environmental consultants, continues to believe that an aggressive effort, as currently proposed by the governmental authorities, to remove PCB-contaminated sediments, many of which are buried under cleaner material or are otherwise unlikely to move, would be environmentally detrimental and therefore inappropriate. Furthermore, the Company's share of the cost of such removal, depending on the amount of sediments to be removed, could exceed its available resources. The Company believes it will be able to persuade the parties to the MOA or a court against removal of a substantial amount of PCB-contaminated sediments. There can be no assurance, however, that the Company will be successful in arguing that removal of a substantial amount of PCB-contaminated sediments is inappropriate, that it would prevail in any resulting litigation or that its share of the cost of any such removal would not have a material adverse effect on the Company's consolidated financial condition, liquidity and results of operation. The amount and timing of future expenditures for environmental compliance, clean up, remediation and personal injury and property damage liability, including but not limited to those related to the lower Fox River and the Bay of Green Bay, cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the extent and timing of any technological advances for pollution control, the remedial actions which may be required and the number and financial resources of any other responsible parties. The Company continues to evaluate its exposure and the level of its reserves, including, but not limited to, its share of the Wisconsin Agreement, its negotiations with the State concerning those areas and the unknown amount which could be claimed by the federal trustees as natural resource damages related to the lower Fox River. The Company believes that it is insured against certain losses related to the lower Fox River, depending on the nature and amount thereof. Coverage, which is currently being investigated under reservation of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. The Company does not expect that the insurers' investigation as to coverage will be completed prior to the time these factors become known. The Company's current assessment after consultation with legal counsel, is that future expenditures for these matters are not likely to have a material adverse impact on the Company's consolidated financial condition or liquidity, but could have a material adverse effect on the Company's consolidated results from operations in a given year; however, there can be no assurances that the Company's reserves will be adequate or that a material adverse effect on the Company's consolidated financial condition or liquidity will not occur at some future time. During 1997 and 1996, the Company expended approximately $8,000,000 and $2,000,000, respectively, on environmental capital projects. The Company estimates that $9,000,000 and $12,000,000 will be expended for environmental capital projects in 1998 and 1999, respectively. 8. LEGAL PROCEEDINGS The Company is involved in various lawsuits. Although the ultimate outcome of these lawsuits cannot be predicted with certainty, the Company's management, after consultation with legal counsel, does not expect that such lawsuits will have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 9. SIGNIFICANT CUSTOMER AND FOREIGN SALES The Company sells a significant portion of its printing and writing papers through wholesale paper merchants. Prior to 1995, two of the Company's wholesale paper merchants merged into one company, and as a result, during 1997, 1996 and 1995, this customer accounted for 11.6%, 12.1% and 13.9% of the Company's net sales, respectively. Net sales in dollars to foreign customers were 10.9%, 9.8% and 8.8% of total net sales in 1997, 1996 and 1995, respectively. 10. BORROWINGS In addition to the Revolving Credit Facility described in Note 2, the Company has an available line of credit from a bank aggregating $25,000,000 at interest rates approximating money market rates. Under this line of credit, the Company had no short-term borrowings as of December 31, 1997 and 1996 and had average net 34 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P. H. Glatfelter Company and Subsidiaries short-term borrowings of $3,000 and $20,000 during 1997 and 1996, respectively, at an average interest rate of 5.8% and 6.1%, respectively. Maximum short-term borrowings during 1997 and 1996 were $1,000,000 and $4,000,000, respectively. In March 1993, the Company issued $150,000,000 principal amount of its 5 7/8% Notes. These Notes will mature on March 1, 1998 and may not be redeemed prior to maturity. Interest on the Notes is payable semiannually on March 1 and September 1. The Notes are unsecured obligations of the Company. In March 1993, the Company entered into an interest rate swap agreement having a total notional principal amount of $50,000,000. Under the agreement, the Company receives a fixed rate of 5 7/8% and pays a floating rate (London Interbank Offered Rate (LIBOR) plus sixty basis points), as determined at six-month intervals. The floating rate is approximately 6.4% for the six-month period ending February 28, 1998. The agreement converts a portion of the Company's debt obligation from a fixed rate to a floating rate basis. Under the agreement, the Company recognized net interest expense of $275,000, $174,000 and $453,000 in 1997, 1996 and 1995, respectively. These amounts are included in "Interest on debt" on the Company's Consolidated Statements of Income. The Company has pledged $2,089,000 principal amount of its marketable securities as security under the swap agreement. Although the Company can pay to terminate the swap agreement at any time, the Company intends to hold the swap agreement until its March 1, 1998 maturity. The cost to the Company to terminate the agreement fluctuates with prevailing market interest rates. As of December 31, 1997, the cost to terminate the swap agreement was approximately $150,000. The Company has approximately $1,440,000 of letters of credit outstanding as of December 31, 1997. The Company bears the credit risk on this amount to the extent that the Company does not comply with the provisions of certain agreements. The letters of credit do not reduce the amount available under the Company's lines of credit. In February 1997, the Company formed GWS Valuch, Inc. ("GWS Valuch"), a corporation organized under the laws of the State of Delaware, with the intention that GWS Valuch would qualify as a real estate investment trust. The Company invested approximately $122,500,000 to acquire approximately 99.9% of the voting Class A common stock of GWS Valuch. GWS Valuch also issued shares of step-down preferred stock ("Step-Down Preferred Stock"), having a liquidation preference of $150,000,000 and an initial dividend of approximately 13.9%, to other investors. This dividend included an amortization component of the Step-Down Preferred Stock, resulting in an effective yield of approximately 8.1%. GWS Valuch has been consolidated in the Company's financial statements since the date of formation. Immediately following the establishment and capitalization of GWS Valuch, the Company borrowed $270,000,000 from GWS Valuch under a note secured by certain real estate assets of the Company. Using the proceeds of the note and other available cash, the Company immediately repaid, with interest, an amount initially borrowed to purchase the Class A common stock of GWS Valuch. The Company also deposited $154,757,000, which included amounts to pay semiannual interest, into a trust to defease certain covenants under the Company's indenture dated as of January 15, 1993, under which the Company's $150,000,000 principal amount of 5 7/8% Notes due March 1, 1998, are outstanding. As of December 31, 1997, approximately $153,000,000 of U.S. Treasury Notes remain in the trust and are reported on the Company's Consolidated Balance Sheets as a component of "Marketable securities." This amount, along with interest to be earned, will be held to maturity and used to pay the total amount of principal and interest due on the 5 7/8% Notes on March 1, 1998. Subsequent to the above transactions, the Internal Revenue Service announced that it intended to issue regulations with retroactive effect on transactions using self-amortizing investments in conduit financing entities. As a result of this announcement, the likelihood that the Company could lose certain tax benefits arising from GWS Valuch's Step-Down Preferred Stock financing increased substantially. Accordingly, on July 2, 1997, using the proceeds of a short-term unsecured loan in the principal amount of $144,675,000, the Company purchased approximately 145,000 shares of Class A common stock of GWS Valuch. The funds received were used by GWS Valuch to redeem all 150,000 outstanding shares of the Step-Down Preferred Stock. "Interest on debt" on the Company's Consolidated Statement of Income for the year ended December 31, 1997 includes $4,235,000, representing a portion of the dividend paid relating to the Step-Down Preferred Stock. On July 22, 1997, the Company issued $150,000,000 principal amount of 6 7/8% Notes due July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on January 15 and July 15 of each year. The 6 7/8% Notes are redeemable, in whole or in part, at the option of the Company at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness of the Company. The net proceeds from the sale of the 6 7/8% Notes were used to repay the $144,675,000 principal amount of the short-term unsecured loan described above and approximately $501,000 of related interest. The remaining balance of the net proceeds was applied to general corporate purposes. 35 37 MANAGEMENT'S RESPONSIBILITY REPORT The management of P. H. Glatfelter Company has prepared and is responsible for the Company's consolidated financial statements and other corroborating information contained herein. Management bears responsibility for the integrity of these statements which have been prepared in accordance with generally accepted accounting principles and include management's best judgments and estimates. All information in this annual report consistently reflects the data contained in the consolidated financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are executed and recorded in accordance with their authorizations, and financial records are maintained so as to permit the preparation of reliable financial statements. The system of internal controls is enhanced by written policies and procedures, an organizational structure providing appropriate segregation of duties, careful selection and training of qualified people, and periodic reviews performed by both its internal audit department and independent public auditors. The Audit Committee of the Board of Directors, consisting exclusively of directors who are not Company employees, provides oversight of financial reporting. The Company's internal audit department and independent auditors meet with the Audit Committee on a periodic basis to discuss financial reporting and internal control issues and have completely free access to the Audit Committee. /s/ T. C. Norris - -------------------------------- T. C. Norris Chairman of the Board, President and Chief Executive Officer /s/ R. P. Newcomer - -------------------------------- R. P. Newcomer Senior Vice President and Chief Financial Officer 36 38 - ----------------------------------------------------------------- P. H. Glatfelter Company and Subsidiaries Financial Statement Schedule For Each of the Three Years in the Period Ended December 31, 1997 and Independent Auditors' Report Prepared for Filing As Part of Annual Report (Form 10-K) 37 39 INDEPENDENT AUDITORS' REPORT P. H. Glatfelter Company, Its Shareholders and Directors: We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of P.H. Glatfelter Company and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania February 6, 1998 38 40 QUARTERLY FINANCIAL DATA
Net Sales Gross Profit Net Income Basic and Diluted In Thousands In Thousands In Thousands Earning Per Share ------------------ ------------------ ----------------- ----------------- 1997 1996 1997 1996 1997 1996 1997 1996 -------- -------- -------- -------- ------- ------- ----- ----- First $142,185 $140,335 $ 30,180 $ 31,521 $12,823 $13,970 $ .30 $ .32 Second 141,935 144,687 27,100 35,771 11,222 16,276 .27 .38 Third 139,192 139,748 21,072 30,437 7,423 13,237 .17 .31 Fourth 143,760 141,314 30,594 33,864 13,816 16,916 .33 .40 -------- -------- -------- -------- ------- ------- ----- ----- Total $567,072 $566,084 $108,946 $131,593 $45.284 $60,399 $1.07 $1.41 ======== ======== ======== ======== ======= ======= ===== =====
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. (a) Directors. The information with respect to directors required under this item is incorporated herein by reference to pages 2, 3 and 15 of the Registrant's Proxy Statement, dated March 13, 1998. (b) Executive Officers of the Registrant. The information with respect to the executive officers required under this item is set forth in Part I of this Report. Item 11. Executive Compensation. The information required under this item is incorporated herein by reference to pages 5 through 13 of the Registrant's Proxy Statement, dated March 13, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required under this item is incorporated herein by reference to pages 14 through 15 of the Registrant's Proxy Statement, dated March 13, 1998. Item 13. Certain Relationships and Related Transactions. The information required under this item is incorporated herein by reference to page 13 of the Registrant's Proxy Statement, dated March 13, 1998. 39 41 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. A. Financial Statements filed as part of this report: Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets, December 31, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements for the Years Ended December 31, 1997, 1996 and 1995 B. Supplementary Data for each of the three years in the period ended December 31, 1997. 2. Financial Statement Schedules (Consolidated): For Each of the Three Years in the Period Ended December 31, 1997: II - Valuation and Qualifying Accounts Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is included in the Notes to the Consolidated Financial Statements. Individual financial statements of the Registrant are not presented inasmuch as the Registrant is primarily an operating company and its consolidated subsidiaries are essentially wholly-owned. 3. Executive Compensation Plans and Arrangements: see Exhibits 10(a) through 10(g), described below. Exhibits: Number Description of Documents (2) Stock Purchase Agreement dated as of November 14, 1997 by and among certain subsidiaries of P. H. Glatfelter Company, the Stockholders of S&H Papier- 40 42 Holding GmbH, Deutsche Beteiligungs Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.H. Glatfelter Company (incorporated by reference to Exhibit 2.1 of Registrant's Form 8-K dated January 2, 1998). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1987); a 41 43 Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit 3(c) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 14, 1996 (incorporated by reference to Exhibit (3)(c) of Registrant's Form 10-K for the year ended December 31, 1996). (4)(a) Indenture between P. H. Glatfelter Company and Wachovia Bank of Georgia, N.A. as Trustee dated as of January 15, 1993 (incorporated by reference to Exhibit 4(a) of Registrant's Form 10-K for the year ended December 31, 1993). (4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit 4(b) of Registrant's Form 10-K for the year ended December 31, 1992). (4)(c) Escrow Agreement, dated as of February 24, 1997 between P. H. Glatfelter Company and the Bank of New York relating to 5 7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit (4)(c) of Registrant's Form 10-K for the year ended December 31, 1996). 42 44 (4)(d) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (4)(e) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.3 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended and restated effective March 13, 1997 (incorporated by reference to Exhibit B of Registrant's Proxy Statement, dated March 14, 1997). (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of Registrant's Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, effective January 1, 1988, as amended and restated December 22, 1994 (incorporated by reference to Exhibit 10(c) of Registrant's Form 10-K for the year ended December 31, 1994). (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of Registrant's Form 10-K for the year ended December 31, 1987). (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of Registrant's Form 10-K for the year ended December 31, 1990). (10)(f) P. H. Glatfelter Company Plan of Supplemental Retirement Benefits for the Management Committee, as amended and restated effective June 28, 1989 (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1989). 43 45 (10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended April 23, 1997 (incorporated by reference to Exhibit A of Registrant's Proxy Statement, dated March 14, 1997). (10)(h) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(i) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(j) Credit Agreement, dated as of December 22, 1997 among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents. (21) Subsidiaries of the Registrant (23) Consent of Independent Certified Public Auditors (27) Financial Data Schedule (b) The Registrant filed the following reports on Form 8-K during the quarter ended December 31, 1997: Date of Report Item Reported -------------- ------------- November 14, 1997 5 November 20, 1997 5 December 11, 1997 5 44 46 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. P. H. GLATFELTER COMPANY (Registrant) March 18, 1998 By /s/ T. C. Norris ----------------------- T. C. Norris Chairman of the Board 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 in the capacities and on the dates indicated: Date Signature Capacity ---- --------- -------- March 18, 1998 /s/ T. C. Norris Principal Executive ------------------------- Officer and Director T. C. Norris March 18, 1998 /s/ R. P. Newcomer Principal Financial ------------------------- Officer and Senior R. P. Newcomer Vice President March 18, 1998 /s/ C. M. Smith Controller and ------------------------- Assistant Secretary C. M. Smith March 18, 1998 /s/ R. E. Chappell Director ------------------------- R. E. Chappell March 18, 1998 /s/ N. DeBenedictis Director ------------------------- N. DeBenedictis March 18, 1998 /s/ G. H. Glatfelter Director ------------------------- G. H. Glatfelter March 18, 1998 /s/ G. H. Glatfelter II Director ------------------------- G. H. Glatfelter II March 18, 1998 /s/ R. S. Hillas Director ------------------------- R. S. Hillas March 18, 1998 /s/ M. A. Johnson II Director ------------------------- M. A. Johnson II March 18, 1998 /s/ R. W. Kelso Director ------------------------- R. W. Kelso 47 March 18, 1998 /s/ P. R. Roedel Director ------------------------- P. R. Roedel March 18, 1998 /s/ J. M. Sanzo Director ------------------------- J. M. Sanzo March 18, 1998 /s/ R. L. Smoot Director ------------------------- R. L. Smoot 48 SCHEDULE II P. H. GLATFELTER COMPANY AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997 VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR --------------------------------------------------------------------------------------- DOUBTFUL ACCOUNTS SALES DISCOUNTS ----------------------------------------- ------------------------------------------ 1997 1996 1995 1997 1996 1995 Balance, beginning of year $ 1,913,000 $ 1,979,000 $ 1,850,000 $ 551,000 $ 501,000 $ 560,100 Provision 160,000 10,000 201,000 12,882,000 8,866,000 7,937,700 Write-offs, recoveries and discounts allowed (100,000) (76,000) (72,000) (12,891,000) (8,816,000) (7,996,800) ----------- ----------- ----------- ------------ ----------- ----------- Balance, end of year $ 1,973,000 $ 1,913,000 $ 1,979,000 $ 542,000 $ 551,000 $ 501,000 =========== =========== =========== ============ =========== ===========
The provision for doubtful accounts is included in administrative expense and the provision for sales discounts is deducted from sales. The related allowances are deducted from accounts receivable. 45 49 EXHIBIT INDEX Number (2) Stock Purchase Agreement dated as of November 14, 1997 by and among certain subsidiaries of P. H. Glatfelter Company, the Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.H. Glatfelter Company (incorporated by reference to Exhibit 2.1 of Registrant's Form 8-K dated January 2, 1998). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10- K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 46 50 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1987); a Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit 3(c) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 14, 1996 (incorporated by reference to Exhibit (3)(c) of Registrant's Form 10-K for the year ended December 31, 1996). (4)(a) Indenture between P. H. Glatfelter Company and Wachovia Bank of Georgia, N.A. as Trustee dated as of January 15, 1993 (incorporated by reference to Exhibit 4(a) of Registrant's Form 10-K for the year ended December 31, 1993). (4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit 4(b) of Registrant's Form 10-K for the year ended December 31, 1992). (4)(c) Escrow Agreement, dated as of February 24, 1997 between P. H. Glatfelter Company and the Bank of New York relating to 5 7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit (4)(c) of Registrant's Form 10-K for the year ended December 31, 1996). 47 51 (4)(d) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (4)(e) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.3 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended and restated effective March 13, 1997 (incorporated by reference to Exhibit B of Registrant's Proxy Statement, dated March 14, 1997). (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of Registrant's Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, effective January 1, 1988, as amended and restated December 22, 1994 (incorporated by reference to Exhibit 10(c) of Registrant's Form 10-K for the year ended December 31, 1994). (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of Registrant's Form 10-K for the year ended December 31, 1987). (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of Registrant's Form 10-K for the year ended December 31, 1990). (10)(f) P. H. Glatfelter Company Plan of Supplemental Retirement Benefits for the Management Committee, as amended and restated effective June 28, 1989 (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1989). 48 52 (10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended April 23, 1997 (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated March 14, 1997). (10)(h) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(i) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(j) Credit Agreement, dated as of December 22, 1997 among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents. (21) Subsidiaries of the Registrant (23) Consent of Independent Certified Public Auditors (27) Financial Data Schedule 49 EX-10.J 2 CREDIT AGREEMENT 1 Exhibit 10(j) CREDIT AGREEMENT AMONG P.H. GLATFELTER COMPANY, VARIOUS SUBSIDIARY BORROWERS, BANKERS TRUST COMPANY, AS AGENT AND VARIOUS LENDING INSTITUTIONS WITH DEUTSCHE BANK AG, AS DOCUMENTATION AGENT PNC BANK, NATIONAL ASSOCIATION, AS SYNDICATION AGENT AND FIRST NATIONAL BANK OF MARYLAND AND WACHOVIA BANK, N.A., AS MANAGING AGENTS ---------------------------------- DATED AS OF DECEMBER 22, 1997 ---------------------------------- $200,000,000 2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........................................... 1 1.1 Definitions.................................................... 1 1.2 Accounting Terms; Financial Statements......................... 31 ARTICLE II AMOUNT AND TERMS OF CREDIT................................................. 32 2.1 The Commitments................................................ 32 (a) Revolving Loans.......................................... 32 (b) Swing Line Loans......................................... 32 2.2 Notes.......................................................... 34 (a) Evidence of Indebtedness................................. 34 (b) Notation of Payments..................................... 35 2.3 Minimum Amount of Each Borrowing; Maximum Number of Borrowings..................................................... 35 2.4 Borrowing Options.............................................. 35 2.5 Notice of Borrowing............................................ 35 2.6 Conversion and Continuation Elections for Eurodollar Loans and Base Rate Loans................................................ 36 2.7 Continuation Elections for Alternative Currency Loans.......... 38 2.8 Disbursement of Funds.......................................... 39 2.9 Pro Rata Borrowings............................................ 40 2.10 Letters of Credit.............................................. 40 (a) Letters of Credit Commitments............................ 40 (b) Obligation of Facing Agent to Issue Letter of Credit..... 41 (c) Letter of Credit Requests; Notices of Issuance........... 42 (d) Agreement to Repay Letter of Credit Payments............. 43 (e) Letter of Credit Participations.......................... 44 (f) Draws Upon Letter of Credit; Reimbursement Obligations... 44 (g) Fees for Letters of Credit............................... 46 (h) Indemnification.......................................... 47 (i) Increased Costs.......................................... 48 ARTICLE III INTEREST AND FEES.......................................................... 48 3.1 Interest....................................................... 48 (a) Base Rate Loans.......................................... 48 i 3 (b) Eurocurrency Loans....................................... 49 (c) Payment of Interest...................................... 49 (d) Notification of Rate..................................... 49 (e) Default Interest......................................... 49 (f) Maximum Interest......................................... 49 3.2 Fees........................................................... 49 (a) Facility Fee............................................. 50 (b) Agency Fees.............................................. 50 3.3 Computation of Interest and Fees; Changes in Applicable Margin and Applicable Facility Fee.................................... 50 3.4 Interest Periods............................................... 50 3.5 Compensation for Funding Losses. .............................. 51 3.6 Increased Costs, Illegality, Etc............................... 52 (a) Generally................................................ 52 (b) Eurocurrency Loans. ..................................... 53 (c) Capital Requirements..................................... 54 (d) Change of Lending Office................................. 54 3.7 Replacement of Affected Lenders................................ 55 ARTICLE IV ADJUSTMENTS TO COMMITMENTS; PAYMENTS AND PREPAYMENTS....................... 55 4.1 Voluntary Reduction of Commitments and Optional Commitment Increases...................................................... 55 4.2 Voluntary Prepayments.......................................... 57 4.3 Mandatory Prepayments.......................................... 58 (a) Prepayment Upon Overadvance.............................. 58 4.4 Application of Prepayments..................................... 58 4.5 Method and Place of Payment.................................... 58 4.6 Net Payments................................................... 59 ARTICLE V CONDITIONS OF CREDIT....................................................... 62 5.1 Conditions Precedent to the Initial Borrowing.................. 62 (a) Credit Agreement and Notes............................... 62 (b) Subsidiary Guaranty...................................... 62 (c) Opinions of Counsel...................................... 62 (d) Corporate Proceedings.................................... 62 (e) Adverse Change........................................... 63 (f) Approvals................................................ 63 (g) Litigation............................................... 63 (h) Fees..................................................... 64 (i) Appointment of Agent..................................... 64 (j) Pro Forma Balance Sheet.................................. 64 ii 4 (k) Tax and Accounting Aspects of Transactions............... 64 (l) Officer's Certificate.................................... 64 (m) Other Matters............................................ 64 5.2 Conditions Precedent to All Credit Events...................... 64 (a) Representations and Warranties........................... 64 (b) No Default............................................... 65 (c) Notice of Borrowing; Letter of Credit Request............ 65 (d) No Adverse Change........................................ 65 (e) Other Information........................................ 65 ARTICLE VI REPRESENTATIONS AND WARRANTIES............................................. 65 6.1 Corporate Status............................................... 66 6.2 Corporate Power and Authority.................................. 66 6.3 No Violation................................................... 66 6.4 Governmental and Other Approvals............................... 66 6.5 Financial Statements; Financial Condition; Undisclosed Liabilities Projections; etc................................... 67 (a) Financial Statements..................................... 67 (b) Solvency................................................. 67 (c) No Undisclosed Liabilities............................... 67 (d) Indebtedness............................................. 68 6.6 Litigation..................................................... 68 6.7 True and Complete Disclosure................................... 68 6.8 Use of Proceeds; Margin Regulations............................ 68 (a) Revolving Loan Proceeds.................................. 69 (b) Margin Regulations....................................... 69 6.9 Taxes.......................................................... 69 6.10 Compliance With ERISA.......................................... 69 6.11 Properties..................................................... 70 6.12 Subsidiaries................................................... 70 6.13 Compliance With Law, Etc....................................... 71 6.14 Investment Company Act......................................... 71 6.15 Public Utility Holding Company Act............................. 71 6.16 Environmental Matters.......................................... 71 6.17 Intellectual Property, Licenses, Franchises and Formulas....... 72 6.18 Certain Fees................................................... 72 ARTICLE VII AFFIRMATIVE COVENANTS...................................................... 72 7.1 Financial Statements........................................... 72 (a) Quarterly Financial Statements........................... 72 (b) Annual Financial Statements.............................. 73 iii 5 7.2 Certificates; Other Information................................ 73 (a) Accountant's Certificates................................ 73 (b) Officer's Certificates................................... 74 (c) Audit Reports and Statements............................. 74 (d) Public Filings........................................... 74 (e) Other Requested Information.............................. 74 7.3 Notices........................................................ 74 (a) Event of Default or Unmatured Event of Default........... 74 (b) Litigation and Related Matters........................... 74 (c) Notice of Change of Control.............................. 75 (d) Performance Level........................................ 75 7.4 Conduct of Business and Maintenance of Existence............... 75 7.5 Payment of Obligations......................................... 75 7.6 Inspection of Property, Books and Records...................... 75 7.7 ERISA.......................................................... 76 7.8 Maintenance of Property, Insurance............................. 76 7.9 Environmental Laws............................................. 77 7.10 Use of Proceeds................................................ 77 7.11 Additional Subsidiary Guarantors............................... 77 7.12 End of Fiscal Years; Fiscal Quarters........................... 77 ARTICLE VIII NEGATIVE COVENANTS......................................................... 78 8.1 Liens.......................................................... 78 8.2 Indebtedness................................................... 78 8.3 Consolidation, Merger, Purchase or Sale of Assets, etc......... 80 8.4 Dividends or Other Distributions............................... 82 8.5 Limitation on Certain Restrictions on Subsidiaries............. 82 8.6 Loans and Investments.......................................... 82 8.7 Transactions with Affiliates................................... 83 8.8 Fiscal Year.................................................... 84 8.9 Accounting Changes............................................. 84 8.10 Creation of Subsidiaries....................................... 84 ARTICLE IX FINANCIAL COVENANTS........................................................ 84 9.1 Interest Coverage Ratio........................................ 85 9.2 Leverage Ratio................................................. 85 ARTICLE X EVENTS OF DEFAULT.......................................................... 85 10.1 Events of Default.............................................. 85 iv 6 (a) Failure to Make Payments When Due........................ 85 (b) Representations and Warranties........................... 85 (c) Covenants................................................ 85 (d) Default Under Other Loan Documents....................... 85 (e) Voluntary Insolvency, Etc................................ 86 (f) Involuntary Insolvency, Etc.............................. 86 (g) Default Under Other Agreements........................... 86 (h) Judgments................................................ 87 (i) Guaranties............................................... 87 (j) ERISA.................................................... 87 (k) Change of Control........................................ 87 10.2 Rights Not Exclusive........................................... 88 ARTICLE XI THE AGENT.................................................................. 88 11.1 Appointment.................................................... 88 11.2 Nature of Duties............................................... 89 11.3 Exculpation, Rights Etc........................................ 89 11.4 Reliance....................................................... 90 11.5 Indemnification................................................ 90 11.6 Agent In Its Individual Capacity. ............................. 90 11.7 Notice of Default.............................................. 90 11.8 Holders of Obligations......................................... 90 11.9 Resignation by Agent........................................... 91 ARTICLE XII MISCELLANEOUS.............................................................. 91 12.1 No Waiver; Modifications in Writing............................ 91 12.2 Further Assurances............................................. 93 12.3 Notices, Etc................................................... 93 12.4 Costs, Expenses and Taxes...................................... 93 (a) Generally................................................ 93 (b) Foreign Exchange Indemnity............................... 94 12.5 Confirmations.................................................. 95 12.6 Adjustment; Setoff............................................. 95 12.7 Execution in Counterparts...................................... 96 12.8 Binding Effect; Assignment; Addition and Substitution of Lenders........................................................ 96 12.9 Consent to Jurisdiction; Mutual Waiver or Jury Trial........... 98 12.10 Governing Law..................................................100 12.11 Severability of Provisions.....................................100 12.12 Headings.......................................................100 12.13 Termination of Agreement.......................................100 12.14 Confidentiality................................................100 v 7 12.15 Effectiveness..................................................101 ARTICLE XIII COMPANY GUARANTY...........................................................101 13.1 The Guaranty...................................................101 13.2 Insolvency.....................................................102 13.3 Nature of Liability............................................102 13.4 Independent Obligation.........................................102 13.5 Authorization..................................................103 13.6 Reliance.......................................................104 13.7 Subordination..................................................104 13.8 Waiver.........................................................104 13.9 Nature of Liability............................................105 vi 8 INDEX OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit 1.1 Form of Borrower Assumption Agreement Exhibit 2.1(b) Form of Swing Line Loan Participation Certificate Exhibit 2.2(a)-1 Form of Revolving Note Exhibit 2.2(a)-2 Form of Swing Line Note Exhibit 2.5 Form of Notice of Borrowing Exhibit 2.6(b) Form of Notice of Conversion or Continuation Exhibit 2.7(b) Form of Notice of Continuation Exhibit 2.10(c) Form of Letter of Credit Request Exhibit 4.1(c) Form of Increase Request Exhibit 4.6(d) Form of Section 4.6(d)(ii) Certificate Exhibit 5.1(b) Form of Subsidiary Guaranty Exhibit 5.1(c) Form of Opinion of Borrower's Counsel Exhibit 5.1(d) Form of Officer's Certificate as to Corporate Proceedings Exhibit 5.1(i) Form of Form of Appointment of Agent Exhibit 5.1(l) Form of Responsible Officer's Certificate Exhibit 7.2(b) Form of Officer's Certificate Pursuant to Section 7.2(b) Exhibit 12.8(c) Form of Assignment and Assumption Agreement SCHEDULES Schedule 1.1(a) Commitments Schedule 6.3 Approvals and Consents Schedule 6.4 Governmental Approvals Schedule 6.5(a) Pro Forma Balance Sheet Schedule 6.5(d) Indebtedness to Remain Outstanding Schedule 6.12 Subsidiaries Schedule 6.16 Environmental Matters Schedule 8.5(a) Existing Restrictions on Subsidiaries Schedule 8.6 Existing Investments vii 9 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 22, 1997, is made by and among P.H. GLATFELTER COMPANY, a Pennsylvania corporation, various of its Subsidiaries that are parties hereto as Borrowers, the lenders from time to time party hereto (collectively, the "Lenders," and each individually, a "Lender"), and BANKERS TRUST COMPANY, as agent ("Agent") for the Lenders. W I T N E S S E T H: WHEREAS, Borrowers have requested that the Lenders provide a revolving credit facility to Borrowers in an initial aggregate principal amount not to exceed $200 million at any time outstanding and maturing on December 22, 2002; WHEREAS, the proceeds of the revolving credit facility described above will be used by Borrowers to provide the funds necessary to finance the Acquisition and to pay certain fees and expenses incurred in connection with the Acquisition, to finance future acquisitions permitted hereunder and for ongoing working capital and general corporate purposes; and WHEREAS, the Lenders are willing to extend commitments to make revolving credit loans to Borrowers for the purposes specified above and only on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1 Definitions. As used herein, and unless the context requires a different meaning, the following terms have the meanings indicated: "Acquired Entity" means S&H Papier - Holding GmbH, a corporation organized under the laws of the Federal Republic of Germany. "Acquisition" means the acquisition by the Subsidiaries of the Company party to the Acquisition Agreement, as in effect on the Closing Date, of all of the capital stock of the Acquired Entity in accordance with the Acquisition Documents. "Acquisition Agreement" means the Stock Purchase Agreement dated as of November 14, 1997 by and among the Company, certain Subsidiaries of the Company and the stockholders of the Acquired Entity. 10 "Acquisition Documents" means the Acquisition Agreement and all other agreements and documents relating to the Acquisition. "Adjusted Consolidated EBITDA" means, for any applicable period, Consolidated EBITDA for such period calculated after giving effect on a pro forma basis to any Permitted Acquisition (including, without limitation, the Acquisition) as if such Permitted Acquisition occurred on the first day of the applicable period on the same basis as is required in clauses (A) through (D) for the pro forma test under Section 8.3(f). "Adjusted Total Revolving Loan Commitment" shall mean at any time the Total Revolving Commitment less the aggregate Revolving Commitments of all Defaulting Lenders. "Affiliate" means, with respect to any Person, any Person or group acting in concert in respect of the Person in question that, directly or indirectly, controls (including but not limited to all directors and executive officers of such Person) or is controlled by or is under common control with such Person provided that neither BT, nor any Lender nor any Affiliate of BT or any Lender shall be deemed to be an Affiliate of any Borrower. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person or group of Persons, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation. "Agent" has the meaning assigned to that term in the introduction to this Agreement and any successor Agent in such capacity. "Agreement" means this Credit Agreement, as the same may at any time be amended, restated, supplemented or otherwise modified in accordance with the terms hereof and in effect. "Alternative Currency" means Deutsche Marks or French Francs, and, as provided in Section 12.16, the Euro, in each case, to the extent freely transferable and convertible into Dollars. "Alternative Currency Borrowing" means a Borrowing consisting of Alternative Currency Loans. "Alternative Currency Loan" means any Loan denominated in a currency other than Dollars. 2 11 "Applicable Currency" means as to any particular payment or Loan, Dollars or the Alternative Currency in which it is denominated or is payable. "Applicable Facility Fee" means, as of any date of determination, the applicable percentage set forth in the table below opposite the applicable Performance Level as of such date set forth in the table below: ---------------------------------------------------------- APPLICABLE PERFORMANCE LEVEL FACILITY FEE ---------------------------------------------------------- Performance Level I .065% ---------------------------------------------------------- Performance Level II .07% ---------------------------------------------------------- Performance Level III .075% ---------------------------------------------------------- Performance Level IV .08% ---------------------------------------------------------- Performance Level V .10% ---------------------------------------------------------- Performance Level VI .11% ---------------------------------------------------------- Performance Level VII .13% ---------------------------------------------------------- Notwithstanding the foregoing, in the event that either (i) S&P and Moody's, at any given date, no longer assign a rating to the long term, senior unsecured, non-credit enhanced indebtedness of the Company or (ii) the long term, senior unsecured, non-credit enhanced indebtedness of the Company, at any given date, is rated lower than BBB- by S&P or Baa3 by Moody's, then the Applicable Facility Fee shall be the applicable percentage set forth in the table below opposite the Most Recent Leverage Ratio as of such date set forth in the table below: ---------------------------------------------------------- MOST RECENT APPLICABLE LEVERAGE RATIO FACILITY FEE ---------------------------------------------------------- Less than 2.00 to 1.00 .10% ---------------------------------------------------------- Equal to or greater than 2.00 to 1.00 but less than 2.50 to 1.00 .11% ---------------------------------------------------------- Equal to or greater than 2.50 to 1.00 but less than 3.00 to 1.00 .13% ---------------------------------------------------------- Equal to or greater than 3.00 to 1.00 but less than 3.50 to 1.00 .15% ---------------------------------------------------------- Equal to or greater than 3.50 to .20% 1.00 ---------------------------------------------------------- 3 12 "Applicable Margin" means, as of any date of determination, the applicable percentage set forth in the table below opposite the applicable Performance Level as of such date set forth in the table below: ---------------------------------------------------------- PERFORMANCE LEVEL APPLICABLE MARGIN ---------------------------------------------------------- Performance Level I .10% ---------------------------------------------------------- Performance Level II .13% ---------------------------------------------------------- Performance Level III .15% ---------------------------------------------------------- Performance Level IV .17% ---------------------------------------------------------- Performance Level V .20% ---------------------------------------------------------- Performance Level VI .24% ---------------------------------------------------------- Performance Level VII .32% ---------------------------------------------------------- Notwithstanding the foregoing, in the event that either (i) S&P and Moody's, at any given date, no longer assign a rating to the long term, senior unsecured, non-credit enhanced indebtedness of the Company or (ii) the long term, senior unsecured, non-credit enhanced indebtedness of the Company, at any given date, is rated lower than BBB- by S&P or Baa3 by Moody's, then the Applicable Margin shall be the applicable percentage set forth in the table below under the column Applicable Margin opposite the Most Recent Leverage Ratio as of such date set forth in the table below: ---------------------------------------------------------- MOST RECENT LEVERAGE RATIO APPLICABLE MARGIN ---------------------------------------------------------- Less than 2.00 to 1.00 .20% ---------------------------------------------------------- Equal to or greater than 2.00 to 1.00 but less than 2.50 to 1.00 .24% ---------------------------------------------------------- Equal to or greater than 2.50 to 1.00 but less than 3.00 to 1.00 .32% ---------------------------------------------------------- Equal to or greater than 3.00 to 1.00 but less than 3.50 to 1.00 .45% ---------------------------------------------------------- Equal to or greater than 3.50 to .65% 1.00 ---------------------------------------------------------- 4 13 "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of all or any part of an interest in shares of Capital Stock of a Subsidiary of the Company (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Subsidiaries. "Assigned Dollar Value" shall mean (a) in respect of any Borrowing denominated in Dollars, the amount thereof, and (b) in respect of a Borrowing denominated in an Alternative Currency, the Dollar Equivalent thereof based upon the applicable Exchange Rate as of the Exchange Rate Determination Date for such Borrowing; provided, however, in the case of Alternative Currency Borrowings, if, as of the end of any Interest Period in respect of such Borrowing, the Dollar Equivalent thereof determined based upon the applicable Exchange Rate(s) as of the date that is three Business Days before the end of such Interest Period would be at least 5% more, or 5% less, than the "Assigned Dollar Value" thereof, then on and after the end of such Interest Period the "Assigned Dollar Value" of such Borrowing shall be adjusted to be the Dollar Equivalent thereof determined based upon the Exchange Rate(s) that gave rise to such adjustment (subject to further adjustment in accordance with this proviso thereafter), and Agent shall give the Company and the Lenders prompt notice of such adjustment; provided, however, that failure to give such notice shall not affect any Borrower's Obligations hereunder or result in any liability to Agent. The Assigned Dollar Value of a Loan included in any Borrowing shall equal the pro rata portion of the Assigned Dollar Value of such Borrowing represented by such Loan. "Assignee" is defined in Section 12.8(c). "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit 12.8(c) attached hereto made by any applicable Lender, as assignor, and such Lender's assignee in accordance with Section 12.8. "Attorney Costs" means all reasonable fees and disbursements of any law firm or other external counsel and the reasonable allocated cost of internal legal services, including all reasonable disbursements of internal counsel. "Available Revolving Commitment" means, as to any Lender at any time an amount in Dollars equal to the excess, if any, of (a) such Lender's Revolving Commitment over (b) the sum of (i) the aggregate Assigned Dollar Value of the principal amount then outstanding of Revolving Loans made by such Lender and (ii) such Lender's Pro Rata Share of the Assigned Dollar Value of the LC Obligations and Assigned Dollar Value of the Swing Line Loans then outstanding. "Bankruptcy Code" means Title I of the Bankruptcy Reform Act of 1978, as amended, as set forth in Title 11 of the United States Code, as hereafter amended. 5 14 "Base Rate" means the greater of (i) the rate most recently announced by BT at its principal office as its "prime rate", which is not necessarily the lowest rate made available by BT or (ii) the Federal Funds Rate plus 1/2 of 1% per annum. The "prime rate" announced by BT is evidenced by the recording thereof after its announcement in such internal publication or publications as BT may designate. Any change in the Base Rate resulting from a change in such "prime rate" announced by BT shall become effective without prior notice to Borrower as of 12:01 a.m. (New York City time) on the Business Day on which each change in such "prime rate" is announced by BT. BT may make commercial or other loans to others at rates of interest at, above or below its "prime rate". "Base Rate Loan" means any Loan which bears interest at a rate determined with reference to the Base Rate. "Benefitted Lender" is defined in Section 12.6(a). "Board" means the Board of Governors of the Federal Reserve System. "Borrower Assumption Agreement" means a Borrower Assumption Agreement in the form of Exhibit 1.1 attached hereto. "Borrowers" means and includes each of the Company and the Subsidiary Borrowers. "Borrowing" means a group of Loans of a single Type made by the Lenders or the Swing Line Lender, as appropriate, on a single date and in the case of Eurocurrency Loans, as to which a single Interest Period is in effect, provided that Base Rate Loans incurred pursuant to Section 3.6(b) shall be considered part of any related Borrowing of Eurocurrency Loans. "BT" means Bankers Trust Company, a New York banking corporation, and its successors. "Business Day" means (i) as it relates to any payment, determination, funding or notice to be made or given in connection with any Dollar-denominated Loan, or otherwise to be made or given to or from Agent, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market; and (ii) as it relates to any payment, determination, funding or notice to be made or given in connection with any Alternative Currency Loan, any day (A) on which dealings in deposits in the Alternative Currency are carried out in the London interbank market, and (B) on which commercial banks and foreign exchange markets are open for business in London, New York City, and the principal financial center for such Alternative Currency. 6 15 "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock, partnership interests, membership interests or other equivalent interests and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options exchangeable for or convertible into such capital stock or other interests. "Capitalized Lease" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment is capitalized on the balance sheet of the lessee in accordance with GAAP. "Capitalized Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capitalized Lease which would at such time be so required to be capitalized on such a balance sheet in accordance with GAAP. "Cash" means money, currency or the available credit balance in Dollars in a Deposit Account. "Cash Equivalents" means (i) any evidence of indebtedness, maturing not more than 180 days after the date of issue, issued by the United States of America or any instrumentality or agency thereof, the principal, interest and premium, if any, of which is guaranteed fully by, or backed by the full faith and credit of, the United States of America, (ii) Dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit and bankers acceptances maturing not more than 180 days after the date of purchase, issued by (x) any Lender or (y) a commercial banking institution having, or which is the principal banking subsidiary of a bank holding company having, combined capital and surplus and undivided profits of not less than $200,000,000 and a commercial paper rating of "P-1" (or higher) according to Moody's, "A-1" (or higher) according to S&P or the equivalent rating by any other nationally recognized rating agency (any such bank, an "Approved Bank"), or (z) a non-United States commercial banking institution which is either currently ranked among the 100 largest banks in the world (by assets, according to the American Banker), has combined capital and surplus and undivided profits of not less than $500,000,000 or whose commercial paper (or the commercial paper of such bank's holding company) has a rating of "P-1" (or higher) according to Moody's, "A-1" (or higher) according to S&P or the equivalent rating by any other nationally recognized rating agency, (iii) commercial paper, maturing not more than 180 days after the date of purchase, issued or guaranteed by a corporation (other than the Company or any Subsidiary of the Company or any of their respective Affiliates) organized and existing under the laws of any state within the United States of America with a rating, at the time as of which any determination thereof is to be made, of "P-1" (or higher) according to Moody's, or "A-1" (or higher) according to S&P, (iv) demand deposits with any bank or trust company maintained in the ordinary course of business, (v) repurchase or reverse repurchase agreements covering obligations of the type specified in clause (i) with a term of not more than seven days with any Approved Bank and (vi) shares of any money market mutual fund rated at least AAA or the equivalent thereof by 7 16 S&P or at least Aaa or the equivalent thereof by Moody's, including, without limitation, any such mutual fund managed or advised by any Lender or Agent. "Cash Proceeds" means, with respect to any Asset Disposition, the aggregate cash payments (including any cash when and as received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Disposition, other than the portion of such deferred payment constituting interest) received by the Company and/or any Subsidiary from such Asset Disposition. "Change of Control" means (i) the sale, lease or transfer of all or substantially all of the Company's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the liquidation or dissolution of the Company, (iii) any Person or group of Persons (within the meaning of the Exchange Act) shall have acquired, after the Closing Date, beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 20% or more of the issued and outstanding shares of the Company's Voting Securities, or (iv) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Company's board of directors (together with any new directors whose election by the Company's board of directors or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office. "Closing Date" means December 22, 1997. "Code" means the Internal Revenue Code of 1986, as from time to time amended, including the regulations proposed or promulgated thereunder, or any successor statute and the regulations proposed or promulgated thereunder. "Collateral Account" is defined in Section 4.3(a). "Commercial Letter of Credit" is defined in Section 2.10(a). "Commitment" means, with respect to each Lender, the Revolving Commitment of such Lender and "Commitments" means such commitments of all of the Lenders collectively. "Commitment Period" means, the period from and including the date hereof to but not including the Termination Date or, in the case of the Swing Line Commitment, five (5) Business Days prior to the Termination Date. "Common Stock" shall mean the common stock of the Company, $.01 par value. 8 17 "Company" means P.H. Glatfelter Company, a Pennsylvania corporation, and includes its successors (including, without limitation, a receiver, trustee or debtor-in- possession of or for the Company) and permitted assigns. "Consolidated Debt" means, at any time, all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis; provided, however, that there shall be excluded from Consolidated Debt Indebtedness of the Company in the aggregate principal amount of up to $150 million evidenced by the Company's 5-7/8% Notes due March 1, 1998 to the extent that funds have been irrevocably deposited by the Company with the trustee under the indenture pursuant to which such notes were issued, for the defeasance thereof. "Consolidated EBITDA" means, for any applicable period, the Consolidated Net Income or Consolidated Net Loss of the Company and its Subsidiaries for such period, plus Consolidated Interest Expense for such period, plus the provision for taxes based on income and foreign withholding taxes for such period, plus depreciation expense for such period, plus amortization expense for such period, and excluding any gain or loss recognized in determining Consolidated Net Income or Consolidated Net Loss for such period in respect of any foreign currency translation adjustments as a result of the application of FASB 52. "Consolidated Interest Expense" means, for any period, total interest expense (including that attributable to Capitalized Leases in conformity with GAAP) of the Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Company and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, net of total interest income for such period. "Consolidated Net Income" and "Consolidated Net Loss" mean, respectively, with respect to any period, the aggregate of the net income (loss) of the Person in question for such period, determined in accordance with GAAP on a consolidated basis, provided that (i) the net income (loss) of any Person which is not a consolidated Subsidiary shall be included only to the extent of the amount of cash dividends or distributions paid to the Person in question or to a consolidated Subsidiary of such Person and (ii) except as provided in the definition of "Adjusted Consolidated EBITDA", the net income (loss) of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded. There shall be excluded in computing Consolidated Net Income (i) any gain which must be treated as an extraordinary item under GAAP or any gain realized upon the sale or other disposition of any real property or equipment that is not sold in the ordinary course of business or of any capital stock of the Person or a Subsidiary of the Person and (ii) any loss which must be treated as an extraordinary item under GAAP or any loss realized upon the sale or other disposition of any real property or equipment that is not sold in the ordinary course of business or of any capital stock of the Person or a Subsidiary of the Person. 9 18 "Consolidated Total Assets" means, at any time, the total consolidated assets of the Company and its Subsidiaries measured as of the last day of the Fiscal Quarter ending on or prior to the date of determination, as determined in accordance with GAAP. "Contaminant" means any material with respect to which any Environmental Law imposes a duty, obligation or standard of conduct, including without limitation any pollutant, contaminant (as those terms are defined in 42 U.S.C. Section 9601(33)), toxic pollutant (as that term is defined in 33 U.S.C. Section 1362(13)), hazardous substance (as that term is defined in 42 U.S.C. Section 9601(14)), hazardous chemical (as that term is defined by 29 CFR Section 1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. Section 6903(5)), or any state or local equivalent of such laws and regulations, including, without limitation, radioactive material, special waste, polychlorinated biphenyls, asbestos, petroleum, including crude oil or any petroleum-derived substance, (or any fraction thereof), waste, or breakdown or decomposition product thereof, or any constituent of any such substance or waste, including but not limited to polychlorinated biphenyls and asbestos. "Continuation Date" shall mean, with respect to Eurocurrency Loans, the day, which shall be the last day of an Interest Period with respect thereto, on which a Eurocurrency Loan has been continued pursuant to Sections 2.6(a), 2.6(c), 2.7(a) or 2.7(c). "Contractual Obligation" means, as to any Person, any provision of any Securities issued by such Person or of any indenture or credit agreement or any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or to which it may be subject. "Conversion Date" shall mean, with respect to Eurodollar Loans, the day, which shall be the last day of an Interest Period with respect thereto, on which a Borrower has elected to convert its Eurodollar Loans into Base Rate Loans pursuant to Section 2.6(a)(ii). "Credit Exposure" is defined in Section 12.8(b). "Credit Event" means the making of any Loan or the issuance of any Letter of Credit. "Credit Party" means each Borrower and each Subsidiary that is a party to a Subsidiary Guaranty. "Currency Agreement" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement designed to protect the Persons entering into same against fluctuations in currency values. "Customary Permitted Liens" means: 10 19 (i) Liens for taxes not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued, provided that (A) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (B) provision for the payment of all such taxes known to such Person has been made on the books of such Person to the extent required by GAAP; (ii) mechanics', processor's, materialmen's, carriers', warehousemen's, landlord's and similar Liens arising by operation of law and arising in the ordinary course of business and securing obligations of such Person that are not overdue for a period of more than 30 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that (A) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (B) provision for the payment of such Liens has been made on the books of such Person to the extent required by GAAP; (iii) Liens arising in connection with worker's compensation, unemployment insurance, old age pensions and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that (A) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (B) provision for the payment of such Liens has been made on the books of such Person to the extent required by GAAP; (iv) (A) Liens incurred or deposits made in the ordinary course of business to secure the performance of bids, tenders, statutory obligations, fee and expense arrangements with trustees and fiscal agents (exclusive of obligations incurred in connection with the borrowing of money or the payment of the deferred purchase price of property) and (B) Liens securing surety, indemnity, performance, appeal and release bonds, provided that full provision for the payment of all such obligations has been made on the books of such Person to the extent required by GAAP; (v) Permitted Real Property Encumbrances; (vi) attachment, judgment or other similar Liens arising in connection with court or arbitration proceedings involving individually and in the aggregate liability of $10,000,000 or less at any one time, provided the same are discharged, or that execution or enforcement thereof is stayed pending appeal, within 60 days or, in the case of any stay of execution or enforcement pending appeal, within such lesser time during which such appeal may be taken; (vii) leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its Subsidiaries and any interest or title of a lessor under any lease permitted by this Agreement; and 11 20 (viii) customary rights of set off, revocation, refund or chargeback under deposit agreements or under the Uniform Commercial Code (as in effect in any relevant jurisdiction) of banks or other financial institutions where deposits are maintained in the ordinary course of business as permitted by this Agreement. "Default Rate" means a variable rate per annum which shall be two percent (2%) per annum plus either (i) the then applicable interest rate hereunder in respect of the amount on which the Default Rate is being assessed or (ii) if there is no such applicable interest rate, the Base Rate, but in no event in excess of that permitted by applicable law. "Defaulting Lender" shall mean any Lender with respect to which a Lender Default is in effect. "Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Deutsche Marks" or "DM" means the lawful currency of the Federal Republic of Germany. "Documents" means the Loan Documents and the Transaction Documents. "Dollar" and "$" means lawful currency of the United States of America. "Dollar Equivalent" means, on any date of determination, (i) in relation to an amount denominated in Dollars, the amount thereof and (ii) in relation to an amount denominated in any Alternative Currency, the amount of Dollars required to purchase the relevant stated amount of such Alternative Currency at the Exchange Rate with respect to such Alternative Currency on such date. "Domestic Subsidiary" means any Subsidiary organized under the laws of the United States of America or any State thereof. "Drawing" is defined in Section 2.10(d)(ii). "Effective Date" is defined in Section 12.15. "Eligible Assignee" means (i) a commercial bank, investment company, financial institution, financial company, fund (whether a corporation, partnership, trust or other entity), insurance company or other "accredited investor" (as defined in Regulation D of the Securities Act), (ii) any Lender party to this Agreement, (iii) any Affiliate of any Lender party to this Agreement, and (iv) any other Person approved by Agent and, in the absence of an Event of Default, the Company, such approval not to be unreasonably withheld; provided, however, that an Affiliate of the Company shall not qualify as an Eligible Assignee. 12 21 "Employee Benefit Plan" means an "employee benefit plan" as defined in Section 3(3) of ERISA, which is or has been established or maintained, or to which contributions are or have been made, by the Company or any of its ERISA Affiliates, any Subsidiary of the Company or ERISA Affiliates of such Subsidiary. "Environmental Claim" means any notice of violation, claim, suit, demand, abatement order or other order or direction (conditional or otherwise) by any Governmental Authority or any Person for any damage, personal injury (including sickness, disease or death), tangible or intangible property damage, contribution, indemnity, indirect or consequential damages, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, human health, or natural resources, or for fines, penalties, restrictions or injunctive relief, resulting from or based upon (a) the occurrence or existence of a Release or threatened Release (whether sudden or non-sudden or accidental or non-accidental) of, or exposure to, any Contaminant in, into or onto the environment at, in, by, from or related to any real estate owned, leased or operated at any time by the Company or any of its Subsidiaries (the "Premises"), (b) the use, handling, generation, transportation, storage, treatment or disposal of Contaminants in connection with the operation of any Premises, or (c) the violation, or alleged violation, of any Environmental Laws. "Environmental Laws" means any and all applicable foreign, federal, state or local laws, statutes, ordinances, codes, rules, regulations, orders, decrees, judgements, directives and cleanup or action standards, levels or objectives imposing liability or standards of conduct for or relating to the protection of health, safety or the environment, including, but not limited to, the following statutes as now written and hereafter amended: the Water Pollution Control Act, as codified in 33 U.S.C. Section 1251 et seq., the Clean Air Act, as codified in 42 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, as codified in 15 U.S.C. Section 2601 et seq., the Solid Waste Disposal Act, as codified in 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act, as codified in 42 U.S.C. Section 9601 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, as codified in 42 U.S.C. Section 11001 et seq., and the Safe Drinking Water Act, as codified in 42 U.S.C. Section 300f et seq., and any related regulations, as well as all state and local equivalents. "Environmental Lien" means a Lien in favor of any Governmental Authority for (i) any liability under Environmental Laws, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "Environmental Permits" means any and all permits, licenses, certificates, authorizations or approvals of any Governmental Authority required by Environmental Laws and necessary or reasonably required for the business of the Company or any Subsidiary of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. 13 22 "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code, is a member of a "controlled group", as defined in Section 414(b) of the Code, or is a member of an "affiliated service group", as defined in Section 414(m) of the Code, which includes such Person. Unless otherwise qualified, all references to an "ERISA Affiliate" in this Agreement shall refer to an ERISA Affiliate of the Company or any Subsidiary. "Eurocurrency Loan" means any Loan bearing interest at a rate determined by reference to the Eurocurrency Rate. "Eurocurrency Rate" means (i) in the case of Dollar-denominated Loans, the arithmetic average (rounded to the nearest 1/16 of 1%) of the offered quotation, if any, to first class banks in the New York interbank market by the Reference Lender for deposits in Dollars of amounts in immediately available funds comparable to the principal amount of the applicable Eurodollar Loan of the Reference Lender for which the Eurocurrency Rate is being determined with maturities comparable to the Interest Period for which such Eurocurrency Rate will apply as of approximately 10:00 a.m. (New York City time) on the applicable Interest Rate Determination Date and (ii) in the case of Loans denominated in an Alternative Currency, the arithmetic average (rounded to the nearest 1/16 of 1%) of the offered quotation, if any, to first class banks in the London interbank market by the Reference Lender for non-U.S. deposits in the currency in which such Borrowing is denominated of amounts in immediately available funds comparable to the principal amount and currency of the applicable Eurocurrency Loan of the Reference Lender for which the Eurocurrency Rate is being determined with maturities comparable to the Interest Period for which such Eurocurrency Rate will apply as of approximately 11:00 a.m. (London time) on the applicable Interest Rate Determination Date. "Eurocurrency Reserve Rate" means, with respect to each day during each Interest Period pertaining to a Eurocurrency Loan, a rate per annum determined for such day in accordance with the following formula: Eurocurrency Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurocurrency Reserve Requirements" means, for any day as applied to a Eurocurrency Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board). "Eurodollar Loan" means any Eurocurrency Loan denominated in Dollars. 14 23 "Event of Default" is defined in Section 10.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended and as codified in 15 U.S.C. 78a et seq., and as hereafter amended. "Exchange Rate" shall mean, on any day, (a) with respect to any Alternative Currency, the spot rate at which Dollars are offered on such day by Agent in London for such Alternative Currency at approximately 11:00 a.m. (London time), and (b) with respect to Dollars in relation to any specified Alternative Currency, the spot rate at which such specified Alternative Currency is offered on such day by Agent in London for Dollars at approximately 11:00 a.m. (London time). For purposes of determining the Exchange Rate in connection with an Alternative Currency Borrowing such Exchange Rate shall be determined as of the Exchange Rate Determination Date for such Borrowing. Agent shall provide the Company with the then current Exchange Rate from time to time upon the Company's request therefor. "Exchange Rate Determination Date" means for purposes of the determination of the Exchange Rate of any stated amount on any Business Day in relation to any Alternative Currency Borrowing, the date which is three Business Days prior to such Borrowing. "Facility Fee" is defined in Section 3.2(a). "Facing Agent" means BT, and any Lender which at the request of the Company and with the consent of Agent agrees, in such Lender's sole discretion, to become a Facing Agent for the purpose of issuing Letters of Credit pursuant to Section 2.10. "FASB 52" means Statement of Financial Accounting Standards No. 52 promulgated by the Financial Accounting Standards Board. "Federal Funds Rate" means on any one day, the rate per annum equal to the weighted average (rounded upwards, if necessary, to the nearest 1/100th of 1%) of the rate on overnight federal funds transactions with members of the Federal Reserve System only arranged by federal funds brokers, as published as of such day by the Federal Reserve Bank of New York, or, if such rate is not so published, the average of the quotations for such day on such transactions received by BT from three federal funds brokers of recognized standing selected by BT. "Fiscal Quarter" is defined in Section 7.12. "Fiscal Year" is defined in Section 7.12. "Foreign Pension Plan" means any plan, fund (including, without limitation, any super-annuation fund) or other similar program established or maintained outside of the United States of America by the Company or any one or more of its Subsidiaries primarily 15 24 for the benefit of employees of the Company or such Subsidiaries residing outside the United States of America, which plan, fund, or similar program provides or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which is not subject to ERISA or the Code. "French Francs" or "FF" means the lawful currency of France. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "Glatfelter Pulp Wood" means The Glatfelter Pulp Wood Company, a Maryland corporation, and includes its successors (including, without limitation, a receiver, trustee or debtor-in-possession of or for such Person) and permitted assigns. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of government. "Guarantee Obligations" means, as to any Person, without duplication, any direct or indirect obligation of such Person guaranteeing or intended to guarantee any Indebtedness, Capital Lease or operating lease, dividend or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent: (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include any endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation at any time shall be deemed to be an amount equal to the lesser at such time of (y) the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made or (z) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof. "Guaranteed Creditors" shall mean and include Agent, the Lenders and each Person (other than any Credit Party) which is a party to an Interest Rate Agreement or Other Hedging Agreement. 16 25 "Guaranteed Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest (whether such interest is allowed as a claim in a bankruptcy proceeding with respect to any Subsidiary Borrower or otherwise) on each Note issued by a Subsidiary Borrower to each Lender, and Loans made under this Agreement to any Subsidiary Borrower and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit issued for the benefit of any Subsidiary Borrower, together with all other Obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, fees and interest thereon) of any Subsidiary Borrower to such Lender now existing or hereafter incurred under, arising out of or in connection with this Agreement or any other Loan Documents and the due performance and compliance with all terms, conditions and agreements contained in the Loan Documents by any Subsidiary Borrower and (ii) the full and prompt payment when due (whether by acceleration or otherwise) of all Obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of any Subsidiary Borrower owing under any Interest Rate Agreement or Other Hedging Agreement entered into by any Subsidiary Borrower with any Lender or any Affiliate thereof (even if such Lender subsequently ceases to be a Lender under this Agreement for any reason) so long as such Lender or Affiliate participates in such Interest Rate Agreement or Other Hedging Agreement, and their subsequent assigns, if any, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Hazardous Materials" shall mean (a) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar meaning and regulatory effect; or (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority. "Indebtedness" means, as applied to any Person (without duplication): (i) all indebtedness of such Person for borrowed money; (ii) the deferred and unpaid balance of the purchase price of assets or services (other than trade payables and other accrued liabilities incurred in the ordinary course of business that are not overdue by more than 90 days unless being contested in good faith) which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or a similar written instrument, other than customary holdbacks on construction contracts; 17 26 (iii) all Capitalized Lease Obligations; (iv) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person or is nonrecourse to such Person; (v) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money (other than such notes or drafts for the deferred purchase price of assets or services which do not constitute Indebtedness pursuant to clause (ii) above); (vi) indebtedness or obligations of such Person, in each case, evidenced by bonds, notes or similar written instruments; (vii) the face amount of all letters of credit and bankers' acceptances issued for the account of such Person, and without duplication, all drafts drawn thereunder other than, in each case, commercial or standby letters of credit or the functional equivalent thereof issued in connection with performance, bid or advance payment obligations incurred in the ordinary course of business, including, without limitation, performance requirements under workers' compensation or similar laws; (viii) all obligations of such Person under Interest Rate Agreements or Other Hedging Agreements; (ix) Guarantee Obligations of such Person; and (x) all contingent Contractual Obligations with respect to any of the foregoing. "Indebtedness to Remain Outstanding" is defined in Section 6.5(d). "Indemnified Party" is defined in Section 12.4(a). "Initial Borrowing" means the first Borrowing by any Borrower under this Agreement. "Initial Borrowing Date" means the date of the Initial Borrowing. "Initial Loan" means the first Loan made by the Lenders under this Agreement. "Interest Coverage Ratio" means, for any Test Period, the ratio of Adjusted Consolidated EBITDA to Consolidated Interest Expense for such Test Period. 18 27 "Interest Payment Date" means (a) as to any Base Rate Loan, the last Business Day of each March, June, September and December to occur while such Loan is outstanding and on the date all of the Loans hereunder are paid in full, (b) as to any Eurocurrency Loan, the last day of the Interest Period applicable thereto and (c) as to any Eurocurrency Loan having an Interest Period longer than three months, at the end of each three month anniversary of the first day of the Interest Period applicable thereto or after the occurrence and during the continuance of an Event of Default hereunder, at the end of each one month anniversary of the first day of the Interest Period applicable to any Eurocurrency Loans other than Eurodollar Loans; provided, however, that, in addition to the foregoing, each of (x) the date upon which the Revolving Loan Commitment has been terminated and the Loans have been paid in full and (y) the Termination Date, shall be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued hereunder. "Interest Period" is defined in Section 3.4. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate futures contract, interest rate option contract or other similar agreement or arrangement to which the Company or any Subsidiary is a party, designed to protect the Company or any Subsidiary against fluctuations in interest rates. "Interest Rate Determination Date" means the date for calculating the Eurocurrency Rate for an Interest Period, which date shall be (i) in the case of any Eurodollar Loan in Dollars, the second Business Day prior to the first day of the related Interest Period for such Loan or (ii) in the case of any Eurocurrency Loan in an Alternative Currency, the date on which quotations would ordinarily be given by prime banks in the London interbank market for deposits in the Applicable Currency for value on the first day of the related Interest Period for such Eurocurrency Loan; provided, however, that if for any such Interest Period with respect to an Alternative Currency Loan, quotations would ordinarily be given on more than one date, the Interest Rate Determination Date shall be the last of those dates. "Investment" means, as applied to any Person, (i) any direct or indirect purchase or other acquisition by that Person of, or a beneficial interest in, Securities of any other Person, or a capital contribution by that Person to any other Person, (ii) any direct or indirect loan or advance to any other Person (other than prepaid expenses or accounts receivable created or acquired in the ordinary course of business), including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business (iii) any purchase by that Person of all or a significant part of the assets of a business conducted by another Person (including any purchase) or (iv) any purchase by that Person of a futures contract or such Person otherwise becoming liable for the purchase or sale of currency or other commodity at a future date in the nature of a futures contract. The amount of any Investment by any Person on any date of determination shall be the sum of the value of the gross assets acquired by such Person (including the amount of any liability assumed in connection with the acquisition of such assets by such 19 28 Person to the extent such liability would be reflected on a balance sheet prepared in accordance with GAAP) plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, minus the amount of all cash returns of principal or capital thereon, cash dividends thereon and other cash returns on investment thereon or liabilities expressly assumed by another Person (other than the Company or any Subsidiary of the Company) in connection with the sale of such Investment. Whenever the term "outstanding" is used in this Agreement with reference to an Investment, it shall take into account the matters referred to in the preceding sentence. "IRS" means the United States Internal Revenue Service, or any successor or analogous organization. "LC Commission" is defined in Section 2.10(g)(ii). "LC Obligations" means, at any time, an amount equal to the sum of (a) the aggregate Stated Amount of the then outstanding Letters of Credit and (b) the aggregate Assigned Dollar Value of the amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2.10(d) or Section 2.10(f). The LC Obligation of any Lender at any time shall mean its Pro Rata Share of the aggregate LC Obligations outstanding at such time. "LC Participant" is defined in Section 2.10(e). "LC Supportable Indebtedness" shall mean (i) obligations of the Company or its Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Company or any of its Subsidiaries as are reasonably acceptable to Agent and the respective Facing Agent and otherwise permitted to exist pursuant to the terms of this Agreement. "Lender" and "Lenders" have the respective meanings assigned to those terms in the preamble to this Agreement and shall include any Person that becomes a "Lender" as contemplated by Section 12.8. "Lender Default" shall mean (i) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.10(f) or (ii) a Lender having notified in writing the Company and/or Agent that it does not intend to comply with its obligations under Section 2.1 or Section 2.10(f), as a result of any takeover of such Lender by any regulatory authority or agency. "Lending Office" means, with respect to each Lender, the office specified under such Lender's name on the signature page hereto, or on the signature page to any Assignment and Assumption Agreement, with respect to each Letter of Credit or Type of 20 29 Loan, as the case may be, or such other office as such Lender may designate in writing from time to time to the Company and Agent with respect thereto. "Letter of Credit" is defined in Section 2.10(a). "Letter of Credit Payment" means as applicable (a) all payments made by the Facing Agent pursuant to either a draft or demand for payment under a Letter of Credit or (b) all payments made by the Lenders to the Facing Agent in respect thereof (whether or not in accordance with their Pro Rata Shares). "Letter of Credit Request" is defined in Section 2.10(c). "Leverage Ratio" means, at any date of determination, the ratio of Consolidated Debt to Adjusted Consolidated EBITDA for the Test Period ending on such date (or most recently ended). "Lien" means (i) any judgment lien or execution, attachment, levy, distraint or similar legal process and (ii) any mortgage, pledge, hypothecation, collateral assignment, security interest, encumbrance, lien, charge or deposit arrangement (other than a deposit to a Deposit Account in the ordinary course of business and not intended as security) of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any agreement to give any of the foregoing, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code as in effect in any relevant jurisdiction or any similar statute other than to reflect ownership by a third party of property leased to the Company or any of its Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, any subordination arrangement in favor of another Person or any sale of receivables with recourse against the seller or any Affiliate of the seller). "Loan" means an extension of credit by a Lender to a Borrower pursuant to Article II, and may be a Revolving Loan or a Swing Line Loan, and "Loans" means all of such Loans by all Lenders collectively. "Loan Documents" means, collectively, this Agreement, the Notes, each Subsidiary Guaranty, each Letter of Credit, each Interest Rate Agreement to which any Lender or any Affiliate of a Lender is a party, and all other agreements, instruments and documents executed in connection herewith or therewith, in each case as the same may at any time be amended, supplemented, restated or otherwise modified and in effect. "Local Time" means the local time in effect at the applicable Payment Office in the case of payments and disbursements of Loans and Letters of Credit. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), assets, liabilities, property, operations or prospects of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or any 21 30 Subsidiary to perform its respective obligations under any Loan Document to which it is a party, or (c) the validity or enforceability of this Agreement or any of the Loan Documents or the rights or remedies of Agent and the Lenders hereunder or thereunder. "Material Subsidiary" means each Subsidiary Borrower and each other Subsidiary of the Company that has assets at such time, or revenues during the most recently ended Fiscal Year, comprising 5% or more of the consolidated assets of the Company and its Subsidiaries at such time, or of the consolidated revenues of the Company and its Subsidiaries during such Fiscal Year, as the case may be; provided, however, that GWS Valuch, Inc., a Delaware corporation, and Glen-Wolfe, Inc., a Delaware corporation, shall not be deemed to be Material Subsidiaries of the Company. "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Most Recent Leverage Ratio" means, at any date, the Leverage Ratio for the Test Period ending as of the most recently ended Fiscal Quarter or Fiscal Year for which financial statements have been delivered to the Lenders pursuant to Section 7.1; provided however, that if the Company fails to deliver such financial statements as required by Section 7.1 and further fails to remedy such default within five days of notice thereof from Agent, then, without prejudice to any other rights of any Lender hereunder, the Most Recent Leverage Ratio shall be deemed to be greater than 3.50 to 1.00 as of the date such financial statements were required to be delivered under Section 7.1. "Multiemployer Plan" means any plan described in Section 4001(a)(3) of ERISA to which contributions are or have, within the preceding six years, been made, or are or were, within the preceding six years, required to be made, by the Company or any of its ERISA Affiliates or any Subsidiary of the Company or ERISA Affiliates of such Subsidiary. "Non-Defaulting Lender" shall mean each Lender which is not a Defaulting Lender. "Note" means any of the Revolving Notes or the Swing Line Note and "Notes" means all of such Notes collectively. "Notice Address" is defined in Section 2.5. "Notice of Borrowing" is defined in Section 2.5. "Notice of Continuation" is defined in Section 2.7(b). "Notice of Conversion or Continuation" is defined in Section 2.6(b). "Obligations" means all liabilities and obligations of the Company and any Subsidiary of the Company now or hereafter arising under this Agreement and all of the 22 31 other Loan Documents, whether for principal, interest, fees, expenses, indemnities or otherwise, and whether primary, secondary, direct, indirect, contingent, fixed or otherwise (including obligations of performance). "Organizational Documents" means, with respect to any Person, such Person's articles or certificate of incorporation, bylaws, partnership agreement, joint venture agreement or other similar governing documents and any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such Person's Capital Stock. "Other Hedging Agreement" means any foreign exchange contract, Currency Agreement, futures contract, commodity agreement, option contract, synthetic cap or other similar agreement. "Papierfabrick Schoeller & Hoesch" means Papierfabrick Schoeller & Hoesch GmbH, a company with limited liability organized under the laws of the Federal Republic of Germany, and includes its successors (including, without limitation, a receiver, trustee or debtor-in-possession of or for such Person) and permitted assigns. "Participants" is defined in Section 12.8(b). "Payment Office" means (a) with respect to Agent or Swing Line Lender, for payments with respect to Dollar-denominated Loans, One Bankers Trust Plaza, 130 Liberty Street, New York, New York, 10006, or such other address as Agent or Swing Line Lender, as the case may be, may from time to time specify in accordance with Section 12.3, (b) with respect to Agent, for payments in any Alternative Currency, such account at such bank or office in London or the principal financial center in the country of the Applicable Currency as Agent shall designate by notice to the Person required to make the relevant payment and (c) with respect to any Facing Bank in connection with payments in Dollars, such account at such bank or office as such Facing Bank shall designate by notice to the Person required to make the relevant payment. "PBGC" means the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA. "Performance Levels" means, collectively, Performance Level I, Performance Level II, Performance Level III, Performance Level IV, Performance Level V, Performance Level VI and Performance Level VII; and "Performance Level" means, any of Performance Level I, Performance Level II, Performance Level III, Performance Level IV, Performance Level V, Performance Level VI and Performance Level VII. For purposes of determination of a given Performance Level, (i) if at any time only one of the respective rating agencies assigns a rating to the long term, senior unsecured, non-credit enhanced indebtedness of the Company, that rating shall be used to determine the applicable Performance Level; (ii) if the ratings of the respective rating agencies fall within different Performance Levels, the applicable Performance Level shall be determined based upon the higher of the two ratings, 23 32 provided that if the ratings of the respective rating agencies fall within Performance Levels that are two levels apart, then the applicable Performance Level shall be the Performance Level which falls between the different Performance Levels; and (iii) as of the Closing Date, the applicable Performance Level shall be Performance Level V until the date immediately preceding the effective date of the next subsequent change. "Performance Level I" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated at least AA- by S&P or Aa3 by Moody's. "Performance Level II" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated A+ by S&P or A1 by Moody's. "Performance Level III" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated A by S&P or A2 by Moody's. "Performance Level IV" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated A- by S&P or A3 by Moody's. "Performance Level V" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated BBB+ by S&P or Baa1 by Moody's. "Performance Level VI" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated BBB by S&P or Baa2 by Moody's. "Performance Level VII" means that level of financial performance of the Company, on a consolidated basis, in effect on any given date at which the long term, senior unsecured, non-credit enhanced indebtedness of the Company is rated BBB- by S&P or Baa3 by Moody's. "Permitted Acquisition" is defined in Section 8.3(f). "Permitted Liens" is defined in Section 8.1. 24 33 "Permitted Real Property Encumbrances" shall mean (i) such easements, encroachments, covenants, rights of way, minor defects, irregularities or encumbrances on title which do not materially impair the use or enjoyment of such property, (ii) municipal and zoning ordinances, which are not violated in any material respect by the existing improvements and the present use made by the owner thereof, and (iii) general real estate taxes and assessments not yet delinquent. "Person" means an individual or a corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PHG Tea Leaves" means PHG Tea Leaves, Inc., a Delaware corporation, and includes its successors (including, without limitation, a receiver, trustee or debtor-in-possession of or for such Person) and permitted assigns. "Plan" means any plan described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which is or has, within the preceding six years, been established or maintained, or to which contributions are or have, within the preceding six years, been made, by the Company or any of its ERISA Affiliates or any Subsidiary of the Company or any ERISA Affiliates of such Subsidiary, but not including any Multiemployer Plan. "Plan Administrator" has the meaning assigned to the term "administrator" in Section 3(16)(A) of ERISA. "Plan Sponsor" has the meaning assigned to the term "plan sponsor" in Section 3(16)(B) of ERISA. "Preferred Stock" means preferred stock of the Company which (i) is not convertible or exchangeable into Indebtedness, (ii) may not, upon the occurrence of any event or circumstance or otherwise by its terms, be required to be redeemed by the Company or be redeemable at the option of the holder thereof, in each case, at any time prior to the first anniversary of the Termination Date and (iii) does not contain other terms (other than customary market terms for preferred stock of similar companies) which could reasonably be expected to adversely affect the interests of the Lenders. "Pro Forma Balance Sheet" is defined in Section 6.5(a). "Pro Rata Share" means, when used with reference to any Lender and any described aggregate or total amount, an amount equal to the result obtained by multiplying such described aggregate or total amount by a fraction the numerator of which shall be such Lender's Commitment and the denominator of which shall be the Total Revolving Commitment or, if no Commitments are then outstanding, such Lender's aggregate Loans to the total Loans and Obligations hereunder. 25 34 "Quarterly Payment Date" means the last Business Day of each March, June, September and December of each year. "Raboisen 209" means Raboisen 209, Vermogensverwaltungsgesellschaft mbH, a company with limited liability organized under the laws of the Federal Republic of Germany, and includes its successors (including, without limitation, a receiver, trustee or debtor-in-possession of or for such Person) and permitted assigns. "Raboisen 210" means Raboisen 210, Vermogensverwaltungsgesellschaft mbH, a company with limited liability organized under the laws of the Federal Republic of Germany, and includes its successors (including, without limitation, a receiver, trustee or debtor-in-possession of or for such Person) and permitted assigns. "Refunded Swing Line Loans" is defined in Section 2.1(b)(ii). "Reference Lender" means BT. "Regulation D" means Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Release" means any release, spill, emission, leaking, pumping, pouring, emptying, dumping, injection, deposit, disposal, discharge, dispersal, escape, leaching or migration into the indoor or outdoor environment or into or out of any property of the Company or its Subsidiaries, or at any other location, including any location to which the Company or any Subsidiary has transported or arranged for the transportation of any Contaminant, including the movement of Contaminants through or in the air, soil, surface water, groundwater or property of the Company or its Subsidiaries or at any other location, including any location to which the Company or any Subsidiary has transported or arranged for the transportation of any Contaminant. "Remedial Action" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment, (ii) prevent or minimize the Release or threat of Release of Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (iii) perform pre-remedial or post-remedial studies and investigations and post-remedial monitoring and care or any other studies, reports or investigations relating to Contaminants. "Replaced Lender" is defined in Section 3.7. "Replacement Lender" is defined in Section 3.7. "Reportable Event" means a "reportable event" described in Section 4043(c) of ERISA or in the regulations thereunder with respect to a Plan for which the requirement of notice to the PBGC has not been waived, the filing of a notice of intent to terminate a Plan, 26 35 the termination of a Plan, any event requiring disclosure under Section 4063(a) or 4062(e) of ERISA, receipt of a notice of withdrawal liability with respect to a Multiemployer Plan pursuant to Section 4202 of ERISA or receipt of a notice of reorganization or insolvency with respect to a Multiemployer Plan pursuant to Section 4242 or 4245 of ERISA. "Required Lenders" shall mean Non-Defaulting Lenders the sum of whose outstanding Revolving Commitments (or, if after the Total Revolving Commitment has been terminated, outstanding Revolving Loans and Pro Rata Share of outstanding Swing Line Loans and Letter of Credit Obligations) constitutes greater than 50% of the Total Revolving Commitment less the aggregate Revolving Commitments of Defaulting Lenders (or, if after the Total Revolving Commitment has been terminated, the total outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate Pro Rata Share of all Non-Defaulting Lenders of the total outstanding Swing Line Loans and Letter of Credit Obligations at such time). "Requirement of Law" means, as to any Person, any law (including common law), treaty, rule or regulation or judgment, decree, determination or award of an arbitrator or a court or other Governmental Authority, including without limitation, any Environmental Law, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means any of the Chief Executive Officer, the President, the Chief Financial Officer, any Executive Vice President, the Controller, any Vice President or the Treasurer of the Company. "Restricted Payment" is defined in Section 8.4. "Revolving Commitment" means, with respect to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Letters of Credit, as such commitment may be increased or reduced from time to time pursuant to this Agreement, which commitment as of the date hereof is the amount set forth opposite such lender's name on Schedule 1.1(a) hereto under the caption "Amount of Revolving Commitment", as the same may be adjusted from time to time pursuant to the terms hereof, and "Revolving Commitments" means such commitments collectively, which commitments equal $200,000,000 in the aggregate as of the Closing Date "Revolving Loan" and "Revolving Loans" are defined in Section 2.1(a). "Revolving Note" is defined in Section 2.2(a). "SEC" means the United States Securities and Exchange Commission or any successor thereto. "Securities" means any stock, shares, voting trust certificates, bonds, debentures, options, warrants, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly 27 36 known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended. "Shortfall Amount" is defined in Section 4.1(c). "Solvent" means, when used with respect to any Person, that (i) the fair salable value of its assets is in excess of the total amount of its liabilities (including for purposes of this definition all liabilities, whether or not reflected on a balance sheet prepared in accordance with GAAP, and whether direct or indirect, fixed or contingent, disputed or undisputed); (ii) it is able to pay its debts or obligations in the ordinary course as they mature; and (iii) it has capital sufficient to carry on its business and all business in which it is about to engage. "S&P" means Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc., or any successor to the rating agency business thereof. "Standby Letter of Credit" is defined in Section 2.10(a). "Stated Amount" or "Stated Amounts" means with respect to any Letter of Credit, the stated or face amount of such Letter of Credit to the extent available at the time for drawing (subject to presentment of all requisite documents), as the same may be increased or decreased from time to time in accordance with the terms of such Letter of Credit. For purposes of calculating the Stated Amount of any Letter of Credit at any time: (i) any increase in the Stated Amount of any Letter of Credit by reason of any amendment to any Letter of Credit shall be deemed effective under this Agreement as of the date Facing Agent actually issues an amendment purporting to increase the Stated Amount of such Letter of Credit, whether or not Facing Agent receives the consent of the Letter of Credit beneficiary or beneficiaries to the amendment, except that if the Company has required that the increase in Stated Amount be given effect as of an earlier date and Facing Agent issues an amendment to that effect, then such increase in Stated Amount shall be deemed effective under this Agreement as of such earlier date requested by the Company; and (ii) any reduction in the Stated Amount of any Letter of Credit by reason of any amendment to any Letter of Credit shall be deemed effective under this Agreement as of the later of (x) the date Facing Agent actually issues an amendment purporting to reduce the Stated Amount of such Letter of Credit, whether or not the amendment provides that the reduction be given effect as of an earlier date, or (y) the date Facing Agent receives the written consent (including by telex or facsimile transmission) of the Letter of 28 37 Credit beneficiary or beneficiaries to such reduction, whether written consent must be dated on or after the date of the amendment issued by Facing Agent purporting to effect such reduction. "Subsidiary" of any Person means any corporation, partnership (limited or general), limited liability company, trust or other entity of which a majority of the stock (or equivalent ownership or controlling interest) having voting power to elect a majority of the board of directors (if a corporation) or to select the trustee or equivalent controlling interest, shall, at the time such reference becomes operative, be directly or indirectly owned or controlled by such Person or one or more of the other subsidiaries of such Person or any combination thereof. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Subsidiary Borrowers" means and includes each of the following Wholly- Owned Subsidiaries of the Company: (i) PHG Tea Leaves, Raboisen 209 and Raboisen 210; and (ii) any additional Wholly-Owned Subsidiary of the Company which is a Material Subsidiary that is approved in writing by Agent (other than Papierfabrick Schoeller & Hoesch for which no such approval shall be necessary) and as to which a Borrower Assumption Agreement shall have been delivered to Agent (copies of which Agent shall promptly deliver to each Lender), duly executed on behalf of such Subsidiary and the Company (together with such documentation with respect to such Subsidiary as may be required under such Borrower Assumption Agreement and such other documents as Agent may reasonably request). "Subsidiary Guaranty" is defined in Section 5.1(b) and includes any additional Subsidiary Guaranty executed by any Subsidiary of the Company pursuant to this Agreement. "Subsidiary Guarantor" means each of Glatfelter Pulp Wood and PHG Tea Leaves, and each other Subsidiary that becomes a party to a Subsidiary Guaranty as contemplated in Section 7.11. "Swing Line Commitment" of the Swing Line Lender at any date, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.1(b) in the amount referred to therein. "Swing Line Lender" means BT. "Swing Line Loans" is defined in Section 2.1(b). "Swing Line Loan Participation Certificate" means a certificate, substantially in the form of Exhibit 2.1(b). "Swing Line Note" is defined in Section 2.2(a). "Syndication Date" is defined in Section 2.1(a). 29 38 "Taxes" is defined in Section 4.6(a). "Termination Date" means December 22, 2002 or such earlier date as the Revolving Commitments shall have been terminated or otherwise reduced to $0 pursuant to this Agreement. "Test Period" means, for any determination, the four consecutive Fiscal Quarters of the Company (taken as one accounting period) ending on such date. "Total Available Revolving Commitment" means, at the time any determination thereof is made, the sum of the respective Available Revolving Commitments of the Lenders at such time. "Total Consolidated Indebtedness" means the total of all Indebtedness of the Company and its Subsidiaries. "Total Revolving Commitment" means, at any time, the sum of the Revolving Commitments of each of the Lenders at such time. "Transaction" shall mean and include (i) each of the Credit Events occurring on the Initial Borrowing Date, (ii) the Acquisition, (iii) such other transactions as are contemplated by the Documents, and (iv) the payment of fees and expenses in connection with the foregoing. "Transaction Documents" means, collectively, the Acquisition Documents, shareholders' agreements, collective bargaining agreements and tax sharing agreements, and including any agreement, document, instrument and certificate executed and/or delivered after the date hereof pursuant to the terms of, or in connection with, any of the foregoing. "Transferee" is defined in Section 12.8(d). "Type" means as to any Loan, its nature as a Base Rate Loan, a Eurodollar Loan or a Eurocurrency Loan in an Alternative Currency. "Unmatured Event of Default" means an event, act or occurrence which with the giving of notice or the lapse of time (or both) would become an Event of Default. "Unpaid Drawing" is defined in Section 2.10(d). "Voting Securities" means any class of Capital Stock of a Person pursuant to which the holders thereof have, at the time of determination, the general voting power under ordinary circumstances to vote for the election of directors, managers, trustees or general partners of such Person (irrespective of whether or not at the time any other class or classes will have or might have voting power by reason of the happening of any contingency). 30 39 "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. "Wholly-Owned Domestic Subsidiary" means each Wholly-Owned Subsidiary that is also a Domestic Subsidiary. "Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person, all of the outstanding shares of Capital Stock of which (other than qualifying shares required to be owned by directors) are at the time owned directly or indirectly by such Person and/or one or more Wholly-Owned Subsidiaries of such Person. "written" or "in writing" means any form of written communication or a communication by means of telecopier device or authenticated telex, telegraph or cable. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. The words "herein," "hereof" and words of similar import as used in this Agreement shall refer to this Agreement as a whole and not to any particular provision in this Agreement. References to "Articles", "Sections", "paragraphs", "Exhibits" and "Schedules" in this Agreement shall refer to Articles, Sections, paragraphs, Exhibits and Schedules of this Agreement unless otherwise expressly provided; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. 1.2 Accounting Terms; Financial Statements. All accounting terms used herein but not expressly defined in this Agreement shall have the respective meanings given to them in accordance with GAAP in effect on the date hereof in the United States of America. Except as otherwise expressly provided herein, all computations and determinations for purposes of determining compliance with the financial requirements of this Agreement shall be made in accordance with GAAP in effect in the United States of America on the date hereof and on a basis consistent with the presentation of the financial statements delivered pursuant to, or otherwise referred to in, Section 6.5(a). Notwithstanding the foregoing sentence, the financial statements required to be delivered pursuant to Section 7.1 shall be prepared in accordance with GAAP in the United States of America as in effect on the respective dates of their preparation. Unless otherwise provided for herein, wherever any computation is to be made with respect to any Person and its Subsidiaries, such computation shall be made so as to exclude all items of income, assets and liabilities attributable to any Person which is not a Subsidiary of such Person. 31 40 ARTICLE II AMOUNT AND TERMS OF CREDIT 2.1 The Commitments. (a) Revolving Loans. Each Lender, severally and for itself alone, hereby agrees, on the terms and subject to the conditions hereinafter set forth and in reliance upon the representations and warranties set forth herein and in the other Loan Documents, to make loans in Deutsche Marks and French Francs (to the extent such currencies are generally available and freely transferrable into Dollars) or Dollars to Borrowers (on a several basis) on a revolving basis from time to time during the Commitment Period, in an amount, the Assigned Dollar Value of which, does not exceed its Pro Rata Share of the Total Available Revolving Commitment (each such loan by any Lender, a "Revolving Loan" and collectively, the "Revolving Loans"). All Revolving Loans comprising the same Borrowing hereunder shall be made by the Lenders simultaneously and in proportion to their respective Revolving Commitments. Prior to the Termination Date, Revolving Loans may be repaid and reborrowed by any Borrower in accordance with the provisions hereof and all Revolving Loans comprising the same Borrowing shall, except as otherwise permitted in Sections 2.3 and 2.4, at all times be of the same Type and no Revolving Loans maintained as Eurodollar Loans or Eurocurrency Loans may be incurred prior to the earlier of (1) the 30th day after the Initial Borrowing Date and (2) the date on which Agent notifies the Company that the primary syndication of the Loans has been completed (the "Syndication Date"). (b) Swing Line Loans. (i) Swing Line Commitment. Subject to the terms and conditions hereof, the Swing Line Lender in its individual capacity agrees to make swing line loans in Dollars ("Swing Line Loans") to the Company on any Business Day from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $25,000,000; provided, however, that in no event may the amount of any Borrowing of Swing Line Loans (A) exceed the Total Available Revolving Commitment immediately prior to such Borrowing (after giving effect to the use of proceeds thereof) or (B) cause the Assigned Dollar Value of outstanding Revolving Loans of any Lender, when added to such Lender's Pro Rata Share of the then outstanding Swing Line Loans and Pro Rata Share of the aggregate LC Obligations (exclusive of Unpaid Drawings relating to LC Obligations which are repaid with the proceeds of, and simultaneously with the incurrence of, Revolving Loans or Swing Line Loans) to exceed such Lender's Revolving Commitment. Amounts borrowed by the Company under this Section 2.1(b)(i) may be repaid and, to but excluding the fifth Business Day prior to the Termination Date, reborrowed. The Swing Line Loans shall be made in Dollars and maintained as Base Rate Loans and, notwithstanding Section 2.6, shall not be entitled to be converted into any other Type of Loan. (ii) Refunding of Swing Line Loans. The Swing Line Lender, at any time in its sole and absolute discretion, may on behalf of the Company (which hereby 32 41 irrevocably directs the Swing Line Lender to so act on its behalf) notify each Lender (including the Swing Line Lender) to make a Revolving Loan in an amount equal to such Lender's Pro Rata Share of the principal amount of the Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is given, provided, however, that such notice shall be deemed to have automatically been given upon the occurrence of an Event of Default under Sections 10.1(e) or 10.1(f) or upon the occurrence of a Change of Control. Unless any of the events described in Sections 10.1(e) or 10.1(f) shall have occurred (in which event the procedures of Section 2.1(b)(iii) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Loan are then satisfied, each Lender shall make the proceeds of its Revolving Loan available to the Swing Line Lender at the Payment Office prior to 11:00 a.m., New York City time, in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the Refunded Swing Line Loans. (iii) Participation in Swing Line Loans. If, prior to refunding a Swing Line Loan with a Revolving Loan pursuant to Section 2.1(b)(ii), one of the events described in Sections 10.1(e) or 10.1(f) shall have occurred, or if for any other reason a Revolving Loan cannot be made pursuant to Section 2.1(b)(ii), then, subject to the provisions of Section 2.1(b)(iv) below, each Lender will, on the date such Revolving Loan was to have been made, purchase (without recourse or warranty) from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (iv) Lenders' Obligations Unconditional. Each Lender's obligation to make Revolving Loans in accordance with Section 2.1(b)(ii) and to purchase participating interests in accordance with Section 2.1(b)(iii) above shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Company, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Event of Default or Unmatured Event of Default; (C) any adverse change in the condition (financial or otherwise) of the Company, any Borrower or any other Person; (D) any breach of this Agreement by the Company, any Borrower or any other Person; (E) any inability of the Company or any Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such Revolving Loan is to be made or such participating interest is to be purchased; or (F) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Lender does not make available to the Swing Line Lender the amount required pursuant to Section 2.1(b)(ii) or (iii) above, as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Base Rate thereafter. 33 42 Notwithstanding the foregoing provisions of this Section 2.1(b)(iv), no Lender shall be required to make a Revolving Loan to the Company for the purpose of refunding a Swing Line Loan pursuant to Section 2.1(b)(ii) or to purchase a participating interest in a Swing Line Loan pursuant to Section 2.1(b)(iii) if an Event of Default or Unmatured Event of Default has occurred and is continuing and, prior to the making by the Swing Line Lender of such Swing Line Loan, the Swing Line Lender has received written notice from such Lender specifying that such Event of Default or Unmatured Event of Default has occurred and is continuing, describing the nature thereof and stating that, as a result thereof, such Lender shall cease to make such Refunded Swing Line Loans and purchase such participating interests, as the case may be; provided, however, that the obligation of such Lender to make such Refunded Swing Line Loans and to purchase such participating interests shall be reinstated upon the earlier to occur of (y) the date upon which such Lender notifies the Swing Line Lender that its prior notice has been withdrawn and (z) the date upon which the Event of Default or Unmatured Event of Default specified in such notice no longer is continuing. 2.2 Notes. (a) Evidence of Indebtedness. Each Borrower's obligation to pay the principal of and interest on all the Loans made to it by each Lender shall be evidenced, (i) if Revolving Loans, by a separate promissory note (each, a "Revolving Note" and, collectively, the "Revolving Notes") duly executed and delivered by such Borrower (on a several basis) substantially in the form of Exhibit 2.2(a)-1 hereto, with blanks appropriately completed in conformity herewith and (ii) if Swing Line Loans, by a promissory note (the "Swing Line Note") duly executed and delivered by the Company substantially in the form of Exhibit 2.2(a)-2 hereto, with blanks appropriately completed in conformity herewith. (i) Provisions of the Revolving Notes. The Revolving Note issued to each Lender shall (A) be executed by each Borrower (on a several basis), (B) be payable to the order of such Lender and be dated the Closing Date, (C) be in a stated principal amount equal to the Revolving Commitment of such Lender and be payable in the aggregate principal amount of the Revolving Loans evidenced thereby, (D) mature, with respect to each Loan evidenced thereby, on the Termination Date, (E) be subject to mandatory prepayment as provided in Section 4.3 and voluntary prepayment as provided in Section 4.2, (F) bear interest as provided in the appropriate clause of Section 3.1 in respect of the Base Rate Loans, Eurodollar Loans and Eurocurrency Loans, as the case may be, evidenced thereby and (G) be entitled to the benefits of this Agreement and the other applicable Loan Documents. (ii) Provisions of the Swing Line Note. The Swing Line Note issued to the Swing Line Lender shall (A) be executed by the Company, (B) be payable to the order of the Swing Line Lender and be dated the Closing Date, (C) be in a stated principal amount equal to the Swing Line Commitment and be payable in the aggregate principal amount of the Swing Line Loans evidenced thereby, (D) mature, with respect to each Swing Line Loan evidenced thereby, five (5) Business 34 43 Days prior to the Termination Date, (E) be subject to mandatory prepayment as provided in Section 4.3 and voluntary prepayment as provided in Section 4.2, (F) bear interest as provided in Section 3.1 in respect of the Base Rate Loans evidenced thereby and (G) be entitled to the benefits of this Agreement and the other applicable Loan Documents. (b) Notation of Payments. Each Lender will note on its internal records the date, Type, currency and amount of each Loan made by it, each payment in respect thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and the length of each Interest Period with respect thereto, and will, prior to any transfer of any of its Notes, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect any Borrower's or any guarantor's obligations hereunder or under the other applicable Loan Documents in respect of such Loans. 2.3 Minimum Amount of Each Borrowing; Maximum Number of Borrowings. The aggregate principal amount of each Borrowing by any Borrower hereunder shall be not less than (i) in the case of a Base Rate Loan, $2,000,000 and, if greater, shall be in integral multiples of $100,000 above such minimum (or, if less, the then Total Available Revolving Commitment), (ii) in the case of Eurocurrency Loans denominated in an Alternative Currency, an amount of such currency which would purchase not less than $2,000,000 based on the Exchange Rate determined with respect to such currency on the date of the Notice of Borrowing or, if less, then the Dollar Equivalent amount of the Total Available Revolving Commitment, (iii) in the case of Eurodollar Loans, $2,000,000 and, if greater, shall be in integral multiples of $100,000 above such minimum and (iv) in the case of Swing Line Loans, $500,000 and, if greater, shall be in integral multiples of $100,000 above such minimum. More than one Borrowing may be incurred on any date; provided, however, that at no time shall there be outstanding more than ten (10) Borrowings of Eurocurrency Loans. 2.4 Borrowing Options. The Revolving Loans, if denominated in an Alternative Currency shall be Eurocurrency Loans and, if denominated in Dollars, may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by any Borrower and notified to Agent, in accordance with Section 2.5. As to any Eurocurrency Loan, any Lender may, if it so elects, without any additional cost to any Borrower, fulfill its commitment by causing a foreign branch or Affiliate to make or continue such Loan, provided that in such event that Lender's Pro Rata Share of the Loan shall, for the purposes of this Agreement, be considered to have been made by that Lender and the obligation of such Borrower to repay that Lender's Pro Rata Share of the Loan shall nevertheless be to that Lender and shall be deemed held by that Lender, for the account of such branch or Affiliate. 2.5 Notice of Borrowing. Whenever any Borrower desires to make a Borrowing of any Loan hereunder, it shall give Agent at its office located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006 (or such other address as the 35 44 Agent may hereafter designate in writing to the parties hereto) (the "Notice Address") at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing), given not later than 12:00 Noon (New York City time) of each Base Rate Loan, and at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing), given not later than 12:00 Noon (New York City time), of each Eurocurrency Loan to be made hereunder. Whenever the Company desires that Swing Line Lender make a Swing Line Loan under Section 2.1(b), it shall deliver to the Swing Line Lender prior to 11:00 a.m. (New York City time) on the date of Borrowing written notice (or telephonic notice promptly confirmed in writing). Each such notice (each a "Notice of Borrowing"), which shall be in the form of Exhibit 2.5 hereto, shall be irrevocable, shall be deemed a representation by Borrowers that all conditions precedent to such Borrowing have been satisfied and shall specify (i) the aggregate principal amount of the Loans to be made pursuant to such Borrowing (which shall be expressed in the currency of such Borrowing), (ii) the date of Borrowing (which shall be a Business Day), (iii) the currency for such Borrowing which shall consist of Dollars or an Alternative Currency, and if in Dollars, whether the Loans being made pursuant to such Borrowing are to be Base Rate Loans or Eurodollar Loans, or a combination thereof, (iv) if the Borrowing is to be entirely or partly of Eurocurrency Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor and (v) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirement of Section 2.8). The Alternative Currency Loans shall be made in the Applicable Currency specified in the applicable Notice of Borrowing in the amount specified in such Notice of Borrowing, the Dollar Equivalent of which shall be determined by Agent as of the Exchange Rate Determination Date for such Borrowing (which determination shall be conclusive absent manifest error and communicated to the applicable Borrower and the Lenders). Agent shall as promptly as practicable give each Lender written or telephonic notice (promptly confirmed in writing) of each proposed Borrowing, of such Lender's Pro Rata Share thereof and of the other matters covered by the Notice of Borrowing. Without in any way limiting any Borrower's obligation to confirm in writing any telephonic notice, Agent or the Swing Line Lender (in the case of Swing Line Loans) or the respective Facing Agent (in the case of Letters of Credit) may act without liability upon the basis of telephonic notice believed by Agent in good faith to be from a Responsible Officer of the Company prior to receipt of written confirmation. Agent's records shall, absent manifest error, be final, conclusive and binding on Borrowers with respect to evidence of the terms of such telephonic Notice of Borrowing. Each Borrower hereby agrees not to dispute the Agent's, BT's or such Facing Agent's record of the time of telephonic notice in the absence of manifest error. 2.6 Conversion and Continuation Elections for Eurodollar Loans and Base Rate Loans. (a) Any Borrower may upon notice to Agent in accordance with Section 2.6(b): 36 45 (i) elect to convert on any Business Day, any Base Rate Loan (or any part thereof in an aggregate amount not less than Two Million Dollars ($2,000,000), or that is in an integral multiple of One Hundred Thousand Dollars ($100,000) in excess thereof) into Eurodollar Loans; or (ii) elect to convert on a Conversion Date any Eurodollar Loan (or any part thereof in an aggregate amount not less than One Million Dollars ($1,000,000)) into Base Rate Loans; or (iii) elect to continue on a Continuation Date any Eurodollar Loan (or any part thereof in an aggregate amount not less than Two Million Dollars ($2,000,000), or that is in an integral multiple of One Hundred Thousand Dollars ($100,000) in excess thereof); provided, that if the aggregate amount of all Eurodollar Loans shall have been reduced, by payment, prepayment, or conversion of part thereof to an amount less than Two Million Dollars ($2,000,000), the Eurodollar Loans shall automatically convert into Base Rate Loans, on the last day of the applicable Interest Period. (b) If any Borrower desires to convert or continue any Eurodollar Loan or Base Rate Loan pursuant to Section 2.6(a), it shall irrevocably request a conversion or continuation (if by telephone, to be confirmed promptly in writing) in a Notice of Conversion or Continuation in the form of Exhibit 2.6(b) (a "Notice of Conversion or Continuation") to be received by Agent not later than 12:00 Noon (New York City time) at least (i) three Business Days in advance of the Conversion Date or Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans; and (ii) on the same Business Day as the Conversion Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion Date or Continuation Date; (B) the aggregate amount of Eurodollar Loans or Base Rate Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; (D) the duration of the requested Interest Period, if the Loans are to be converted into or continued as Eurodollar Loans; and (E) the applicable Borrower with respect to each such Loan. (c) If prior to the time set forth in Section 2.6(b), (i) the applicable Borrower has failed to give a timely Notice of Conversion or Continuation with respect to a Eurodollar Loan, or (ii) the applicable Borrower has failed to select a new Interest Period to be applicable to a Eurodollar Loan, the applicable Borrower shall be deemed to have elected to continue such loan as a Eurodollar Loan with an Interest Period of one month. 37 46 (d) Upon receipt of a Notice of Conversion or Continuation, Agent will promptly notify each applicable Lender thereof, or, if no timely notice is provided, Agent will promptly notify each applicable Lender of the details of any automatic conversion or continuation. All conversions and continuations pursuant to this Section 2.6 shall be made pro rata according to the respective outstanding principal amounts of the Loans being converted or continued held by each Lender. (e) Notwithstanding the foregoing, no Borrower shall be entitled to specify or elect in any Notice of Borrowing or Notice of Conversion or Continuation that any Loans shall be or become Eurodollar Loans if an Unmatured Event of Default or Event of Default shall have occurred and be continuing unless the Required Lenders shall have notified Agent that additional Eurodollar Loans shall be made available while such Unmatured Event of Default or Event of Default is continuing. If an Unmatured Event of Default or Event of Default shall occur then, unless Agent shall receive such notice from the Required Lenders or all Events of Default and Unmatured Events of Default have been cured or waived, each outstanding Eurodollar Loan shall be converted to a Base Rate Loan on the last day of its Interest Period and any additional Revolving Loans denominated in Dollars shall be made as Base Rate Loans. The foregoing is without prejudice to the other rights and remedies available hereunder upon an Event of Default or Unmatured Event of Default. 2.7 Continuation Elections for Alternative Currency Loans. (a) Any Borrower may upon notice to Agent in accordance with Section 2.7(b) elect to continue (in the same Alternative Currency) on a Continuation Date any Revolving Loan which is an Alternative Currency Loan with an Interest Period ending on such Continuation Date (or any part thereof in an aggregate amount with an Assigned Dollar Value of not less than Two Million Dollars ($2,000,000)). (b) If any Borrower desires to continue any Alternative Currency Loans pursuant to Section 2.7(a), it shall irrevocably request a continuation (if by telephone, to be confirmed promptly in writing) in the form of a Notice of Continuation in the form of Exhibit 2.7(b) (a "Notice of Continuation") to be received by Agent not later than 12:00 Noon (New York City time) at least three Business Days in advance of the Continuation Date, specifying: (i) the proposed Continuation Date; (ii) the aggregate amount of Alternative Currency Loans to be continued; (iii) the duration of the requested Interest Period; and (iv) the applicable Borrower with respect to such Loan. (c) If prior to the time set forth in Section 2.7(b), (i) the applicable Borrower has failed to give a timely Notice of Continuation for a continuation of such 38 47 Alternative Currency Loans, or (ii) the applicable Borrower has failed to select a new Interest Period to be applicable to such Alternative Currency Loans, the applicable Borrower shall be deemed to have elected to continue such loan as a Eurocurrency Loan in the same Alternative Currency with an Interest Period of one month. (d) Upon receipt of a Notice of Continuation, Agent will promptly notify each Lender or if no timely notice is provided, Agent will promptly notify each Lender of the details of any automatic continuation. All continuations pursuant to this Section 2.7(d) shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans being continued held by each Lender. (e) Notwithstanding the foregoing, no Borrower shall be entitled to specify or elect in any Notice of Continuation that any Alternative Currency Loans shall be or become Eurocurrency Loans with an Interest Period in excess of one month if an Unmatured Event of Default or Event of Default shall have occurred and be continuing unless the Required Lenders shall have notified Agent that such Eurocurrency Loans having an Interest Period in excess of one month shall be made available while such Unmatured Event of Default or Event of Default is continuing. The foregoing is without prejudice to the other rights and remedies available hereunder upon an Unmatured Event of Default or Event of Default. 2.8 Disbursement of Funds. Each Lender will make the amount of its Pro Rata Share of each such Borrowing available to Agent, for the account of the applicable Borrower at the applicable Payment Office prior to 12:00 Noon (Local Time), on the borrowing date requested in accordance with the provisions of Section 2.5 by any Borrower in funds immediately available and in the Alternative Currency requested to Agent. Such Borrowing will then be made available to such Borrower by Agent's crediting the amounts in the type of funds so received to the account designated by such Borrower in the applicable Notice of Borrowing, which account must be in the name of the Company or any Subsidiary of the Company and in London or the financial center of the country of the Applicable Currency of such Loan (except that, in the case of Loans denominated in Dollars and in the case of Loans on the Closing Date (if any), such account shall be at the office of Agent located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006). Unless Agent shall have been notified by any Lender at least one Business Day prior to the date of Borrowing that such Lender does not intend to make available to Agent such Lender's portion of the Borrowing to be made on such date, Agent may assume that such Lender has made such amount available to Agent on such date of Borrowing and Agent may, but shall not be required to, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such corresponding amount is not in fact made available to Agent by such Lender on the date of Borrowing, Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon Agent's demand therefor, Agent shall promptly notify such Borrower and, if so notified, such Borrower or the Company shall immediately pay such corresponding amount to Agent. Agent shall also be entitled to recover from such Borrower interest on such corresponding amount in respect of each day 39 48 from the date such corresponding amount was made available by Agent to such Borrower to the date such corresponding amount is recovered by Agent, at a rate per annum equal to the rate for Base Rate Loans or Eurocurrency Loans, as the case may be, applicable during the period in question; provided, however, that any interest paid to Agent in respect of such corresponding amount shall be credited against interest payable by such Borrower to such Lender under Section 3.1 in respect of such corresponding amount. Any amount due hereunder to Agent from any Lender which is not paid when due shall bear interest payable by such Lender, from the date due until the date paid, at the Federal Funds Rate for the first three days after the date such amount is due and thereafter at the Federal Funds Rate plus 1%, together with Agent's standard interbank processing fee. Further, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans, amounts due with respect to its Letters of Credit (or its participations therein) and any other amounts due to it hereunder first to Agent to fund any outstanding Loans made available on behalf of such Lender by Agent pursuant to this Section 2.8 until such Loans have been funded (as a result of such assignment or otherwise) and then to fund Loans of all Lenders other than such Lender until each Lender has outstanding Loans equal to its Pro Rata Share of all Revolving Loans (as a result of such assignment or otherwise). Such Lender shall not have recourse against Borrowers with respect to any amounts paid to Agent or any Lender with respect to the preceding sentence; provided, however, that such Lender shall have full recourse against Borrowers to the extent of the amount of such Loans it has so been deemed to have made. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights which Borrowers may have against the Lender as a result of any default by such Lender hereunder. 2.9 Pro Rata Borrowings. All Borrowings of Revolving Loans under this Agreement shall be loaned by the Lenders pro rata on the basis of their Revolving Commitments. No Lender shall be responsible for any default by any other Lender in its obligation to make Loans hereunder and each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its Commitments hereunder. 2.10 Letters of Credit. (a) Letters of Credit Commitments. Subject to and upon the terms and conditions herein set forth, the Company may request that any Facing Agent issue, at any time and from time to time on and after the Initial Borrowing Date, and prior to the Business Day (or the 30th day in the case of Commercial Letters of Credit) preceding the Termination Date, (i) for the account of the Company and for the benefit of any holder (or any trustee, agent or other similar representative for any such holder) of LC Supportable Indebtedness of the Company or any of its Subsidiaries, an irrevocable standby letter of credit, in a form customarily used by such Facing Agent, or in such other form as has been approved by such Facing Agent (each such standby letter of credit, a "Standby Letter of Credit") in support of such LC Supportable Indebtedness and (ii) for the account of the Company and in support of trade obligations of the Company or any of its Subsidiaries, an irrevocable sight letter of credit in a form customarily used by such Facing Agent or in such 40 49 other form as has been approved by such Facing Agent (each such letter of credit, a "Commercial Letter of Credit"; and each such Commercial Letter of Credit and each Standby Letter of Credit, a "Letter of Credit"), in support of commercial transactions of the Company and its Subsidiaries. (b) Obligation of Facing Agent to Issue Letter of Credit. Each Facing Agent may agree, in its sole discretion, that it will (subject to the terms and conditions contained herein), at any time and from time to time on or after the Closing Date and prior to the Termination Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Company one or more Letters of Credit (i) in the case of Standby Letters of Credit, in support of such LC Supportable Indebtedness of the Company or any of its Subsidiaries as is permitted to remain outstanding without giving rise to an Event of Default or Unmatured Event of Default hereunder and (ii) in the case of Commercial Letters of Credit, in support of trade obligations as referenced in Section 2.10(a), provided that the respective Facing Agent shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain such Facing Agent from issuing such Letter of Credit or any Requirement of Law applicable to such Facing Agent from any Governmental Authority with jurisdiction over such Facing Agent shall prohibit, or request that such Facing Agent refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Facing Agent with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Facing Agent is not otherwise compensated) not in effect on the Closing Date, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Facing Agent as of the Closing Date and which such Facing Agent in good faith deems material to it: or (ii) such Facing Agent shall have received notice from a Borrower or the Required Lenders prior to the issuance of such Letter of Credit of the type described in Section 2.10(b)(A)(vi). (A) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the LC Obligations (exclusive of Unpaid Drawings relating to Letters of Credit which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time, would exceed either (x) $10,000,000 or (y) when added to the Assigned Dollar Value of the aggregate principal amount of all Revolving Loans and Swing Line Loans then outstanding, the Revolving Commitments at such time; (ii) (x) each Standby Letter of Credit shall have an expiry date occurring not later than one year after such Standby Letter of Credit's date of issuance, 41 50 provided, that any Standby Letter of Credit may be automatically extendable for periods of up to one year so long as such Standby Letter of Credit provides that the respective Facing Agent retains an option, satisfactory to such Facing Agent, to terminate such Standby Letter of Credit within a specified period of time prior to each scheduled extension date and (y) each Commercial Letter of Credit shall have an expiry date occurring not later than 180 days after such Commercial Letter of Credit's date of issuance; (iii) (x) no Standby Letter of Credit shall have an expiry date occurring later than the Business Day next preceding the Termination Date and (y) no Commercial Letter of Credit shall have an expiry date occurring later than 30 days prior to the Termination Date; (iv) each Letter of Credit shall be denominated in Dollars and be payable on a sight basis; (v) the Stated Amount of each Letter of Credit shall not be less than $500,000 or such lesser amount as is acceptable to Facing Agent; and (vi) no Facing Agent will issue any Letter of Credit after it has received written notice from a Borrower or the Required Lenders stating that an Event of Default or Unmatured Event of Default exists until such time as Facing Agent shall have received a written notice of (x) rescission of such notice from the party or parties originally delivering the same or (y) a waiver of such Event of Default or Unmatured Event of Default by the Required Lenders (or all the Lenders to the extent required by Section 12.1). (B) Notwithstanding the foregoing, in the event a Lender Default exists, no Facing Agent shall be required to issue any Letter of Credit unless the respective Facing Agent has entered into arrangements satisfactory to it and the Company to eliminate such Facing Agent's risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender or Lenders' applicable Pro Rata Share of the applicable LC Obligations. (c) Letter of Credit Requests; Notices of Issuance. Whenever it desires that a Letter of Credit be issued, the Company shall give Agent and the respective Facing Agent written notice thereof prior to 1:00 p.m. (New York City time) at least five Business Days (or such shorter period as may be acceptable to such Facing Agent) prior to the proposed date of issuance (which shall be a Business Day) which written notice shall be in the form of Exhibit 2.10(c) (each a "Letter of Credit Request"). Each such notice shall specify (A) the proposed issuance date and expiration date, (B) the name(s) of each obligor with respect to such proposed Letter of Credit, (C) the Company as the account party, (D) the name and address of the beneficiary (which Person shall be acceptable to Facing Agent), (E) the Stated Amount of such proposed Letter of Credit and (F) the purpose of such proposed Letter of Credit (which shall be acceptable to Agent and Facing Agent) and such other information as Facing Agent may reasonably request. In addition, each Letter of Credit Request shall contain a description of the terms and conditions to be included in such proposed Letter of Credit (all of which terms and conditions shall be acceptable to Facing Agent). Unless otherwise specified, all Letters of Credit will be governed by the Uniform Customs and Practices for Documentary Credit Operations as in effect on the date of issuance of such Letter of Credit. Each Letter of Credit Request shall include any other documents as Facing Agent customarily requires in connection therewith. 42 51 (i) In the case of Standby Letters of Credit, each Facing Agent shall, on the date of each issuance of or amendment or modification to a Standby Letter of Credit by it, give Agent, each Lender and the Company written notice of the issuance of or amendment or modification to such Letter of Credit, accompanied by a copy to Agent, each Lender and the Company of the Letter of Credit or Letters of Credit issued by it and each such amendment or modification thereto. (ii) As to any Letters of Credit issued by a Facing Agent other than BT, the respective Facing Agent shall send to Agent, on the first Business Day of each week, by telefax, its outstanding Commercial Letter of Credit daily balances for the previous week. Agent shall deliver to each Lender by the end of each calendar month and upon each Letter of Credit fee payment date a report setting forth for such period the aggregate daily amount available to be drawn under Commercial Letters of Credit issued by all Facing Agents that were outstanding during such period. (d) Agreement to Repay Letter of Credit Payments. (i) The Company hereby agrees to reimburse the respective Facing Agent, by making payment to Facing Agent in immediately available funds at the Payment Office, for any payment or disbursement made by such Facing Agent under any Letter of Credit (each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing"), no later than the Business Day of such payment or disbursement, with interest on the amount so paid or disbursed by such Facing Agent, to the extent not reimbursed prior to 12:00 Noon (New York City time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Facing Agent is reimbursed therefor by the Company at a rate per annum which shall be the Base Rate in effect from time to time, provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York City time) on the first Business Day following such payment or disbursement, interest shall thereafter accrue on the amounts so paid or disbursed by such Facing Agent (and until reimbursed by the Company) at a rate per annum which shall be the Base Rate in effect from time to time plus 2% per annum, such interest also to be payable on demand. The respective Facing Agent shall give the Company prompt notice of each Drawing under any Letter of Credit, provided that the failure to give any such notice shall in no way affect, impair or diminish the Company's obligations hereunder. (ii) The Obligations of the Company under this Section 2.10(d) to reimburse the respective Facing Agent with respect to drawings on Letters of Credit (each, a "Drawing") (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Company may have or have had against any Facing Agent, Agent or any Lender (including in its capacity as issuer of the Letter of Credit or as an LC Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Facing Agent's only obligation to the Company being to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Facing Agent under or in 43 52 connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct as determined by a court of competent jurisdiction, shall not create for such Facing Agent any resulting liability to the Company. (e) Letter of Credit Participations. (i) Immediately upon the issuance by any Facing Agent of any Letter of Credit, such Facing Agent shall be deemed to have sold and transferred to each Lender, other than such Facing Agent (each such Lender, in its capacity under this Section 2.10(e), an "LC Participant"), and each such LC Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Facing Agent, without recourse or warranty, an undivided interest and participation, to the extent of such Lender's Pro Rata Share, in such Letter of Credit, each substitute Letter of Credit, each Drawing made thereunder and the obligations of the Company under this Agreement with respect thereto (although Letter of Credit fees shall be payable directly to Agent for the account of the Lenders as provided in Section 2.10(g) and the LC Participants shall have no right to receive any portion of the facing fees), and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Commitments of the Lenders pursuant to this Agreement or as a result of a Lender Default, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings relating to Letters of Credit, there shall be an automatic adjustment pursuant to this Section 2.10(e) to reflect the new Pro Rata Share of the assignor and assignee Lender or of all Lenders with Revolving Commitments, as the case may be. (ii) In determining whether to pay under any Letter of Credit, such Facing Agent shall have no obligation relative to the LC Participants other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Facing Agent under or in connection with any Letter of Credit issued by it if taken or omitted in the absence of gross negligence or willful misconduct as determined by a court of competent jurisdiction, shall not create for such Facing Agent any resulting liability to the Company or any Lender. (f) Draws Upon Letter of Credit; Reimbursement Obligations. In the event that any Facing Agent makes any payment under any Letter of Credit issued by it and the Company shall not have reimbursed such amount in full to such Facing Agent pursuant to Section 2.10(d), such Facing Agent shall promptly notify Agent, and Agent shall promptly notify each LC Participant of such failure, and each such LC Participant shall promptly and unconditionally pay to Agent for the account of such Facing Agent, the amount of such LC Participant's applicable Pro Rata Share of such payment in Dollars and in same day funds; provided, however, that no LC Participant shall be obligated to pay to Agent its applicable Pro Rata Share of such unreimbursed amount for any wrongful payment made by such Facing Agent under a Letter of Credit issued by it as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Facing Agent as determined by a court of competent jurisdiction. If Agent so notifies any LC Participant required to fund a payment under a Letter of Credit prior to 11:00 a.m. (New York City time) on any Business Day, such LC Participant shall make available to Agent for the 44 53 account of the respective Facing Agent such LC Participant's applicable Pro Rata Share of the amount of such payment on such Business Day in same day funds. If and to the extent such LC Participant shall not have so made its applicable Pro Rata Share of the amount of such payment available to Agent for the account of the respective Facing Agent, such LC Participant agrees to pay to Agent for the account of such Facing Agent, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to Agent for the account of such Facing Agent at the overnight Federal Funds Rate. The failure of any LC Participant to make available to Agent for the account of the respective Facing Agent its applicable Pro Rata Share of any payment under any Letter of Credit issued by it shall not relieve any other LC Participant of its obligation hereunder to make available to Agent for the account of such Facing Agent its applicable Pro Rata Share of any payment under any such Letter of Credit on the day required, as specified above, but no LC Participant shall be responsible for the failure of any other LC Participant to make available to Agent for the account of such Facing Agent such other LC Participant's applicable Pro Rata Share of any such payment. (A) Whenever any Facing Agent receives a payment of a reimbursement obligation as to which Agent has received for the account of such Facing Agent any payments from the LC Participants pursuant to this Section 2.10(f), such Facing Agent shall pay to Agent and Agent shall pay to each LC Participant which has paid its Pro Rata Share thereof, in Dollars and in same day funds, an amount equal to such LC Participant's Pro Rata Share of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (B) Upon the request of any LC Participant, each Facing Agent shall furnish to such LC Participant copies of any Letter of Credit issued by it. (C) The obligations of the LC Participants to make payments to each Facing Agent with respect to Letters of Credit issued by it shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) The existence of any claim, setoff, defense or other right which the Company or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), Agent, any LC Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Company and the beneficiary named in any such Letter of Credit); 45 54 (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect to any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Event of Default or Unmatured Event of Default. (g) Fees for Letters of Credit. (i) Facing Agent Fees. The Company agrees to pay the following amount to Facing Agent with respect to the Letters of Credit issued by it for the account of the Company: (A) with respect to Drawings made under any Letter of Credit, interest, payable on demand, on the amount paid by Facing Agent in respect of each such Drawing from the date of the Drawing through, but not including, the date such amount is reimbursed by the Company at a rate which is at all times equal to 2% per annum in excess of the Base Rate; (B) with respect to the issuance or amendment of each Letter of Credit and each Drawing made thereunder, documentary and processing charges in accordance with Facing Agent's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be; and (C) a facing fee equal to 1/8 of 1% per annum of outstanding LC Obligations (but in no event less than $500 per annum for each Letter of Credit) payable in arrears on the last Business Day of March, June, September and December and on the Termination Date and thereafter, on demand together with customary issuance and drawing charges. (ii) Participating Lender Fees. The Company agrees to pay to Agent for distribution to each participating Lender in respect of all Letters of Credit outstanding such Lender's Pro Rata Share of a commission equal to a per annum rate of interest which is equal to the Applicable Margin as in effect from time to time, with respect to the maximum Stated Amount under such outstanding Letters of Credit (the "LC Commission"), payable in arrears on and through, but not including, the last Business Day of each Fiscal Quarter, on the Termination Date and thereafter, on demand. The LC Commission shall be computed from the first day of issuance of each Letter of Credit and on the basis of the actual number of days elapsed over a year of 360 days. Promptly upon receipt by Facing Agent or Agent of any amount described in clause (i)(A) or (ii) of this Section 2.10(g), Facing Agent or Agent shall 46 55 distribute to each Lender that has reimbursed Facing Agent in accordance with Section 2.10(f) its Pro Rata Share of such amount. Amounts payable under clause (i)(B) and (C) of this Section 2.10(g) shall be paid directly to Facing Agent. (h) Indemnification. In addition to amounts payable as elsewhere provided in this Agreement, the Company hereby agrees to protect, indemnify, pay and save Facing Agent harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) (other than for Taxes, which shall be covered by Section 4.6) which Facing Agent may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of the Letters of Credit, other than as a result of the gross negligence or willful misconduct of Facing Agent or (ii) the failure of Facing Agent to honor a Drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions herein called "Government Acts"). As between the Company and Facing Agent, the Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Facing Agent by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Facing Agent shall not be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of or any Drawing under such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a Drawing under any such Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any Drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of Facing Agent, including, without limitation, any acts of any Governmental Authority. None of the above shall affect, impair, or prevent the vesting of any of Facing Agent's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by Facing Agent under or in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith, shall not put Facing Agent under any resulting liability to the Company. Notwithstanding anything to the contrary contained in this Agreement, the Company shall have no obligation to indemnify Facing Agent in respect of any liability incurred by Facing Agent arising solely out of the gross negligence or willful misconduct of Facing Agent as determined by a court of competent jurisdiction. The right of indemnification in the first 47 56 paragraph of this Section 2.10(h) shall not prejudice any rights that the Company may otherwise have against Facing Agent with respect to a Letter of Credit issued hereunder. (i) Increased Costs. If at any time after the Closing Date the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by Facing Agent or any Lender with any request or directive by any such authority (whether or not having the force of law) or any change in GAAP, shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by Facing Agent or participated in by any Lender, or (ii) impose on Facing Agent or any Lender any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to Facing Agent or any Lender of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by Facing Agent or any Lender hereunder or reduce the rate of return on its capital with respect to Letters of Credit in any such case by an amount deemed material by Facing Agent or any such Lender, then, upon demand to the Company by Facing Agent or any Lender (a copy of which demand shall be sent by Facing Agent or such Lender to Agent), the Company shall pay to Facing Agent or such Lender such additional amount or amounts as will compensate Facing Agent or such Lender for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. Facing Agent or any Lender, upon determining that any additional amounts will be payable pursuant to this Section 2.10(i), will give prompt written notice thereof to the Company, which notice shall include a certificate submitted to the Company by Facing Agent or such Lender (a copy of which certificate shall be sent by Facing Agent or such Lender to Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or amounts necessary to compensate Facing Agent or such Lender, although failure to give any such notice shall not release or diminish the Company's obligations to pay additional amounts pursuant to this Section 2.10(i). The certificate required to be delivered pursuant to this Section 2.10(i) shall, absent manifest error, be final, conclusive and binding on the Company. ARTICLE III INTEREST AND FEES 3.1 Interest. (a) Base Rate Loans. Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan at a rate per annum equal to the Base Rate from the date the proceeds thereof are made available to such Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan or (ii) the conversion of such Base Rate Loan to a Eurocurrency Loan pursuant to Sections 2.6 or 2.7. 48 57 (b) Eurocurrency Loans. Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurocurrency Loan from the date the proceeds thereof are made available to such Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurocurrency Loan or (ii) the conversion of such Eurocurrency Loan to a Base Rate Loan pursuant to Sections 2.6 or 2.7 at a rate per annum equal to the relevant Eurocurrency Rate plus the Applicable Margin (c) Payment of Interest. Interest on each Loan shall be payable in arrears on each Interest Payment Date; provided, however, that interest accruing pursuant to Section 3.1(e) shall be payable from time to time on demand. Interest shall also be payable on all then outstanding Revolving Loans on the Termination Date and on all Loans on the date of repayment (including prepayment) thereof (except that voluntary prepayments of Revolving Loans that are Base Rate Loans made pursuant to Section 4.2 on any day other than a Quarterly Payment Date or the Termination Date need not be made with accrued interest from the most recent Quarterly Payment Date, provided such accrued interest is paid on the next Quarterly Payment Date) and on the date of maturity (by acceleration or otherwise) of such Loans. During the existence of any Event of Default, interest on any Loan shall be payable on demand. (d) Notification of Rate. Agent, upon determining the interest rate for any Borrowing of Eurocurrency Loans for any Interest Period, shall promptly notify the applicable Borrower and the Lenders thereof. Such determination shall, absent manifest error and subject to Section 3.6, be final, conclusive and binding upon all parties hereto. (e) Default Interest. Notwithstanding the rates of interest specified herein, effective on the date 30 days after the occurrence and continuance during such 30 day period of any Event of Default (other than the failure to pay Obligations when due) and for so long thereafter as any Event of Default shall be continuing, and effective immediately upon any failure to pay any Obligations or any other amounts due under any of the Loan Documents when due, whether by acceleration or otherwise, the principal balance of each Loan then outstanding and, to the extent permitted by applicable law, any interest payment on each Loan not paid when due or other amounts then due and payable shall bear interest payable on demand, after as well as before judgment at a rate per annum equal to the Default Rate. (f) Maximum Interest. If any interest payment or other charge or fee payable hereunder exceeds the maximum amount then permitted by applicable law, Borrowers shall be obligated to pay the maximum amount then permitted by applicable law and Borrowers shall continue to pay the maximum amount from time to time permitted by applicable law until all such interest payments and other charges and fees otherwise due hereunder (in the absence of such restraint imposed by applicable law) have been paid in full. 3.2 Fees. 49 58 (a) Facility Fee. Borrowers shall pay in Dollars to Agent for pro rata distribution to each Non-Defaulting Lender having a Revolving Commitment (based on its Pro Rata Share) a facility fee (the "Facility Fee") for the period commencing on the Initial Borrowing Date to and including the Termination Date or the earlier termination of the Revolving Commitments (and, in either case, repayment in full of the Revolving Loans and payment in full, or cash collateralization by the deposit of cash into the Collateral Account in amounts and pursuant to arrangements satisfactory to Agent, of the LC Obligations), computed at a rate equal to the Applicable Facility Fee per annum on the aggregate Revolving Commitments of the Non-Defaulting Lenders from time to time, regardless of the utilization from time to time thereunder. Unless otherwise specified, accrued Facility Fees shall be due and payable (i) on each Quarterly Payment Date, (ii) on the Termination Date and (iii) upon any reduction or termination in whole or in part of the Revolving Commitments (but only, in the case of a reduction, on the portion of the Revolving Commitments then being reduced). (b) Agency Fees. The Company shall pay to Agent for its own account, agency and other Loan fees in the amount and at the times set forth in the letter agreement between the Company and Agent. 3.3 Computation of Interest and Fees; Changes in Applicable Margin and Applicable Facility Fee. Interest on all Loans and fees payable hereunder shall be computed on the basis of the actual number of days elapsed over a year of 360 days; provided that interest on all Base Rate Loans shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be. Each determination of an interest rate by Agent pursuant to any provision of this Agreement shall be conclusive and binding on Borrowers and the Lenders in the absence of manifest error. Agent shall, at any time and from time to time upon request of any Borrower, deliver to such Borrower a statement showing the quotations used by Agent in determining any interest rate applicable to Revolving Loans pursuant to this Agreement. Each change in the Applicable Margin or the Applicable Facility Fee as a result of (i) a change in the rating by either S&P or Moody's in the Company's long term, senior unsecured, non-credit enhanced indebtedness shall be effective as of the date on which its was first announced by such rating agency and continue effective until the date immediately preceding the effective date of the next subsequent change, and (ii) subject to the proviso in the definition of "Most Recent Leverage Ratio", a change in Company's Most Recent Leverage Ratio shall become effective on the first day of the month following the month in which financial statements reporting such change are required to be delivered pursuant to Section 7.1 and continue effective until the last day of the month in which financial statements reporting such change are delivered pursuant to Section 7.1. 3.4 Interest Periods. At the time it gives any Notice of Borrowing or a Notice of Conversion or Continuation or a Notice of Continuation, any Borrower shall elect, by giving Agent written notice, the interest period (each an "Interest Period") which Interest Period (a) shall, at the option of such Borrower, be one, two, three or six months or, if available to each of the applicable Lenders (as determined by each such applicable Lender in 50 59 its sole discretion) a nine or twelve month period, or (b) shall, at the sole discretion of Agent, be a specified period of days not to exceed twenty (20), provided that: (i) all Eurocurrency Loans comprising a Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurocurrency Loan shall commence on the date of such Borrowing of such Eurocurrency Loan (including the date of any conversion thereto from a Loan of a different Type) and each Interest Period occurring thereafter in respect of such Eurocurrency Loan shall commence on the last day of the immediately preceding Interest Period; (iii) if any Interest Period relating to a Eurocurrency Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurocurrency Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when an Unmatured Event of Default or Event of Default is then in existence; and (vi) no Interest Period shall extend beyond the Termination Date. 3.5 Compensation for Funding Losses. Borrowers shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such amounts), for all losses, expenses and liabilities (including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Eurocurrency Loans to the extent not recovered by the Lender in connection with the liquidation or re-employment of such funds and including the compensation payable by such Lender to a Participant but excluding loss of anticipated profit with respect to any Loans) and any loss sustained by such Lender in connection with the liquidation or re-employment of such funds (including, without limitation, a return on such liquidation or re-employment that would result in such Lender receiving less than it would have received had such Eurocurrency Loan remained outstanding until the last day of the Interest Period applicable to such Eurocurrency Loans) which such Lender may sustain as a result of: (i) for any reason (other than a default by such Lender or Agent) a continuation or Borrowing of, or conversion from or into, Eurocurrency Loans does not occur on a date specified therefor in a Notice of Borrowing, Notice of Conversion or Continuation or Notice of Continuation (whether or not withdrawn); (ii) any payment, prepayment or conversion or continuation of any of its Eurocurrency Loans 51 60 occurring for any reason whatsoever on a date which is not the last day of an Interest Period applicable thereto; (iii) any repayment of any of its Eurocurrency Loans not being made on the date specified in a notice of payment given by Borrower; or (iv) (A) any other failure by any Borrower to repay its Eurocurrency Loans when required by the terms of this Agreement or (B) an election made by any Borrower pursuant to Section 3.7. A written notice as to additional amounts owed such Lender under this Section 3.5 and delivered to Borrowers and Agent by such Lender shall, absent manifest error, be final, conclusive and binding for all purposes. 3.6 Increased Costs, Illegality, Etc. (a) Generally. In the event that any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by Agent): (i) on any Interest Rate Determination Date that, (x) by reason of any changes arising after the date of this Agreement affecting the interbank Eurocurrency market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurocurrency Rate or (y) the Applicable Currency of such Loan for the applicable Interest Period is not or will not be readily available in the London or New York interbank market, as the case may be, in sufficient amounts in the ordinary course of business to fund such Loan; or (ii) at any time, that such Lender shall incur increased costs or reduction in the amounts received or receivable hereunder with respect to any Eurocurrency Loan because of (x) any change since the Closing Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payments to such Lender of the principal of or interest on the Notes or any other amounts payable hereunder (except for (a) changes in the rate of tax on, or determined by reference to, the net income or profits of such Lender imposed by the jurisdiction in which its principal office or applicable lending office is located and (b) United States withholding taxes, which shall be governed by the provisions of Section 4.6) or (B) a change in official reserve requirements (but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurocurrency Rate) and/or (y) other circumstances since the Closing Date affecting such Lender or the interbank Eurocurrency market or the position of such Lender in such market (excluding, however, differences in such Lender's cost of funds from those of Agent which are solely the result of credit differences between such Lender and Agent) in any such case in an amount deemed material by such Lender; or 52 61 (iii) at any time, that the making or continuance of any Eurocurrency Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by such Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Closing Date which materially and adversely affects the interbank Eurocurrency market; then, and in any such event, such Lender (or Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to Borrowers and, except in the case of clause (i) above, to Agent of such determination (which notice Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurocurrency Loans shall no longer be available until such time as Agent notifies Borrowers and the Lenders that the circumstances giving rise to such notice by Agent no longer exist, and any Notice of Borrowing, Notice of Conversion or Continuation or Notice of Continuation given by any Borrower with respect to Eurocurrency Loans (other than with respect to conversions to Base Rate Loans) which have not yet been incurred (including by way of conversion) shall be deemed rescinded by such Borrower, (y) in the case of clause (ii) above, Borrowers shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to Borrowers by such Lender shall, absent manifest error, be final and conclusive and binding on all the parties hereto; provided, however, that the failure to give any such notice (unless the respective Lender has intentionally withheld or delayed such notice, in which case the respective Lender shall not be entitled to receive additional amounts pursuant to this Section 3.6 (a)(y) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish Borrowers' obligations to pay additional amounts pursuant to this Section 3.6 (a)(y) and (z) in the case of clause (iii) above, Borrowers shall take one of the actions specified in Section 3.6(b) as promptly as possible and, in any event, within the time period required by law. In determining such additional amounts pursuant to clause (y) of the immediately preceding sentence, each Lender shall act reasonably and in good faith and will, to the extent the increased costs or reductions in amounts receivable relate to such Lender's loans in general and are not specifically attributable to a Loan hereunder, use averaging and attribution methods which are reasonable and which cover all loans similar to the Loans made by such Lender whether or not the loan documentation for such other loans permits the Lender to receive increased costs of the type described in this Section 3.6(a). (b) Eurocurrency Loans. At any time that any Eurocurrency Loan is affected by the circumstances described in Section 3.6(a)(ii) or (iii), Borrowers may (and, in the case of a Eurocurrency Loan affected by the circumstances described in Section 3.6(a)(iii), shall) either (i) if the affected Eurocurrency Loan is then being made initially or pursuant to a conversion, by giving Agent telephonic notice (confirmed in writing) on the same date that Borrowers were notified by the affected Lender or Agent pursuant to Section 53 62 3.6(a)(ii) or (iii), cancel the respective Borrowing, or (ii) if the affected Eurocurrency Loan is then outstanding, upon at least three Business Days' written notice to Agent, require the affected Lender to convert such Eurocurrency Loan into a Base Rate Loan, provided, that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 3.6(b). (c) Capital Requirements. If any Lender determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) concerning capital adequacy, or any change in (after the Closing Date) interpretation or administration thereof by any Governmental Authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender based on the existence of such Lender's Commitments hereunder or its obligations hereunder, then Borrowers shall pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable and which will, to the extent the increased costs or reduction in the rate of return relates to such Lender's commitments or obligations in general and are not specifically attributable to the Commitments and obligations hereunder, cover all commitments and obligations similar to the Commitments and obligations of such Lender hereunder whether or not the loan documentation for such other commitments or obligations permits the Lender to make the determination specified in this Section 3.6(c), and such Lender's determination of compensation owing under this Section 3.6(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 3.6(c), will give prompt written notice thereof to Borrowers, which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice (unless the respective Lender has intentionally withheld or delayed such notice, in which case the respective Lender shall not be entitled to receive additional amounts pursuant to this Section 3.6(c) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish any of Borrowers' obligations to pay additional amounts pursuant to this Section 3.6(c). (d) Change of Lending Office. Each Lender which is or will be owed compensation pursuant to Section 3.6(a) or (c) will, if requested by Borrowers, use reasonable efforts (subject to overall policy considerations of such Lender) to cause a different branch or Affiliate to make or continue a Loan or Letter of Credit if such designation will avoid the need for, or materially reduce the amount of, such compensation to such Lender and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. Borrowers hereby agree to pay all reasonable expenses incurred by any Lender in utilizing a different branch or Affiliate pursuant to this Section 3.6(d). Nothing in 54 63 this Section 3.6(d) shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided for herein. 3.7 Replacement of Affected Lenders. If any Lender becomes a Defaulting Lender or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings, if any Lender (or in the case of Section 2.10(i), Facing Agent) is owed increased costs under Section 3.6(a)(ii) or (iii), Section 3.6(c) or Section 2.10(i), or if any Borrower is required to make any payments under Section 4.6(c) to any Lender materially in excess of those to the other Lenders, or as provided in Section 12.1(b) in the case of certain refusals by a Lender to consent to certain proposed amendments, changes, supplements, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders, then Borrowers shall have the right, if no Event of Default or Unmatured Event of Default then exists, to replace such Lender (the "Replaced Lender") with one or more other Eligible Assignee or Eligible Assignees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender") reasonably acceptable to Agent, provided that (i) at the time of any replacement pursuant to this Section 3.7, the Replaced Lender and the Replacement Lender shall enter into one or more assignment agreements, in form and substance satisfactory to Agent, pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans of, and participation in Letters of Credit by, the Replaced Lender and (ii) all Obligations of Borrowers owing to the Replaced Lender (including, without limitation, such increased costs and excluding those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective assignment documentation, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by Borrowers, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Lender. Notwithstanding anything to the contrary contained above, no Lender that acts as a Facing Agent may be replaced hereunder at any time at which it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Facing Agent (including the furnishing of a standby letter of credit in form and substance, and issued by an issuer satisfactory to such Facing Agent or the depositing of cash collateral into the Collateral Account in amounts and pursuant to arrangements satisfactory to such Facing Agent) have been made with respect to such outstanding Letters of Credit. ARTICLE IV ADJUSTMENTS TO COMMITMENTS; PAYMENTS AND PREPAYMENTS 4.1 Voluntary Reduction of Commitments and Optional Commitment Increases. 55 64 (a) Upon at least three Business Days' prior written notice (or telephonic notice confirmed in writing) to Agent at its Notice Address (which notice Agent shall promptly transmit to each Lender), Borrowers shall have the right, without premium or penalty, to terminate the unutilized portion of the Revolving Commitments or the Swing Line Commitment, as the case may be, in part or in whole; provided that (x) any such voluntary termination of the Revolving Commitments shall apply to proportionately and permanently reduce the Revolving Commitment of each Lender, (y) any partial voluntary reduction pursuant to this Section 4.1 shall be in the amount of at least $10,000,000 and integral multiples of $5,000,000 in excess of that amount and (z) any such voluntary termination of the Revolving Commitments shall occur simultaneously with a voluntary prepayment pursuant to Section 4.2 such that the total of the Revolving Commitments shall not be reduced below the aggregate principal amount of outstanding Revolving Loans plus the aggregate LC Obligations and the Swing Line Loan Commitment. (b) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as provided in Section 12.1(b), Borrowers shall have the right, upon five (5) Business Days' prior written notice to Agent (which notice Agent shall promptly transmit to each of the Lenders), to terminate the entire Revolving Commitment of such Lender, so long as all Loans, together with accrued and unpaid interest, fees and all other amounts, due and owing to such Lender are repaid concurrently with the effectiveness of such termination at which time Schedule 1.1(a) shall be deemed modified to reflect such changed amounts pursuant to Section 4.2(b) and the Company cash collateralizes such Lender's Pro Rata Share of the LC Obligations (in the manner set forth in Section 4.3(c)) then outstanding. At such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnification provisions under this Agreement, which shall survive as to such repaid Lender. (c) So long as no Event of Default or Unmatured Event of Default exists, Borrowers may request at any time after the 90th day after the Closing Date, by written notice to Agent in the form of Exhibit 4.1(c) hereto, that the Total Revolving Commitment be increased by $100,000,000 (the "Increase Amount"), provided that Borrowers may request such increase in increments of $50,000,000 each so long as only one such request is made in any calendar year. Such request shall be irrevocable and binding on Borrowers. Agent shall promptly notify each Lender of such request and of such Lender's Pro Rata Share of the Increase Amount. If a Lender agrees, in its individual and sole discretion, to so increase its Revolving Commitment by an amount equal to its Pro Rata Share of the Increase Amount (an "Accepting Lender"), it shall deliver to Agent a written notice of its agreement to so increase no later than 14 days from the date on which Agent notified the Lenders of such request. With respect to any Lender that fails to accept or respond to Borrowers' request for an increase in the Total Revolving Commitment (a "Declining Lender"), such Declining Lender's Revolving Commitment shall not be increased and such Declining Lender's Pro Rata Share of the Increase Amount may be allocated by Agent, after consultation with the Company, to one or more Accepting Lenders which, in such Lender's sole and absolute discretion, accepts any such allocation by Agent in writing. To the extent of any shortfall in 56 65 the Increase Amount (the "Shortfall Amount"), Borrowers may designate one or more Eligible Assignees other than a Lender (which Eligible Assignee shall be reasonably acceptable to Agent) to become a Lender (a "New Lender"), with the aggregate initial Commitments for all such New Lenders in an amount not to exceed the Shortfall Amount. Notwithstanding anything to the contrary herein, (i) the sum of the increase in the Commitments of all Accepting Lenders and the Commitments of all New Lenders shall not exceed the Increase Amount and (ii) no increase in the Commitments shall occur as contemplated in this Section 4.1(c) unless, on the effective date of such proposed increase, no Revolving Loans are outstanding. The increase in the Commitments of Accepting Lenders and the assignment to any New Lenders shall occur on such date as determined by Agent, with prior notice thereof to Borrowers, Lenders and the New Lenders. Prior to such increase, Borrowers agree to execute new Notes reflecting the increased Commitments of all Lenders and New Lenders and deliver same to Agent, which shall deliver each Lender's new Note upon surrender of its old Note. 4.2 Voluntary Prepayments. (a) Borrowers shall have the right to prepay the Loans in whole or in part from time to time on the following terms and conditions: (i) Borrowers shall give Agent irrevocable written notice at its Notice Address (or telephonic notice promptly confirmed in writing) of their intent to prepay the Loans or Swing Line Loans, the amount of such prepayment and the specific Borrowings to which such prepayment is to be applied, which notice shall be given by Borrowers to Agent by 12:00 noon (New York City time) at least three Business Days prior to the date of such prepayment and which notice shall (except in the case of Swing Line Loans) promptly be transmitted by Agent to each of the applicable Lenders; (ii) each partial prepayment of any Borrowing (other than a Borrowing of Swing Line Loans) shall be in an aggregate principal amount of at least $1,000,000 and each partial prepayment of a Swing Line Loan shall be in an aggregate principal amount of at least $500,000; provided that no partial prepayment of Eurocurrency Loans made pursuant to a single Borrowing shall reduce the aggregate principal amount of the outstanding Loans made pursuant to such Borrowing to an amount less than the minimum borrowing amount applicable thereto; (iii) Eurocurrency Loans may only be prepaid pursuant to this Section 4.2 on the last day of an Interest Period applicable thereto or on any other day subject to Section 3.5; (iv) each prepayment in respect of any Borrowing shall be applied pro rata among the Loans comprising such Borrowing provided, that such prepayment shall not be applied to any Revolving Loans of a Default Lender at any time when the aggregate amount of Revolving Loans of any Non-Defaulting Lender exceeds such Non-Defaulting Lender's Pro Rata Share of all Revolving Loans then outstanding. The notice provisions, the provisions with respect to the minimum amount of any prepayment, and the provisions requiring prepayments in integral multiples above such minimum amount of this Section 4.2 are for the benefit of Agent and may be waived unilaterally by Agent. (b) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as provided in Section 12.1(b), Borrowers shall have the right, upon five (5) Business Days' prior written notice to Agent (which notice Agent shall promptly transmit to each of the Lenders), to repay all Loans, together with 57 66 accrued and unpaid interest, fees and all other amounts due and owing to such Lender in accordance with said Section 12.1(b), so long as (A) in the case of the repayment of Revolving Loans of any Lender pursuant to this clause (b), the Revolving Commitment of such Lender is terminated concurrently with such repayment pursuant to Section 4.1(b) and (B) in the case of the repayment of Loans of any Lender, the consents required by Section 12.1(b) in connection with the repayment pursuant to this clause (b) shall have been obtained. 4.3 Mandatory Prepayments. (a) Prepayment Upon Overadvance. Borrowers shall prepay the outstanding principal amount of the Revolving Loans or the Swing Line Loan on any date on which the Assigned Dollar Value of the aggregate outstanding principal amount of such Loans together with the aggregate LC Obligations (after giving effect to any other repayments or prepayments on such day) exceeds the Revolving Commitments or the Swing Line Loan Commitment, as the case may be, in the amount of such excess. If, after giving effect to the prepayment of all outstanding Revolving Loans, the aggregate LC Obligations exceed the Revolving Commitments then in effect, the Company shall cash collateralize the LC Obligations by depositing, pursuant to a cash collateral agreement to be entered into in form and substance satisfactory to Agent, cash with Agent in an amount equal to the difference between such LC Obligations and the Revolving Loan Commitments then in effect. Agent shall establish in its name for the benefit of the Lenders a cash collateral account (the "Collateral Account") into which it shall deposit such cash to hold as collateral security for the LC Obligations. 4.4 Application of Prepayments. Except as expressly provided in this Agreement, all prepayments of principal made by Borrowers pursuant to Sections 4.2 and 4.3 shall be applied (i) to the payment of the then outstanding balance of the Revolving Loans and the cash collateralization of LC Obligations, in each case in proportional amounts equal to each Lender's applicable Pro Rata Share of such prepayment; (ii) first to the payment of Base Rate Loans and second to the payment of Eurocurrency Loans; and (iii) with respect to Eurocurrency Loans, in such order as Borrowers shall request (and in the absence of such request, as Agent shall determine). If any prepayment of Eurocurrency Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the minimum borrowing amount, such Borrowing shall immediately be converted into Base Rate Loans. Except as otherwise provided in Section 3.1(c), all prepayments shall include payment of accrued interest on the principal amount so prepaid, shall be applied to the payment of interest before application to principal and shall include amounts payable, if any, under Section 3.5. 4.5 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments under this Agreement shall be made to Agent, for the ratable account of the Lenders entitled 58 67 thereto, not later than 12:00 Noon (Local Time) on the date when due and shall be made in immediately available funds at the appropriate Payment Office in (i) Dollars, if such payment is made in respect of any obligation of the Borrowers under this Agreement except as otherwise provided in the immediately succeeding clause (ii), and (ii) the appropriate Alternative Currency, if such payment is made in respect of principal of or interest on Alternative Currency Loans, it being understood that written notice by a Borrower to Agent to make a payment from the funds in such Borrower's account at the applicable Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Agent will thereafter cause to be distributed on the same day (if payment was actually received by Agent prior to 12:00 Noon (Local Time) on such day) like funds relating to the payment of principal or interest or fees ratably to the Lenders entitled to receive any such payment in accordance with the terms of this Agreement. (b) Any payments under this Agreement which are made by any Borrower later than 12:00 Noon (Local Time) on the date when due shall, for the purpose of calculation of interest, be deemed to have been made on the next succeeding Business Day. For purposes of computing interest and fees hereunder, all payments and amounts will accrue interest or fees from the initial date of funding or accrual to but not including the date of payment if paid as provided in the preceding sentence. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension, except that with respect to Eurocurrency Loans, if such next succeeding Business Day is not in the same month as the date on which such payment would otherwise be due hereunder or under any Note, the due date with respect thereto shall be the next preceding Business Day. 4.6 Net Payments. (a) All payments made by any Borrower hereunder or under any Loan Document will be made without setoff, counterclaim or other defense. Except as provided in Section 4.6(d), all payments hereunder and under any of the Loan Documents (including, without limitation, payments on account of principal and interest and fees) shall be made by Borrowers free and clear of and without withholding for or on account of any present or future tax, duty, levy, impost, assessment or other charge of whatever nature now or hereafter imposed by any Governmental Authority, but excluding therefrom (i) a tax imposed on the overall net income (including a franchise tax based on net income) of the lending office of the Lender in respect of which the payment is made by the jurisdiction in which the Lender is incorporated or the jurisdiction (or political subdivision or taxing authority thereof) in which its lending office is located, (ii) in the case of any Lender organized under the laws of any jurisdiction other than the United States or any state thereof (including the District of Columbia), any taxes imposed by the United States by means of withholding at the source unless such withholding results from a change in applicable law, treaty or regulations or the interpretation or administration thereof (including, without limitation, any guideline or policy not having the force of law) by any authority charged with the administration thereof 59 68 subsequent to the date such Lender becomes a Lender with respect to the Loan or portion thereof affected by such change and (iii) any tax imposed on or measured by the overall net income (including a franchise tax based on net income) of a Lender or an office or branch thereof by the United States of America or any political subdivision or taxing authority thereof or therein (such tax or taxes, other than excluded tax or taxes, being herein referred to as "Tax" or "Taxes"). If a Borrower is required by law to make any deduction or withholding of any Taxes from any payment due hereunder or under any of the Loan Documents, then the amount payable will be increased to such amount which, after deduction from such increased amount of all such Taxes required to be withheld or deducted therefrom, will not be less than the amount due and payable hereunder had no such deduction or withholding been required. (b) If a Borrower makes any payment hereunder or under any of the Loan Documents in respect of which it is required by law to make any deduction or withholding of any Taxes, it shall pay the full amount to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the relevant Lender within 30 days after it has made such payment to the applicable authority a receipt issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld from such payment. (c) Without prejudice to the provisions of Section 4.6(a), if any Lender, or Agent on its behalf, is required by law to make any payment on account of Taxes on or in relation to any such tax received or receivable hereunder or under any of the Loan Documents by such Lender, or Agent on its behalf, or any liability for Tax in respect to any such payment is imposed, levied or assessed against any Lender or Agent on its behalf, Borrowers will promptly indemnify such person against such Tax payment or liability, together with any interest, penalties and expenses (including counsel fees and expenses) payable or incurred in connection therewith, including any tax of any Lender arising by virtue of payments under this Section 4.6(c), computed in a manner consistent with Section 4.6(a). A certificate as to the amount of such payment by such Lender, or Agent on its behalf, absent manifest error, shall be final, conclusive and binding upon all parties hereto for all purposes. (d) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to Borrowers and Agent on or prior to the Initial Borrowing Date, or in the case of a Lender that is an Assignee of an interest under this Agreement pursuant to Section 3.7 or 12.8 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment), on the date of such assignment to such Lender, (i) two accurate and complete original signed copies of IRS Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either IRS Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit 4.6(d) (any such certificate, a "Section 4.6(d)(ii) Certificate") and (y) two accurate and complete original 60 69 signed copies of IRS Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Initial Borrowing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to Borrowers and Agent two new accurate and complete original signed copies of IRS Form 4224 or 1001, or Form W-8 and a Section 4.6(d)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding Tax with respect to payments under this Agreement and any Note, or it shall immediately notify Borrowers and Agent of its inability to deliver any such form or certificate. Notwithstanding anything to the contrary contained in Section 4.6(a), but subject to Section 12.8(c) and the immediately succeeding sentence, (x) Borrowers shall be entitled, to the extent they are required to do so by law, to deduct or withhold income or similar Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States Federal income tax purposes to the extent that such Lender has not provided to Borrowers IRS Forms that establish a complete exemption from such deduction or withholding and (y) Borrowers shall be obligated pursuant to Section 4.6(a) hereof to gross-up payments to be made to a Lender in respect of income or similar Taxes imposed by the United States unless (I) upon timely notice from Borrowers, such Lender has not provided to Borrowers the IRS Forms required to be provided to Borrowers pursuant to this Section 4.6(d), or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such IRS Forms do not establish a complete exemption from withholding of such Taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.6 and except as set forth in Section 12.8(c), each Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 4.6(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Initial Borrowing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. (e) Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of any event or the existence of any condition that would cause a Borrower to make a payment in respect of any Taxes to such Lender pursuant to Section 4.6(a) or a payment in indemnification for any Taxes pursuant to Section 4.6(c), it will use reasonable efforts to make, fund or maintain the Loan (or portion thereof) of such Lender with respect to which the aforementioned payment is or would be made through another lending office of such Lender if as a result thereof the additional amounts which would otherwise be required to be paid by such Borrower in respect of such Loans (or portions thereof) or participation in Letters of Credit pursuant to Section 4.6(a) or Section 4.6(c) would be materially reduced, and if, as determined by such Lender, in its reasonable 61 70 discretion, the making, funding or maintaining of such Loans or participation in Letters of Credit (or portions thereof) through such other lending office would not otherwise materially adversely affect such Loans or such Lender. Borrowers agree to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this Section 4.6(e). ARTICLE V CONDITIONS OF CREDIT 5.1 Conditions Precedent to the Initial Borrowing. The obligation of the Lenders to make the Initial Loan and the obligation of Facing Agent to issue and the Lenders to participate in Letters of Credit under this Agreement shall be subject to the fulfillment, at or prior to the time of the making of such Initial Loan, of each of the following conditions: (a) Credit Agreement and Notes. Each Borrower shall have duly executed and delivered to Agent, with a signed counterpart for each Lender, this Agreement (including all schedules, exhibits, certificates, opinions and financial statements delivered pursuant hereto), the Notes payable to the order of each applicable Lender in the amount of their respective Commitments and all other Loan Documents all of which shall be in full force and effect; (b) Subsidiary Guaranty. Each Subsidiary Guarantor shall have duly authorized, executed and delivered a Subsidiary Guaranty in the form of Exhibit 5.1(b) (as amended, restated, supplemented or otherwise modified from time to time, the "Subsidiary Guaranty"); (c) Opinions of Counsel. Agent shall have received from (i) Ballard Spahr Andrews & Ingersoll, special counsel to the Credit Parties, an opinion addressed to Agent and each of the Lenders and dated the Initial Borrowing Date, which shall be in form and substance satisfactory to Agent and which shall cover the matters as substantially set forth in Exhibit 5.1(c) (with such changes as Agent may approve) and such other matters incident to the transactions contemplated herein as Agent or the Required Lenders may request and (ii) opinions of local and/or foreign counsel to the Credit Parties dated the Initial Borrowing Date, each of which shall be in form and substance satisfactory to Agent, which opinions shall cover such matters incident to the transactions contemplated herein and in the other Loans Documents as Agent or the Required Lenders may request; (d) Corporate Proceedings. (i) On the Closing Date, the Agent shall have received from each Credit Party a certificate, dated the Closing Date, signed by a Responsible Officer of such Credit Party, and attested to by the secretary or any assistant secretary of such Credit Party, in the form of Exhibit 5.1(d) with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of such Credit Party and the resolutions of such Credit Party referred to in such certificate, and certifying as to the 62 71 incumbency and signatures of the officers of such Credit Party executing any Document, and all of the foregoing (including each such Certificate of Incorporation and By-Laws) shall be satisfactory to Agent; (ii) On the Closing Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the Loan Documents shall be satisfactory in form and substance to Agent and the Required Lenders, and Agent and the Required Lenders shall have received all information and copies of all certificates, documents and papers, including good standing certificates, bring-down certificates and any other records of corporate proceedings and governmental approvals, if any, which the Agent or the Required Lenders may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities; (e) Adverse Change. On or prior to the Closing Date, nothing shall have occurred (and neither Agent nor the Lenders shall have become aware of any facts or conditions not previously known) which Agent or the Required Lenders shall determine has or reasonably could be expected to have, or could have (i) a material adverse effect on the rights and remedies of the Lenders or Agent and the Required Lenders or on the ability of any Credit Party to perform its obligations hereunder or under any Loan Documents or (ii) a Material Adverse Effect; (f) Approvals. All necessary governmental (domestic and foreign) and third party approvals in connection with the Transaction and the transactions contemplated by the Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of all or any part of the Transaction or the other transactions contemplated by the Documents and otherwise referred to herein or therein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing material adverse conditions upon all or any part of the Transaction, the transactions contemplated by the Documents or the making of the Loans or the issuance of Letters of Credit; (g) Litigation. Except as disclosed in the Company's publicly filed reports under the Exchange Act prior to the Closing Date, no litigation by any entity (private or governmental) shall be pending or, to the best knowledge of Borrowers, threatened with respect to this Agreement, any other Document or any documentation executed in connection herewith or the transactions contemplated hereby (including, without limitation, the Transaction), or which Agent or the Required Lenders shall determine could reasonably be expected to have a Material Adverse Effect or (ii) have a material adverse effect on the Transaction, the rights or remedies hereunder or under any other Document or on the ability of any Borrower to perform its obligations to Agent or Lenders hereunder; 63 72 (h) Fees. Borrowers shall have paid to Agent and the Lenders all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to Agent and the Lenders to the extent then due; (i) Appointment of Agent. Agent shall have received a letter from CT Corporation System, presently located at 1633 Broadway, New York, New York 10019, substantially in the form of Exhibit 5.1(i) hereto, indicating its consent to its appointment by each Borrower as its agent to receive service of process as specified in Section 12.9 of this Agreement; (j) Pro Forma Balance Sheet. Agent shall have received the Pro Forma Balance Sheet prepared in accordance with of the Securities Act in form and substance satisfactory to Agent and the Required Lenders; (k) Tax and Accounting Aspects of Transactions. Agent and the Required Lenders shall be satisfied with all tax and accounting matters relating to the Transaction; (l) Officer's Certificate. Agent shall have received, with a signed counterpart for each Lender, a certificate executed by a Responsible Officer on behalf of each Borrower, dated as of the Closing Date and in the form of Exhibit 5.1(l) hereto, stating that the representations and warranties set forth in Article VI hereof are true and correct as of the date of the certificate, that no Event of Default or Unmatured Event of Default has occurred and is continuing, that the conditions of Section 5.1 hereof have been fully satisfied (except that no opinion need be expressed as to the Agent's or Required Lenders' satisfaction with any document, instrument or other matter); (m) Other Matters. All corporate and other proceedings taken in connection with the Transactions at or prior to the date of this Agreement, and all documents incident thereto will be reasonably satisfactory in form and substance to Agent; and the Lenders shall have received such other instruments and documents as Agent shall reasonably request in connection with the execution of this Agreement, and all such instruments and documents shall be reasonably satisfactory in form and substance to Agent. 5.2 Conditions Precedent to All Credit Events. The obligation of each Lender to make Loans (including Loans made on the Initial Borrowing Date) and the obligation of any Facing Agent to issue or any Lender to participate in any Letter of Credit hereunder in each case shall be subject to the fulfillment at or prior to the time of each such Credit Event of each of the following conditions: (a) Representations and Warranties. The representations and warranties contained in this Agreement and the other Loan Documents shall each be true and correct in all material respects at and as of such time, as though made on and as of such time except to the extent such representations and warranties are expressly made as of a specified date in which event such representation and warranties shall be true and correct as of such specified date. 64 73 (b) No Default. No Event of Default or Unmatured Event of Default shall have occurred and shall then be continuing on such date or will occur after giving effect to such Credit Event. (c) Notice of Borrowing; Letter of Credit Request. (i) Prior to the making of each Loan, Agent shall have received a Notice of Borrowing meeting the requirements of Section 2.5. (ii) Prior to the issuance of each Letter of Credit, Agent and the respective Facing Agent shall have received a Letter of Credit Request meeting the requirements of Section 2.10(c). (d) No Adverse Change. At the time of each such Credit Event and after giving effect thereto, nothing shall have occurred (and no Lender shall have become aware of any facts or conditions previously unknown) which has, or is reasonably likely to have, a Material Adverse Effect. (e) Other Information. Agent shall have received such other instruments, documents and opinions as it may reasonably request in connection with such Credit Event, and all such instruments and documents shall be reasonably satisfactory in form and substance to Agent. The acceptance of the benefits of each such Credit Event by any Borrower shall be deemed to constitute a representation and warranty by all Borrowers to the effect of paragraphs (a), (b), (c) and (d) of this Section 5.2 (except that no opinion need be expressed as to the Agent's or Required Lenders' satisfaction with any document, instrument or other matter). ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce Agent and the Lenders to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, Borrowers make the following representations, warranties and agreements as of the Closing Date (both before and after giving effect to the consummation of the Transaction) and as of the date of each subsequent Credit Event, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Initial Borrowing Date being deemed to constitute a representation and warranty that the matters specified in this Article VI are true and correct on and as of the Initial Borrowing Date and on and as of the date of each of such Credit Event, provided that any representation or warranty which by 65 74 its terms is made as of a specified date shall be required to be true and correct on the date of each Credit Event but only as of such specified date: 6.1 Corporate Status. Each of the Company and each of its Subsidiaries (i) is a duly incorporated and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage in and (iii) is duly qualified and is authorized to do business and is in good standing in (A) its jurisdiction of incorporation and (B) in each other jurisdiction where the ownership, leasing or operation of property or the conduct of its business requires such qualification, except in the case of clause (B) for such failure to be so qualified which, in the aggregate, would not have a Material Adverse Effect. 6.2 Corporate Power and Authority. Each Credit Party has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. Each Credit Party has duly executed and delivered each of the Documents to which it is a party, and each of such Documents constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 6.3 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party, nor compliance by it with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any provision of any Requirement of Law applicable to any Credit Party, (ii) will conflict with or result in any breach of or constitute a tortious interference with any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of any Credit Party pursuant to the terms of any Contractual Obligation to which any Credit Party is a party or by which it or any of its property or assets is bound or to which it may be subject, (iii) will violate any provision of any Organizational Document of any Credit Party or (iv) will require any approval of stockholders or any approval or consent of any Person (other than a Governmental Authority) except as set forth on Schedule 6.3. 6.4 Governmental and Other Approvals. Except as set forth on Schedule 6.4 hereto, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made on or prior to the Initial Borrowing Date), or exemption by, any Governmental Authority, is required to authorize, or is required in connection with, (i) the execution, delivery and performance by any Credit Party of any Document to which it is a party or (ii) the legality, validity, binding effect or enforceability of any such Document on any Credit Party. 66 75 6.5 Financial Statements; Financial Condition; Undisclosed Liabilities Projections; etc. (a) Financial Statements. (i) The consolidated balance sheets of the Company and its Subsidiaries at December 31, 1994, 1995 and 1996 and for the nine months ended September 30, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity of the Company and its Subsidiaries for the Fiscal Years or other periods ended on such dates, as the case may be, copies of which have hereto been furnished to the Lenders prior to the date hereof which, in the case of the December 31, 1994, 1995 and 1996 statements, have been examined by Deloitte & Touche LLP, independent certified public accountants, who delivered an unqualified opinion in respect thereto, present fairly the consolidated financial condition of the Company and its Subsidiaries at the dates indicated and the results of their consolidated operations and cash flow for the periods indicated in conformity with GAAP, and (ii) the pro forma (after giving effect to the Transaction and the other transactions contemplated hereby) consolidated balance sheet of the Company and its Subsidiaries attached hereto as Schedule 6.5(a) (the "Pro Forma Balance Sheet") presents a good faith estimate of the pro forma consolidated financial condition of the Company and its Subsidiaries (after giving effect to the Transaction and the other transactions contemplated hereby) at the date thereof. The Pro Forma Balance Sheet has been prepared in accordance with GAAP (other than with respect to the Acquired Entity) consistently applied (except as may be indicated in the notes thereto) subject to normal year-end adjustments. Since December 31, 1996, there has been no material adverse change in the financial condition of the Company and its Subsidiaries, taken as a whole. (b) Solvency. On and as of the Initial Borrowing Date, after giving effect to all Indebtedness (including the Loans) being incurred, and to be incurred (and the use of the proceeds thereof), (i) the sum of the assets, at a fair valuation, of each Borrower will exceed its debts; (ii) no Borrower has incurred nor intends to, nor believes that it will, incur debts beyond its ability to pay such debts as such debts mature; and (iii) each Borrower will have sufficient capital with which to conduct its business. For purposes of this Section 6.5(b) "debt" means any liability on a claim, and "claim" means (y) any right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured (including all obligations, if any, under any Plan or the equivalent for unfunded past service liability, and any other unfunded medical and death benefits) or (z) any right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (c) No Undisclosed Liabilities. Except as fully reflected in the financial statements or the notes related thereto delivered pursuant to Section 6.5(a) and on Schedule 6.5(d) there were as of the Initial Borrowing Date (and after giving effect to the Transaction and the other transactions contemplated hereby) no liabilities or obligations with respect to any Borrower of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to such 67 76 Borrower, other than those incurred in the ordinary course of business. As of the Initial Borrowing Date (and after giving effect to the Transaction and the other transactions contemplated hereby), no Borrower knows of any basis for the assertion against such Borrower of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements or the notes related thereto delivered pursuant to Section 6.5(a) and on Schedule 6.5(d) which, either individually or in the aggregate, would be material to such Borrower, other than those incurred in the ordinary course of business. (d) Indebtedness. Schedule 6.5(d) sets forth a true and complete list of all Indebtedness (other than the Loans and the Letters of Credit) of the Company and its Subsidiaries as of the Closing Date and which is to remain outstanding after giving effect to the transactions contemplated herein (the "Indebtedness to Remain Outstanding"), in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commitments with respect thereto) and the name of the respective obligor and any other entity which directly or indirectly guaranteed such debt. No Indebtedness to Remain Outstanding has been incurred in connection with, or in contemplation of, the Transaction and the other transactions contemplated hereby. 6.6 Litigation. There are no actions, suits or proceedings pending or threatened (i) with respect to any Document, (ii) with respect to any Indebtedness or Preferred Stock of the Company or any of its Subsidiaries or (iii) that are reasonably likely to have a Material Adverse Effect, other than as disclosed in the Company's publicly filed reports filed prior to the Closing Date pursuant to the Exchange Act. 6.7 True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of any Borrower or any of its Subsidiaries in writing to any Lender (including, without limitation, all information contained in the Documents) for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Company or any of its Subsidiaries in writing to any Lender for purposes of or in connection with this Agreement or any transaction contemplated herein are and will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. The projections and pro forma financial information contained in such materials are based on good faith estimates and assumptions believed by Borrowers to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts or an assurance of performance and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to any Borrower which would have a Material Adverse Effect, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. 6.8 Use of Proceeds; Margin Regulations. 68 77 (a) Revolving Loan Proceeds. All proceeds of the Revolving Loans incurred hereunder shall be used by Borrowers to provide the funds necessary to finance the Acquisition and to pay certain fees and expenses incurred in connection with the Acquisition, to finance Permitted Acquisitions and to pay fees and expenses relating thereto and for ongoing working capital needs and general corporate purposes. (b) Margin Regulations. No part of the proceeds of any Loan will be used to purchase or carry any margin stock (as defined in Regulation G of the Board), directly or indirectly, or to extend credit for the purpose of purchasing or carrying any such margin stock for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans or extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Board. 6.9 Taxes. Each of the Company and each of its Subsidiaries has timely filed or caused to be filed with the appropriate taxing authority, all returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the Company and/or any of its Subsidiaries. The Returns accurately reflect, in all material respects, all liability for taxes of the Company and its Subsidiaries for the periods covered thereby. Each of the Company and each of its Subsidiaries has paid all taxes payable by it before they have become delinquent other than those contested in good faith and for which adequate reserves have been established in conformity with GAAP. As of the Closing Date, there is no material action, suit, proceeding, investigation, audit, or claim pending or threatened by any authority regarding any taxes relating to the Company or any of its Subsidiaries. As of the Closing Date, neither the Company nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Company or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of the Company or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. As of the Initial Borrowing Date, neither the Company nor any of its Subsidiaries has provided, with respect to itself or property held by it, any consent under Section 341 of the Code. Neither the Company nor any of its Subsidiaries has incurred, or will incur, any material tax liability in connection with the Transaction. 6.10 Compliance With ERISA. (a) Each Plan is in substantial compliance with ERISA and the Code; no Reportable Event which could reasonably be expected to result in the termination of any Plan has occurred with respect to a Plan; no Multiemployer Plan is insolvent or in reorganization; the aggregate present value of the accrued benefits under each Plan (using the actuarial funding assumptions then in effect for such Plan) does not exceed the current value of the assets of such Plan to an extent which could reasonably be expected to have a Material Adverse Effect; no Plan has an accumulated or waived funding deficiency, has permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has incurred any material liability to or on 69 78 account of a Plan pursuant to Section 409, 502(i), 502(d), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code or is expected to incur any material liability under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted to terminate any Plan; no condition exists which presents a material risk to the Company or any of its Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; using actuarial assumptions and computation methods consistent with subpart 1 of Subtitle E of Title IV of ERISA, the Company and its Subsidiaries and its ERISA Affiliates would not have any liability to all Plans which are Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ending prior to the date of any Credit Event; no Lien imposed under the Code or ERISA on the assets of the Company or any of its Subsidiaries or any ERISA Affiliate exists or is likely to arise on account of any Plan; and the Company and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA) the obligations with respect to which could reasonably be expected to have a Material Adverse Effect. (b) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, except in each case where the failure to so maintain any such Foreign Pension Plan could not reasonably be expected to have a Material Adverse Effect. All contributions required to be made with respect to a Foreign Pension Plan have been timely made. Neither the Company nor any of its Subsidiaries has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the Company's most recently ended Fiscal Year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities to an extent which could reasonably be expected to have a Material Adverse Effect. 6.11 Properties. The Company and each Subsidiary has good and marketable title to, or a subsisting leasehold interest in, all material items of real and personal property used in their operations (except as to leasehold interests) free and clear of all Liens, except Permitted Liens. Substantially all items of real and material personal property owned by, leased to or used by the Company and each Subsidiary are in adequate operating condition and repair, ordinary wear and tear excepted, are free and clear of any known defects except such defects as do not substantially interfere with the continued use thereof in the conduct of normal operations, and are able to serve the function for which they are currently being used. 6.12 Subsidiaries. On and as of the Closing Date, Schedule 6.12 hereto sets forth a true, complete and correct list of each Subsidiary of the Company and indicates for each such Subsidiary (i) its jurisdiction of incorporation, (ii) its ownership (by holder and 70 79 percentage interest) and (iii) whether such Subsidiary is a Material Subsidiary. As of the Closing Date, the Company has no Subsidiaries except for those Subsidiaries listed as such on Schedule 6.12 hereto. 6.13 Compliance With Law, Etc. Except as disclosed in the Company's publicly filed reports under the Exchange Act prior to the Closing Date, neither the Company nor any of its Subsidiaries is in default under or in violation of any Requirement of Law or Contractual Obligation or under its Organizational Documents, as the case may be, in each case the consequences of which default or violation, either in any one case or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 6.14 Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 6.15 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries 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. 6.16 Environmental Matters. (a) Except as set forth on Schedule 6.16 hereto, the Company and each of its Subsidiaries have complied in all material respects with, and on the date of such Credit Event are in compliance in all material respects with, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. Except as set forth on Schedule 6.16 hereto, there are no material past, pending or threatened Environmental Claims against the Company or any of its Subsidiaries or any real property owned or at any time operated by the Company or any of its Subsidiaries. Except as set forth on Schedule 6.16 hereto, there are no facts, circumstances, conditions or occurrences on any real property owned or at any time operated by the Company or any of its Subsidiaries or on any property adjoining any real property owned or operated by the Company and its Subsidiaries that could reasonably be expected (i) to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any such real property, or (ii) to cause such real property to be subject to any restrictions on the ownership, occupancy, use or transferability of such real property under any Environmental Law. (b) Except as set forth on Schedule 6.16 hereto, Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any real property owned or at any time operated by the Company or any of its Subsidiaries where such generation, use, treatment or storage has violated or could reasonably be expected to violate any Environmental Law in any material respect. Except as set forth on Schedule 6.16 hereto, Hazardous Materials have not at any time been Released on or from any real property owned or at any time operated by the Company or any of its Subsidiaries where 71 80 such Release has violated or could reasonably be expected to violate any Environmental Law in any material respect. 6.17 Intellectual Property, Licenses, Franchises and Formulas. Each of the Company and its Subsidiaries owns or holds licenses or other rights to or under all the patents, patent applications, trademarks, service marks, trademark and service mark registrations and applications therefor, trade names, copyrights, copyright registrations and applications therefor, trade secrets, proprietary information, computer programs, data bases, licenses, permits, franchises and formulas, or rights with respect to the foregoing which are necessary for the operation of the business of the Company and its Subsidiaries (collectively, "Intellectual Property"), and has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business, without any known material conflict with the rights of others. Neither the Company nor any of its Subsidiaries has knowledge of any existing or threatened claim by any Person contesting the validity, enforceability, use or ownership of the Intellectual Property, or of any existing state of facts that would support a claim that use by the Company or any of its Subsidiaries of any such Intellectual Property has infringed or otherwise violated any proprietary rights of any other Person. 6.18 Certain Fees. No broker's or finder's fees or commissions or any similar fees or commissions will be payable by the Company or any Subsidiary with respect to the incurrence and maintenance of the Obligations, any other transaction contemplated by the Loan Documents or any services rendered in connection with such transactions. Each Borrower covenants that it will indemnify Agent and each Lender against and hold Agent and each Lender harmless from any claim, demand or liability for broker's or finder's fees or similar fees or commissions alleged to have been incurred in connection with any of the transactions contemplated hereby. ARTICLE VII AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as any of the Commitments remain in effect, or any Loan or LC Obligation remains outstanding and unpaid or any other amount is owing to any Lender or Agent hereunder, the Company shall: 7.1 Financial Statements. Furnish, or cause to be furnished, to each Lender. (a) Quarterly Financial Statements. As soon as available, but in any event not later than 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such Fiscal Quarter and the related unaudited consolidated statements of income, retained earnings and of cash flows of the Company and 72 81 its consolidated Subsidiaries for such Fiscal Quarter and the portion of the Fiscal Year through the end of such Fiscal Quarter, setting forth in each case in comparative form the comparative figures for the related periods in the prior Fiscal Year, all of which shall be certified by the Chief Financial Officer of the Company, subject to normal year-end audit adjustments; and (b) Annual Financial Statements. As soon as available, but in any event within 90 days after the end of each Fiscal Year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, retained earnings and of cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year. The Company shall provide a comparison between the consolidated balance sheets of the Company and its Subsidiaries and the related consolidated statements of operations, shareholders' equity and cash flows referred to above and the budgeted figures for the relevant period as set forth in the respective budget delivered pursuant to Section 7.2(e); all such financial statements shall be complete and correct in all material respects and shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by the accountants preparing such statements or the Chief Financial Officer of the Company, as the case may be, and disclosed therein) and, in the case of the consolidated financial statements referred to in Section 7.1(b), accompanied by a report thereon of independent certified public accountants of recognized national standing, which report shall contain no qualifications with respect to the continuance of the Company and its Subsidiaries as going concerns and shall state that such financial statements present fairly the consolidated financial position of the Company and its Subsidiaries as at the dates indicated and the results of their consolidated operations and cash flows for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such financial statements has been made in accordance with GAAP. 7.2 Certificates; Other Information. Furnish to each Lender (or, if specified below, to Agent): (a) Accountant's Certificates. Concurrently with the delivery of the annual financial statements referred to in Section 7.1(b), to the extent not contrary to the then current recommendations of the American Institute of Certified Public Accountants, a certificate from the independent public accountants certifying such financial statements stating that, in the course of their annual audit of the books and records of the Company, no Event of Default or Unmatured Event of Default has come to their attention which was continuing at the end of such Fiscal Year or on the date of their certificate, or if such an Event of Default or Unmatured Event of Default has come to their attention, the certificate shall indicate the nature of such Event of Default or Unmatured Event of Default; 73 82 (b) Officer's Certificates. Concurrently with the delivery of the financial statements referred to in Sections 7.1(a) and 7.1(b), a certificate of the Chief Financial Officer substantially in the form of Exhibit 7.2(b) stating that, to the best of such officer's knowledge, (i) such financial statements present fairly, in accordance with GAAP, the consolidated financial condition and results of operations of the Company and its Subsidiaries for the periods referred to therein (subject, in the case of interim statements, to normal recurring adjustments) and (ii) no Event of Default or Unmatured Event of Default has occurred, except as specified in such certificate and, if so specified, the action which the Company proposes to take with respect thereto, which certificate shall set forth detailed computations to the extent necessary to establish Borrowers' compliance with the covenants set forth in Article IX of this Agreement; (c) Audit Reports and Statements. Promptly following the Company's receipt thereof, copies of all consolidated financial or other consolidated reports or statements, if any, submitted to the Company or any of its Subsidiaries by independent public accountants relating to any annual or interim audit of the books of the Company or any of its Subsidiaries; (d) Public Filings. Within 10 days after the same become public, copies of all financial statements, filings, registrations and reports which the Company or any Subsidiary may make to, or file with the SEC or any successor or analogous Governmental Authority; and (e) Other Requested Information. Promptly after obtaining such other information respecting the respective properties, business affairs, financial condition and/or operations of the Company or any of its Subsidiaries as Agent or any Lender may from time to time reasonably request. 7.3 Notices. Promptly and in any event within three Business Days (ten Business Days in the case of clause (b) below) after a Responsible Officer of the Company or of any Borrower obtains knowledge thereof, give written notice to Agent (which shall promptly provide a copy of such notice to each Lender) of: (a) Event of Default or Unmatured Event of Default. The occurrence of any Event of Default or Unmatured Event of Default, accompanied by a statement of the Chief Financial Officer setting forth details of the occurrence referred to therein and stating what action the Company or any subsidiary propose to take with respect thereto; (b) Litigation and Related Matters. The commencement of, or any material development in, any action, suit, proceeding or investigation pending or threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties before any arbitrator or Governmental Authority, (i) with respect to any Document or any material Indebtedness or Preferred Stock of the Company or any of its Subsidiaries or (ii) which, if determined adversely to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect; 74 83 (c) Notice of Change of Control. Each occasion that any Change of Control shall occur and such notice shall set forth in reasonable detail the particulars of each such occasion; and (d) Performance Level. Any change in the applicable Performance Level; provided, however, that the failure to provide such notice shall not delay or otherwise affect any change in the Applicable Margin or other amount payable hereunder which is to occur upon a change in Performance Level pursuant to the terms of this Agreement. 7.4 Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its and each Subsidiary's corporate existence and take all reasonable action to maintain all rights, privileges and franchises material to its and those of each of its Subsidiaries' business except as otherwise permitted pursuant to Sections 8.3 and 8.10 and comply and cause each of its Subsidiaries to comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not in the aggregate reasonably be expected to have a Material Adverse Effect. 7.5 Payment of Obligations. Pay or discharge or otherwise satisfy at maturity or, to the extent permitted hereby, prior to maturity or before they become delinquent, as the case may be, and cause each of its Subsidiaries to pay or discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be: (i) all its and their respective Indebtedness; (ii) all taxes, assessments and governmental charges or levies imposed upon any of them or upon any of their income or profits or any of their respective properties or assets prior to the date on which penalties attach thereto; and (iii) all lawful claims prior to the time they become a Lien (other than Permitted Liens) upon any of their respective properties or assets; provided, however, that neither the Company nor any of its Subsidiaries shall be required to pay or discharge any such Indebtedness, tax, assessment, charge, levy or claim while the same is being contested by it in good faith and by appropriate proceedings diligently pursued so long as the Company or such Subsidiary, as the case may be, shall have set aside on its books adequate reserves in accordance with GAAP (segregated to the extent required by GAAP) with respect thereto and title to any material properties or assets is not jeopardized in any material respect. 7.6 Inspection of Property, Books and Records. Keep, or cause to be kept, and cause each of its Subsidiaries to keep or cause to be kept, adequate records and books of account, in which complete entries are to be made reflecting its and their business and financial transactions, such entries to be made in accordance with sound accounting principles consistently applied and permit, and cause each of its Subsidiaries to permit, 75 84 officers and designated representatives of Agent and the Required Lenders, at any reasonable time, and from time to time at the reasonable request of Agent or the Required Lenders made to the Company and upon reasonable notice, to visit and inspect its and their respective properties, to examine and make copies of and take abstracts from its and their respective records and books of account, and to discuss its and their respective affairs, finances and accounts with its and their respective principal officers, directors and independent public accountants (and by this provision each Borrower authorizes such accountants to discuss with the Lenders and such representatives the affairs, finances and accounts of the Company and its Subsidiaries). 7.7 ERISA. (i) As soon as practicable and in any event within ten (10) days after the Company or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that a Reportable Event has occurred with respect to any Plan, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Agent a certificate of a responsible officer of the Company or such Subsidiary or ERISA Affiliate, as the case may be, setting forth the details of such Reportable Event and the action, if any, which the Company or such Subsidiary or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given; (ii) as soon as possible and in any event within ten (10) days after the Company or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that any of the following has occurred or is reasonably likely to occur with respect to any Plan: (A) such Plan has been or may be terminated, reorganized, petitioned or declared insolvent under Title IV of ERISA, (B) the Plan Sponsor intends to terminate such Plan, (C) the PBGC has instituted or will institute proceedings under Section 515 of ERISA to collect a delinquent contribution to such Plan or under Section 4042 of ERISA to terminate such Plan, (D) that an accumulated funding deficiency has been incurred or that on application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or on extension of any amortization period under Section 412 of the Code, (E) that the Company, or any Subsidiary of the Company or any ERISA Affiliate will or may incur any material liability (including, but not limited to, contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(1) of ERISA, or (F) the Company or any Subsidiary of the Company has or may incur any material liability with respect to the establishment of a new Plan on or after the Closing Date, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Agent a written notice thereof; and (iii) as soon as possible and in any event within thirty days after the Company or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that any of them has caused a complete withdrawal or partial withdrawal (within the meaning of Sections 4203 and 4205, respectively, of ERISA) from any Multiemployer Plan, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Agent a written notice thereof. 7.8 Maintenance of Property, Insurance. (i) Keep, and cause each of its Subsidiaries to keep, all property (including, but not limited to, equipment) useful and necessary in its business in good working order and condition, normal wear and tear and damage by casualty excepted, and (ii) maintain, and cause each of its Subsidiaries to 76 85 maintain, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. Such insurance shall be maintained with financially sound and reputable insurers, except that a portion of such insurance program (not to exceed that which is customary in the case of companies engaged in the same or similar business or having similar properties similarly situated) may be effected through self-insurance, provided adequate reserves therefor, in accordance with GAAP, are maintained. 7.9 Environmental Laws. (a) Comply with, and cause its Subsidiaries to comply with, and, in each case take reasonable steps to ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and take reasonable steps to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Defend, indemnify and hold harmless Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or their respective properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorneys' and consultants' fees, investigation and laboratory fees, costs arising from any Remedial Action, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this Section 7.9(b) shall survive repayment of the Notes and all other Obligations. 7.10 Use of Proceeds. Use all proceeds of the Loans as provided in Section 6.8. 7.11 Additional Subsidiary Guarantors. Cause each Material Subsidiary, other than a Material Subsidiary organized in a jurisdiction other than the United States of America or any State thereof, established or created in accordance with Section 8.10 to execute and deliver a guaranty of all Obligations in form and substance satisfactory to Agent. 7.12 End of Fiscal Years; Fiscal Quarters. Cause each of its and its Subsidiaries' annual accounting periods to end on December 31 of each year (each a "Fiscal 77 86 Year"), with quarterly accounting periods ending on March 31, June 30, September 30 and December 31 of each Fiscal Year (each a "Fiscal Quarter"). ARTICLE VIII NEGATIVE COVENANTS The Company hereby agrees that, so long as any of the Commitments remain in effect or any Loan or LC Obligation remains outstanding and unpaid or any other amount is owing to any Lender or Agent hereunder: 8.1 Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist or agree to create, incur or assume any Lien in, upon or with respect to any of its properties or assets (including, without limitation, any securities or debt instruments of any of its Subsidiaries), whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income to secure any obligation; except for the following Liens (herein referred to as "Permitted Liens"): (a) Customary Permitted Liens; (b) Liens existing on the Closing Date to secure Indebtedness to Remain Outstanding listed on Schedule 6.5(d) hereto; (c) Liens on any property securing Indebtedness incurred or assumed for the purpose of financing all or any part of the acquisition, construction, repair or improvement cost of such property, provided that (A) any such Lien does not extend to any other property, (B) such Lien either exists on the Closing Date or is created in connection with the acquisition, construction, repair or improvement of such property, and (C) the indebtedness secured by any such Lien, (or the Capitalized Lease Obligation with respect to any Capitalized Lease) does not exceed 100% of the fair market value of such assets; (d) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by clauses (b) and (c) of this Section; provided that such Indebtedness is not increased and is not secured by any additional assets; and (e) additional Liens incurred by the Company and its Subsidiaries securing obligations of the Company and its Subsidiaries if the aggregate amount of all such obligations secured by all such Liens does not exceed 5% of Consolidated Total Assets. 8.2 Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, incur, create, assume directly or indirectly, or suffer to exist any Indebtedness except: 78 87 (a) Indebtedness incurred pursuant to this Agreement and the other Loan Documents; (b) Indebtedness under Interest Rate Agreements entered into to protect the Company or any of its Subsidiaries against fluctuations in interest rates in respect of the Obligations; (c) Indebtedness of the Company and its Subsidiaries incurred pursuant to purchase money Liens and Capitalized Lease Obligations; provided, that all such purchase money Liens and Capitalized Lease Obligations are permitted under Section 8.1(c); (d) Indebtedness for borrowed money owing by the Company to any Wholly-Owned Subsidiary or by any Wholly-Owned Subsidiary to the Company or any other Wholly-Owned Subsidiary; provided, however, that such Indebtedness of the Company is subordinated to the Obligations pursuant to terms and conditions satisfactory to Agent; (e) Indebtedness under Other Hedging Agreements entered into in the ordinary course of business providing protection against fluctuations in currency values and other hedging activities in connection with the Company's or any of its Subsidiaries' operations so long as management of the Company or such Subsidiary, as the case may be, has determined that entering into of such Other Hedging Agreements are bona fide hedging activities; (f) Indebtedness of the Company and its Subsidiaries secured by its or their accounts receivable in an aggregate amount outstanding at any time not to exceed $50 million; (g) Indebtedness outstanding on the Closing Date and listed on Schedule 6.5(d) hereto and any Indebtedness resulting from the refinancing of any such Indebtedness; provided, however, that (i) the principal amount of any such refinancing Indebtedness (as determined as of the date of the incurrence of such refinancing Indebtedness in accordance with GAAP) does not exceed the principal amount of the Indebtedness refinanced thereby on such date, (ii) the Weighted Average Life to Maturity of such Indebtedness is not decreased and (iii) (A) the covenants, defaults and similar provisions applicable to such refinancing Indebtedness or obligations are no more restrictive in any material respect than the provisions contained in this Agreement and do not conflict in any material respect with the provisions of this Agreement and (B) such refinancing Indebtedness is otherwise upon terms and subject to definitive documentation which is in form and substance satisfactory to Agent; (h) Indebtedness of the Acquired Entity and/or any of its Subsidiaries outstanding on the effective date of the Acquisition the aggregate Dollar Equivalent of which does not exceed $50 million, which Indebtedness is assumed in connection with the consummation of the Acquisition and not created in anticipation of the Acquisition, and any Indebtedness resulting from the refinancing of any such Indebtedness; provided, however, that (i) the principal amount of any such refinancing Indebtedness (as determined as of the 79 88 date of incurrence of such refinancing Indebtedness in accordance with GAAP) does not exceed the principal amount of the Indebtedness refinanced thereby on such date and (ii) the Weighted Average Life to Maturity of such Indebtedness is not decreased; and (i) additional Indebtedness of the Company and its Subsidiaries in an aggregate amount outstanding at any time not to exceed $150 million. 8.3 Consolidation, Merger, Purchase or Sale of Assets, etc. The Company will not, and will not permit any Subsidiary to, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or sell or otherwise dispose of all or any part of its property or assets (other than inventory, worn-out, unuseful or obsolete equipment or excess equipment in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials and equipment in the ordinary course of business) or agree to do any of the foregoing at any future time (without a contingency relating to obtaining any required approval hereunder or the prior or contemporaneous satisfaction of the Obligations), except that the following shall be permitted: (a) Investments may be made to the extent permitted by Section 8.6; (b) each of the Company and its Subsidiaries may lease (as lessee) real or personal property in the ordinary course of business (so long as any such lease does not create a Capitalized Lease Obligation except to the extent permitted by Section 8.2(c)); (c) the Company and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, accounts receivable arising in the ordinary course of business (i) which are overdue, or (ii) which the Company may reasonably determine are difficult to collect but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale or financing of receivables); (d) (i) any Credit Party and/or other Subsidiary may be merged or consolidated with or into, or be liquidated into, a Credit Party (so long as (A) a Credit Party is the surviving corporation, (B) if such merger or consolidation involves a Borrower, a Borrower is the surviving corporation, and (C) no Event of Default results therefrom), (ii) any Subsidiary that is not a Credit Party may be merged or consolidated with or into or be liquidated into, another Subsidiary that is not a Credit Party, (iii) all or any part of the business, properties and assets of a Credit Party or other Subsidiary may be conveyed, leased, sold, licensed or otherwise transferred to a Credit Party so long as no Event of Default arises therefrom under any provision of this Agreement other than this Section 8.3 and (iv) all or any part of the business, properties and assets of a Subsidiary that is not a Credit Party may be conveyed, leased, sold, licensed or otherwise transferred to another Subsidiary that is not a Credit Party; 80 89 (e) the Acquisition (including all intercompany loans, advances and investments made to effectuate same); (f) any Borrower may acquire (other than through an unsolicited public offer) assets constituting all or substantially all of a business, business unit, division or product line of any Person not already a Subsidiary of such Borrower or Capital Stock of any such Person (including any such acquisition by way of merger or consolidation) to the extent such acquired Person or the surviving entity of such merger or consolidation is or becomes a Credit Party (any such acquisition permitted by this clause (f), a "Permitted Acquisition"), so long as (i) no Unmatured Event of Default or Event of Default (including under this Section 8.3) then exists (both before and after giving effect to such Permitted Acquisition), (ii) after giving effect thereto on a pro forma basis for the period (the "Pro Forma Period") of four Fiscal Quarters ending with the Fiscal Quarter for which financial statements have most recently been delivered (or were required to be delivered) under Section 7.1 (on the basis that (A) any Indebtedness incurred or assumed in connection with such Permitted Acquisition was incurred or assumed at the beginning of the Pro Forma Period, (B) such Indebtedness was repaid from operating cash flow over the Pro Forma Period at the intervals and in the amounts reasonably projected to be paid in respect of such Indebtedness over the 12-month period immediately following the Acquisition, (C) if such Indebtedness bears a floating interest rate, such interest shall be paid over the Pro Forma Period at the rate in effect on the date of such Acquisition, and (D) all income and expense associated with the assets or entity acquired in connection with such Permitted Acquisition for the most recently ended four Fiscal Quarter period for which such income and expense amounts are available (with good faith estimates thereof being permitted if financial statements indicating such amounts are not available) shall be treated as being earned or incurred by the Company over the Pro Forma Period on a pro forma basis), no Event of Default or Unmatured Event of Default would exist hereunder, (iii) the business acquired pursuant to such Permitted Acquisition is engaged in the pulp and paper industry, (iv) all documentation governing such Permitted Acquisition is reasonably acceptable to Agent, (v) the Company delivers an officer's certificate to Agent certifying as to compliance with the requirements of this clause (f) and containing the calculations required pursuant to clauses (A) through (D) above establishing compliance with the covenants set forth in Article IX, and (vi) any Person acquired in connection with Permitted Acquisition shall have executed and delivered to Agent a Subsidiary Guaranty upon the consummation thereof if such acquired Person is a Material Subsidiary; and (g) other sales or dispositions of assets not otherwise permitted hereunder (whether by merger, consolidation or otherwise) occurring after the Closing Date which are made for fair market value; provided, however, that (i) at the time of any such sale or disposition, no Event of Default or Unmatured Event of Default exists or would result from therefrom and (ii) the aggregate net book value of all assets so transferred by the Company and its Subsidiaries together shall not exceed 7.5% of Consolidated Total Assets in any Fiscal Year; and provided further, that in the event the amount of sales and dispositions of assets permitted to be made by the Company and its Subsidiaries under this clause (g) in any Fiscal Year is greater than the actual amount of such sales and dispositions under this clause (g) during such Fiscal Year (such excess being referred to herein as the "Rollover Amount"), 81 90 the Rollover Amount may be carried forward and utilized to make sales and dispositions in the next succeeding Fiscal Year, provided that in no event shall the aggregate net book value of all assets so transferred by the Company and its Subsidiaries together exceed 15% of Consolidated Total Assets in any two consecutive Fiscal Years. 8.4 Dividends or Other Distributions. The Company will not, and will not permit any Subsidiary to, either: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (a "Dividend") or to the direct or indirect holders of its Capital Stock (except dividends or distributions payable solely in such Capital Stock or in options, warrants or other rights to purchase such Capital Stock and except dividends or distributions payable to the Company or a Wholly-Owned Subsidiary of the Company) or (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being hereinafter referred to as a "Restricted Payment") or (iii) make any interest or principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, any other Indebtedness that is subordinate or junior in right of payment to the Obligations; provided, however, that, during such time as no Event of Default or Unmatured Event of Default has occurred and is continuing or would result therefrom, the Company may make any Restricted Payment. 8.5 Limitation on Certain Restrictions on Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of the Company or any Subsidiary of the Company to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to the Company or any of its other Subsidiaries, or (ii) make any loans or advances to the Company or any of its other Subsidiaries, except: (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Closing Date and reflected on Schedule 8.5(a) hereto; and (b) any encumbrance or restriction with respect to a Subsidiary of the Company pursuant to an agreement relating to any Indebtedness issued by such Subsidiary on or prior to the date on which such Subsidiary became a Subsidiary of the Company or was acquired by the Company (other than Indebtedness issued as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Company) and outstanding on such date. 8.6 Loans and Investments. The Company will not, and will not permit any of its Subsidiaries to, make any loans or make or own any Investments except that: (a) the Company and any of its Subsidiaries may acquire and hold Cash and Cash Equivalents; 82 91 (b) the Company and any of its Subsidiaries may hold the Investments identified on Schedule 8.6, without giving effect to any additions thereto or replacements thereof; (c) the Company and any of its Subsidiaries make or maintain loans and advances to officers, directors and employees in the ordinary course of business in an aggregate principal amount not exceeding $2,000,000 at any one time outstanding; (d) the Company and any of its Subsidiaries may acquire and hold Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (e) the Company and any of its Subsidiaries may enter into Interest Rate Agreements in compliance with Section 8.2(b); (f) the Company and any of its Subsidiaries may make deposits made in the ordinary course of business to secure the performance of leases; (g) any Credit Party may make Investments in any other Credit Party; (h) Permitted Acquisitions shall be permitted in accordance with Section 8.3(f); (i) the Company and its Subsidiaries may acquire and hold debt securities as partial consideration for a sale of assets pursuant to Section 8.3(g) to the extent permitted by such Section; and (j) in addition to investments permitted by Section 8.6(a) through (i) above, the Company and its Subsidiaries may make additional Investments to or in a Person, so long as the amount of all such Investments (measured at the time of the making thereof) do not exceed in the aggregate 5% of Consolidated Total Assets (determined without regard to any write-downs or write-offs thereof and net of cash repayments of principal in the case of loans and cash equity returns (whether as a dividend or redemption) in the case of equity investments). 8.7 Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into any transaction or series of transactions after the Closing Date whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable to the Company or such Subsidiary as would be obtained by the Company or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate, except that: (i) each such Person may pay reasonable fees and compensation to and indemnity provided on behalf of, their respective officers, directors and employees as determined in good faith by such Person's Board of Directors or senior management to the extent not otherwise prohibited by the terms of this 83 92 Agreement; and (ii) transactions between or among the Company and/or any Subsidiary, on the one hand, and any Person controlled (as such term is defined in the definition of "Affiliate") by the Company, on the other hand, shall be permitted so long as (A) no portion of the remaining interest in such other Person is owned by a Person who is an Affiliate of, but not controlled by, the Company and (B) such transactions are not otherwise prohibited by the provisions of this Agreement. 8.8 Fiscal Year. The Company will not (and will not permit any of its Subsidiaries to) Change the Fiscal Year of the Company or its Subsidiaries. 8.9 Accounting Changes. Make or permit to be made any change in accounting policies affecting the presentation of financial statements or reporting practices from those employed by it on the date hereof, unless (i) such change is required by GAAP, (ii) such change is disclosed to the Lenders through Agent or otherwise and (iii) relevant prior financial statements that are affected by such change are restated (in form and detail satisfactory to Agent) as may be required by GAAP to show comparative results. If any changes in GAAP or the application thereof from that used in the preparation of the financial statements referred to in Section 6.5(a) hereof occur after the Closing Date and such changes result in, in the sole judgment of Agent, a meaningful change in the calculation of any financial covenants or restrictions set forth in this Agreement, then the parties hereto agree to enter into and diligently pursue negotiations in order to amend such financial covenants and restrictions so as to equitably reflect such changes, with the desired result that the criteria for evaluating the consolidated financial condition and results of operations of the Company and its Subsidiaries shall be the same after such changes as if such changes had not been made. 8.10 Creation of Subsidiaries. The Company will not, and will not permit any Subsidiary to, create or acquire any Material Subsidiary unless such new Material Subsidiary (except for a Material Subsidiary organized in a jurisdiction other than the United States of America or any State thereof) executes a Subsidiary Guaranty. Each new Subsidiary Guarantor created as permitted by this Section 8.10 shall execute and deliver, or cause to be executed, all other relevant documentation of the type described in Section 5 as such new Material Subsidiary would have had to deliver if such new Material Subsidiary were a Credit Party on the Closing Date. ARTICLE IX FINANCIAL COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect or any Loan or LC Obligation remains outstanding and unpaid or any other amount is owing to any Lender or Agent hereunder, the Company shall not, directly or indirectly: 84 93 9.1 Interest Coverage Ratio. Permit the Interest Coverage Ratio for any Test Period ending on the last day of any Fiscal Quarter of the Company to be less than 3.00 to 1.00. 9.2 Leverage Ratio. Permit the Leverage Ratio for any Test Period ending on the last day of any Fiscal Quarter of the Company to be more than 3.75 to 1.00. ARTICLE X EVENTS OF DEFAULT 10.1 Events of Default. Any of the following events, acts, occurrences or state of facts shall constitute an "Event of Default" for purposes of this Agreement: (a) Failure to Make Payments When Due. Any Borrower (i) shall default in the payment of principal on any of the Loans or any reimbursement obligation with respect to any Letter of Credit; or (ii) shall default in the payment of interest on any of the Loans or default in the payment of any fee or any other amount owing hereunder or under any other Loan Document when due and such default in payment shall continue for three (3) Business Days; or (b) Representations and Warranties. Any representation or warranty made by or on the part of any Credit Party herein or in any other Loan Document or any document, instrument or certificate delivered pursuant hereto or thereto shall have been incorrect or misleading in any material respect when made or deemed made, or (c) Covenants. Any Credit Party shall (i) default in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under Article VIII or Article IX hereof or Sections 7,3, 7.6, 7.7, 7.9 or 7.11, or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement and such default shall continue unremedied for a period of thirty (30) days after written notice to the defaulting party by Agent or the Required Lenders; (d) Default Under Other Loan Documents. Any Credit Party shall default in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed hereunder or under any Loan Document (and not constituting an Event of Default under any other clause of this Section 10.1) and such default shall continue unremedied for a period of thirty (30) days after written notice thereof has been given to the defaulting party by Agent or the Required Lenders; or 85 94 (e) Voluntary Insolvency, Etc. The Company or any of its Material Subsidiaries shall become insolvent or generally fail to pay, or admit in writing its inability to pay, its debts as they become due, or shall voluntarily commence any proceeding or file any petition under any bankruptcy, insolvency or similar law or seeking dissolution or reorganization or the appointment of a receiver, trustee, custodian or liquidator for it or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed against it in any bankruptcy, insolvency or similar proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for a substantial portion of its property, assets or business, shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts or shall take any corporate action authorizing any of the foregoing; or (f) Involuntary Insolvency, Etc. Involuntary proceedings or an involuntary petition shall be commenced or filed against the Company or any of its Material Subsidiaries under any bankruptcy, insolvency or similar law or seeking the dissolution or reorganization of it or the appointment of a receiver, trustee, custodian or liquidator for it or of a substantial part of its property, assets or business, or any writ, judgment, warrant of attachment, execution or similar process shall be issued or levied against a substantial part of its property, assets or business, and such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within sixty (60) days after commencement, filing or levy, as the case may be, or any order for relief shall be entered in any such proceeding; or (g) Default Under Other Agreements. (i) The Company or any of its Subsidiaries shall default in the payment when due, whether at stated maturity or otherwise, of any Indebtedness (other than Indebtedness owed to the Lenders under the Loan Documents) in excess of $10,000,000 in the aggregate beyond the period of grace (not to exceed thirty (30) days), if any, provided in the instrument or agreement under which such Indebtedness was created, or (ii) a default in the performance or observance of any agreement or condition to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice of acceleration or similar notice is required), any such Indebtedness to become due or be repaid prior to its stated maturity, or (iii) any such Indebtedness of the Company or any of its Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, unless, in any such case, such default is being contested in good faith by appropriate proceedings by the Company or such Subsidiary; or 86 95 (h) Judgments. One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving, individually or in the aggregate, a liability (to the extent not paid or covered by a reputable insurance company which has accepted liability in writing) of $10,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, satisfied, stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (i) Guaranties. Any Subsidiary Guaranty or any provision thereof shall (other than as a result of Agent's or the Lenders' agreement to release such Subsidiary Guaranty) cease to be in full force and effect in accordance with its terms, or any Subsidiary Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under any Subsidiary Guaranty or any Subsidiary Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any Subsidiary Guaranty; or (j) ERISA. Either (i) any Reportable Event which the Required Lenders determine constitutes reasonable grounds for the termination of any Plan by the PBGC or of any Multiemployer Plan or for the appointment by the appropriate United States District Court of a trustee to administer or liquidate any Plan or Multiemployer Plan shall have occurred, (ii) a trustee shall be appointed by a United States District Court to administer any Plan or Multiemployer Plan, or (iii) the PBGC or shall institute proceedings to terminate any Plan or Multiemployer Plan or to appoint a trustee to administer any Plan; or (iv) the Company or any of its Subsidiaries or any of their ERISA Affiliates shall become liable to the PBGC or any other party under Section 4062, 4063 or 4064 of ERISA with respect to any Plan; or (v) the Company or any of its Subsidiaries or any of their ERISA Affiliates shall become liable to make a current payment with respect to any Multiemployer Plan under Section 4201 et seq. of ERISA; if as of the date thereof or any subsequent date, the sum of each of the Company's and its Subsidiaries' and their ERISA Affiliates' various liabilities (such liabilities to include, without limitation, any liability to the PBGC or to any other party under Section 4062, 4063 or 4064 of ERISA with respect to any Plan, or to any Multiemployer Plan under Section 4201 et seq. of ERISA, and to be calculated after giving effect to the tax consequences thereof) as a result of such events listed in subclauses (i) through (v) above could reasonably be expected to have a Material Adverse Effect; or (k) Change of Control. A Change of Control shall occur. If any of the foregoing Events of Default shall have occurred and be continuing, Agent, at the written direction of the Required Lenders shall, take one or more of the following actions: (i) by written or oral or telephonic notice (in the case of oral or telephonic notice confirmed in writing immediately thereafter) to the Company declare the Commitments to be terminated whereupon the Commitments shall forthwith terminate, or (ii) by written or oral or telephonic notice (in the case of oral or telephonic notice confirmed in writing immediately thereafter) to the Company declare all sums then owing by any Borrower or any Credit Party hereunder and under the Loan Documents to be forthwith due 87 96 and payable, whereupon all such sums shall become and be immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrowers, or (iii) terminate any Letter of Credit in accordance with its terms, or (iv) direct any Borrower to pay (and each Borrower agrees that upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 10.1(e) or Section 10.1(f) with respect to such Borrower it will pay) to Agent at the Payment Office such additional amount of cash, to be held as security by Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of such Borrower and its Subsidiaries and then outstanding. In cases of any occurrence of any Event of Default described in Section 10.1(e) or Section 10.1(f), the Loans, together with accrued interest thereon, shall become due and payable forthwith without the requirement of any such acceleration or request, and without presentment, demand, protest or other notice of any kind, all of which are expressly waived by Borrowers, any provision of this Agreement or any other Loan Document to the contrary notwithstanding, and other amounts payable by any Borrower hereunder shall also become immediately due and payable all without notice of any kind. Anything in this Section 10.1 to the contrary notwithstanding, Agent shall, at the request of the Required Lenders, rescind and annul any acceleration of the Loans by written notice to the Company; provided, however, that at the time such acceleration is so rescinded and annulled: (A) all past due interest and principal, if any, on the Loans and all other sums payable under this Agreement and the other Loan Documents shall have been duly paid, and (B) no other Event of Default shall have occurred and be continuing which shall not have been waived in accordance with the provisions of Section 12.1. 10.2 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE XI THE AGENT In this Article XI, the Lenders agree among themselves as follows: 11.1 Appointment. The Lenders hereby appoint BT as Agent to act as specified herein and in the other Loan Documents. Each Lender hereby irrevocably authorizes and each holder of any Note by the acceptance of such Note shall be deemed to irrevocably authorize Agent to take such action on its behalf under the provisions hereof, the other Loan Documents (including, without limitation, to give notices and take such actions on behalf of the Required Lenders as are consented to in writing by the Required Lenders) and any other instruments, documents and agreements referred to herein or therein and to exercise such powers hereunder and thereunder as are specifically delegated to Agent by the 88 97 terms hereof and thereof and such other powers as are reasonably incidental thereto. Agent may perform any of its duties hereunder and under the other Loan Documents, by or through its officers, directors, agents, employees or Affiliates. 11.2 Nature of Duties. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. The duties of Agent shall be mechanical and administrative in nature. EACH LENDER HEREBY ACKNOWLEDGES AND AGREES THAT AGENT SHALL NOT HAVE, BY REASON OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, A FIDUCIARY RELATIONSHIP TO OR IN RESPECT OF ANY LENDER. Nothing in any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of any of the Loan Documents except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrowers in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the credit worthiness of each Borrower, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before making of the Loans or at any time or times thereafter. Agent will promptly notify each Lender at any time that the Required Lenders have instructed it to act or refrain from acting pursuant to Article X. 11.3 Exculpation, Rights Etc. Neither Agent nor any of its officers, directors, agents, employees or Affiliates shall be liable for any action taken or omitted by them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of any of the Loan Documents or any other document or the financial condition of any Borrower. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or any other Document or the financial condition of any Borrower, or the existence or possible existence of any Unmatured Event of Default or Event of Default unless requested to do so by the Required Lenders. Agent may at any time request instructions from the Lenders with respect to any actions or approvals (including the failure to act or approve) which by the terms of any of the Loan Documents, Agent is permitted or required to take or to grant, and if such instructions are requested, Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting, approving or refraining from acting or approving under any of the Loan Documents in accordance with the instructions of the Required Lenders or, to the extent required by Section 12.1, all of the Lenders. 89 98 11.4 Reliance. Agent shall be entitled to rely, and shall be fully protected in relying, upon any notice, writing, resolution notice, statement, certificate, order or other document or any telephone, telex, teletype or telecopier message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all matters pertaining herein or to any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by Agent. 11.5 Indemnification. To the extent Agent is not reimbursed and indemnified by Borrowers, the Lenders will reimburse and indemnify Agent for and against any and all liabilities, obligations, losses, damages, claims, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share of the Total Revolving Commitment; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, claims, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. The obligations of the Lenders under this Section 11.5 shall survive the payment in full of the Notes and the termination of this Agreement. 11.6 Agent In Its Individual Capacity. With respect to its Loans and Commitments (and its Pro Rata Share thereof), Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or holder of Obligations. The terms "Lenders", "holder of Obligations" or "Required Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender, one of the Required Lenders or a holder of Obligations. Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Company or any Subsidiary or Affiliate of the Company as if it were not acting as Agent hereunder or under any other Loan Document, including, without limitation, the acceptance of fees or other consideration for services without having to account for the same to any of the Lenders. 11.7 Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default hereunder unless Agent has received written notice from a Lender or a Borrower referring to this Agreement describing such Event of Default or Unmatured Event of Default and stating that such notice is a "notice of default". In the event that Agent receives such a notice, Agent shall give prompt notice thereof to the Lenders. 11.8 Holders of Obligations. Agent may deem and treat the payee of any Obligation as reflected on the books and records of Agent as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with Agent pursuant to Section 12.8(c). Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is 90 99 the holder of any Obligation shall be conclusive and binding on any subsequent holder, transferee or assignee of such Obligation or of any Obligation or Obligations granted in exchange therefor. 11.9 Resignation by Agent. (a) Agent may resign from the performance of all its functions and duties hereunder at any time by giving fifteen (15) Business Days' prior written notice to the Company and the Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent who shall be reasonably satisfactory to the Company and shall be an incorporated bank or trust company. (c) If a successor Agent shall not have been so appointed within said fifteen (15) Business Day period, Agent, with the consent of the Company (such consent not to be unreasonably withheld), shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Required Lenders, with the consent of the Company (such consent not to be unreasonably withheld), appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to clause (b) or (c) by the twentieth (20th) Business Day after the date such notice of resignation was given by Agent, Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Required Lenders, with the consent of the Company (such consent not to be unreasonably withheld), appoint a successor Agent as provided above. ARTICLE XII MISCELLANEOUS 12.1 No Waiver; Modifications in Writing. (a) No failure or delay on the part of Agent or any Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to Agent or any Lender at law or in equity or otherwise. Neither this Agreement nor any terms hereof may be amended, modified, supplemented, waived, discharged, terminated or otherwise changed unless such amendment, modification, supplement, waiver, discharge, termination or other change is in writing signed by the respective Credit Parties party thereto and the Required Lenders, provided that no such amendment, modification, supplement, waiver, discharge, termination or other change shall, 91 100 without the consent of each Lender (other than a Defaulting Lender), (i) extend the final scheduled maturity of any Loan or Note or extend the stated maturity of any Letter of Credit beyond the Termination Date, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof, (ii) amend, modify or waive any provision of this Section 12.1, (iii) reduce the percentage specified in the definition of Required Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the extensions of Revolving Commitments are included in such determination on the date hereof) or (iv) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement, or release the Company from its guaranty under Article XIII; provided, further, that no such amendment, modification, supplement, waiver, discharge, termination or other change shall (1) increase the Commitment of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that (A) the Commitments may be increased as provided in Section 4.1(c), (B) waivers or modifications of conditions precedent, covenants, Events of Default or Unmatured Events of Default shall not constitute an increase of the Commitment of any Lender, and (C) an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), (2) without the consent of Facing Agent, amend, modify or waive any provision of Section 2.10 or alter its rights or obligations with respect to Letters of Credit, (3) without the consent of Agent, amend, modify or waive any provision of Article XI as same applies to Agent or any other provisions as same relates to the rights or obligations of Agent, or (4) without the consent of Agent, amend, modify or waive any provisions relating to the rights or obligations of Agent under the other Loan Documents. (b) If, in connection with any proposed amendment, modification, supplement, waiver, discharge, termination or other change to any of the provisions of this Agreement as contemplated by clauses (i) through (iv), inclusive, of the first proviso to the third sentence of Section 12.1(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Borrowers shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders (or, at the option of Borrowers if the respective Lender's consent is required with respect to less than all Loans, to replace only the respective Loans of the respective non-consenting Lender which gave rise to the need to obtain such Lender's individual consent) with one or more Replacement Lenders pursuant to Section 3.7 so long as at the time of such replacement, each such Replacement Lender consents to the proposed amendment, modification, supplement, waiver, discharge, termination or other change or (B) terminate such non-consenting Lender's Revolving Commitment and repay all outstanding Loans of such Lender which gave rise to the need to obtain such Lender's consent, in accordance with Section 4.l(b) and/or 4.2; provided, however, that, unless the Revolving Commitment terminated and Loans repaid pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing 92 101 Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to the preceding clause (B) the Required Lenders (determined before giving effect to the proposed action) shall specifically consent thereto; and provided further, that in any event Borrowers shall not have the right to replace a Lender, terminate its Revolving Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) contemplated by the first proviso to this Section 12.1(b). 12.2 Further Assurances. Each Borrower agrees to do such further acts and things and to execute and deliver to Agent such additional assignments, agreements, powers and instruments, as Agent may reasonably require or deem advisable to carry into effect the purposes of this Agreement or any of the Loan Documents or to better assure and confirm unto Agent its rights, powers and remedies hereunder. 12.3 Notices, Etc. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto or any other Person shall be in writing and shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by a reputable overnight or courier delivery service, or by prepaid telex or telecopier, and shall be deemed to be given for purposes of this Agreement on the third day after deposit in registered or certified mail, postage prepaid, and otherwise on the date that such writing is delivered or sent to the intended recipient thereof, or in the case of notice delivered by telecopy, upon completion of transmission with a copy of such notice also being delivered under any of the methods provided above, all in accordance with the provisions of this Section 12.3. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section 12.3, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses (or to their respective telex, TWX or telecopier numbers) indicated on their respective signature pages to this Agreement or, in the case of any Assignee, on its signature page to its Assignment and Assumption Agreement and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party on its signature page to this Agreement or such Assignment and Assumption Agreement, as the case may be. 12.4 Costs, Expenses and Taxes. (a) Generally. Borrowers jointly and severally agree (without duplication) to pay all reasonable costs and expenses of Agent in connection with the negotiation, preparation, printing, typing, reproduction, execution and delivery of this Agreement and the other Loan Documents and the documents and instruments referred to herein and therein and any amendment, waiver, consent relating hereto or thereto or other modifications of (or supplements to) any of the foregoing and any and all other documents and instruments furnished pursuant hereto or thereto or in connection herewith or therewith, including without limitation, the reasonable fees and out-of-pocket expenses of Winston & Strawn, special counsel to Agent, and any local counsel retained by Agent relative thereto, other 93 102 Attorney Costs, independent public accountants and other outside experts retained by Agent in connection with the administration of this Agreement and the other Loan Documents, and all costs and expenses (including, without limitation, Attorney Costs), if any, of Agent and each of the Lenders in connection with the enforcement of this Agreement, any of the Loan Documents or any other agreement furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, Borrowers jointly and severally agree to pay any and all present and future stamp, transfer excise and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, any Loan Document, or the making of any Loan, and each agrees to save and hold Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay by any Borrower in paying, or omission by any Borrower to pay, such taxes. Any portion of the foregoing fees, costs and expenses which remains unpaid more than thirty (30) days following Agent's or any Lender's statement and request for payment thereof shall bear interest from the date of such statement and request to the date of payment at the Default Rate. Borrowers jointly and severally will indemnify and hold harmless Agent and each Lender and each director, officer, employee, agent, attorney and Affiliate of Agent and each Lender (each such Person an "Indemnified Party") from and against all losses, claims, damages, obligations (including removal or remedial actions), expenses or liabilities (not including Taxes as to which a Borrower is not required to make any payment of additional amounts pursuant to Section 4.6(c) hereof) to which such Indemnified Party may become subject, insofar as such losses, claims, damages, penalties, obligations (including removal or remedial actions), expenses or liabilities (or actions, suits or proceedings including any inquiry or investigation or claims in respect thereof (whether or not Agent or any Lender is a party thereto)) arise out of, in any way relate to, or result from the transactions contemplated by this Agreement or any of the other Loan Documents and to reimburse each Indemnified Party upon their demand, for any Attorney Costs or other expenses incurred in connection with investigating, preparing to defend or defending any such loss, claim, damage, liability, action or claim; provided, however, that no Indemnified Party shall have the right to be so indemnified hereunder for any loss, claim, damage, penalties, obligations, expense or liability to the extent it arises or results from the gross negligence or willful misconduct or bad faith of such Indemnified Party as finally determined by a court of competent jurisdiction. If any action, suit or proceeding arising from any of the foregoing is brought against Agent, any Lender or any other Person indemnified or intended to be indemnified pursuant to this Section 12.4, Borrowers will, if requested by Agent, any Lender or any such indemnified Person, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel selected by Borrowers and reasonably satisfactory to the Person or Persons indemnified or intended to be indemnified. Each Indemnified Party shall, unless Agent, a Lender or other Indemnified Party has made the request described in the preceding sentence and such request has been complied with, have the right to employ its own counsel (or (but not as well as) staff counsel) to investigate and control the defense of any matter covered by such indemnity and the reasonable fees and expenses of such counsel shall be at the expense of the indemnifying party. (b) Foreign Exchange Indemnity. If any sum due from any Borrower under this Agreement or any order or judgment given or made in relation hereto has to be 94 103 converted from the currency (the "first currency") in which the same is payable hereunder or under such order or judgment into another currency (the "second currency") for the purpose of (i) making or filing a claim or proof against any Borrower with any Governmental Authority or in any court or tribunal, or (ii) enforcing any order or judgment given or made in relation hereto, Borrowers shall jointly and severally indemnify and hold harmless each of the Persons to whom such sum is due from and against any loss actually suffered as a result of any discrepancy between (a) the rate of exchange used to convert the amount in question from the first currency into the second currency, and (b) the rate or rates of exchange at which such Person, acting in good faith in a commercially reasonable manner, purchased the first currency with the second currency after receipt of a sum paid to it in the second currency in satisfaction, in whole or in part, of any such order, judgment, claim or proof. The foregoing indemnity shall constitute a separate obligation of Borrowers distinct from their other obligations hereunder and shall survive the giving or making of any judgment or order in relation to all or any of such other obligations. 12.5 Confirmations. Each Borrower and each holder of any portion of the Obligations agrees from time to time, upon written request received by it from the other, to confirm to the other in writing (with a copy of each such confirmation to Agent) the aggregate unpaid principal amount of the Loan or Loans then outstanding. 12.6 Adjustment; Setoff. (a) If any lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of the nature referred to in Section 10.1(e) or Section 10.1(f) hereof, or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender in respect of such other Lender's Loans or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loans, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each Lender; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Each Borrower agrees that each Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment (including, without limitation, rights of setoff) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to Borrowers, any such notice being expressly waived by Borrowers, upon the occurrence and during the continuance of an Event of Default, to set off and apply against any Obligations, whether matured or unmatured, of any Borrower to such Lender, any amount owing from such Lender to any Borrower, at or at any time after, the happening of any of the above-mentioned events, and the aforesaid right 95 104 of setoff may be exercised by such Lender against any Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor of such Borrower, or against anyone else claiming through or against, such Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor, notwithstanding the fact that such right of setoff shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. (c) Each Borrower expressly agrees that to the extent such Borrower makes a payment or payments and such payment or payments, or any part thereof, are subsequently invalidated, declared to be fraudulent or preferential, set aside or are required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the Indebtedness to the Lenders or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment or payments had not been made. 12.7 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. 12.8 Binding Effect; Assignment; Addition and Substitution of Lenders. (a) This Agreement shall be binding upon, and inure to the benefit of, Borrowers, Agent, the Lenders, all future holders of the Notes and their respective successors and assigns; provided, however, that no Borrower may assign its rights or obligations hereunder or in connection herewith or any interest herein (voluntarily, by operation of law or otherwise) without the prior written consent of Agent and all of the Lenders. (b) Each Lender may at any time sell to one or more banks or other entities ("Participants") participating interests in all or any portion of its Commitment and Loans or participation in Letters of Credit or any other interest of such Lender hereunder (in respect of any Lender, its "Credit Exposure"). In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Each Borrower agrees that if amounts outstanding under this Agreement or any of the Loan Documents are due or unpaid, or shall have been declared or shall have become due and payable upon the 96 105 occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any other Loan Document, provided, however, that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Section 12.6. Each Borrower also agrees that each Participant shall be entitled to the benefits of Section 3.6 and 4.6 with respect to its participation in the Loans outstanding from time to time, provided that such Participant's benefits under Section 3.6 and 4.6 shall be limited to the benefits that the primary Lender would be entitled to thereunder. Each Lender agrees that any agreement between such Lender and any such Participant in respect of such participating interest shall not restrict such Lender's right to approve or agree to any amendment, restatement, supplement or other modification to, waiver of, or consent under, this Agreement or any of the Loan Documents except to the extent that any of the forgoing would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating or extend the stated maturity of any Letter of Credit in which such participant is participating beyond the Termination Date, or reduce the rate or extend the time of payment of interest or fees on any such Loan, Note or Letter of Credit (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Events of Default or Unmatured Events of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any Participant if the Participant's participation is not increased as a result thereof), or (ii) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement. (c) Any Lender may at any time assign to one or more Eligible Assignees, including an Affiliate thereof (each an "Assignee"), all or any part of its Credit Exposure pursuant to an Assignment and Assumption Agreement, provided that (i) it assigns its Credit Exposure in an amount not less than $5,000,000 (or if less the entire amount of such Lender's Credit Exposure) and (ii) any assignment of all or any portion of any Lender's Credit Exposure to an Assignee other than another Lender shall require the prior written consent of Agent and, in the absence of an Event of Default, the Company (the consent of the Company not to be unreasonably withheld or delayed), and provided further, that notwithstanding the foregoing limitations, any Lender may at any time assign all or any part of its Credit Exposure to any Affiliate of such Lender or to any other Lender. Upon execution of an Assignment and Assumption Agreement and the payment of a nonrefundable assignment fee of $3,500 in immediately available funds to Agent at its Payment Office in connection with each such assignment, written notice thereof by such transferor Lender to Agent and the recording by Agent of such assignment and the resulting effect upon the Loans and Revolving Commitment of the assigning Lender and the Assignee, the Assignee shall have, to the extent of such assignment, the same rights and benefits as it would have if it were a Lender hereunder and the holder of the Obligations (provided that Borrowers and Agent shall be entitled to continue to deal solely and directly with the assignor Lender in 97 106 connection with the interests so assigned to the Assignee until written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and Agent by the assignor Lender and the Assignee) and, if the Assignee has expressly assumed, for the benefit of Borrowers, some or all of the transferor Lender's obligations hereunder, such transferor Lender shall be relieved of its obligations hereunder to the extent of such assignment and assumption, and except as described above, no further consent or action by the Company, the Lenders or Agent shall be required. At the time of each assignment pursuant to this Section 12.8(c) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States Federal income tax purposes, the respective Assignee shall provide to the Company and Agent the appropriate IRS Forms (and, if applicable a Section 4.6(d)(ii) Certificate) described in Section 4.6(d). Each Assignee shall take such Credit Exposure subject to the provisions of this Agreement and to any request made, waiver or consent given or other action taken hereunder, prior to the receipt by Agent and the Company of written notice of such transfer, by each previous holder of such Credit Exposure. Such Assignment and Assumption Agreement shall be deemed to amend this Agreement and Schedule 1.1(a) hereto, to the extent, and only to the extent, necessary to reflect the addition of such Assignee as a Lender and the resulting adjustment of all or a portion of the rights and obligations of such transferor Lender under this Agreement, the Commitment of such transferor Lender and such Assignee, the determination of its Pro Rata Share (rounded to twelve decimal places), the Loans, any outstanding Letters of Credit and any new Notes to be issued, at Borrowers' expense, to such Assignee, and no further consent or action by any Borrower or the Lenders shall be required to effect such amendments. (d) Each Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and any Subsidiary of the Company which has been delivered to such Lender by any Borrower pursuant to this Agreement or which has been delivered to such Lender by any Borrower in connection with such Lender's credit evaluation of a Borrower prior to entering into this Agreement; provided that such Transferee or prospective Transferee agrees to treat any such information which is not public as confidential. (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time pledge or assign all or any portion of its rights under this Agreement and the other Loan Documents (including, without limitation, the Notes held by it) to any Federal Reserve Bank in accordance with Regulation A of the Board without notice to, or the consent of, any Borrower. No such pledge or assignment shall release the transferor Lender from its obligations hereunder. 12.9 CONSENT TO JURISDICTION; MUTUAL WAIVER OR JURY TRIAL. 98 107 (A) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH CREDIT PARTY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO AGENT UNDER THIS AGREEMENT. EACH CREDIT PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY, AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF AGENT UNDER THIS AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH CREDIT PARTY IN ANY OTHER JURISDICTION. (B) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY COURT OR JURISDICTION, INCLUDING WITHOUT LIMITATION THOSE REFERRED TO IN CLAUSE (A) ABOVE, IN RESPECT TO ANY MATTER 99 108 ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 12.10 GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 12.11 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 12.12 Headings. The Table of Contents and Article and Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. 12.13 Termination of Agreement. This Agreement shall terminate when the Commitment of each Lender has terminated and all outstanding Obligations and Loans have been paid in full and all Letters of Credit have expired or been terminated; provided, however, that the rights and remedies of Agent and each Lender with respect to any representation and warranty made by Borrower pursuant to this Agreement or any other Loan Document, and the indemnification provisions contained in this Agreement and any other Loan Document, shall be continuing and shall survive any termination of this Agreement or any other Loan Document. 12.14 Confidentiality. Each of the Lenders severally agrees to keep confidential all non-public information pertaining to the Company and its Subsidiaries which is provided to it by any such parties in accordance with such Lender's customary procedures for handling confidential information of this nature and in a prudent fashion, and shall not disclose such information to any Person except (i) to the extent such information is public when received by such Lender or becomes public thereafter due to the act or omission of any party other than a Lender, (ii) to the extent such information is independently obtained from a source other than the Company or its Subsidiaries and such information from such source is not, to such Lender's knowledge, subject to an obligation of confidentiality or, if such information is subject to an obligation of confidentiality, that disclosure of such information is permitted, (iii) to an Affiliate of such Lender, counsel, auditors, examiners of any regulatory authority having jurisdiction over such Lender, accountants and other consultants retained by Agent or any Lender, (iv) in connection with any litigation or the enforcement of the rights of any Lender or Agent under this Agreement or any other Loan Document, (v) to the extent required by any applicable statute, rule or regulation or court order (including , without limitation, by way of subpoena) or pursuant to the request of any Governmental 100 109 Authority having jurisdiction over any Lender or Agent; provided, however, that in such event, if the Lender(s) are able to do so, the Lender shall provide the Company with prompt notice of such requested disclosure so that the Company may seek a protective order or other appropriate remedy, and, in any event, the Lenders will endeavor in good faith to provide only that portion of such information which, in the reasonable judgment of the Lender(s), is relevant and legally required to be provided, or (vi) to the extent disclosure to other entities is appropriate in connection with any proposed or actual assignment or grant of a participation by any of the Lenders of interests in this Agreement and/or any of the other Loan Documents to such other financial institutions (who will in turn be required to maintain confidentiality as if they were Lenders parties to this Agreement). In no event shall Agent or any Lender be obligated or required to return any such information or other materials furnished by any Borrower. 12.15 Effectiveness. This Agreement shall become effective on the date (the "Effective Date") on which each Borrower and each of the Lenders shall have signed a counterpart of this Agreement (whether the same or different counterparts) and shall have delivered the same to the Agent at the Notice Address (or to Agent's counsel as directed by such counsel) or, in the case of the Lenders, shall have given to Agent or telephonic (confirmed in writing), written, telex or facsimile notice (actually received) at such office or the office of Agent's counsel that the same has been signed and mailed to it. Agent will give the Company and each Lender prompt written notice of the occurrence of the Effective Date. 12.16 Euro Currency. If at any time that an Alternative Currency Loan is outstanding, the relevant Alternative Currency is replaced as the lawful currency of the country that issued such Alternative Currency (the "Issuing Country") by the Euro then such Alternative Currency Loan shall be automatically converted into a Loan denominated in Euros in a principal amount equal to the amount of Euros into which the principal amount of such Alternative Currency Loan would be converted pursuant to the laws of the Issuing Country and thereafter (i) no further Loans will be available in such Alternative Currency and (ii) all references in the Loan Documents to such Alternative Currency shall be deemed to be the Euro. ARTICLE XIII COMPANY GUARANTY 13.1 The Guaranty. In order to induce the Lenders to enter into this Agreement and to extend credit hereunder and in recognition of the direct benefits to be received by the Company from the proceeds of the Loans and the issuance of the Letters of Credit, the Company hereby agrees with the Lenders as follows: the Company hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, acceleration or otherwise, of any and all of the Guaranteed Obligations of the Subsidiary Borrowers to the Guaranteed 101 110 Creditors. If any or all of the Guaranteed Obligations of such Borrowers to the Guaranteed Creditors becomes due and payable hereunder, the Company unconditionally promises to pay such indebtedness to Agent and/or the Lenders, on demand, together with any and all expenses which may be incurred by the Agent or the Lenders in collecting any of the Guaranteed Obligations. If claim is ever made upon any Guaranteed Creditor for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations and any of the aforesaid payees repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (ii) any settlement or compromise of any such claim effected by such payee with any such claimant (including Borrowers), then and in such event the Company agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Company, notwithstanding any revocation of this Guaranty or other instrument evidencing any liability of any Borrower, and the Company shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. 13.2 Insolvency. Additionally, the Company unconditionally and irrevocably guarantees the payment of any and all of the Guaranteed Obligations of the Subsidiary Borrowers to the Guaranteed Creditors whether or not due or payable by any Borrower upon the occurrence of any of the events specified in Sections 10.1(e) or (f), and unconditionally promises to pay such Guaranteed Obligations to the Guaranteed Creditors, or order, on demand, in lawful money of the United States. 13.3 Nature of Liability. The liability of the Company hereunder is exclusive and independent of any security for or other guaranty of the Guaranteed Obligations of any Borrower whether executed by the Company, any other guarantor or by any other party, and the liability of the Company hereunder is not affected or impaired by (a) any direction as to application of payment by any Borrower or by any other party; or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Guaranteed Obligations of any Borrower; or (c) any payment on or in reduction of any such other guaranty or undertaking; or (d) any dissolution, termination or increase, decrease or change in personnel by any Borrower; or (e) any payment made to any Guaranteed Creditor on the Guaranteed Obligations which any such Guaranteed Creditor repays to any Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and the Company waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. 13.4 Independent Obligation. The obligations of the Company hereunder are independent of the obligations of any other guarantor, any other party or any Borrower, and a separate action or actions may be brought and prosecuted against the Company whether or not action is brought against any other guarantor, any other party or any Borrower and whether or not any other guarantor, any other party or any Borrower be joined in any such action or actions. The Company waives, to the full extent permitted by law, the benefit of 102 111 any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by a Borrower or other circumstance which operates to toll any statute of limitations as to such Borrower shall operate to toll the statute of limitations as to the Company's obligations under this Article XIII. 13.5 Authorization. The Company authorizes the Guaranteed Creditors without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to: (a) change the manner, place or terms of payment of, and/or change or extend the time of payment of, renew, increase, accelerate or alter, any of the Guaranteed Obligations (including any increase or decrease in the rate of interest thereon), any security therefor, or any liability incurred directly or indirectly in respect thereof, and the Guaranty herein made shall apply to the Guaranteed Obligations as so changed, extended, renewed or altered; (b) take and hold security for the payment of the Guaranteed Obligations and sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guaranteed Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or any offset thereagainst; (c) exercise or refrain from exercising any rights against any Borrower or others or otherwise act or refrain from acting; (d) release or substitute any one or more endorsers, guarantors, any Borrower or other obligors; (e) settle or compromise any of the Guaranteed Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of any Borrower to its creditors other than the Guaranteed Creditors; (f) apply any sums by whomsoever paid or howsoever realized to any liability or liabilities of any Borrower to the Guaranteed Creditors regardless of what liability or liabilities of the Company or any Borrower remain unpaid; (g) consent to or waive any breach of, or any act, omission or default under, this Agreement or any of the instruments or agreements referred to herein, or otherwise amend, modify or supplement this Agreement or any of such other instruments or agreements; and/or 103 112 (h) take any other action which would, under otherwise applicable principles of common law, give rise to a legal or equitable discharge of the Company from its liabilities under this Guaranty. 13.6 Reliance. It is not necessary for any Guaranteed Creditor to inquire into the capacity or powers of any Borrower or the officers, directors, partners or agents acting or purporting to act on their behalf, and any Guaranteed Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 13.7 Subordination. Any of the indebtedness of each Borrower relating to the Guaranteed Obligations now or hereafter owing to the Company is hereby subordinated to the Guaranteed Obligations of such Borrower owing to the Guaranteed Creditors; and if Agent so requests at a time when an Event of Default exists, all such indebtedness relating to the Guaranteed Obligations of such Borrower to the Company shall be collected, enforced and received by the Company for the benefit of the Guaranteed Creditors and be paid over to Agent on behalf of the Guaranteed Creditors on account of the Guaranteed Obligations of such Borrower to the Guaranteed Creditors, but without affecting or impairing in any manner the liability of the Company under the other provisions of this Guaranty. Prior to the transfer by the Company of any note or negotiable instrument evidencing any of the indebtedness relating to the Guaranteed Obligations of such Borrower to the Company, the Company shall mark such note or negotiable instrument with a legend that the same is subject to this subordination. Without limiting the generality of the foregoing, the Company hereby agrees with the Guaranteed Creditors that it will not exercise any right of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or otherwise) until all Guaranteed Obligations have been irrevocably paid in full in cash. 13.8 Waiver. (a) The Company waives any right (except as shall be required by applicable statute and cannot be waived) to require any Guaranteed Creditor to (i) proceed against any Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from any Borrower, any other guarantor or any other party or (iii) pursue any other remedy in any Guaranteed Creditor's power whatsoever. The Company waives any defense based on or arising out of any defense of any Borrower, any other guarantor or any other party, other than payment in full of the Guaranteed Obligations, based on or arising out of the disability of any Borrower, any other guarantor or any other party, or the validity, legality or unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any Borrower other than payment in full of the Guaranteed Obligations. The Guaranteed Creditors may, at their election, foreclose on any security held by Agent or any other Guaranteed Creditor by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Guaranteed Creditors may have against any Borrower or any other party, or any security, without affecting or impairing in any way the liability of the Company hereunder except to the extent the Guaranteed Obligations have been paid. The Company waives any defense arising out of any such election by the Guaranteed Creditors, 104 113 even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Company against any Borrower or any other party or any security. (b) The Company waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Guaranteed Obligations. The Company assumes all responsibility for being and keeping itself informed of each Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks which the Company assumes and incurs hereunder, and agrees that Agent and the Lenders shall have no duty to advise the Company of information known to them regarding such circumstances or risks. 13.9 Nature of Liability. It is the desire and intent of the Company and the Secured Creditors that this Guaranty shall be enforced against the Company to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If, however, and to the extent that, the obligations of the Company under this Guaranty shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers), then the amount of the Guaranteed Obligations shall be deemed to be reduced and the Company shall pay the maximum amount of the Guaranteed Obligations which would be permissible under applicable law. * * * * 105 114 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized, as of the date first above written. P.H. GLATFELTER COMPANY PHG TEA LEAVES, INC. By: /s/ Robert S. Wood By: /s/ Robert S. Wood --------------------- ------------------------------- Name: Robert S. Wood Name: Robert S. Wood --------------------- ------------------------------- Title:Secretary & Treasurer Title: Secretary & Assistant Secretary --------------------- ------------------------------- RABOISEN 209, VERMOGENSVER- RABOISEN 210, VERMOGENSVER- WALTUNGSGESELLSCHAFT mbH WALTUNGSGESELLSCHAFT mbH By: /s/ Robert S. Wood By: /s/ Robert S. Wood ------------------- -------------------- Name: Robert S. Wood Name: Robert S. Wood ------------------- -------------------- Title:Managing Director Title:Managing Director ------------------- -------------------- Address: P.H. Glatfelter Company 228 South Main Street Spring Grove, Pennsylvania 17362 Attention: Robert S. Wood Phone: (717) 225-4711 Fax: (717) 225-6834 S-1 Signature Page to P.H. Glatfelter Credit Agreement 115 BANKERS TRUST COMPANY, in its individual capacity and as Agent By: /s/ Robert R. Telesca ----------------------- Name: Robert R. Telesca ----------------------- Title: Assistant Vice President ----------------------- Address: Bankers Trust Company One Bankers Trust Plaza 130 Liberty Street 14th Floor New York, New York 10006 Attn: Douglas Dibella Tel. No.: (212) 250-3301 Telex No.: 62922 (Answerback: BTA9-UAW) Telecopier No.: (212) 250-7351 With copies to Bankers Trust Company 233 South Wacker Drive Suite 8400 Chicago, Illinois 60606 Attention: Loretta L. Summers Tel. No.: (312) 993-8000 Telex No.: 210106 (Answerback: BTCI-UR) Telecopier No.: (312) 993-8218 Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention: Brian S. Hart, Esq. Tel. No.: (312) 558-5600 Telecopier No.: (312) 558-5700 S-2 Signature Page to P.H. Glatfelter Credit Agreement 116 DEUTSCHE BANK AG By: /s/ Hans-Josef Thiele /s/ Susan L. Pearson -------------------------------------------------- Name: Hans-Josef Thiele Susan L. Pearson -------------------------------------------------- Title: Director Vice President -------------------------------------------------- Address: Deutsche Bank AG New York Branch 31 West 52nd Street New York, New York 10019 Attn: Hans-Josef Thiele Tel. No.: (212) 469-8649 Telecopier No.: (212) 469-8212 S-3 Signature Page to P.H. Glatfelter Credit Agreement 117 FIRST NATIONAL BANK OF MARYLAND By: /s/ Theodore K. Oswald --------------------------- Name: Theodore K. Oswald --------------------------- Title: Vice President --------------------------- Address: First National Bank of Maryland 96 South George Street York, Pennsylvania 17405 Attn: Theodore K. Oswald Tel. No.: (717) 771-4900 Telecopier No.: (717) 771-4914 S-4 Signature Page to P.H. Glatfelter Credit Agreement 118 FIRST UNION NATIONAL BANK By: /s/ Thomas M. Cambern --------------------------- Name: Thomas M. Cambern --------------------------- Title: Vice President --------------------------- Address: First Union National Bank One First Union Center Charlotte, North Carolina 28288-0745 Attn: Andrew Payne Tel. No.: (704) 383-1106 Telecopier No.: (704) 383-6670 S-5 Signature Page to P.H. Glatfelter Credit Agreement 119 MELLON BANK, N.A. By: /s/ Michael J. Gilliq --------------------------- Name: Michael J. Gilliq --------------------------- Title: Vice President Address: Mellon Bank, N.A. 10 South 2nd Street Harrisburg, Pennsylvania 17108 Attn: Michael J. Gilliq Tel. No.: (717) 845-1661 Telecopier No.: (717) 777-3363 S-6 Signature Page to P.H. Glatfelter Credit Agreement 120 PNC BANK, NATIONAL ASSOCIATION By: /s/ Robert J. Giannone --------------------------- Name: Robert J. Giannone --------------------------- Title: Assistant Vice President Address: PNC Bank, National Association 1600 Market Street Philadelphia, Pennsylvania 19103 Attn: Robert J. Giannone Tel. No.: (215) 585-7630 Telecopier No.: (215) 585-5972 S-7 Signature Page to P.H. Glatfelter Credit Agreement 121 WACHOVIA BANK, N.A. By: /s/ Henry H. Hagan --------------------------- Name: Henry H. Hagan --------------------------- Title: Senior Vice President --------------------------- Address: Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attn: Bradford L. Watkins Tel. No.: (404) 332-1093 Telecopier No.: (404) 332-68980 S-8 Signature Page to P.H. Glatfelter Credit Agreement EX-21 3 LIST OF SUBSIDIARIES 1 Exhibit 21 LIST OF SUBSIDIARIES State or Country Of Incorporation ---------------- Ecusta Australia Pty. Limited Australia Ecusta Fibres Ltd. Canada Ecusta Export Trading Corp. Barbados The Glatfelter Pulpwood Company Maryland Spring Grove Water Company Pennsylvania Glatfelter of Nevada Nevada GWS Valuch, Inc. Delaware Glenn-Wolfe, Inc. Delaware Mollanvick, Inc. Delaware PHG Tea Leaves, Inc. Delaware Raboisen Zweihundertneunte Germany Vermogensverwaltungsgesellschaft Raboisen Zweihundertzehnte Germany Vermogensverwaltungsgesellschaft S&H Papier-Holding GmbH Germany EX-23 4 INDEPENDENT AUDITORS' CONSENT 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT P. H. Glatfelter Company: We consent to the incorporation by reference in the Registration Statements of P. H. Glatfelter Company on Form S-8 (Registration Nos. 33-25884, 33-37198, 33-49660, 33-53338, 33-54409, 33-62331, 333-12089, 333-26587 and 333-34797) of our report dated February 6, 1998, appearing in this Annual Report on Form 10-K of P.H. Glatfelter Company for the year ended December 31, 1997. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania March 13, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 DEC-31-1997 66,919 155,174 52,160 1,973 101,232 376,479 1,092,765 617,576 937,583 288,885 150,000 0 0 544 339,872 937,583 567,072 587,212 458,126 458,126 0 (61) 18,700 73,577 28,293 45,284 0 0 0 45,284 1.07 1.07
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